UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-3752
THE MANAGERS FUNDS
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(Exact name of registrant as specified in charter)
40 Richards Avenue, Norwalk, Connecticut 06854
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(Address of principal executive offices) (Zip code)
The Managers Funds LLC
40 Richards Avenue, Norwalk, Connecticut 06854
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(Name and address of agent for service)
Registrant's telephone number, including area code: (203) 857-5321
Date of fiscal year end: DECEMBER 31
Date of reporting period: JANUARY 1, 2003 - DECEMBER 31, 2003
(Annual Shareholder Report)
Item 1. REPORT TO SHAREHOLDERS.
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MANAGERS
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ANNUAL REPORT
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[Managers Funds logo omitted]
The Managers Funds:
Value Fund, Capital Appreciation Fund, Small Company Fund,
Special Equity Fund, International Equity Fund, Emerging Markets
Equity Fund, Bond Fund, Global Bond Fund
Dated December 31, 2003
<Page>
Table of Contents
<Table>
Letter to Shareholders 1
The Managers Funds Performance 3
Complete performance table for all of
The Managers Funds and Managers AMG
Funds as of December 31, 2003
Investment Managers' Comments and Schedules
of Portfolio Investments Value Fund 5
Capital Appreciation Fund 10
Small Company Fund 16
Special Equity Fund 20
International Equity Fund 28
Emerging Markets Equity Fund 35
Bond Fund 40
Global Bond Fund 47
Notes to Schedules of Portfolio
Investments 52
Financial Statements
Statements of Assets and Liabilities 53
Funds' balance sheet, net asset value
(NAV)per share computation and
cumulative undistributed amount
Statements of Operations 55
Detail of sources of income, Fund
expenses, and realized and unrealized
gains (losses)during the period
Statements of Changes in Net Assets 57
Detail of changes in Fund assets for
the past two periods
Financial Highlights 61
Historical net asset values per share,
distributions, total returns, expense
ratios, turnover ratios and net assets
for each Fund
Notes to Financial Statements 66
Accounting and distribution policies,
details of agreements and transactions
with Fund management and description of
certain investment risks
Report of Independent Auditors 72
Trustees and Officers 73
</Table>
Founded in 1983, The Managers Funds offers individual and
institutional investors access to the experience and discipline
of some of the world's most highly regarded investment
professionals.
<Page>
Letter to Shareholders
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Dear Fellow Shareholder:
It has been a tumultuous year by any standard, and from most
perspectives, not one that we should want to repeat. However,
happily it has been a profitable year for most investors as stock
markets around the world rebounded from a three year slump, the
economies of many countries displayed solid evidence that they
are expanding, and because inflation seemed to remain tame, bond
markets provided acceptable returns, particularly in the credit
sectors. One reason for this fortunate trend is that investors,
business managers and consumers have become less risk averse, and
this is most likely because their perceived risks have been
significantly reduced. Although the war in Iraq lingers on, the
swift initial success of the invasion without the release of
chemical weapons, the loss of thousands of lives, the destruction
of major oil fields or any major terrorist retaliation, was a
considerable relief. These were serious risks that weighed on the
economy and the financial markets before the war that, while
certainly not eliminated, were significantly reduced by mid-year.
This trend had important ramifications for the shape and breadth
of the market rally. Across both equity and bond markets, the
most speculative, riskiest issues tended to perform best.
We are pleased to report that all of the Managers Funds
participated in this rally. All of the equity Funds included
within this report returned more than 25% for the year. This
performance was led by Managers Emerging Markets Fund, which
returned 51.20% and the two small capitalization stock Funds
which each rose more than 40% for the year. Although bond yields
began the year relatively low, and remained low, the two bond
Funds included in this report provided double-digit returns for
the year. Managers Bond Fund returned 10.77% due in large part to
appreciation of its corporate bonds holdings, which responded
very well to the improving economy. Managers Global Bond Fund
returned 20.69% as it also rode the rally in corporate credits
but also benefited from the appreciation of most foreign
currencies against the U.S. Dollar.
Consistent with our policy of constantly monitoring and
evaluating our subadvisors, we found it necessary to make a few
subadvisor changes during the year. In June, we made a
replacement within Managers Capital Appreciation Fund, tapping
Bramwell Capital Management, headed by its founder Elizabeth
Bramwell. In late August, Willy Holzer, who had been managing a
portion of Managers International Equity Fund for more than
twelve years resigned from Deutsche Asset Management and, along
with the core of his investment team, joined Lazard Asset
Management. After a thorough review of many possible courses of
action, the Fund's Trustees approved our recommendation to re-
hire Mr. Holzer and his investment team at Lazard. We believe
that this is a particularly good example of the benefits and
flexibility of utilizing subadvisors to manage our Funds. Not
only were we able to retain the services of an exceptional and
experienced investment manager, but we were able to do so with
minimal disruption to the portfolio. This structure served well
again later in the year when Gary Pilgrim, the lead portfolio
manager at Pilgrim Baxter & Associates, one of the subadvisors of
Managers Special Equity Fund, abruptly retired from his firm. We
completed a swift yet comprehensive investment manager search and
recommended Craig Lewis of Essex Investment Management. The
Trustees appointed Essex in mid-December and the shareholders now
have an opportunity to approve this replacement in an ongoing
proxy vote. Detailed descriptions of the investment philosophies
and processes of these new subadvisors are included within this
report.
During 2003, before news of any mutual fund scandals were
reported, we also initiated policy changes within a few of our
Funds in order to further discourage rapid cycling of those
Funds' shares. The subject of mutual fund timing became highly
publicized in the last four months of 2003 and certain firms in
the mutual fund industry have faced serious charges with respect
to whether they and their principals fulfilled their fiduciary
duty to their clients. We have long had a number of processes and
procedures in place that are designed to deter and prohibit
potentially excessive trading activity in our Funds and we
constantly evaluate and update these procedures. In February of
2003 we instituted a more rigorous policy of fair value pricing
for Managers International Equity Fund and Managers Emerging
Markets Equity Fund in order to reduce the opportunity to
arbitrage foreign securities and shares of our Funds. In August
we recommended to the Trustees a policy for both of these Funds
along with Managers Global Bond Fund to charge a redemption fee
on any Fund Shares redeemed within 60 days of their purchase. The
proceeds of these fees are reimbursed to the respective Fund 's
net assets. These policies along with the long-standing policies
that we have in place for all of our Funds are outlined in our
Funds' prospectus. Please be assured that we at Managers put our
clients ' interests first and foremost, and we will do everything
within our power to continue to fulfill the trust that you have
placed in us. We will continue to review and, if necessary,
modify our policies, procedures and practices in an effort to
ensure that we are fulfilling our commitment to our clients and
operating in compliance with all applicable laws, rules and
regulations.
Included in this report are brief reviews of each subadvisor's
investment philosophy and process along with discussions of the
investment results of each Fund for the year and some comments
regarding how each portfolio is positioned for the coming year.
To make a broad categorization, most of our portfolio managers
are cautiously optimistic about their portfolios' prospects for
2004. They are generally optimistic that the current trends in
economic growth and corporate profits
1
<Page>
Letter to Shareholders (continued)
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will continue even while they are quite cautious about the
unpredictable risks that remain, such as terrorist activities.
While presidential election years have tended to be positive for
the market, they have also tended to be more volatile. Volatility
creates opportunity.
In addition to the written reviews, this report contains detailed
financial statements for each Fund and a listing of each
portfolio as of December 31'st, 2003. In addition, page 3 of this
report contains a table with the performance of all of the Funds
within The Managers Funds family over various trailing time
periods. As always, we post any news or other pertinent
information about the Funds as soon as applicable on our website
at www.managersfunds.com. Should you have any questions about
this report, please feel free to contact us at 1-800-835-3879, or
visit the website. We thank you for your investment in The
Managers Funds.
Sincerely,
/s/ Peter M. Lebovitz
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Peter M. Lebovitz
President & CEO
The Managers Funds LLC
/s/ Thomas G. Hoffman
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Thomas G. Hoffman, CFA
Director of Research
The Managers Funds LLC
2
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The Managers Funds and
Managers AMG Funds Performance (unaudited)
All periods ended December 31, 2003
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<Table>
The Managers Funds: 1 3 5 10 Since Inception
Equity Funds: Year Years Years Years Inception Date
---- ----- ----- ----- --------- ---------
Average Annual Total Returns (1)
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Value 27.39% (0.03)% 2.70% 9.94% 11.81% Oct. '84
Capital Appreciation 25.05% (15.89)% (1.24)% 9.55% 12.52% Jun. '84
Small Company (2) 43.59% (0.36)% - - (2.36)% Jun. '00
Special Equity 42.50% 0.73% 8.94% 12.10% 13.99% Jun. '84
International Equity 33.21% (5.26)% (0.50)% 5.17% 9.80% Dec. '85
Emerging Markets
Equity(2) 51.20% 11.44% 14.03% - 7.03% Feb. '98
Income Funds:
Money Market (2) 0.64% 1.94% 3.35% 4.14% 5.23% Jun. '84
Short Duration
Government (2) 2.47% 4.70% 4.63% 5.07% 5.11% Mar. '92
Intermediate Duration
Government (2) 3.40% 6.71% 6.14% 6.53% 7.38% Mar. '92
Total Return Bond (2) 3.37% - - - 3.37% Dec. '02
Bond (2) 10.77% 10.46% 8.86% 8.31% 10.22% Jun. '84
Global Bond 20.69% 11.22% 4.03% - 6.09% Mar. '94
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Managers AMG Funds:
Essex Aggressive Growth
Institutional Class 34.15% - - - (6.39)% Mar. '02
Essex Aggressive Growth
Investor Class (2) 33.72% (13.06)% - - (1.88)% Nov. '99
Essex Large Cap
Growth (2,5) - - - - 12.30% Jun. '03
Rorer Large-Cap (2) 22.08% - - - (1.52)% Dec. '01
Rorer Mid-Cap (2) 31.37% - - - 7.57% Dec. '01
Systematic Value (2) 33.79% - - - 6.75% Apr. '02
Burridge Small
Cap Growth (2,3) 66.41% 19.68% - - 16.47% Sep. '00
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First Quadrant
Tax-Managed Equity (2,4)
Before Taxes 29.29% (1.22)% - - (0.17)% Dec. '00
After Taxes on
Distributions 29.08% (1.38)% - - (0.33)%
After Taxes on
Distributions and
Sale of Fund Shares 19.02% (1.13)% - - (0.25)%
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</Table>
See the Notes to the Performance Table on the following page.
3
<Page>
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The Managers Funds and
Managers AMG Funds Performance (unaudited)
Notes to the Performance Table
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Past performance is not a guarantee of future results. The
investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the original cost. An investment in
Managers Money Market Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency. Although the Money Market Fund seeks to preserve the
value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund. Additional risks are
associated with investing in international and emerging markets,
and such securities may be considered speculative. There are also
risks associated with investing in small-cap companies, such as
increased volatility. For more information regarding The Managers
Funds and Managers AMG Funds, including fees, expenses and risks,
please call (800)835-3879 or visit our website at
www.managersfunds.com for a Prospectus. Please read the
Prospectus carefully before you invest or send money. The
Prospectus is not an offer to sell shares in the Funds.
Distributed by Managers Distributors, Inc., member NASD.
(1) Total return equals income yield plus share price change and
assumes reinvestment of all dividends and capital gain
distributions. Returns are net of fees and may reflect offsets of
Fund expenses as described in the Prospectus. No adjustment has
been made for taxes payable by shareholders on their reinvested
dividends and capital gain distributions. Returns for periods
greater than one year are annualized.
(2) From time to time, the Fund's advisor has waived its fees
and/or absorbed Fund expenses, which has resulted in higher
returns.
(3) The "Since Inception" return, and returns for all periods
beginning prior to 6/25/02, for the Burridge Small Cap Growth
Fund reflect performance linked with a "Predecessor Account"
which began operations on September 28, 2000. The Predecessor
Account's objectives, policies, guidelines and restrictions were,
in all material respects, the same as the Fund's. The Predecessor
Account was not registered as a mutual fund and therefore was not
subject to certain investment restrictions that are
imposed upon mutual funds. If the Predecessor Account had been
registered as a mutual fund, the Account's performance may have
been adversely affected. The performance of the Predecessor
Account was calculated according to the standardized SEC method.
(4) After-tax returns are calculated by Lipper using the
historical highest individual federal marginal income tax rates
and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor 's tax situation and may
differ from those shown, and after-tax returns are not relevant
to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k)plans or individual retirement
accounts.
(5) Not Annualized
4
<Page>
Managers Value Fund Value Value
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Managers Value Fund ("Value") is a value oriented stock fund
seeking long-term capital appreciation through a diversified
portfolio of medium and large capitalization companies. Managers
currently utilizes two independent subadvisors who each manage
approximately half of the total portfolio: a team led by Jeffrey
Shaw of Armstrong Shaw Associates Inc. ("Armstrong Shaw"), hired
in March 2000,and a team led by John Liang of Osprey Partners
Investment Management ("Osprey"), hired in September 2001.
The Portfolio Managers
Armstrong Shaw Associates Inc.
- ------------------------------
Jeff Shaw and the investment management team at Armstrong Shaw
take a disciplined absolute value approach to investing in the
equity market. Their goal is to purchase companies that are
selling at a substantial discount to intrinsic value. Shaw
defines intrinsic value as an estimate of what a company would be
worth if it were sold as a continuing operation to a
knowledgeable buyer. This approach permits price appreciation, if
the stock grows into its intrinsic value, while limiting the risk
of significant price depreciation.
Shaw begins by screening the universe of domestic stocks for
those with market caps more than $2.5 billion, P/E ratios below
the market average, EPS growth better than 10% and return on
equity better than 15%. Shaw might also search for certain events
or special situations such as restructurings, industry events, or
legislative changes. After narrowing the universe to about 200
mid-and large-cap names, the investment team analyzes the
companies by speaking with management, suppliers and customers
and examining financial statements. Qualitatively, Shaw prefers
companies with discernable business franchises and a management
team with a successful track record. The importance of a strong
business model and management team in Shaw's approach cannot be
overemphasized. Unlike a deep value manager where price is the
main concern, Shaw is willing to pay a bit more for a company
with a strong business plan as long as the price is still below
what he estimates as the intrinsic value. Quantitatively, the
team compares the stock prices to cash flows, EPS, sales, etc.
Shaw will estimate the stock's intrinsic value and purchase
stocks only when they are selling for less than 70% of the
estimated intrinsic value.
This results in a portfolio of 30-40 of the team's best ideas.
Another 100 or so remain on a watch list for future
consideration. Shaw sets target prices on these stocks that
reflect his expectation of 30-50% price appreciation over the
next 2-3 years. Thus, turnover tends to be low. The portfolio's
performance is driven by each stock's appreciation toward its
intrinsic value along with rising intrinsic value in response to
improved business or industry outlooks. Armstrong Shaw will sell
a position when a price target is reached, the company's
fundamentals deteriorate, or if it reports below-expectation
financial results. Additionally, a drop in price of 25% from
average cost triggers an automatic review process for potential
sale.
Osprey Partners Investment Management, LLC
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As traditional value investors, John Liang and the investment
team at Osprey Partners Investment Management seek to identify
undervalued stocks with low price to earnings (P/E) and price to
cash flow (P/CF) ratios. At the same time, Osprey's investment
team focuses its in-depth bottom-up analysis to identify
fundamentally strong, well-managed companies.
The initial step is to screen the investment universe for
companies with a market cap above $1.5 billion and a P/E ratio at
least 20% less than the P/E ratio of the S&P 500. The analysts
will also review other metrics to determine which companies
warrant further investigation, favoring companies with low debt
to capital, low price to cash flow, and low price to book ratios.
The next step of the process is to determine the strength and
risks of each company's business. Each idea is presented to the
Research Committee, which determines which securities warrant
further analysis and which should be considered for inclusion in
the portfolio. The analysts focus on each company's balance sheet
and income statement, earnings quality and sustainability, and
profit margin trends. An in-depth assessment of management's
capability and reputation is crucial because many of the
companies that Osprey considers have either fallen in price or
have not risen as much as some of their peers. Thus, Osprey
analysts meet management to review the company's business models,
use of cash, competitiveness, and any acquisition strategies.
John and the analysts also monitor the macroeconomic backdrop to
determine how industry-level factors could affect a company's
competitiveness or business plan. All of this is intended to
identify well-managed companies that are strong competitors.
After all research is completed, purchase ideas are considered by
the firm's Investment Committee. This group is responsible for
all portfolio management decisions, most
5
<Page>
Value
- -----------------------------------------------------------------
importantly what stocks to buy or sell and when to add to or trim
a position. In order to purchase a stock, the group must reach a
consensus, and an initial position is typically 2%. Industry
exposure is monitored to ensure diversification; no industry can
comprise more than 15% of the portfolio.
The portfolio will typically consist of 35-45 stocks spread among
15-20 industry groups. A position is sold when the P/E ratio
exceeds the P/E ratio of the market, when it appreciates to a
predetermined price target, if fundamentals change, or if a
better idea should present itself. Additionally, a 20% drop
relative to the market prompts a review and positions exceeding
6% of the portfolio are scaled back. The investment team tends to
have an investment time horizon of 2 years or more; and the
portfolio turnover has been 25% to 40% annually.
The Year in Review
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For the year 2003, the Managers Value Fund gained 27.39% compared
with a gain of 28.68% for the S&P 500. It was the Fund's best
annual return since 1995 and its fourth best annual return since
inception. In the U.S., the broad market (using, for example, the
Russell 3000, Wilshire 5000, and S&P 500 indices) rose about 30%
for the year and, by most measures, it was the first calendar
year rise for the U.S. equity market since 1999, and its best
year since 1997.
Equity markets started the year on a downward note as investors
faced worries of a weak economy, accounting scandals, threats of
terrorism, and uncertainty and fear about the duration and
outcome of a war in Iraq. Investors discounted business and
economic fundamentals and focused on the war, which was the main
market driver. This downward trend changed in late March as
investors were able to overlook a war, a plummeting dollar,
higher oil prices and instead focused on low inflation, strong
economic growth, an improving labor market, increases in capital
spending and better corporate profits. In addition, the Fed
continued to stimulate growth by reducing the short-term rates to
1% in June, a rate not seen since 1958.On the economic front,
various reports set new records not seen in two decades. Third
quarter 2003 real GDP rose at the fastest annualized pace (+8.2%)
in 20 years, third quarter non-farm productivity had its largest
quarterly increase (+9.4%) in 20 years, the ISM (formerly NAPM)
survey of manufacturing activity also reached a 20-year high,
housing starts reached a 17-year high in November and the
inventory-sales ratio fell to its lowest reading on record.
All of the above mentioned factors prompted investors to focus on
risky and economically sensitive stocks, particularly technology,
cyclical, and small capitalization issues. Information technology
(+47%) led the 2003 market recovery with materials (+38%),
consumer discretionary (+37%), industrials (+32%) and financials
(+31%) all beating the S&P 500 market return as investors focused
on cyclical stocks in the face of an improving market recovery.
Strong performance from the IT sector was driven by solid returns
from internet software, semiconductor and communications
equipment manufacturing companies. The materials sector got a
boost in the fourth quarter as commodity manufacturers benefited
from decreased competition from foreign products amid a declining
dollar, strong demand from consumer oriented markets in the U.S.
and rising demand from China, which lifted commodity prices.
Especially strong within this sector were gold mining stocks
strengthened by surging gold prices. Telecommunications and
healthcare sectors lagged the market rally. Telecom companies
continued to be hurt by poor earnings and healthcare companies
lagged due to worries over drug pricing legislation and product
pipeline issues.
From a style standpoint, the S&P Barra/Value index outperformed
its growth counterpart by over 600 basis points (bps)in a period
when growth sectors like IT and consumer discretionary led the
market rally. Most of the outperformance came during the second
and the fourth quarters. In the second quarter stocks in the
lowest quintiles of price-to-book, price-to-sales, and price-to-
earnings were the best performers. In the fourth quarter, value
sectors like materials and energy drove the market rally causing
the divergence in performance between the two styles.
The Fund started the year with a larger than usual 29% allocation
to the financials sector as both managers believed that many
securities in the sector were underpriced. This benefited the
Fund as the financials sector provided its best annual gain since
1997. Further, several of the Fund's financial holdings like
Merrill Lynch (+156%), Citigroup (+94%) and FleetBoston Financial
(+88%) gained significantly as the economy improved. Citigroup
and FleetBoston were two of the top ten holdings for the Fund at
the beginning of the year and together contributed 240 bps toward
the Fund's return. The Fund also benefited from several of its
consumer holdings like CVS (+100%), SuperValu (+78%), McDonald's
(+55%) and RadioShack (+52%).CVS was held by both managers and
was one of the top 10 holdings at the start of the year,
contributing 130 bps to the Fund's return
6
<Page>
Value
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for the year. The Managers liquidated McDonald's and RadioShack
toward the end of the year to take profits. Further, several of
the Fund's holdings from other sectors gained significantly on
positive company specific news and contributed to the Fund's
return. Examples include ChevronTexaco (+76%), ConocoPhillips
(+40%), Beckman Coulter (+51%) and General Dynamics (+54%).
On the downside, the Fund's long time holding, Merck, declined
27% amid industry wide pricing concerns and issues with its
blockbuster drug Vioxx. U.S. grocer Safeway (-40%), was the worst
performing holding in the Fund and was liquidated in November.
Further, the Fund held small positions in Verizon Communications,
ALLTEL and SBC Communications which declined 5% on average amid a
weak sector outlook. While Osprey liquidated its position in SBC
Communications in June, it continues to hold the other two
securities as it finds the companies' valuations attractive.
Looking Forward
- ---------------
Looking forward, the portfolio managers continue to find value in
financials, healthcare and consumer sectors. The portfolio
continues to be very heavily invested in the financials sector
with a major focus on the insurance industry, as the subadvisors
believe these companies will benefit from more conservative
underwriting and increased premiums.
The Fund's subadvisors had the following comments as we progress
into 2004:
Jeff Shaw - While it is too much to ask for a repeat of 2003, we
think that the bull market for equities will continue in 2004.
There are just too many positive factors still driving share
prices in 2004 namely: double digit earnings growth, low
inflation, an accommodative Federal Reserve, a very stimulative
fiscal policy ($40 billion in new tax relief is coming in the
first half of 2004), the positive effects of the Presidential
election cycle and, finally, negative sentiment regarding the
bond market.
Stocks typically perform best ahead of an economic recovery, and
we expect that equity returns will moderate as the economy gains
momentum. Our emphasis in terms of stock selection at Armstrong
Shaw will continue to focus on attractively valued companies with
strong cash flow. Even after last year's strong performance, our
portfolio at year end 2003 was valued at a very reasonable 14x
2004 earnings. This valuation compares very favorably to the
Russell 1000 Value Index multiple of 16x and the S&P Barra Value
multiple of 16x.We are optimistic that the inexpensive valuation
levels of our portfolio will produce attractive returns going
forward.
John Liang -As 2004 begins, we feel that given powerful internal
dynamics (breadth, volume, etc.) coupled with strong current
fundamentals, explicit low interest rate guarantees by the Fed
and election year influence, the stock market can continue to
move higher on sheer momentum alone. However, from a longer-term
perspective all the warning signs are flashing that caution is
warranted. There is essentially no allowance for unforeseen risk
being priced in the market, be it geopolitical (e.g., terrorism),
economic (e.g., inflation),or financial (e.g., derivative blow-
up, Chinese currency crisis). In the near term, we look for the
rally to continue but a correction should be forthcoming that
would be both normal and welcome in order to curb speculation and
allow the market to move higher on a firmer foundation. Investors
in the Managers Value Fund should take comfort in the fact that
in our large-cap equity strategy, the valuation of our portfolio
is significantly lower than the market. We are pleased with the
current composition of our portfolio and its potential. Due to
the relative attractiveness of individual companies in certain
industries, we have sizable overweights in late cycle, defensive,
or less interest rate sensitive areas such as healthcare,
insurance, energy and consumer staples.
7
<Page>
Value
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Cumulative Total Return Performance
- -----------------------------------
Value Fund's cumulative total return is based on the daily
change in net asset value (NAV), and assumes that all dividends
and distributions were reinvested. The S&P 500 Index is an
unmanaged capitalization weighted index of 500 commonly traded
stocks designed to measure performance of the broad domestic
economy though changes in the aggregate market value of those
stocks. The Index assumes reinvestment of dividends. This chart
compares a hypothetical $10,000 investment made in Value Fund on
December 31, 1993, to a $10,000 investment made in the S&P 500
for the same time period. The graph and table do not reflect the
deduction of taxes that a shareholder would pay on a Fund
distribution or redemption of shares. Past performance is not
indicative of future results.
The tables following the performance chart display a full
breakdown of the sector allocation of the Fund as well as the top
ten positions as of December 31, 2003.
<Table>
Average Annualized Total Returns
- --------------------------------
One Five Ten
Year Years Years
Value 27.39% 2.70% 9.94%
S&P 500 Index 28.68% -0.57% 11.07%
</Table>
<Table>
Year Ended Value Fund S&P 500
- ---------- ---------- -------
31-Dec-93 $10,000 $10,000
31-Dec-94 $10,095 $10,132
31-Dec-95 $13,564 $13,939
31-Dec-96 $15,880 $17,140
31-Dec-97 $20,198 $22,858
31-Dec-98 $22,567 $29,391
31-Dec-99 $23,504 $35,575
31-Dec-00 $25,809 $32,336
31-Dec-01 $26,563 $28,493
31-Dec-02 $20,243 $22,196
31-Dec-03 $25,787 $28,563
</Table>
<Table>
Managers Value Fund
Top Ten Holdings (out of 78 securities) % Fund Industry Weightings
- ------------------------------------------------ -------------------------------
ChevronTexaco Corp.* 2.2% Financials 31.2%
Merck & Co., Inc.* 2.1 Health Care 16.5
Citigroup, Inc.* 2.0 Consumer Discretionary 14.0
ConocoPhillips Co. 1.9 Energy 9.9
WellPoint Health Networks, Inc. 1.8 Industrials 8.2
Cendant Corp.* 1.8 Consumer Staples 7.0
FleetBoston Financial Corp. 1.8 Information Technology 2.9
Hartford Financial Services Group, Inc. 1.8 Utilities 2.6
HCA, Inc. 1.7 Telecommunication
Kimberly-Clark Corp. 1.6 Services 2.4
----- Materials 1.9
Top Ten as a Group 18.7% Other 3.4
</Table>
*Top Ten Holding at June 30, 2003
8
<Page>
Managers Value Fund
December 31, 2003
Schedule of Portfolio Investments Value
- -----------------------------------------------------------------
<Table>
Security Description Shares Value
- -------------------- ------ -----
Common Stocks - 96.6%
Consumer Discretionary - 14.0%
Brinker International, Inc.* 31,400 $1,041,224
Clear Channel Communications, Inc.* 24,100 (2) 1,128,603
Comcast Corp., Special Class A* 42,200 1,320,016
Darden Restaurants, Inc. 56,300 1,184,552
Gannett Co., Inc. 13,550 1,208,118
Jones Apparel Group, Inc.* 28,000 986,440
Liberty Media Corp.* 110,100 1,309,089
Office Depot, Inc.* 92,800 1,550,688
Pier 1 Imports, Inc. 25,200 550,872
Time Warner Co., Inc.* 85,400 1,536,346
Whirlpool Corp. 12,000 871,800
Yum! Brands, Inc.* 42,000 1,444,800
----------
Total Consumer Discretionary 14,132,548
----------
Consumer Staples - 7.0%
CVS Corp. 60,300 2,178,036
Kimberly-Clark Corp. 27,555 1,628,225
Pepsi Bottling Group, Inc. 57,200 1,383,096
Supervalu, Inc. 19,100 546,069
Unilever NV 20,400 (2) 1,323,960
----------
Total Consumer Staples 7,059,386
----------
Energy - 9.9%
BP, PLC. Sponsored ADR 27,400 (2) 1,352,190
ChevronTexaco Corp. 36,800 3,179,152
ConocoPhillips Co. 29,374 1,926,053
Devon Energy Corp. 20,000 1,145,200
Kerr-McGee Corp. 21,400 994,886
Transocean, Inc. 55,300 1,327,753
----------
Total Energy 9,925,234
----------
Financials - 31.2%
ACE, Ltd. 33,300 1,379,286
Allstate Corp., The 57,600 2,477,952
American Express Co. 30,700 (2) 1,480,661
American International Group, Inc. 18,600 1,232,808
Chubb Corp. 20,900 1,423,290
Citigroup, Inc. 75,668 3,672,925
Fannie Mae Co. 40,600 3,047,436
FleetBoston Financial Corp. 40,977 1,788,646
Goldman Sachs Group, Inc. 10,900 1,076,157
Hartford Financial Services
Group, Inc. 29,800 1,759,094
MBIA, Inc. 23,500 1,391,905
MBNA Corp. 44,107 1,096,059
Merrill Lynch & Co., Inc. 39,300 2,304,945
MGIC Investment Corp. 26,200 1,491,828
Regions Financial Corp. 41,300 1,536,360
Travelers Property Casualty Corp.,
Class A 72,094 (2) 1,209,737
Travelers Property Casualty Corp.,
Class B* 2,044 34,687
Washington Mutual, Inc. 24,400 978,928
Wells Fargo & Co. 26,449 1,557,582
XL Capital, Ltd. 6,700 519,585
----------
Total Financials 31,459,871
----------
Health Care - 16.5%
Abbott Laboratories Co. 31,300 1,458,580
AmerisourceBergen Corp. 16,300 915,245
Anthem, Inc.* 12,500 (2) 937,500
HCA, Inc. 38,900 1,671,144
Laboratory Corp. of America
Holdings* 23,200 857,240
McKesson Corp. 49,000 1,575,840
Merck & Co., Inc. 69,600 3,215,520
Oxford Health Plans, Inc.* 33,500 1,457,250
Pfizer, Inc. 44,900 1,586,317
Quest Diagnostics, Inc.* 15,300 (2) 1,118,583
WellPoint Health Networks, Inc.* 18,900 1,833,111
----------
Total Health Care 16,626,330
----------
Industrials - 8.2%
Cendant Corp.* 82,100 1,828,367
Emerson Electric Co. 22,300 1,443,925
General Dynamics Corp. 11,200 1,012,368
General Electric Co. 47,700 1,477,746
Honeywell International, Inc. 30,900 1,032,987
Pitney Bowes, Inc. 37,200 1,511,064
----------
Total Industrials 8,306,457
----------
Information Technology - 2.9%
Hewlett-Packard Co. 64,526 1,482,162
Nokia Corp., Sponsored ADR 56,100 (2) 953,700
Xerox Corp.* 37,000 510,600
----------
Total Information Technology 2,946,462
----------
Materials - 1.9%
Dow Chemical Co. 12,200 (2) 507,154
E.I.du Pont de Nemours & Co., Inc. 30,350 1,392,762
----------
Total Materials 1,899,916
----------
Telecommunication Services - 2.4%
Alltel Corp. 23,200 1,080,656
Verizon Communications, Inc. 37,685 1,321,990
----------
Total Telecommunication Services 2,402,646
----------
Utilities - 2.6%
Exelon Corp. 21,100 1,400,196
FirstEnergy Corp. 33,600 1,182,720
----------
Total Utilities 2,582,916
----------
Total Common Stocks
(cost $81,066,476) 97,341,765
----------
Other Investment Companies - 10.5%
Bank of New York Institutional
Cash Reserves Fund, 1.14% (3) 6,121,191 6,121,191
JPMorgan Prime Money Market
Fund, Institutional Class
Shares, 0.95% 4,415,030 4,415,030
Total Other Investment Companies
(cost $10,536,221) 10,536,221
----------
Total Investments - 107.1%
(cost $91,602,697) 107,877,986
-----------
Other Assets, less Liabilities - (7.1)% (7,158,014)
-------------
Net Assets - 100.0% $ 100,719,972
=============
</Table>
The accompanying notes are an integral part of these financial
statements.
9
<Page>
Managers Capital Appreciation Fund Capital Appreciation
- -----------------------------------------------------------------------
Managers Capital Appreciation Fund is a growth oriented stock
fund seeking long-term capital appreciation through a diversified
portfolio of equity securities. Managers currently utilizes two
independent subadvisors who each manage approximately half of the
total portfolio: Elizabeth Bramwell at Bramwell Capital
Management, Inc. ("BramCap"), hired in June 2003 and Steve Cutler
and Malcolm MacColl at Essex Investment Management Company, LLC
("Essex "), hired in March 1997.
The Portfolio Managers
- ----------------------
Bramwell Capital Management, Inc.
Bramwell Capital Management, Inc., led by Chief Investment
Officer Elizabeth R. Bramwell, CFA, seeks long-term capital
growth through investment in companies that are positioned to
realize above-average long-term unit and earnings growth.
Bramwell's focus is on companies that have new products and
services and that are positioned to benefit from the long-term
payoff on research as well as plant and market development and
expansion.
Bramwell is an active equity manager who builds portfolios stock
by stock. She makes investment decisions based on fundamental
research, bottom-up earnings forecasts within a macroeconomic and
political framework, and company valuations relative to their
respective industries, projected future growth rates and the
overall equity market.
Among the variables considered are the leadership position of the
company, new products and markets, sensitivity to macroeconomic
factors, e.g., inflation, interest rates, currency and tax rates,
potential for accelerating earnings growth and improving returns
on sales and equity. Within this context, BramCap looks for
companies where valuations are attractive relative to projected
future growth rates, multiples paid for the S&P 500 and other
companies in the industry, and historical valuations.
Stock selection is based on internal research. BramCap employs
three securities analysts dedicated to the research process and
who, under the direction of Ms.Bramwell, monitor current
portfolio positions as well as identify and evaluate potential
additions or deletions to the portfolio.
Investment ideas are generated from awareness and synthesis of
varying news events and trends, historical experience, industry
conferences, company meetings and conference calls, primary
materials such as annual and quarterly reports, and the brokerage
community. The portfolio typically holds 30-60 securities.
BramCap sell stocks when company fundamentals deteriorate, for
example, when profitability declines or sales and earnings growth
decelerates. Changes in the macroeconomic outlook, such as
changes in interest and inflation rates, may also result in
reducing or eliminating positions. Additionally, positions may be
sold when market valuations are believed to be excessive relative
to projected future growth or to make room for better
opportunities. Finally, BramCap will typically trim positions
that grow to more than 5% of the portfolio. Portfolio turnover is
expected to be in the 50-75% range.
Essex Investment Management Company, LLC.
- -----------------------------------------
The investment team at Essex, led by Steve Cutler, focuses on the
principle that a company's earnings growth and profitability will
drive its future price performance. Essex attempts to identify
companies that have accelerating, sustainable earnings growth and
the potential for superior revenue growth and margin expansion.
Ideally, Essex searches for companies that have a dominant
product or service and a strong management team. Essex seeks
investments that are under-owned or attractively priced relative
to Essex's growth projections. Companies that meet all these
criteria are defined as "franchise opportunities."
The research and portfolio management teams at Essex generate
ideas by visiting companies and attending conferences and trade
shows, as well as through database screening. Then they develop
earnings models and projections, evaluate balance sheet strengths
and weaknesses, and speak with company managements.
Upon initiating a position, Essex applies risk controls to limit
negative effects. These consist of price targets, individual
position limits of 5%of the portfolio, and a maximum industry
exposure of 20% of the portfolio. Companies are sold for several
reasons: a perceived loss of dominant position, an earnings
disappointment, excess value versus forecast growth, or if there
is a better opportunity elsewhere.
The result is that Essex's portfolio is comprised of a blend of
large multinationals with dynamic medium to large industry
leaders. The portfolio's market cap ranges from $1 billion to
$100 billion with 50 to 60 companies that display sustainable,
high quality earnings growth at reasonable valuations.
The Year in Review
- ------------------
For the year 2003, the Managers Capital Appreciation Fund gained
25.05% compared with a gain of 28.68% for the S&P 500. In the
U.S., the broad market (using, for example, the Russell 3000,
Wilshire 5000, and S&P 500 indices)
10
<Page>
Capital Appreciation
- -----------------------------------------------------------------
rose about 30% for the year and by most measures, it was the first
calendar year rise for the U.S. equity market since 1999, and its
best year since 1997.
Equity markets started the year on a downward note as investors
faced worries of a weak economy, accounting scandals, threats of
terrorism, and uncertainty and fear about the duration and
outcome of a war in Iraq. Investors discounted business and
economic fundamentals and focused on the war, which was the main
market driver. This downward trend changed in late March as
investors were able to overlook war, a plummeting dollar, higher
oil prices and instead focus on low inflation, strong economic
growth, an improving labor market, increases in capital spending
and better corporate profits. In addition, the Fed continued to
stimulate growth by reducing short-term rates to 1% in June, a
rate not seen since 1958. On the economic front, various reports
set new records not seen in two decades. Third quarter 2003 real
GDP rose at the fastest annualized pace (+8.2%) in 20 years,
third quarter non-farm productivity had its largest quarterly
increase (+9.4%) in 20 years, the ISM (formerly NAPM) survey of
manufacturing activity also reached a 20-year high, housing
starts reached a 17-year high in November and the inventory-sales
ratio fell to its lowest reading on record.
All of the above mentioned factors prompted investors to focus on
risky and economically sensitive stocks, particularly technology,
cyclical, and small capitalization issues. Information technology
(+47%) led the 2003 market recovery with materials (+38%),
consumer discretionary (+37%), industrials (+32%) and financials
(+31%) all beating the S&P 500 market return as investors focused
on cyclical stocks in the face of an improving market recovery.
Strong performance from the IT sector was driven by solid returns
from internet software, semiconductor and communications
equipment manufacturing companies. The Materials sector got a
boost in the fourth quarter as commodity manufacturers benefited
from decreased competition from foreign products amid a declining
dollar, strong demand from consumer oriented markets in the U.S.
and rising demand from China, which lifted commodity prices.
Especially strong within this sector were gold mining stocks
strengthened by surging gold prices. Telecommunications and
healthcare sectors lagged the market rally. Telecom companies
continued to be hurt by poor earnings and healthcare companies
lagged due to worries over drug pricing legislation and product
pipeline issues.
From a style standpoint, the S&P Barra/Growth Index lagged its
value counterpart by over 600 basis points (bps) in a period when
growth sectors like IT and consumer discretionary led the market
rally. Most of the underperformance came during the second and
the fourth quarter. In the second quarter stocks in the lowest
quintiles of price-to-book, price-to-sales, and price-to-earnings
were the best performers and in the fourth quarter value sectors
like materials and energy drove the market rally causing the
divergence in performance between the two styles.
Heading into 2003, the Fund maintained a similar make-up as in
2002, where a significant portion of the Fund was positioned for
an economic and capital spending recovery. This strategy paid off
as several of the Fund's IT holdings benefited from the increase
in capital spending. Long-term holdings like Intel, Cisco and EMC
gained over 100% as the economic recovery improved their revenue
prospects. Consumer Discretionary stocks, the Fund's second
largest sector allocation at the start of the year, contributed
positively as several companies gained on the strength of
consumer confidence and spending. Best Buy gained 117%amid strong
quarterly results and better than expected full year profit
guidance. Further, several of the Fund's holdings from other
sectors gained significantly on positive company specific news
and contributed towards the Fund's absolute returns. A few
examples were China Telecom -ADR (+137%), Citigroup (+61%) and
Teva Pharmaceutical ADR (+48%).
On the downside, a few declines in stocks within the IT,
financials and industrials sectors along with the opportunity
cost of not owning stocks from the better performing materials
sector for most of the year led to the Fund's underperformance
for the year. Network Associates (-21%), Freddie Mac (-13%),
Alliant Techsystems (-19%) and Concord EFS (-6%) detracted from
the Fund's performance and were liquidated during the year. The
Fund had an overweight allocation in the healthcare sector, which
lagged the market rally, however good performance from a few
holdings like Zimmer Holdings (+56%), Forest Laboratories (+26%)
and Wellpoint Health Networks (+36%) contributed positively
towards the Fund's performance.
In early June, the Trustees of the Fund approved the appointment
of Bramwell Capital Management, Inc.as a subadvisor, replacing
Holt-Smith & Yates. Bramwell Capital, founded by Elizabeth
Bramwell in 1994, has demonstrated an ability to provide
consistent returns over a variety of market cycles. In
transitioning the portfolio, Bramwell reduced the Fund's consumer
discretionary and technology exposure through liquidations of
Walt Disney, Home Depot, Target, ADC Telecommunications, JDS
Uniphase, and Concord EFS. At the same time, the Fund's
financials, consumer staples and healthcare weights were
increased through the additions of American Express, US Bancorp,
Sysco, Zimmer Holdings and Stryker. Bramwell also initiated a
position in Inco (metals & mining company) and Praxair (chemicals
company) in early December. The last time the Fund had exposure
to the materials sector was in late 2001.
11
<Page>
Looking Forward Capital Appreciation
- ---------------------------------------------------------------
Heading into 2004, nearly 60% of the Fund's assets are allocated
in the traditional growth sectors - IT, healthcare and consumer
discretionary. Industrials and financials holdings each make up
about 10% of the Fund, followed by energy and consumer staples at
6% each, with small allocations in the materials and telecom
sectors. With a weighted average market capitalization of over
$70 billion, the Fund is focused on the large capitalization
companies that should benefit as economic activity picks up. The
Fund's portfolio managers had the following comments as we
progress into 2004:
Elizabeth Bramwell - Our outlook for the economy and the equity
markets remains very positive. Interest and inflation rates are
expected to remain low and employment is expected to continue to
increase. Fiscal and monetary policies are both highly supportive
of growth. Lower taxes on earned income should continue to
encourage consumer spending on cars, home improvement and
consumer electronics such as HDTV. Capital spending is
strengthening and should continue to gain well into 2005 and
beyond. Growth begets growth.
Looking forward, we are positioning the portfolio to benefit from
rising standards of living around the world. In particular, China
and India, together with 2.2 billion people and a rapidly growing
middle class, are expected to be huge expanding markets that
increase the demand for energy, basic materials, infrastructure,
industrial and consumer products and technology. Equity
valuations appear attractive with the S&P 500 selling at an 18
P/E ratio on 2004 estimated earnings of 63 and relative to a
reciprocal of 25 on the 10-year Treasury note rate yielding
approximately 4%. Markets are highly volatile. Our focus is on
achieving long-term investment returns and we try to use
volatility to enhance those returns.
Steve Cutler - Our investment team remains less positive on
consumer stocks and positively disposed toward economically
sensitive sectors (technology, industrials, energy) as a result
of a pick up in information technology and other capital
expenditures. We continue to identify dynamic growth
opportunities in storage and security companies within the
technology sector and oil service and producers within the energy
sector.
We expect stock selection, as opposed to sector weights, to have
a greater impact on performance in 2004.
Cumulative Total Return Performance
- -----------------------------------
Capital Appreciation's cumulative total return is based on the
daily change in net asset value (NAV), and assumes that all
distributions were reinvested. The S&P 500 Index is an unmanaged
capitalization weighted index of 500 commonly traded stocks
designed to measure performance of the broad domestic economy
through changes in the aggregate market value of those stocks.
The Index assumes reinvestment of dividends. This chart compares
a hypothetical $10,000 investment made in Capital Appreciation on
December 31, 1993, to a $10,000 investment made in the S&P 500
for the same time period. The graph and table do not reflect the
deduction of taxes that a shareholder would pay on a Fund
distribution or redemption of shares. Past performance is not
indicative of future results.
The tables following the performance chart display a full
breakdown of the sector allocation of the Fund as well as the top
ten positions as of December 31, 2003.
<Table>
Average Annualized Total Returns
---------------------------------
One Five Ten
Year Years Years
Capital ------ ------ -------
Appreciation 25.05% -1.24% 9.55%
S&P 500 Index 28.68% -0.57% 11.07%
</Table>
<Table>
Capital
Year End Appreciation S&P 500
- --------- ------------ --------
31-Dec-93 $10,000 $10,000
31-Dec-94 $9,848 $10,132
31-Dec-95 $13,136 $13,939
31-Dec-96 $14,934 $17,140
31-Dec-97 $16,836 $22,858
31-Dec-98 $26,491 $29,391
31-Dec-99 $53,780 $35,575
31-Dec-00 $41,840 $32,336
31-Dec-01 $28,640 $28,493
31-Dec-02 $19,908 $22,196
31-Dec-03 $24,895 $28,563
</Table>
12
<Page>
Capital Appreciation
- --------------------------------------------------------------
<Table>
Managers Capital Appreciation Fund
Top Ten Holdings (out of 103 securities) % Fund Industry Weightings
- ---------------------------------------------------- --------------------------------
Microsoft Corp.* 2.4% Information Technology 24.9%
Forest Laboratories, Inc. 2.4 Health Care 20.7
FedEx Corp. 1.9 Consumer Discretionary 12.6
Wal-Mart Stores, Inc.* 1.7 Industrials 11.0
Schlumberger, Ltd. 1.6 Financials 10.4
3M Co.* 1.5 Consumer Staples 6.7
Dell, Inc.* 1.5 Energy 6.5
Citigroup, Inc.* 1.5 Materials 1.2
EMC Corp. 1.5 Telecommunication
Intel Corp. 1.5 Services 1.2
Top Ten as a Group 17.5% Other 4.8
-----
</Table>
*Top Ten Holding at June 30, 2003
13
<Page>
Managers Capital Appreciation Fund
----------------------------------
December 31, 2003
-----------------
Schedule of Portfolio Investments Capital Appreciation
- ---------------------------------------------------------------
<Table>
Security Description Shares Value
- -------------------- ------ -----
Common Stocks - 95.2%
Consumer Discretionary - 12.6%
Applebee's International, Inc. 25,000 $ 981,750
Best Buy Co., Inc.* 30,000 1,567,200
Carmax, Inc.* 36,400 1,125,852
Cheesecake Factory, The* 20,000 (2) 880,600
Comcast Corp., Special Class A* 16,700 (2) 522,376
Dollar Tree Stores, Inc.* 33,800 1,016,028
Dow Jones &Co., Inc. 12,000 598,200
Family Dollar Stores, Inc. 16,000 574,080
Lowe 's Co., Inc. 22,000 1,218,580
McDonald's Corp. 50,000 1,241,500
Staples, Inc.* 50,000 1,365,000
Tiffany & Co. 15,000 678,000
TJX Cos., Inc. 50,800 1,120,140
Viacom, Inc., Class B* 23,300 1,034,054
------------
Total Consumer Discretionary 13,923,360
------------
Consumer Staples - 6.7%
Colgate-Palmolive Co. 12,700 635,635
Procter &Gamble Co. 10,000 998,800
Sysco Corp. 35,000 1,303,050
Walgreen Co. 25,000 909,500
Wal-Mart Stores, Inc. 66,400 3,522,520
------------
Total Consumer Staples 7,369,505
------------
Energy - 6.5%
Anadarko Petroleum Corp. 22,000 1,122,220
Apache Corp. 15,245 1,236,370
Burlington Resources, Inc. 12,000 664,560
Devon Energy Corp. 12,000 687,120
EOG Resources, Inc. 13,500 623,295
Nabors Industries, Ltd.* 10,000 415,000
Patterson-UTI Energy, Inc.* 20,000 658,400
Schlumberger, Ltd. 32,500 1,778,400
------------
Total Energy 7,185,365
------------
Financials - 10.4%
American Express Co. 10,000 (2) 482,300
American International Group, Inc. 26,100 1,729,908
Citigroup, Inc. 62,300 3,024,042
Goldman Sachs Group, Inc. 20,700 2,043,711
Merrill Lynch & Co., Inc. 19,400 1,137,810
SLM Corp. 10,000 376,800
U.S. Bancorp 35,000 1,042,300
Wells Fargo & Co. 29,400 1,731,366
------------
Total Financials 11,568,237
------------
Health Care - 20.7%
Abbott Laboratories Co. 15,000 699,000
Amgen, Inc.* 27,700 1,711,860
Anthem, Inc.* 15,000 (2) 1,125,000
Cardinal Health, Inc. 18,000 (2) 1,100,880
Forest Laboratories, Inc.* 42,300 2,614,140
Genentech, Inc.* 13,800 1,291,266
Gilead Sciences, Inc.* 19,100 1,110,474
Guidant Corp.* 18,600 1,119,720
Martek Biosciences Corp.* 17,200 (2) 1,117,484
Medtronic, Inc. 49,400 2,401,334
Novartis AG 40,000 (2) 1,835,600
Pfizer, Inc. 15,300 (2) 540,549
Resmed, Inc.* 19,100 793,414
Serono SA 5,000 87,750
Stryker Corp. 6,000 510,060
Teva Pharmaceutical Industries, Ltd.,
Sponsored ADR 28,000 (2) 1,587,880
UnitedHealth Group, Inc. 23,000 1,338,140
WellPoint Health Networks, Inc.* 8,000 775,920
Zimmer Holdings, Inc.* 17,000 1,196,800
------------
Total Health Care 22,957,271
------------
Industrials - 11.0%
3M Co. 33,400 2,840,002
Cummins, Inc. 15,000 734,100
Deere & Co. 10,000 650,500
FedEx Corp. 41,500 2,801,250
General Electric Co. 46,500 1,440,570
JB Hunt Transport Services, Inc.* 40,600 1,096,606
Union Pacific Corp. 10,000 694,800
United Parcel Service, Inc.,
Class B 26,600 1,983,030
------------
Total Industrials 12,240,858
------------
Information Technology - 24.9%
Analog Devices, Inc.* 20,000 913,000
Applied Materials, Inc.* 30,000 673,500
Cisco Systems, Inc.* 109,900 2,669,471
Dell, Inc.* 95,600 3,246,576
Diebold, Inc. 10,000 538,700
EMC Corp.* 180,000 2,325,600
Intel Corp. 82,700 2,662,940
International Business Machines
Corp. 13,000 1,204,840
Intuit, Inc.* 15,000 793,650
Kla-Tencor Corp.* 14,000 821,380
Linear Technology Corp. 15,000 631,050
Maxim Integrated Products, Inc. 22,000 1,095,600
McData Corp., Class A* 106,400 (2) 1,013,992
Microsoft Corp. 141,000 3,883,140
Molex, Inc. 23,000 675,280
Novellus Systems, Inc.* 12,000 504,600
QLogic Corp.* 21,100 1,088,760
Taiwan Semiconductor
Manufacturing Co., Ltd.* 50,000 (2) 512,000
Texas Instruments, Inc. 30,000 (2) 881,400
Zebra Technologies, Corp.* 22,500 (2) 1,493,325
------------
Total Information Technology 27,628,804
------------
Materials - 1.2%
Inco, Ltd.* 15,000 597,300
Praxair, Inc. 18,000 687,600
------------
Total Materials 1,284,900
------------
</Table>
14
<Page>
Managers Capital Appreciation Fund
----------------------------------
December 31, 2003
-----------------
Schedule of Portfolio Investments (continued) Capital Appreciation
- ------------------------------------------------------------------
<Table>
Security Description Shares Value
- -------------------- ------ -----
Telecommunication Services - 1.2%
China Telecom Corp., Ltd.* 33,900 (2) $1,383,458
------------
Total Common Stocks
(cost $91,021,347) 105,541,758
------------
Other Investment Companies - 14.6%
Bank of New York Institutional Cash
Reserves Fund, 1.14% (1), (3) 8,892,278 8,892,278
JPMorgan Prime Money Market
Fund, Institutional Class
Shares, 0.95% (1) 6,825,598 6,825,598
Bank of America Master
Trust, 1.28% (1), (3) 500,531 500,531
Total Other Investment Companies
(cost $16,218,407) 16,218,407
------------
Total Investments - 109.8%
(cost $107,239,754) 121,760,165
Other Assets, less Liabilities - (9.8)% (10,857,601)
-------------
Net Assets - 100.0% $110,902,564
=============
</Table>
The accompanying notes are an integral part of these financial
statements.
15
<Page>
Managers Small Company Fund Small Company
- --------------------------------------------------------------
Managers Small Company Equity Fund ("Small Company") is an equity
fund that primarily invests in the stocks of small capitalization
companies. Managers currently utilizes a single independent
subadvisor, Kalmar Investment Advisers, Inc. ("Kalmar"), which
has been managing a portion of the Fund since its inception in
June 2000. The Fund utilized a dual investment manager structure
prior to May 2002.
The Portfolio Manager
- ---------------------
Kalmar, located in Wilmington, Delaware, uses a team of portfolio
managers led by Ford Draper, Jr., who founded the firm in 1982.
Kalmar practices a "Growth with Value" approach to small company
investing whereby it seeks to identify high quality growing
businesses before they are widely discovered by institutional
investors. Kalmar's team believes there is a low risk/high reward
anomaly offered by the equity market in stocks of well managed,
rapidly growing smaller companies that for a variety of reasons
have not made the radar screen of most typical growth investors.
Because these companies are relatively "invisible"
institutionally, they can be inefficiently valued and yet offer
strong growth potential. This is the crux of their "Growth with
Value" investment style.
The investment team at Kalmar generates investment ideas from
several sources: industry reports, discussions with company
management teams, quantitative screens, and trade organizations.
Thus, there are elements of both "top down" and "bottom up"
analysis in the initial identification process. Top down thinking
is used to identify strategic themes and growth areas to prospect
for "Growth with Value" candidates. The most intensive research,
however, is dedicated to bottom up fundamental analysis. The
members of the investment management team all come from strong
research backgrounds and are committed to disciplined, in-depth
fundamental analysis. Fundamentally, Kalmar looks for such
criteria as proven and sustainable double-digit growth in revenue
and EPS as well as a stock that is reasonably or cheaply priced
relative to EPS, book value, and/or cash flow. Additionally,
Kalmar looks for dynamic businesses that they can understand, run
by equity owners they can count on, buyable at valuations that
should rise. Kalmar expects that an idea included in the
portfolio will generate a return of 50%inside of two years. This
appreciation would come from two sources: compounding growth in
business value plus upward revaluation.
The portfolio typically consists of 75-85 securities selected on
an individual basis, specifically keyed to the observations and
conclusions of their research. Kalmar will tend to avoid
concentrated sector bets and will diversify by the size of
company, ranging from as small as $50 million up to $2.0 billion
at time of purchase. Kalmar also attempts to diversify the
portfolio by the "growth character" of its holdings, including
both proven "Steady Eddies", emerging growth opportunities, and
growth companies experiencing significant positive
transformation. Kalmar is a long-term investor, with annual
turnover averaging 48% in recent years. Kalmar's sell discipline
is judgmental, not mechanical. It is based on the team's
assessment of the changing risk/reward fundamentals of a company,
the qualifications of a more rewarding replacement, or whether
price/fundamental expectations have been met.
The Year in Review
- ------------------
During 2003, the Fund returned 43.59% compared to a gain of
47.25% for the Russell 2000. Broad markets rose for the first
time since 1999, and on a capitalization basis, small
capitalization stocks, as measured by the Russell 2000, out
performed large capitalization stocks, as measured by the S&P
500, by over 700 bps. This outperformance marked the fifth
consecutive year the Russell 2000 has outperformed the S&P 500.
On a style basis, small-cap growth indices outperformed small-cap
value indices by 250 bps.
The Fund's performance for the year reflected not only the
strength of the market as a whole, but the significant returns of
small cap stocks in particular. Every sector of the Russell 2000
appreciated greater than 30% during 2003 with technology and
telecom up over 60%. As will be detailed below, a "quality issue"
came to the forefront early on as it became apparent that
speculation was playing a major role in driving returns within
small cap companies. Upon further research, those companies in
the lowest decile by market cap, with the highest betas, and zero
or negative earnings were the best-performing tranches.
In the early going, it looked as though the downward trend of
2002 would continue as the first quarter was not a particularly
positive one for small cap stocks. Daily reports of the U.S led
coalition continued to drive volatile market fluctuations while
other issues such as the HealthSouth accounting fraud and reduced
expectations for an economic recovery all weighed heavily on the
markets. Despite far ranging declines, Kalmar was able to achieve
relative outperformance for the first quarter principally through
strong security selection in tech-
16
<Page>
Small Company
- ---------------------------------------------------------------
nology and healthcare. The Fund's exposure to the consumer sector
challenged returns somewhat as shares of PETsMART and Michael's
Stores were down 26.4% and 20.0%, respectively. Both stocks
rebounded later in the year.
The second and third quarters gave rise to an interesting
phenomenon for the year where lower quality issues saw the
greatest share price appreciation. For example, if one had
invested in all of the holdings within the Russell 2000 at the
beginning of the year with zero or no earnings, one would have
realized a calendar-year return of 71.3%. This is in contrast to
those holdings with earnings that returned just 40.3%. This
speculative nature of growth created a difficult environment for
quality oriented small cap managers to outperform, and in fact,
the Russell 2000 outpaced over two-thirds of all small cap funds
during the second and third quarters. Relative underperformance
from this six-month period was due in part to underperforming
healthcare holdings in a period that saw the healthcare sector of
the Russell 2000 return nearly 28%. Specifically, Computer
Programs & Systems retreated nearly 26% as the healthcare concern
was impacted by a sluggish economic environment in the community
hospital marketplace based on weak Medicaid reimbursement trends
and uncertain future Medicare reimbursement rates. Demand for
products and services remains high however, and the company
rallied nearly 12% to close out the year. Industrials, the Fund's
third largest allocation, also impacted returns as securities
within the sector trailed returns of the benchmark industrial
holdings.
The fourth quarter saw an increased focus on fundamentals as
stocks of the Russell 2000 with earnings returned the same as
those without. This marked something of a shift away from the
highly speculative gains of the prior quarters. All sectors of
the Russell 2000 gained greater than 10% with telecom (+8%) being
the lone exception. Kalmar participated in the rally and returned
essentially in line with the index as over half of the portfolio
gained 25% on average. From a sector standpoint, only consumer
staples returned less than 10% as the sector's largest holding,
Performance Food Group, declined over 11%. Additionally, the Fund
was underweight the index's best performing sector, materials,
while carrying an overweight in technology, which lagged the
market rally. Among the portfolio's best performers was Ultra
Petroleum, which Kalmar has held since early 2001, and rose 76%
as the company continues to benefit from attractive growth in
reserves and a cost structure that is among the lowest in the
industry. Navigant Consulting, (commercial services), Harman
International (household durables), and SICOR (pharmaceuticals),
all posted better than 40% returns to close out a strong calendar
year.
Looking Forward
- ---------------
The Fund's emphasis remains on the industrials, consumer
discretionary, and IT sectors, and continues to reflect Kalmar's
strategy of pursuing more aggressive ideas by initiating smaller
positions in companies with predictable businesses. Kalmar's
considerable underweight to financials is, and has been, most
directly a function of simply not finding as many exciting
"Growth with Value" ideas in this sector relative to better
risk/reward opportunities found elsewhere. Kalmar's comments as
we progress into 2004:
While we are optimistic about the stock market in 2004 - and
specifically about the growth outlook for companies that Kalmar
holds - it would only be reasonable to expect a return to a more
normally challenging, somewhat less benign environment than
existed in 2003 when the Russell 2000 experienced its largest
gain in its 25-year history. Signs of a synchronized global
recovery abound in 2004, with the likelihood of continued very
low inflation and accelerating corporate profitability that is
driving a necessary pick up in capital investment, enterprise
spending and hiring. As always, there are countervailing
influences, but the prospect for strong growth and sharply rising
corporate profitability remains likely for the year ahead.
17
<Page>
Small Company
- --------------------------------------------------------------
Cumulative Total Return Performance
- -----------------------------------
Small Company's cumulative total return is based on the daily
change in net asset value (NAV), and assumes that all
distributions were reinvested. The Russell 2000 Index is
comprised of the smallest 2000 companies in the Russell 3000
Index. The Russell 3000 Index is composed of 3000 of the largest
U.S. companies, as determined by market capitalization which
represents approximately 98% of the investable U.S. equity
market. This chart compares a hypothetical $10,000 investment
made in Small Company on June 19,2000, to a $10,000 investment
made in the Russell 2000 for the same time period. The graph and
chart do not reflect the deduction of taxes that a shareholder
would pay on a Fund distribution or redemption of shares. Past
performance is not indicative of future results. Total returns
would have been lower had certain expenses not been reduced.
The tables following the performance chart display a full
breakdown of the sector allocation of the Fund as well as the top
ten positions as of December 31, 2003.
<Table>
Average Annualized Total Returns
--------------------------------
One Three Since
Year Years Inception*
------ ------ ----------
Small Company 43.59% -0.36% -2.36%
Russell 2000 47.25% 6.27% 3.18%
</Table>
* Commencement of operations was June 19, 2000.
<Table>
Small
Year End Company Russell 2000
- --------- ------- ------------
19-Jun-00 $10,000 $10,000
31-Dec-01 $8,160 $9,541
31-Dec-02 $6,400 $7,586
31-Dec-03 $9,190 $11,171
</Table>
Managers Small Company Fund
<Table>
Top Ten Holdings (out of 77 securities) % Fund Industry Weightings
- --------------------------------------------------- -------------------------------
Insight Enterprises, Inc. 2.4% Information Technology 26.0%
MacDermid, Inc. 2.3 Consumer Discretionary 25.4
Pentair, Inc.* 2.3 Industrials 21.2
MSC Industrial Direct Co., Class A 2.2 Health Care 10.9
Gentex Corp. 2.2 Energy 5.4
Benchmark Electronics, Inc. 2.1 Materials 2.3
Actuant Corp., Class A 2.0 Consumer Staples 1.9
PETsMART, Inc.* 2.0 Financials 1.1
Avocent Corp. 2.0 Other 5.8
DeVry, Inc. 1.9
=====
Top Ten as a Group 21.4%
</Table>
*Top Ten Holding at June 30, 2003
18
<Page>
Managers Small Company Fund
December 31, 2003
Schedule of Portfolio Investments Small Company
- -------------------------------------------------------------
<Table>
Security Description Shares Value
- ------------------------------- -------- ------
Common Stocks - 94.2%
Consumer Discretionary - 25.4%
Christopher & Banks Corp.* 11,587 $ 226,294
Cost Plus, Inc.* 6,750 276,750
Fred's, Inc. 9,345 289,508
GameStop Corp.* 17,150 264,282
Garmin, Ltd.* 4,100 (2) 223,368
Gentex Corp.* 9,150 (2) 404,063
Getty Images, Inc.* 3,050 (2) 152,897
Harman International Industries,Inc. 2,150 159,057
Insight Enterprises, Inc.* 24,375 458,250
Michaels Stores, Inc.* 4,100 181,220
O'Reilly Automotive, Inc.* 4,850 186,046
PEP Boys-Manny Moe & Jack, Inc. 13,500 (2) 308,745
PETsMART, Inc.* 15,450 367,710
Radio One, Inc.* 13,000 250,900
Red Robin Gourmet Burgers, Inc.* 6,150 187,206
Ruby Tuesday, Inc. 11,200 319,088
Select Comfort Corp.* 6,550 162,178
TBC Corp.* 6,500 167,765
Tractor Supply Co.* 4,600 178,894
------------
Total Consumer Discretionary 4,764,221
------------
Consumer Staples - 1.9%
Constellation Brands, Inc.* 5,650 186,055
Performance Food Group Co.* 4,700 169,999
------------
Total Consumer Staples 356,054
------------
Energy - 5.4%
Evergreen Resources, Inc.* 7,700 (2) 250,327
Niko Resources, Ltd. 3,350 70,250
Ultra Petroleum Corp.* 14,450 355,758
Whiting Petroleum Corp. 5,450 100,280
XTO Energy, Inc. 8,716 246,663
------------
Total Energy 1,023,278
------------
Financials - 1.1%
Asta Funding, Inc. 3,500 119,875
Boston Private Financial
Holdings, Inc. 3,450 (2) 85,698
------------
Total Financials 205,573
------------
Health Care - 10.9%
America Service Group, Inc.* 3,150 97,363
Barr Laboratories, Inc.* 4,575 (2) 352,046
Community Health Systems, Inc.* 5,900 156,822
Computer Programs & Systems, Inc.* 2,600 52,312
Covance, Inc.* 11,550 309,540
PSS World Medical, Inc.* 13,450 162,342
Resmed, Inc.* 5,650 234,701
Respironics, Inc.* 5,600 252,504
Select Medical Corp.* 17,500 284,900
Sonosite, Inc.* 6,750 144,720
------------
Total Health Care 2,047,250
------------
Industrials - 21.2%
Actuant Corp., Class A* 10,260 371,412
Central Freight Lines, Inc. 5,600 99,400
Chicago Bridge & Iron Co. N.V. 6,500 187,850
ChoicePoint, Inc.* 7,950 302,816
DeVry, Inc.* 14,250 (2) 358,103
Donaldson Co., Inc. 3,050 180,438
ElkCorp. 8,850 (2) 236,295
Hewitt Associates, Inc., Class A* 9,700 290,030
Mobile Mini, Inc.* 8,300 (2) 163,676
MSC Industrial Direct Co., Class A 15,150 416,624
Navigant Consulting, Inc.* 12,150 229,149
NCI Building Systems, Inc.* 9,700 231,830
Pentair, Inc. 9,250 422,725
Sylvan Learning Systems, Inc.* 9,250 266,308
UTI Worldwide, Inc. 5,600 212,408
------------
Total Industrials 3,969,064
------------
Information Technology - 26.0%
Acxiom Corp.* 15,500 287,835
Alliance Data Systems Corp.* 7,800 215,904
ATMI, Inc.* 6,800 157,352
Avocent Corp.* 10,000 365,200
Benchmark Electronics, Inc.* 11,250 391,612
Ceridian Corp.* 17,050 357,027
Digitas, Inc.* 16,300 151,916
eBookers PLC, Sponsored ADR* 5,150 75,448
Emulex Corp.* 9,150 244,122
Excel Technology, Inc.* 6,250 205,375
Fair Isaac Corp. 5,662 (2) 278,344
FEI Co.* 8,850 199,125
International Rectifier Corp.* 6,500 321,164
Lionbridge Technologies, Inc.* 12,400 119,164
MAXIMUS, Inc.* 5,150 201,520
Modem Media, Inc.* 11,275 92,117
MPS Group, Inc.* 18,000 168,300
Pinnacle Systems, Inc.* 16,700 142,451
Polycom, Inc.* 6,050 118,096
Progress Software Corp.* 8,350 170,841
Rogers Corp.* 6,650 293,398
Symantec Corp.* 3,100 107,415
Tekelec* 13,600 211,480
------------
Total Information Technology 4,875,206
------------
Materials - 2.3%
MacDermid, Inc. 12,450 426,288
------------
Total Common Stocks
(cost $12,509,830) 17,666,934
------------
Other Investment Companies - 17.7%
Bank of New York Institutional
Cash Reserves Fund, 1.14% (1),(3) 2,266,071 2,266,071
JPMorgan Prime Money Market
Fund, Institutional Class
Shares, 0.95% (1) 1,045,811 1,045,811
Total Other Investment Companies 3,311,882
------------
Total Investments - 111.9%
(cost $15,821,712) 20,978,816
------------
Other Assets, less Liabilities - (11.9)% (2,228,807)
-----------
Net Assets - 100.0% $18,750,009
===========
</Table>
The accompanying notes are an integral part of these financial
statements.
19
<Page>
Managers Special Equity Fund Special Equity
- ---------------------------------------------------------------
Managers Special Equity Fund ("Special Equity") is a domestic
equity fund that primarily invests in the stocks of small
capitalization companies. Managers currently utilizes five
independent subadvisors who each manage separate portions of the
portfolio: Donald Smith, of Donald Smith &Co., Inc ("Smith"), who
has been managing a portion of the Fund since September 2002,
Bill Dutton, of Skyline Asset Management, L.P.("Skyline"), who
has been managing a portion of the Fund since December 2000;
Andrew Knuth of Westport Asset Management, Inc. ("Westport"), who
has been managing a portion of the Fund since December 1985; Bob
Kern, of Kern Capital Management LLC ("Kern Capital"), who has
been managing a portion of the Fund since September 1997; and
Craig Lewis of Essex Investment Management Company, LLC
("Essex"), who has been managing a portion of the Fund since
December 2003.
The Portfolio Managers
- -----------------------
Donald Smith & Co., Inc.
- ------------------------
Donald Smith is a value manager that invests in out-of-favor
small capitalization companies. Smith's philosophy seeks to
identify companies in the bottom decile of price-to-tangible book
ratios, with a strong balance sheet, and a positive outlook for
earnings potential over the next 2-4 years. Smith believes that
extremely low P/B ratio companies often trade below replacement
value, are inherently less risky, and are more likely to be
acquired. Furthermore, because only a few investment managers
focus on companies in the lowest P/B ratio decile, their stocks
may be inefficiently priced and can offer tremendous value. Smith
limits purchases to companies in the lowest 10% of price-to-
tangible book ratios. Smith also assesses price-to-earnings,
price-to-sales, and debt-to-capital ratios to form a "watch list"
of about 300 securities.
After valuations are addressed, Smith performs fundamental
research, including company visits, to assess the quality of the
company's balance sheet and book value. Smith is looking for a
catalyst for an improvement in earnings that is not already
reflected in the stock price. A concentrated portfolio of 40-50
stocks is the result. Stocks are sold when a target price has
been achieved, usually set at less than 2x book value. Positions
may also be sold if the stock appreciates rapidly, if a better
idea is found, or if fundamentals deteriorate. Portfolio turnover
is low at 20-40% annually.
Skyline Asset Management, L.P.
- ------------------------------
Bill Dutton and the investment team at Skyline look for small
capitalization stocks that have below average valuations with
strong growth prospects. Through their intensive in-house
research, they find good companies that are overlooked or not
widely followed. Typically, they invest in firms with market
capitalizations of less than $2 billion. Skyline believes that
this value focus combined with identifying attractive growth
prospects and a defined sell discipline can capture
inefficiencies in the market.
The investment team's selection process involves quantitatively
and qualitatively screening the universe of small-capitalization
stocks for factors such as low price/earnings (P/E) ratio or
price/book, attractive earnings prospects, applicable market caps
(typically below $2 billion), and lack of institutional coverage.
Outside research services, computer screens, and internally
maintained lists of potential companies/stocks are the primary
sources used to identify new ideas. These ideas are then
evaluated to determine whether they meet Skyline's four basic
criteria: relative valuation, capitalization, financial strength,
and opportunities for continued growth. In addition, Bill Dutton
determines whether the stock provides needed diversification to
the portfolio. This multi-step screening process reduces the list
from 2000 to 150-200 stocks. Then, one or more of the portfolio
manager/analysts perform a rigorous fundamental analysis in an
attempt to answer the question, "Why will earnings increase at an
above-average rate?" All company documents are analyzed, any
available industry or research reports are reviewed and, most
importantly, questions are addressed directly to company senior
management. In addition, the analysts will review other companies
in the same industry to determine competitive threats and the
relative valuation of the company being investigated. In so
doing, they develop an internal research report that is
distributed to the entire investment team and discussed at
regular meetings. Input is received from the investment team, and
if additional information is required, research is done. The
final portfolio will contain approximately 65-85 stocks and is
generally fully invested (less than 5% cash) at all times. The
portfolio will tend to be well diversified with a price/earnings
ratio consistently below the Russell 2000 P/E. Skyline sells
stocks when they rise to a sell target, which is usually a
price/earnings ratio equal to the overall stock market. In the
case of a stock that declines, Skyline will only sell the stock
if fundamentals have changed so that the original investment
thesis is no longer valid.
20
<Page>
Special Equity
- ----------------------------------------------------------------
Westport Asset Management, Inc.
- -------------------------------
Andy Knuth's investment philosophy entails investing in small
capitalization companies which he perceives as having significant
upside potential in earnings and return on equity over the next
12-18 months. Although he is investing for growth, Andy will
purchase stocks only if they are selling at or below the market's
price/earnings multiple, or below valuations of other companies
in the same industry. Thus, he must discover and invest in
companies very early in their growth cycle.
Implicit in the strategy is that Andy and his investment team
focus on a small number of issues, and tend to hold them for a
long time. The concentration and low turnover enable Andy to
heavily research and monitor each position. He is focused on
future profits only, and, in fact, prefers to find businesses
which are inherently good but which have gone through a troubling
period. Factors that may improve earnings and investor
perceptions include acquisitions or divestitures, management
shakeups, changes in the business cycle, or the development of a
proprietary product in a strong industry. He searches, in
particular, for companies with good managers who are finding ways
to substantially improve the company.
The result is that Andy will typically have a concentrated
portfolio, and any significant industry concentrations are merely
an outcome of bottom-up stock selection. Because some of the
companies in which he invests may not yet have earnings, the
price to trailing earnings ratio may be high, although the price
to forward earnings will be well below average. Andy is a patient
investor, usually turning over less than 20%of his portfolio per
year.
Kern Capital Management LLC
- ---------------------------
Bob Kern is one of the pioneers of small-cap and micro-cap
investing. While focusing his attention on small companies, Bob
directs his efforts toward finding companies that are succeeding
through innovation of new products or services. Thus, Bob's
portfolio tends to be concentrated in technology, healthcare,
consumer goods and service sectors. Bob seeks to earn returns
from the appreciation of stocks as the companies' products
develop and penetrate new markets.
In most cases, the analysis of the product and judgments as to
its potential are the most important aspects of the decision to
own stock. In all cases, however, the operational and financial
health of the company must be verified. Bob and the investment
team at Kern Capital like to find companies in which margins will
increase with revenue growth, and which can finance much of their
growth from operating cash flow. Although valuation is clearly
important, Bob is often willing to pay relatively high multiples
where he sees enough growth potential. Bob will typically hold a
portfolio of 70 to 80 stocks with a median market capitalization
of around $500 million.
Essex Investment Management Company, LLC
- ----------------------------------------
Craig Lewis leads the small-cap investment management team at
Essex where the basic investment philosophy is that a company's
revenue growth, future profitability and cash flow drive share
price performance. In particular, Craig and the other investment
professionals at Essex look for dynamic growth opportunities
characterized by new or emerging technologies or services,
superior and accelerating growth, and improving margins and
returns. The focus, therefore, is on fundamental research and the
study of macroeconomic/industry trends in order to identify
potential growth opportunities.
The investment process at Essex combines bottom-up stock
selection with top-down secular trend analysis. The firm's
research analysts are charged with identifying companies with
high quality, sustainable growth. Each analyst focuses on
understanding the sources of long-term growth within his or her
respective industries, and the specific outlook of each stock
within those industries in terms of sustainable revenue growth,
margin trends, and return trends. In addition, analysts are
responsible for considering any potential investment's
attractiveness relative to its stock price (valuation).
The analysts conduct extensive research including contacting
company management, evaluating competitors, customers, suppliers
and industry experts to formulate their outlooks. In addition,
analysts are responsible for company visits. They meet with the
sales, manufacturing, and procurement staff to fully understand
the market dynamics and specific trends within a particular
company and/or industry. Essex's analysts compare and confirm
their findings with the company's respective competitors,
suppliers, and distributors. Analysts then perform financial and
strategic analysis and utilize a variety of valuation disciplines
to arrive at a target price. The Small Cap Growth portfolio is
expected to have between 90 and 100 positions and turnover is
expected to be around 100%per year.
21
<Page>
Special Equity
- ----------------------------------------------------------------
The Year in Review
- ------------------
Small cap equities excelled in 2003, as the bear market gave way
to a record calendar-year return for the Russell 2000, which
posted a gain of 47.25%. This was the fifth consecutive year
small caps, as measured by the Russell 2000, outperformed large
caps as measured by the S&P 500. Managers Special Equity Fund
appreciated 42.50% during 2003, its third highest return since
inception in 1984.
The Fund's performance reflected not only the strength of the
market as a whole, but the significant returns of small cap
stocks in particular. Every sector of the Russell 2000
appreciated greater than 30% during 2003 with technology and
telecom up over 60%. A "quality issue" came to the forefront
early on as it became apparent that speculation was playing a
major role in driving returns within small cap companies. Upon
further research, those companies in the lowest decile by market
cap, with the highest betas, and with zero or negative earnings
were the best-performing tranches. This speculative nature of
growth created a difficult environment for small cap managers to
outperform, and in fact, the Russell 2000 outpaced over two-
thirds of all small cap funds during the year. As will be
detailed below, some of the Fund's relative underperformance can
be attributed to sector allocation and security selection
decisions, but a significant portion of the Fund's
underperformance was a direct result of the Fund's relatively low
exposure to the speculative, less liquid, lower quality holdings
of the small cap universe.
In the early going, it looked as though the downward trend of
2002 would continue as the first quarter was not a particularly
positive one for small cap stocks. Daily reports of the U.S led
coalition continued to drive volatile market fluctuations while
other economic and valuation data played a less noteworthy role.
Relative performance was hindered by three main categories that
comprise a significant weighting within the portfolio: travel &
leisure, steel, and consumer. Much of the volatility in steel
prices was a function of labor contracts and some confusion
regarding potential consolidation in the industry. This cleared
itself in the latter part of the year and proved to be a valuable
contributor to the Fund's full year return.
As the second quarter began, geopolitical conditions improved and
President Bush's tax credits were well received. These factors
coupled with a brighter economic outlook paved the way for what
turned out to be a spectacular nine months to be involved in the
stock market. The second quarter also gave rise to the quality is
sue described above. Simply put, as geopolitical, economic and
market risks receded, the riskiest assets reacted most, while
fundamentally sound investments performed very well but lagged on
average. Despite the Fund's modest relative underperformance, 90%
of its holdings rose and half of these by greater than 20%. Many
of the top performers were also in the Fund's two largest sector
allocations, technology and consumer discretionary. Specifically,
SanDisk, the maker of digital memory cards, surged 141% within
tech while Aeropostal, Bebe Stores and Dick's Sporting Goods each
rose over 60% on the strength of consumer spending. Detracting
from performance were holdings within the healthcare sector,
which trailed the returns of the Russell 2000 healthcare sector
by roughly 10 basis points.
Small-cap stocks continued to rally in the third and fourth
quarters of 2003 with a noticeable shift back in the direction of
quality and fundamentals to close out the year. As would be
imagined, this was a welcome sign for the Fund's managers who are
all fundamentally driven stock pickers. Economic data remained
strong with an upwardly revised third quarter GDP number of 8.2
causing many economists to rethink estimates in a positive manner
going forward. Furthermore, all sectors of the Russell 2000
appreciated with materials and energy uncharacteristically
leading the charge. The Fund was able to add value in both
sectors during the fourth quarter with two of the portfolio's
most notable materials performers, AK Steel and US Steel,
appreciating 155%, and 91%, respectively. Relative outperformance
was also aided by security selection within the consumer
discretionary and technology sectors.
During this time, we at Managers were evaluating changes to the
subadvisor line-up to address the retirement of Gary Pilgrim as
lead portfolio manager of Pilgrim, Baxter and Associates. After a
thorough search we recommended Essex Investment Management to the
Fund's Trustees in place of Pilgrim, Baxter. As described above,
Craig Lewis has an investment philosophy that seeks out dynamic
growth opportunities and that is quite complementary to the
investment philosophies of the other managers within the Fund.
The Trustees approved the replacement in mid-December and there
is a proxy vote scheduled so that shareholders have an
opportunity to endorse the change. In addition to the
philosophical and intelligence diversification that we always
seek when structuring a multi-managed portfolio, we are pleased
with the quantitative aspects of the fit. For example, the
distribution across portfolio characteristics has widened, and
the diversification across sectors has broadened slightly.
22
<Page>
Special Equity
- -----------------------------------------------------------
Looking Forward
- ---------------
Heading into 2004, the Fund's sector weights have not changed
significantly as consumer discretionary, information technology,
and industrials remain the three largest allocations. The Fund
has also become somewhat less defensive as its exposure to health
care has been trimmed to less than 10%. Furthermore, the recent
addition of Essex is not expected to radically alter these
allocations going forward as its portfolio will likely remain
predominantly in technology, healthcare, and consumer with the
one notable divergence from the preceding portfolio being the
introduction of more exposure to industrials.
The Fund's subadvisors are optimistic that 2004 will see
continued economic growth with the potential for increased
activity in the mergers and acquisition arena. While the prospect
for continued growth is always well received, the managers note
that valuations are currently reflecting this optimism and they
remain cautious and aware of the possibility that the Fed may
begin tightening and start to raise interest rates in the not too
distant future.
Cumulative Total Return Performance
- -----------------------------------
Special Equity's cumulative total return is based on the daily
change in net asset value (NAV), and assumes that all
distributions were reinvested. The Russell 2000 Index is
comprised of the smallest 2000 companies in the Russell 3000
Index. The Russell 3000 Index is composed of 3000 of the largest
U.S. companies, as determined by market capitalization, which
represents approximately 98% of the investable U.S. equity
market. This chart compares a hypothetical $10,000 investment
made in Special Equity on December 31, 1993, to a $10,000
investment made in the Russell 2000 for the same time period. The
graph and table do not reflect the deduction of taxes that a
shareholder would pay on a Fund distribution or redemption of
shares. Past performance is not indicative of future results.
The tables following the performance chart display a full
breakdown of the sector allocation of the Fund as well as the top
ten positions as of December 31, 2003.
<Table>
Average Annualized Total Returns
--------------------------------
One Five Ten
Year Years Years
------ ------ -------
Special Equity 42.50% 8.94% 12.10%
Russell 2000 Index 47.25% 7.13% 9.47%
</Table>
<Table>
Special
Year End Equity Russell 2000
- --------- ------- ------------
31-Dec-93 $10,000 $10,000
31-Dec-94 $9,801 $9,818
31-Dec-95 $13,127 $12,611
31-Dec-96 $16,376 $14,691
31-Dec-97 $20,380 $17,976
31-Dec-98 $20,421 $17,519
31-Dec-99 $31,471 $21,242
31-Dec-00 $30,665 $20,601
31-Dec-01 $28,189 $21,113
31-Dec-02 $21,992 $16,788
31-Dec-03 $31,339 $24,721
</Table>
Managers Special Equity Fund
<Table>
Top Ten Holdings (out of 355 securities)% Fund Industry Weightings
- --------------------------------------------------- -------------------------------
ITT Educational Services, Inc.* 1.6% Consumer Discretionary 22.4%
United States Steel Corp.* 1.5 Information Technology 18.1
Visteon Corp. 1.4 Industrials 13.6
Reliant Resources, Inc.* 1.3 Financials 12.5
Toys "R" Us, Inc. 1.2 Health Care 9.8
Overseas Shipholding Group, Inc.* 1.1 Materials 6.5
Emmis Communications Corp., Class A* 1.0 Energy 4.1
FelCor Lodging Trust, Inc. 1.0 Utilities 3.1
Meristar Hospitality Corp. 1.0 Consumer Staples 1.0
Dillard's, Inc., Class A* 1.0 Telecommunication
---- Services 0.3
Top Ten as a Group 12.1% Other 8.6
=====
</Table>
Managers Special Equity Fund
December 31, 2003
Schedule of Portfolio Investments Special Equity
- ----------------------------------------------------------------
<Table>
Security Description Shares Value
- ------------------------------- -------- ------
Common Stocks - 91.4%
Consumer Discretionary - 22.4%
Aaron Rents, Inc. 197,000 $ 3,965,610
Abercrombie & Fitch Co.* 757,300 (2) 18,712,883
Action Performance Companies,
Inc. 238,900 (2) 4,682,440
Alliance Gaming Corp.* 379,600 (2) 9,357,140
American Eagle Outfitters,
Inc.* 1,150,700 (2) 18,871,480
Applebee's International,
Inc. 258,750 (2) 10,161,113
Beasley Broadcasting Group,
Inc.* 237,000 3,893,910
Big Lots, Inc.* 515,252 7,321,731
Borders Group, Inc.* 424,500 9,305,040
Columbia Sportswear Co.,Inc.* 16,700 910,150
Concord Camera Corp.* 399,200 (2) 3,692,600
Copart, Inc.* 705,300 11,637,450
COX Radio, Inc., Class A* 368,600 9,299,778
Dick's Sporting Goods, Inc.* 145,600 7,084,896
Dillard's, Inc., Class A 1,895,500 31,199,930
Duckwall-ALCO Stores,
Inc. (5)* 247,800 3,890,460
Electronics Boutique Holdings
Corp.* 303,700 (2) 6,951,693
Emmis Communications Corp.,
Class A* 1,203,600 (2) 32,557,380
Furniture Brands
International, Inc.* 708,600 20,783,238
GameStop Corp.* 727,300 11,207,693
Gaylord Entertainment Co.,
Class A* 226,233 (2) 6,753,055
Genesco, Inc.* 282,300 (2) 4,271,199
Getty Images, Inc.* 267,600 (2) 13,414,788
Hollywood Entertainment Corp.* 488,300 6,714,125
Hughes Supply, Inc. 177,400 8,802,588
IMPCO Technologies, Inc.* 100,800 (2) 878,976
Insight Communications Co.,
Inc., Class A* 680,400 7,014,924
Insight Enterprises, Inc.* 541,080 10,172,304
International Speedway Corp.,
Class A 560,400 25,027,464
J Jill Group, Inc., The* 645,800 (2) 8,208,118
Journal Communications, Inc.* 315,300 5,842,509
Kerzner International, Ltd.* 656,900 25,592,824
La Quinta Corp.* 845,000 5,416,450
La-Z-Boy, Inc. 305,600 (2) 6,411,488
Leapfrog Enterprises, Inc.* 498,800 (2) 13,233,164
Linens'N Things, Inc.* 358,500 (2) 10,783,680
Lions Gate Entertainment
Corp.* 311,600 (2) 1,395,968
M.D.C.Holdings, Inc. 77,400 4,992,300
Michaels Stores, Inc.* 68,100 (2) 3,010,020
Monaco Coach Corp.* 253,700 6,038,060
NetFlix, Inc.* 168,200 9,198,858
P.F. Chang's China Bistro,
Inc.* 279,900 14,241,312
Panera Bread Co., Class A* 488,300 (2) 19,302,499
PETCO Animal Supplies, Inc.* 169,100 5,149,095
Pier 1 Imports, Inc. 352,200 7,699,092
Polaris Industries, Inc. 103,600 (2) 9,176,888
Proquest Co.* 298,400 (2) 8,787,880
Quiksilver, Inc.* 228,100 4,044,213
Rare Hospitality
International, Inc.* 125,700 3,072,108
Regal Entertainment Group 285,600 (2) 5,860,512
Ross Stores, Inc. 780,000 20,615,400
Ruby Tuesday, Inc. 831,600 23,692,284
Saks, Inc.* 1,023,000 15,385,920
Salem Communications Corp.,
Class A* 482,900 13,096,248
School Specialty, Inc.* 452,035 (2) 15,373,710
Stage Stores, Inc.* 299,000 (2) 8,342,100
Standard-Pacific Corp. 178,000 8,641,900
The Finish Line, Inc.,
Class A* 181,684 5,445,069
TJX Cos., Inc. 160,000 3,528,000
Too, Inc.* 691,700 (2) 11,675,896
Toro Co. 177,000 8,212,800
Toys "R" Us, Inc.* 3,000,000 (2) 37,920,000
Tractor Supply Co.* 275,300 10,706,417
United Rentals, Inc.* 429,200 8,266,392
Urban Outfitters, Inc.* 354,000 13,115,700
Visteon Corp. 4,395,300 (2) 45,755,073
-------------
Total Consumer Discretionary 735,765,985
-------------
Consumer Staples - 1.0%
Del Monte Foods Co.* 794,900 8,266,960
Duane Reade, Inc.* 589,200 (2) 9,969,264
NBTY, Inc.* 354,800 9,529,928
Pathmark Stores, Inc.* 200,000 1,520,000
Sunopta, Inc.* 96,600 891,618
Wild Oats Markets, Inc.* 315,500 4,079,415
-------------
Total Consumer Staples 34,257,185
-------------
Energy - 4.1%
Forest Oil Corp.* 237,700 6,791,089
Global Industries, Ltd.* 1,320,400 6,800,060
Grant Prideco, Inc.* 454,600 5,918,892
Harvest Natural Resources,
Inc.* 143,100 1,423,845
Houston Exploration Co.* 97,900 3,575,308
Key Energy Services, Inc.* 624,900 6,442,719
Newfield Exploration Co.* 180,100 8,021,654
OMI Corp.* 499,000 4,456,070
Overseas Shipholding Group,
Inc. 1,040,000 35,412,000
Pogo Producing Co. 484,200 23,386,860
Pride International, Inc.* 563,900 10,511,096
Stone Energy Corp.* 184,800 7,844,760
Veritas DGC, Inc.* 1,164,200 12,200,816
-------------
Total Energy 132,785,169
-------------
Financials - 12.5%
Alabama National Bancorp 64,400 3,384,220
AMB Property Corp. 216,000 7,102,080
American Financial Group,Inc. 103,500 2,738,610
American National Insurance
Co. 68,950 (2) 5,817,312
AmerUs Group, Co. 189,300 (2) 6,619,821
Bank of Hawaii Corp. 221,100 9,330,420
</Table>
The accompanying notes are an integral part of these financial
statements.
24
<Page>
Managers Special Equity Fund
December 31, 2003
Schedule of Portfolio Investments (continued) Special Equity
- ----------------------------------------------------------------
<Table>
Financials (continued)
Banknorth Group, Inc. 355,482 $11,563,829
Banner Corp. 217,740 5,476,161
Brandywine Realty Trust (5) 218,600 5,851,922
Brown &Brown, Inc. 265,100 8,644,911
Charter One Financial, Inc. 227,946 7,875,534
Chittenden Corp. 396,500 13,338,260
Clark, Inc.* 239,200 4,602,208
Commerce Bancshares, Inc. 268,336 13,153,831
Delphi Financial Group, Inc.,
Class A 387,000 13,932,000
Direct General Corp. 221,300 7,325,030
Downey Financial Corp. 393,380 19,393,634
Equity Inns, Inc. 1,028,500 9,307,925
eSpeed, Inc., Class A* 189,900 4,445,559
FelCor Lodging Trust, Inc. 2,900,000 32,132,000
First Niagara Financial Group, Inc. 435,750 6,497,033
Harbor Florida Bancshares, Inc. 224,900 6,681,779
Hibernia Corp., Class A 866,500 20,371,415
Hilb, Rogal & Hamilton Co. 305,500 9,797,385
Infinity Property &Casualty Corp.* 336,750 (2) 11,129,588
Investors Financial Services Corp. 124,300 4,774,363
IPC Holdings, Ltd.* 162,695 6,335,343
iStar Financial, Inc. 414,100 16,108,490
MCG Capital Corp. 437,328 8,527,896
Meristar Hospitality Corp. (5) 4,853,700 31,597,587
National Western Life Insurance
Co., Class A* 12,000 1,858,200
Peoples Bank 48,200 1,571,320
Prime Group Realty Trust* 786,800 (2) 4,933,236
Provident Financial Group, Inc. 197,085 (2) 6,296,866
Reinsurance Group of America 239,000 9,237,350
Riverview Bancorp, Inc. 100,000 2,126,200
Scottish Annuity & Life
Holdings, Ltd. 287,900 (2) 5,982,562
Seacoast Financial Services Corp. 327,500 8,976,775
Selective Insurance Group, Inc. 247,874 (2) 8,021,203
St. Joe Co., The 111,500 4,157,835
Sterling Financial Corp.* 260,902 8,930,675
Timberland Bancorp, Inc. 95,400 2,164,626
Triad Guaranty, Inc.* 87,452 4,403,208
U.S.I. Holdings Corp.* 592,301 7,729,528
Webster Financial Corp. 279,800 (2) 12,831,628
Westcorp 169,700 6,202,535
-------------
Total Financials 409,279,893
-------------
Health Care - 9.8%
Advanced Neuromodulation
Systems, Inc.* 387,100 (2) 17,798,858
Affmetrix, Inc.* 100,200 (2) 2,465,922
American Healthways, Inc.* 484,200 11,557,854
Apria Healthcare Group, Inc.* 254,200 7,237,074
Arthrocare Corp.* 717,200 (2) 17,571,400
Atherogenics, Inc.* 239,200 3,576,040
Charles River Laboratories
International,Inc.* 302,900 (2) 10,398,557
CTI Molecular Imaging Inc.* 242,500 (2) 4,100,675
Cyberonics, Inc.* 198,260 6,346,303
DaVita, Inc.* 380,700 14,847,300
Digene Corp.* 178,100 7,141,810
Dyax Corp. 275,000 2,260,500
Eclipsys Corp.* 715,700 (2) 8,330,748
EPIX Medical, Inc.* 197,300 3,212,044
Exact Sciences Corp.* 164,800 (2) 1,667,776
Exelixis, Inc.* 822,400 5,822,592
Gen-Probe, Inc. 359,000 13,092,730
Harvard Bioscience, Inc.* 1,049,100 9,336,990
Health Net, Inc.* 411,600 13,459,320
IMS Health, Inc. 820,081 20,387,214
INAMED Corp.* 123,750 5,947,425
Inspire Pharmaceuticals, Inc.* 189,300 2,680,488
LabOne, Inc.* 140,200 4,552,294
Lincare Holdings, Inc.* 212,100 (2) 6,369,363
Martek Biosciences Corp.* 125,900 8,179,723
Medcath Corp.* 245,800 (2) 2,571,068
Medicines Co.* 327,900 9,659,934
Odyssey HealthCare, Inc.* 294,600 8,619,996
Owens & Minor, Inc. 213,300 4,673,403
Penwest Pharmaceuticals Co.* 102,229 1,766,517
Pharmaceutical Resources, Inc.* 319,900 (2) 20,841,485
Priority Healthcare Corp., Class B* 229,122 5,524,131
Protein Design Labs, Inc.* 177,000 3,168,300
Quidel Corp.* 473,900 5,127,598
Select Medical Corp.* 1,117,600 18,194,528
Telik, Inc.* 211,900 4,875,819
Triad Hospitals, Inc.* 410,664 13,662,791
United Surgical Partners
International, Inc.* 142,500 4,770,900
Universal Health Services, Inc.,
Class B* 120,000 6,446,400
Wright Medical Group, Inc.* 86,700 2,639,148
-------------
Total Health Care 320,883,018
-------------
Industrials - 13.6%
AAR Corp. 259,200 3,875,040
Abx Air, Inc. 643,200 (2) 2,765,760
Aeroflex, Inc.* 328,700 3,842,503
Airtran Holdings, Inc.* 533,900 6,353,410
Alaska Airgroup, Inc.* 500,000 (2) 13,645,000
Albany International Corp. 290,700 9,854,730
Axsys Technologies, Inc. (5)* 433,800 6,155,622
BHA Group Holdings, Inc., Class A 130,200 3,274,530
Brink's Co., The 420,241 9,501,649
Career Education Corp.* 265,300 10,630,571
CNF, Inc. 105,600 3,579,840
Corinthian Colleges, Inc.* 213,800 11,878,728
Corporate Executive Board Co.* 298,700 13,940,329
CoStar Group, Inc.* 313,500 (2) 13,066,680
Crane Co. 290,600 8,933,044
</Table>
The accompanying notes are an integral part of these financial
statements.
25
<Page>
Managers Special Equity Fund
December 31, 2003
Schedule of Portfolio Investments (continued) Special Equity
- ----------------------------------------------------------------
<Table>
Industrials (continued)
Curtiss-Wright Corp. 164,600 (2) $ 7,408,646
DeVry, Inc.* 597,000 (2) 15,002,610
EGL, Inc.* 163,500 (2) 2,871,060
Engineered Support Systems, Inc. 83,100 4,575,486
Flowserve Corp.* 357,500 7,464,600
IDEX Corp. 208,300 8,663,197
Interpool, Inc. 340,600 (2) 4,853,550
Ionics, Inc.* 602,900 (2) 19,202,365
ITT Educational Services, Inc.* 1,139,700 53,531,709
Jacuzzi Brands, Inc.* 1,132,700 8,030,843
JB Hunt Transport Services, Inc.* 351,900 9,504,819
JLG Industries, Inc. 388,600 5,918,378
Kennametal, Inc. 163,500 6,499,125
Klm-Koninklijke Luchtvaart Mij 825,980 13,389,136
Kroll, Inc.* 595,200 (2) 15,475,200
Lydall, Inc.* 234,000 2,384,460
Michael Baker Corp.* 189,800 1,964,430
MSC Industrial Direct Co., Class A 232,200 6,385,500
Navigant Consulting, Inc.* 328,100 6,187,966
Old Dominion Freight Line, Inc.* 26,300 896,304
Orbital Sciences Corp.* 546,200 (2) 6,565,324
Pentair, Inc. 157,400 7,193,180
Portfolio Recovery Associates, Inc.* 98,600 2,617,830
Reliance Steel & Aluminum Co. 208,500 6,924,285
RemedyTemp, Inc., Class A* 68,700 749,517
Ryder System,Inc. 187,700 6,409,955
Sea Containers, Ltd., Class A 737,000 (2) 13,450,250
Sea Containers, Ltd., Class B* 13,890 253,493
Sequa Corp., Class A* 99,600 4,880,400
Sequa Corp., Class B* 38,300 1,911,170
Shaw Group Inc., The* 210,400 (2) 2,865,648
Sirva, Inc. 126,500 2,471,810
Stericycle, Inc.* 172,100 8,037,070
Stewart &Stevenson Services, Inc. 537,400 7,550,470
Tecumseh Products Co., Class B 101,000 4,767,200
Tetra Tech, Inc.* 127,700 (2) 3,174,622
Thomas & Betts Corp.* 552,400 12,644,436
United Stationers, Inc.* 151,700 6,207,564
Volt Information Sciences, Inc.* 69,350 1,567,310
Waste Connections, Inc.* 249,500 9,423,615
Werner Enterprises, Inc. 343,347 6,691,833
World Fuel Services Corp. 28,100 953,995
York International Corp. 233,900 8,607,520
-------------
Total Industrials 447,425,317
-------------
Information Technology - 18.1%
ADC Telecommunications, Inc.* 2,226,700 6,613,299
Advanced Micro Devices, Inc.* 1,685,000 (2) 25,106,500
Altiris, Inc.* 214,500 7,824,960
Alvarion, Ltd.* 646,000 7,461,300
American Management Systems,
Inc.* 454,800 6,853,836
Anaren Microwave, Inc.* 1,057,900 (2) 14,937,548
Applied Films Corp.* 263,000 8,684,260
Ascential Software Corp.* 377,200 9,780,796
Asyst Technologies Inc.* 399,000 6,922,650
ATMI, Inc.* 285,800 6,613,412
Avid Technology, Inc.* 197,600 9,484,800
Avocent Corp.* 333,200 12,168,464
BearingPoint, Inc.* 1,064,900 10,744,841
Benchmark Electronics, Inc.* 208,500 7,257,885
CCC Information Services Group,
Inc.* 102,481 1,731,929
Centra Software, Inc.* 548,300 2,165,785
Ceridian Corp.* 257,000 5,381,580
CheckFree Corp.* 80,700 (2) 2,231,355
Checkpoint Systems, Inc.* 401,200 7,586,692
Cognex Corp.* 171,900 4,854,456
Cognizant Technology Solutions
Corp.* 394,993 18,027,481
Concord Communications, Inc.* 53,300 1,064,401
Cymer, Inc.* 191,800 8,859,242
Digital Insight Corp.* 118,500 2,950,650
Dot Hill Systems Corp.* 347,100 5,258,565
Dupont Photomasks, Inc.* 252,000 (2) 6,083,280
eFunds Corp.* 405,526 7,035,876
Electronics for Imaging, Inc.* 231,881 6,033,544
ESS Technology, Inc.* 286,800 4,878,468
F5 Networks, Inc.* 237,700 5,966,270
Fairchild Semiconductor
International, Inc.* 707,400 (2) 17,663,778
FLIR Systems, Inc.* 73,900 2,697,350
Helix Technology Corp. 122,700 2,525,166
Henry (Jack)&Associates, Inc. 103,500 2,130,030
Hyperion Solutions Corp.* 501,400 (2) 15,112,196
Identix, Inc.* 904,300 4,024,135
IKON Office Solutions, Inc. 532,000 (2) 6,309,520
Infocrossing, Inc.* 137,200 (2) 1,642,284
Integrated Silicon Solution, Inc.* 301,900 4,730,773
Intrado, Inc.* 230,498 5,059,431
iPayment Holdings, Inc.* 37,000 1,258,000
Itron, Inc.* 53,800 987,768
Ixia, Inc.* 1,337,800 15,652,260
Keithley Instruments, Inc. 138,500 2,534,550
Kemet Corp.* 516,800 7,074,992
Kulicke & Soffa Industries, Inc.* 354,600 5,099,148
LTX Corp.* 311,400 4,680,342
Magma Design Automation, Inc.* 270,600 6,315,804
Mantech International Corp.,
Class A* 181,200 4,520,940
Marvell Technology Group Ltd.* 128,800 4,885,384
McData Corp.* 233,100 2,221,443
McData Corp.,Class A* 328,600 3,131,558
Mercury Interactive Corp.* 127,200 6,187,008
Merix Corp.* 222,500 5,457,925
Mettler Toledo International, Inc.* 187,800 7,927,038
Micromuse, Inc.* 692,900 4,781,010
Microsemi Corp.* 260,000 6,390,800
</Table>
The accompanying notes are an integral part of these financial
statements.
26
<Page>
Managers Special Equity Fund
December 31, 2003
Schedule of Portfolio Investments (continued) Special Equity
- ----------------------------------------------------------------
<Table>
Information Technology (continued)
Modem Media, Inc.* 84,900 $ 693,633
Neoware Systems, Inc.* 252,800 3,463,360
NetScreen Technologies, Inc.* 287,800 7,123,050
O2Micro International, Ltd.* 515,800 11,553,920
Omnivision Technologies, Inc.* 207,000 11,436,750
Open Solutions, Inc. 4,100 72,037
OSI Systems, Inc.* 321,700 (2) 6,179,857
Packeteer, Inc.* 143,100 2,429,838
Parametric Technology Corp.* 1,100,200 4,334,788
Park Electrochemical Corp. 257,100 6,810,579
Pemstar, Inc.* 308,100 (2) 1,013,649
Photon Dynamics, Inc.* 164,500 6,619,480
Planar Systems, Inc.* 216,200 5,257,984
Power Integrations, Inc.* 228,400 7,642,264
Reynolds &Reynolds Co., The,
Class A 150,000 4,357,500
Rogers Corp.* 153,400 6,768,008
Roper Industries, Inc. 164,200 8,088,492
Sanchez Computer Associates, Inc.* 538,400 2,234,360
Secure Computing Corp.* 313,100 5,607,621
Silicon Laboratories, Inc.* 256,700 11,094,574
Skyworks Solutions, Inc.* 667,200 5,804,640
Stratasys, Inc.* 110,250 3,005,415
SupportSoft, Inc.* 361,700 4,756,355
SYNNEX Corp. 290,900 (2) 4,002,784
Synopsys, Inc.* 430,000 (2) 14,516,800
Tech Data Corp.* 228,900 9,085,041
THQ,Inc.*564,400 2 9,544,004
Tier Technologies, Inc.* 396,900 3,242,673
Tollgrade Communications, Inc.* 146,091 2,560,975
Trident Microsystems, Inc.* 294,659 5,132,960
Ultratech Stepper, Inc.* 337,300 9,906,501
Varian Semiconductor Equipment
Associates, Inc.* 155,200 6,780,688
Verint Systems, Inc.* 105,400 2,377,824
Verity, Inc.* 372,600 6,218,694
Vishay Intertechnology, Inc.* 488,500 11,186,650
-------------
Total Information Technology 592,468,506
-------------
Materials - 6.5%
Airgas, Inc.* 673,800 14,473,224
AK Steel Holding Corp. (5)* 6,085,200 (2) 31,034,520
GrafTech International Ltd.* 744,400 10,049,400
Longview Fibre Co. 1,026,900 12,682,215
Massey Energy Co. 1,400,000 (2) 29,120,000
Minerals Technologies,Inc. 167,200 9,906,600
RTI International Metals, Inc.* 409,030 6,900,336
Scotts Co., The, Class A* 154,300 9,128,388
Spartech Corp. 431,100 10,622,304
Stillwater Mining Co.* 1,387,862 13,281,839
United States Steel Corp. 1,425,100 (2) 49,907,002
USEC, Inc. 1,915,600 16,091,040
-------------
Total Materials 213,196,868
-------------
Telecommunication Services - 0.3%
At Road, Inc.* 157,900 2,100,070
General Communication, Inc.,
Class A* 878,100 7,639,470
-------------
Total Telecommunication Services 9,739,540
-------------
Utilities - 3.1%
Avista Corp. 1,202,200 21,783,864
El Paso Electric Co.* 522,400 6,974,040
Reliant Resources, Inc.* 5,991,000 44,093,760
Sierra Pacific Resources Corp. 2,346,800 (2) 17,225,512
Texas Genco Holdings, Inc.* 369,900 12,021,750
-------------
Total Utilities 102,098,926
-------------
Total Common Stocks
(cost $2,218,693,896) 2,997,900,407
-------------
Short-Term Investments - 20.8%
Other Investment Companies - 12.8%
AIM Liquid Assets, 1.00% (1) 27,305 27,305
Bank of New York Institutional
Cash Reserves Fund, 1.14%(1),(3) 120,071,055 120,071,055
JPMorgan Liquid Assets Money
Market Fund, Institutional Class
Shares, 1.02% (1) 73,170,690 73,170,690
JPMorgan Prime Money Market
Fund, Institutional Class
Shares, 0.95% (1) 224,911,456 224,911,456
Total Other Investment Companies 418,180,506
-------------
Principal
Other Short-Term Investments - 8.0% Amount
Due 01/02/04 to 03/08/04, ------
1.00% to 1.17% (1), (3) 263,879,153 263,879,153
Total Short-Term Investments
(cost $682,059,659) 682,059,659
Total Investments - 112.2%
(cost $2,900,753,555) 3,679,960,066
-------------
Other Assets, less Liabilities - (12.2)% (400,641,796)
--------------
Net Assets - 100.0% $3,279,318,270
==============
</Table>
The accompanying notes are an integral part of these financial
statements.
27
<Page>
Managers International Equity Fund International Equity
- -----------------------------------------------------------------
Managers International Equity Fund ("International Equity") seeks
long-term capital appreciation through investment in non-U.S.
equity securities. The Fund has three independent subadvisors who
each manage approximately one third of the total portfolio:
Bernstein Investment Management and Research ("Bernstein"), led
by Kevin Simms and hired in March of 2002, Lazard Asset
Management, LLC ("Lazard"), led by William Holzer and hired in
September 2003, and Mastholm Asset Management, L.L.C.
("Mastholm"), led by Theodore Tyson and hired in March 2000.
The Portfolio Managers
- ----------------------
Bernstein Investment Research and Management
- --------------------------------------------
Bernstein's approach is value-based and research driven. The
thesis is that human nature leads investors to buy and sell
financial assets based on an overreaction to near-term events as
they confuse temporary or cyclical characteristics with
structural change. Thus, short-term problems, which cause profits
and stocks to decline, can create buying opportunities, as
investors underestimate the potential for corrective strategies
to restore long-term earnings power. The investment team, led by
Kevin Simms, attempts to exploit this by using research to
separate fact from emotion. Bernstein's Inter national Strategic
Value discipline is designed to create a focused portfolio of
companies with strong fundamentals and sound business prospects
not yet reflected in their share price.
They begin with all companies in the MSCI EAFE with a market
capitalization greater than $4 billion. This universe of some 600
stocks covers approximately 90%of the capitalization of the EAFE
Index. The investment team screens this list with a proprietary
return model to identify the companies with the most attractive
value attributes. The model derives an expected return for each
company by assessing companies both from a global industry-based
perspective and from a country-based standpoint, including such
factors as price to cash earnings, price to book, return on
equity, and price momentum. Over 100 analysts perform extensive
research, focusing on the most attractively valued stocks. They
dissect corporate financial statements and visit company
management. They also meet frequently with customers, suppliers,
or other industry experts. They then build spreadsheets of
historical and projected balance sheet and income statement
information in order to estimate normalized earnings power, cash
flow and asset values for each company for the next five years,
performing simulations to see the potential impact of changes in
various components. Analysts present their estimates and ratings
for each security to the Research Review Committee of the
Investment Policy Group (IPG). The Committee challenges the
analyst's assumptions and conclusions to ensure they are sound.
The IPG uses this research to build a portfolio of 35-50 of the
best ideas building on the combined convictions of Bernstein
industry analysts and regional portfolio management teams. A
stock is sold when it has achieved forecasted target of fair
value, or if a change in the earnings forecast reduces the price
target to current levels.
Lazard Asset Management, LLC
- ----------------------------
In September, Managers announced the appointment of Lazard Asset
Management as a subadvisor of the Fund, replacing Deutsche Asset
Management. The appointment left Willy Holzer and his investment
team, who had departed Deutsche Asset Management, in charge of
the same portion of Managers International Equity Fund that he
has managed since 1989. Despite the change in organizations, the
Fund's allocation to and the investment philosophies of the
managers did not change. Willy and his investment team will
continue to utilize the global thematic strategy that he
developed in 1986, which targets the fastest growing or most
profitable segments of the global economy.
Willy Holzer can be described as a "top down" thematic investor,
whose themes are based on "bottom up" observations and company
analysis. He views the world as a single global economic unit as
opposed to a collection of separate country economies. Willy
focuses his efforts by first analyzing the connections within the
global economy, and from this analysis develops global investment
themes. These themes target the segments of the global economy
that he believes are most likely to provide attractive long term
investment returns, and which also represent an asymmetric
investment opportunity in the investor's favor. Themes are
typically long lived, three or more years, and are developed
through the course of business; discussions with company
managements or government officials, fundamental and economic
analysis, and the tracking of economic, financial and demographic
trends. Willy works with the securities analysts at Lazard to
identify the companies which will potentially benefit from the
effects of the themes. These companies will necessarily have
attractive fundamentals and reasonable valuations, along with
strong company management.
Willy believes that it is important to distinguish between three
types of companies: Domestic compa-.
28
<Page>
International Equity
- -----------------------------------------------------------------
nies are those which produce, sell and raise capital all in their
home country; International companies are those which produce at
home, but sell their products and raise capital anywhere in the
world; Global companies are those which produce, sell and raise
capital anywhere. Willy will invest in any of these in order to
capitalize on a theme; however, he prefers global companies which
generally have the flexibility and resources to exploit global
trends. Thus, his portfolio tends to be heavily weighted in large
capitalization, multi-national companies. In addition, his
portfolio will tend to be concentrated in the developed markets,
with only a portion invested in companies domiciled in less
developed or "emerging" markets. However, companies in the
portfolio, while domiciled in developed markets, may have
operations or distribution in the emerging markets. Given the
long-term nature of the themes, his rate of turnover is
relatively low (30% to 40% annually). The diversification of
themes in the portfolio generally provides low risk attributes.
Mastholm Asset Management, L.L.C.
- ---------------------------------
Ted Tyson and the investment management team at Mastholm utilize
a bottom-up all capitalization growth style for investing in
international equities. There are several underlying tenets that
Mastholm adheres to that lead to this approach: that the outlook
for a company is more predictable than a country or region, that
companies with accelerating earnings and revenues can provide
superior returns, and that there is no correlation between
international benchmarks and investment opportunities. Thus,
Mastholm will concentrate on companies on a bottom-up basis, they
will continuously search for growing companies or for where
catalysts exist to cause earnings acceleration, and they will
deviate from the Europe, Australasia, Far East Index ("EAFE")
weightings and invest in any size company outside the U.S.
Specifically, Mastholm's approach is to perform fundamental
research on a daily basis in order to identify attractive company
trends or catalysts. This is accomplished first by a daily
screening of industry and company announcements for positive
company earnings releases and other news on a company that might
impact current or future earnings. Stories considered relevant,
generally about 50+ per day, are then summarized and reviewed by
the investment management team. Finally, about 5-10 companies per
day are selected from that list for more detailed analysis by the
team. Mastholm believes that this approach allows comprehensive
coverage of a wide universe while at the same time allowing the
managers to focus on facts that they consider material.
The security analysis Mastholm performs is designed to rapidly
prioritize candidates. The investment team will visit with
companies around the globe, confer with industry analysts,
interview competitors, vendors, and suppliers, and compile a
complete set of financial reports in order to obtain as much
information as possible. Generally, the analysts at Mastholm look
upon quality and clarity of financial results, above-expectations
financial performance, a wide range of analyst expectations,
attractive valuation, and ample liquidity as favorable
characteristics.
Mastholm will generally start with a small (0.5% to 1.0%)
investment based upon their fundamental analysis. As their level
of conviction grows, through company visits and additional
analysis, they will add to a position. The portfolio typically
holds from 70-90 positions with no more than 5% at cost in any
one company. Mastholm will review a position with the intent to
sell when the company's growth decelerates (note that negative
EPS growth will trigger an automatic sale), the catalysts have
become fully recognized and discounted by the market, or a
stronger candidate emerges. Additionally, Mastholm monitors the
technical characteristics of its stocks (i.e., relative strength,
etc.) and will reassess their fundamental research if the
technicals breakdown. Mastholm does not typically hedge its
currency exposure. In extreme cases of dollar/currency disparity,
Mastholm may employ hedges for short time periods to limit
currency risk.
Some thoughts about currencies
- ------------------------------
One of the additional risks of investing in foreign companies is
the risk that foreign currency devaluations will decrease the
value of your investment when translated back to U.S. dollars.
This risk can also work in reverse and increase the value of your
investment. Currency movements are no less difficult to predict
than the direction of interest rates; in fact they are related.
One of the benefits of international investing is the
diversification benefit gained from the difference in return
patterns (lower correlation of returns) that foreign stock
markets have with U.S. stocks. Much of this differentiation comes
from currency movements. This is a long way of saying that much
of the diversification benefit of international investing is a
result of currency fluctuations. For this reason, the portfolio
managers of the Fund do not, as a policy, hedge all foreign
currency exposure in the portfolio back to U.S. dollars. In fact,
all three managers use currency hedges sparingly. Here's why:
29
<Page>
International Equity
- ---------------------------------------------------------------
First, as previously mentioned, it is difficult to predict
currency movements, and none of the managers believe they can
consistently add value by timing currencies. Secondly, the
currency exposure of the portfolio is not necessarily reflected
in the country allocation. Many of the companies in the portfolio
are global companies that may have assets in, and certainly
derive revenues from a variety of countries in a variety of
currencies. Hence, determining the appropriate hedge ratio would
be extremely difficult. We and the managers together believe that
the portfolio is well diversified in currencies, and would not
benefit from a policy of active hedging or currency management.
That being said, there are periods when, if the managers believe
there is particular risk of volatility in a certain currency,
they will use forward foreign exchange contracts to hedge all or
a portion of the currency exposure.
The Year in Review
- ------------------
It was a year of measurable economic improvements around the
globe. The economic reports from the U.S. were much better than
expected and Germany and Japan both made strides in addressing
the necessary structural reforms to improve the health of two of
the world's largest economies. While neither of these two nations
actually reported meaningful growth in their overall economies,
the improvements were tangible. Other nations benefited from the
sharp expansion in the U.S., particularly exporters of raw
materials and high tech goods. The net result of all this was
that inter national equity markets rose broadly during 2003. For
U.S. investors, the rise in share prices was compounded by the
rise in foreign currencies versus the U.S. dollar. Greece,
Sweden, and Germany were among the best performing markets during
the year. Finland was the worst performing developed market and
the only one to lose value in local currencies during 2003. It
was led down by Nokia, which continued to lose market share in
the more competitive wireless equipment industry. Still,
Finland's market returned nearly 17% to U.S. investors thanks to
currency gains.
The Fund returned 33.2%, including distributions, for 2003
compared with a return of 38.6% for the MSCI EAFE Index. It was
the Fund's best annual gain since 1993 and the portfolio's
holdings rose broadly. Just 20% of the roughly 320 positions held
throughout 2003 declined in value. The Fund's best performing
shares were either commodity-based, which benefited from the
surprising resurgence of the global economy, or they were from
the once famous "TMT" (technology, media, and telecom) sectors.
Canada's Inco (+277%) and Australia's BHP Billiton (+150%) and
WMC Resources (+138%) fall into the former category. Yahoo Japan
(+800%before being sold in September), Britain's Cable & Wireless
(+161%), and Sweden's Modern Times Group (+132%) fall into the
latter.
The Fund's total return, unfortunately, fell short of the
performance of the MSCI EAFE Index. The majority of this
underperformance occurred in the fourth quarter and was caused by
two factors. During the third quarter, the Fund's portfolio
managers shifted some of their assets to Japan and the Pacific
region, an area that the Fund had recently been underweight.
Japan's equity market, however, appreciated "only" 8% during the
fourth quarter, which was one of the smallest gains among the
developed markets. In other words, the portfolio managers'
decision to invest in Japan was costly from a relative
perspective given that market's modest increase during the fourth
quarter. The second cause of underperformance was an unfortunate
investment in Italian food company Parmalat. That company's
widely publicized multi-billion euro financial scandal resulted
in the company's eventual bankruptcy and the crash of its stock
price. Although a relatively small position (less than 0.5% of
the Fund), it was still a painful loss.
Looking Forward
- ---------------
As touched on above, the Fund's regional allocations shifted late
in 2003. The most notable change was an increased allocation to
Japan, which rose from 16% at the end of 2002 to 22% at the end
of 2003. The Fund's subadvisors made the following comments on
their portfolio positioning heading into 2004.
Kevin Simms - While inter national equity valuations have
increased to above-average levels, they appear well supported by
economic and corporate-earnings trends. The Japanese economy is
responding positively to the revival in world trade, capital
expenditure is increasing and employment is stabilizing. In
Europe, the post-summer strength in eurozone economic surveys is
finally starting to show up in rising production. The US economy
is on track to beat even the most optimistic forecasts for 2003
and powerful forward momentum suggests it could grow even faster
in 2004, helping fuel global growth even more. Our portfolio
contains a rich mix of high-quality companies across sectors with
strong growth potential that nevertheless sell at low price-to-
forward-earnings ratios as well as a high dividend yield.
30
<Page>
International Equity
- ---------------------------------------------------------------
Willy Holzer - Our portfolio strategy remains broadly unchanged,
favoring risk-taking in knowledge companies and in relation to
Greater China, and capturing exposure to global growth through
materials producers, energy, and dominant technology companies.
It attempts to mitigate compounding exposure to asymmetric
financial conditions by broadly avoiding highly leveraged
companies and financial services. Finally, as an offset to global
financial conditions, it maintains exposure to gold and precious
metals producers, and to domestic companies in Japan.
Ted Tyson - We expect, based on our bottom-up work, the current
global recovery to continue and even accelerate as 2004
progresses as demand increases beyond the current drivers of
global growth, the U.S. and China. Japan, which is finally seeing
restructuring paying off in the form of sharply higher corporate
earnings, will be a significant beneficiary of the pickup in
global demand. We expect higher interest rates to be implemented
by central banks in 2004 and thus would be cautious of markets,
such as the U.K., which are dominated by financial and defensive
stocks.
Cumulative Total Return Performance
- -----------------------------------
International Equity 's cumulative total return is based on the
daily change in net asset value (NAV), and assumes that all
distributions were reinvested. The MSCI EAFE Index ("EAFE") is
compiled by Morgan Stanley Capital International. It consists of
over 1,000 large, publicly traded stocks from 20 countries of
Europe, Asia, Australia and the Far East. The index assumes
reinvestment of dividends. This chart compares a hypothetical
$10,000 investment made in International Equity on December 31,
1993, to a $10,000 investment made in the EAFE for the same time
period. The graph and table do not reflect the deduction of taxes
that a shareholder would pay on a Fund distribution or redemption
of shares. Past performance is not indicative of future results.
The tables following the performance chart display a full
breakdown of the sector and country allocation of the Fund as
well as the top ten positions as of December 31, 2003.
<Table>
Average Annualized Total Returns
--------------------------------
One Five Ten
Year Years Years
------- ------- --------
International Equity 33.21% -0.50% 5.17%
MSCI EAFE Index 38.59% -0.05% 4.47%
</Table>
<Table>
International
Year End Equity MSCI EAFE
- --------- ------------- ---------
31-Dec-93 $10,000 $10,000
31-Dec-94 $10,200 $10,778
31-Dec-95 $11,860 $11,986
31-Dec-96 $13,371 $12,711
31-Dec-97 $14,819 $12,937
31-Dec-98 $16,973 $15,523
31-Dec-99 $21,263 $19,709
31-Dec-00 $19,464 $16,917
31-Dec-01 $14,920 $13,289
31-Dec-02 $12,427 $11,171
31-Dec-03 $16,554 $15,481
</Table>
Managers International Equity Fund
- ----------------------------------
<Table>
Top Ten Holdings (out of 181 securities) % Fund Industry Weightings
- ---------------------------------------- ------ -------------------------------
Arcelor* 1.9% Financials 20.2%
Vodafone Group PLC* 1.7 Materials 19.5
Nissan Motor Co., Ltd.* 1.6 Consumer Discretionary 14.8
Adecco SA 1.6 Industrials 14.7
Assurances Generales de France* 1.5 Energy 7.6
Bank of Nova Scotia* 1.4 Health Care 7.6
ENI SpA* 1.4 Information Technology 5.3
Canon, Inc.* 1.4 Telecommunication
DSM NV* 1.3 Services 4.3
GlaxoSmithKline PLC 1.3 Consumer Staples 3.5
----- Utilities 0.9
Top Ten as a Group 15.1% Other 1.6
=====
</Table>
*Top Ten Holding at June 30, 2003
31
<Page>
Managers International Equity Fund
December 31, 2003
Schedule of Portfolio Investments International Equity
- --------------------------------------------------------------
<Table>
Security Description Shares Value
- -------------------- ------ -----
Common Stocks - 98.4%
Consumer Discretionary - 14.8%
Autoliv, Inc.(Sweden) 54,900 $2,084,874
British Sky Broadcasting PLC
(United Kingdom)* 303,465 3,825,528
Continental AG (Germany)* 38,500 1,460,261
Electrolux AB, Series B
(Sweden) 47,600 1,048,247
Enterprise Inns PLC
(United Kingdom) 73,400 1,333,394
Fast Retailing Co., Ltd.
(Japan) 27,000 1,656,550
George Wimpey PLC
(United Kingdom) 154,000 1,026,225
GUS PLC (United Kingdom) 110,434 1,530,737
Honda Motor Co., Ltd. (Japan) 70,000 3,144,441
Intercontinental Hotels
Group PLC (United Kingdom) 199,635 1,890,530
LG Electronics, Inc.
(South Korea)* 14,260 699,902
Magna International, Inc.
(Canada) 14,300 1,151,304
Marui Co., Ltd.
(Japan) 47,200 598,867
Nissan Motor Co., Ltd.
(Japan) 382,000 4,308,157
Pearson PLC (United Kingdom) 82,653 920,438
Persimmon PLC
(United Kingdom) 94,800 911,728
Reed Elsevier PLC
(United Kingdom) 115,077 961,956
Sekisui Chemical Co., Ltd.
(Japan) 266,600 1,362,902
Societe Television Francaise 1
(France) 29,500 1,032,917
USS Co., Ltd. (Japan) 12,150 861,426
VNU NV (Netherlands) 27,700 875,234
Volkswagen AG (Germany) 56,100 3,144,431
Whitbread PLC(United Kingdom) 210,000 2,703,875
Yamaha Corp. (Japan) 52,400 1,032,408
----------
Total Consumer Discretionary 39,566,332
----------
Consumer Staples - 3.5%
Diageo PLC (United Kingdom) 128,146 1,685,365
Foster's Group, Ltd.
(Australia) 402,300 (2) 1,364,006
Nestle SA, Registered
(Switzerland) 3,700 924,000
Nippon Meat Packers, Inc.
(Japan) 67,000 655,419
Seven-Eleven Japan Co., Ltd.
(Japan) 24,000 733,656
Tesco PLC (United Kingdom) 568,500 2,623,134
Unilever PLC (United Kingdom) 140,626 1,312,953
----------
Total Consumer Staples 9,298,533
----------
Energy - 7.6%
BP PLC (United Kingdom) 121,000 983,898
China Resources Power
Holdings Co. (Hong Kong) 286,000 133,540
CNOOC, Ltd. (Hong Kong) 484,400 (2) 955,760
EnCana Corp. (Canada) 38,634 (2) 1,524,731
Eni SpA (Italy) 197,200 (2) 3,737,150
Petro-Canada (Canada) 52,000 2,571,731
Petroleo Brasileiro SA,
Sponsored ADR (Brazil) 101,400 2,703,324
Saipem SpA (Italy) 58,500 472,988
Shell Transport & Trading
Co., PLC (United Kingdom) 281,908 2,100,359
Talisman Energy, Inc. (Canada) 52,300 2,975,505
Total SA (France) 10,988 2,038,686
----------
Total Energy 20,197,672
----------
Financials - 20.2%
AMB Generali Holding AG
(Germany) 8,200 614,396
Assurances Generales de
France (France) 74,400 4,051,225
Aviva PLC (United Kingdom) 75,000 662,143
Bank of East Asia, Ltd.
(Hong Kong) 302,000 930,673
Bank of Nova Scotia (Canada) 73,764 3,755,985
BNP Paribas SA (France) 35,900 2,268,462
BOC Hong Kong Holdings, Ltd.
(Hong Kong) 666,900 1,254,153
Converium Holding AG
(Switzerland) 15,800 839,425
Credit Suisse Group
(Switzerland) 27,000 985,095
Daiwa Securities Group, Inc.
(Japan) 104,000 716,157
DBS Group Holdings, Ltd.
(Singapore) 282,300 2,445,080
Deutsche Boerse AG (Germany) 21,636 1,188,262
Hang Seng Bank Ltd.(Hong Kong) 85,800 1,128,468
Hannover Rueckversicherungs AG
(Germany) 7,300 255,973
Henderson Land Development Co.,
Ltd.(Hong Kong) 209,000 927,534
Hong Kong Exchanges & Clearing
Ltd. (Hong Kong) 100,000 (2) 217,882
Kookmin Bank (South Korea)* 69,074 2,615,787
Mitsubishi Estate Co., Ltd.
(Japan) 196,000 1,871,049
Mitsubishi Tokyo Financial
Group, Inc. (Japan) 317 2,471,725
Mitsui Fudosan Co., Ltd.
(Japan) 179,000 1,625,000
Nikko Cordial Corp. (Japan) 122,000 688,434
Nomura Holdings, Inc. (Japan) 104,000 1,764,826
PICC Property & Casualty Co.,
Ltd. (Hong Kong) 3,326,000 1,488,723
Promise Co., Ltd. (Japan) 37,500 1,645,443
Royal &Sun Alliance Insurance
Group PLC (United Kingdom) 954,300 1,514,165
Royal Bank of Canada (Canada) 44,000 (2) 2,104,237
Shinhan Financial Group Co.,
Ltd. (South Korea) 136,000 2,170,414
Societe Generale (France) 26,300 2,329,136
Standard Chartered, Plc.
(United Kingdom) 41,100 680,454
Sumitomo Mitsui Financial
Group, Inc. (Japan) 160 (2) 864,995
</Table>
The accompanying notes are an integral part of these financial
statements.
32
<Page>
Managers International Equity Fund
December 31, 2003
Schedule of Portfolio Investments (continued) International Equity
- ------------------------------------------------------------------
<Table>
Security Description Shares Value
- -------------------- ------ -----
Financials (continued)
Sumitomo Realty & Development
Co., Ltd. (Japan) 216,000 $1,922,259
Sun Hung Kai Properties, Ltd.
(Hong Kong) 180,000 (2) 1,492,771
UFJ Holdings, Inc. (Japan)* 704 3,435,019
Willis Group Holdings, Ltd.
(United Kingdom) 27,600 940,332
----------
Total Financials 53,865,682
----------
Health Care - 7.6%
Actelion, Ltd. (Switzerland) 4,500 485,749
Aventis SA (France) 52,611 3,489,362
Fresenius AG, Preferred
(Germany) 29,300 2,051,148
GlaxoSmithKline PLC
(United Kingdom) 144,900 3,344,451
Novartis AG (Switzerland) 29,149 1,334,186
Roche Holding AG (Switzerland) 25,900 2,618,251
Sawai Pharmaceutical Co., Ltd.
(Japan) 13,900 (2) 485,080
Schering AG (Germany) 23,379 1,183,989
Serono SA (Switzerland) 3,690 2,605,180
Shire Pharmaceuticals Group PLC
(United Kingdom)* 81,100 779,774
Suzuken Co., Ltd. (Japan) 16,900 548,773
Yamanouchi Pharmaceutical Co.,
Ltd. (Japan) 43,400 1,353,535
----------
Total Health Care 20,279,478
----------
Industrials - 14.7%
A P Moller-Maersk A/S (Denmark) 356 2,566,219
ACS,Actividades de Construccion y
Servicios, SA (Spain) 43,170 (2) 2,107,315
Adecco SA (Switzerland) 64,600 4,171,523
Autoroutes du sud de la France
(France)* 44,968 1,506,989
BAA PLC (United Kingdom) 130,120 1,157,097
Benesse Corp. (Japan) 27,300 669,219
Canadian National Railway Co.
(Canada) 12,600 797,328
CP Ships, Ltd. (Canada) 36,000 749,391
Dai Nippon Printing Co., Ltd.
(Japan) 90,900 1,283,850
Deutsche Post AG (Germany) 74,400 1,532,780
East Japan Railway Co. (Japan) 201 947,140
FANUC, Ltd. (Japan) 15,100 910,577
FKI PLC (United Kingdom) 209,300 400,908
Goodwill Group, Inc., The
(Japan) 381 (2) 850,636
Hutchison Whampoa, Ltd.
(Hong Kong) 184,000 1,357,778
Kawasaki Kisen Kaisha, Ltd.
(Japan) 157,000 783,992
Konica Corp. (Japan) 125,100 1,697,274
Mitsubishi Corp. (Japan) 126,000 1,343,134
Mitsui & Co., Ltd. (Japan) 170,000 1,377,426
NSK Ltd. (Japan) 253,100 929,728
Qantas Airways, Ltd.
(Australia) 209,649 520,476
RT Group PLC (United Kingdom) 360,539 25,817
Sandvik AB (Sweden) 24,400 841,585
Secom Co., Ltd. (Japan) 29,000 1,088,358
SGS Societe Generale de
Surveillance Holding SA
(Switzerland) 2,761 1,732,285
Singapore Airlines Ltd.
(Singapore) 43,000 283,791
Thk Co., Ltd. (Japan) 72,000 (2) 1,468,318
Tokyu Corp. (Japan) 329,000 1,700,669
TPG NV (Netherlands) 60,300 1,417,485
Vinci SA (France) 17,891 1,480,867
Volvo AB, Class B (Sweden) 34,200 1,048,474
Yamato Transport Co., Ltd.
(Japan) 38,000 449,593
----------
Total Industrials 39,198,022
----------
Information Technology - 5.3%
Canon, Inc. (Japan) 119,500 5,682,730
Cinram International, Inc.
(Canada) 52,000 1,140,801
Compal Electronics, Inc.
(Taiwan) 378,438 (2) 2,591,657
Ericsson LM, Class B (Sweden) 259,400 457,868
Flextronics International,
Ltd. (Singapore)* 112,800 1,673,952
Keyence Corp. (Japan) 3,800 802,713
Nippon Electric Glass Co.,
Ltd. (Japan) 42,000 (2) 823,398
STMicroelectronics NV
(Switzerland) 33,464 (2) 908,702
----------
Total Information Technology 14,081,821
----------
Materials - 19.5%
Alcan, Inc. (Canada) 10,604 497,028
Alumina, Ltd. (Australia) 352,400 1,747,402
Anglo American PLC
(United Kingdom) 21,600 469,596
Aracruz Celulose SA (Brazil) 37,700 1,321,008
Arcelor (Luxembourg) 284,300 (2) 4,974,525
Bayer AG (Germany) 45,296 1,340,539
BHP Billiton, Ltd.(Australia) 445,900 4,058,704
BOC Group PLC (United Kingdom) 71,278 1,089,056
Cemex SA de CV (Mexico) 86,418 (2) 2,264,152
Cia de Minas Buenaventura
SA (Peru) 61,700 1,744,876
DSM NV (Netherlands) 71,700 3,527,619
GMK Norilsk Nickel,
Sponsored ADR (Russia) 7,400 (2) 482,110
Gold Fields, Ltd.
(South Africa) 150,200 2,104,480
Goldcorp, Inc. (Canada) 88,700 1,415,356
Harmony Gold Mining Co., Ltd.
(South Africa) 43,200 699,051
HeidelbergCement AG (Germany)* 25,312 1,069,885
Impala Platinum Holdings, Ltd.
(South Africa) 23,900 (2) 1,038,352
Inco, Ltd. (Canada) 88,200 3,525,270
Meridian Gold, Inc. (Canada)* 62,100 909,695
Outokumpu Oyj (Finland) 34,800 471,891
</Table>
The accompanying notes are an integral part of these financial
statements.
33
<Page>
Managers International Equity Fund
December 31, 2003
Schedule of Portfolio Investments (continued) International Equity
- ------------------------------------------------------------------
<Table>
Security Description Shares Value
- -------------------- ------ -----
Materials (continued)
Placer Dome, Inc. (Canada) 151,000 (2) $2,707,425
POSCO (South Korea) 12,000 1,633,027
Rio Tinto PLC (United Kingdom) 65,933 1,814,674
Shin-Etsu Chemical Co., Ltd.
(Japan) 40,000 1,642,192
Svenska Cellulosa AB (Sweden) 71,300 2,915,126
Syngenta AG (Switzerland) 30,840 2,077,196
Teijin, Ltd. (Japan) 155,000 456,793
Umicore (Belgium) 19,700 (2) 1,382,827
WMC Resources, Ltd.
(Australia) 588,400 2,505,095
----------
Total Materials 51,884,950
----------
Telecommunication Services - 4.3%
Cable & Wireless PLC
(United Kingdom) 572,896 1,361,944
China Mobile Ltd. (Hong Kong)* 297,000 914,026
France Telecom SA (France)* 50,600 1,445,626
Nippon Telegraph & Tel Corp.
(Japan) 185 902,353
TDC A/S (Denmark) 35,400 1,278,388
Vodafone Group PLC
(United Kingdom) 2,237,100 5,558,506
----------
Total Telecommunication Services 11,460,843
----------
Utilities - 0.9%
CLP Holdings Ltd. (Hong Kong) 329,000 1,567,958
Hong Kong &China Gas Co., Ltd.
(Hong Kong) 625,000 955,891
----------
Total Utilities 2,523,849
----------
Total Common Stocks
(cost $208,688,507) 262,357,182
-----------
Short-Term Investments - 9.2%
Other Investment Companies - 8.6%
Bank of New York Institutional
Cash Reserves Fund,
1.14% (1),(3) 19,505,610 19,505,610
JPMorgan Liquid Assets
Money Market Fund,
Institutional Class
Shares, 1.02% (1) 296 296
JPMorgan Prime Money Market
Fund, Institutional Class
Shares, 0.95% (1) 3,474,449 3,474,449
----------
Total Other Investment Companies 22,980,355
----------
Other Short-Term Investments - 0.6%
Principal
America Honda Finance Corp., Amount
1.034%,due 01/16/041,3 501,510 501,510
Bank of America Master Trust,
1.28%,due 05/17/04 (1),(3) 1,001,061 1,001,061
Total Other Short-Term Investments 1,502,571
Total Short-Term Investments
(cost $24,482,926) 24,482,926
----------
Total Investments - 107.6%
(cost $233,171,433) 286,840,108
-----------
Other Assets, less Liabilities - (7.6)% (20,229,337)
------------
Net Assets - 100.0% $266,610,771
============
</Table>
Summary of Investments by Country
<Table>
Managers MSCI
International EAFE
Country Equity Fund* Index
- ------- ------------- -----
Japan 22.1% 21.4%
United Kingdom 16.2 25.7
Canada 9.6 0.0
France 7.3 9.8
Switzerland 7.0 7.3
Germany 5.4 7.1
Hong Kong 5.0 1.6
Australia 3.8 5.1
Sweden 3.1 2.3
South Korea 2.7 0.0
Netherlands 2.2 5.2
Luxembourg 1.9 0.0
United States 1.9 0.0
Italy 1.6 3.9
Singapore 1.6 0.8
Brazil 1.5 0.0
South Africa 1.5 0.0
Denmark 1.4 0.8
Taiwan 1.0 0.0
Mexico 0.8 0.0
Spain 0.8 3.7
Peru 0.7 0.0
Belgium 0.5 1.1
Finland 0.2 1.7
Russia 0.2 0.0
Austria 0.0 0.2
Greece 0.0 0.5
Ireland 0.0 0.7
New Zealand 0.0 0.2
Norway 0.0 0.5
Portugal 0.0 0.4
</Table>
* As a percent of total market value of common stocks on December
31, 2003.
The accompanying notes are an integral part of these financial
statements.
34
<Page>
Managers Emerging Markets Equity Fund Emerging Markets
- ----------------------------------------------------------------
Managers Emerging Markets Equity Fund ("Emerging Markets Equity")
seeks long-term capital appreciation through investment in
companies within countries considered to be emerging or
developing by the World Bank or the United Nations. Managers
utilizes an independent subadvisor to manage the assets of the
portfolio. Ken King leads the investment team of Rexiter Capital
Management Limited ("Rexiter") in managing this Fund.
The Portfolio Manager
- ---------------------
Ken King and the investment management team at Rexiter seek to
earn investment return and manage investment risk by analyzing
and actively managing country and industry exposure in the
portfolio, and investing in companies within the targeted country
and industry ranges which demonstrate strong but, most
importantly, profitable earnings growth.
Country Allocation
- ------------------
Through years of experience analyzing and investing in emerging
markets, Ken King has come to believe that the political,
economic and financial health of countries within the emerging
markets is essential to the success of the companies domiciled
within them. In addition, King believes that emerging markets are
inefficient in the technical sense that past behavior contains
information about future behavior. Individually, they are highly
volatile. They regularly and predictably overshoot fair value and
then, in relatively short periods, revert towards the mean.
Market capitalization weighted indices fail to recognize this;
the markets that have risen most take on a larger index weight
just as it becomes increasingly likely that they will
underperform. Poorly performing markets will have a reduced index
weight just as the chance of relative outperformance increases.
Market capitalization weighted indices thus encourage managers to
chase markets and expose portfolios to the risk of being
"whipsawed." This reduces returns and increases volatility.
Because of this, Rexiter uses a fixed-weight index to define its
neutral position. Rexiter splits the markets into two groups: top
tier are the twelve most liquid markets (countries) and bottom
tier are all other eligible markets. Within each tier, all
markets are given an equal weight: top tier markets have a weight
of 5.6% so that the neutral allocation in top tier markets is 67%
of the portfolio. Bottom tier markets have a weight of 2.6% and
make up 33% of the portfolio.
The investment team at Rexiter analyzes political, economic and
market factors for each country and graphs them into favorable,
neutral and unfavorable rankings that determine the target
allocations within the portfolio. A "favorable" graph means
exposure to a country in the portfolio should match the neutral
weight at a minimum. "Unfavorable" should match the neutral
weight only at a maximum. A "neutral" ranking implies a band,
which ranges by 1%-2% on either side of the fixed weight
depending on the market's tier. Among the market factors that
Rexiter analyzes are the recent performance of each country along
with an assessment of the availability of attractively valued
stocks.
Stock Selection
- ---------------
The portfolio managers at Rexiter are great believers in stock
selection. They believe that the quality of company research in
the emerging markets is poor. Many companies in the emerging
markets have been very successful at destroying shareholder
wealth. Rexiter's research centers on avoiding companies that
generate "profitless growth."
After screening the emerging markets universe for minimum
capitalization and liquidity parameters, the Rexiter investment
team analyzes roughly 300 companies in detail.
In order to identify companies which can and will undergo
profitable growth, Rexiter's research entails: studying published
accounts and accounting policies for the underlying development
of earnings, performing a "duPont Analysis" of return on equity,
analyzing the return on invested capital and the economic value
added, and analyzing the cash flow, capital spending and capital
requirements of each company.
The portfolio is thus constructed from both a top-down and a
bottom-up perspective. It will typically have 40 to 60 stocks of
companies exhibiting profitable growth, and will typically be
very diversified across emerging market countries. Because of the
fixed-weight benchmark allocation method described above, the
portfolio will typically be underweighted relative to the
weightings of the largest three or four emerging countries in the
capitalization-weighted index. The benchmark for the Fund is the
Morgan Stanley Capital International - Emerging Markets Free
Index ("EMF").
35
<Page>
Emerging Markets
- -----------------------------------------------------------------
The Year in Review
- ------------------
During 2003, encouraging economic data drove the performance of
global equity markets. The stock markets of many emerging markets
rose primarily for two reasons. For one thing, many emerging
economies are raw materials based. Thus, the improved global
economic outlook also improved the outlook for demand for their
products. Secondly, investors had a much larger appetite for risk
during 2003, and the more aggressive segments of the stock market
(such as small-capitalization and emerging markets) did
especially well. For U.S. investors, no emerging market returned
less than 25% and several rose by more than 100%. Thailand
(+144%), Turkey (+126%), and Brazil (+115% )were the best
performing markets during the year. Investors in Thailand
overcame fears of SARS and terrorist disruptions and focused on
the nation's return to economic growth. Turkey, with the
financial support of the International Monetary Fund, rebounded
from the brink of financial ruin to show signs of economic
stability. Brazil topped all South American markets because of
the election of a perceived investor-friendly President early in
the year and the strong demand for its raw materials. Malaysia
(+27%) returned the least of any emerging market during 2003.
Managers Emerging Markets Equity Fund returned 51.2%, including
distributions, in 2003. The MSCI Emerging Markets Free Index
(MSCI EMF) returned 56.3% during 2003. It was the Fund's best
annual gain since 1999. The Fund's holdings rose broadly during
the year; only 9 of the 74 positions held throughout the year
declined in value while 6 positions more than doubled. The Fund's
two best performing positions during the year were materials
companies. Hindalco Industries jumped 152% and Siam Cement
returned 135%. Other securities of note were Embraer Aircraft
(+121% on a rebound in industry demand), and Turkish consumer
electronics maker Vestel, which jumped 118% as the company made
headway into the upscale consumer technology market.
While a 50% gain is welcome in any event, the Fund's performance
fell a bit short of its benchmark during 2003. Typically, the
subadvisor's fixed-weight investment philosophy will have an
impact on performance during any particular year. That is to say,
Rexiter will tend to underweight (relative to the market-cap
weighted MSCI EMF Index) those countries that have recently
performed best while overweighting those countries that have
lagged behind as well as select smaller markets. Thus, if there
is a reversion to the mean, and the larger countries give back
some of their gains, Rexiter's portfolio will do relatively well
and vice versa. This is not to downplay the role of fundamental
security analysis at Rexiter,but simply to highlight the role
often played by their macroeconomic analysis. In the case of
2003, where stocks rose so broadly that only a few markets were
truly a drag on performance, Rexiter's macro decisions had little
impact. Rather, the performance of a few holdings was the main
reason the Fund lagged the broader market during the year. In
particular, Korea's LG Household & Health Care, a top 10 holding
as the year began, fell 31% after reporting disappointing 2Q
earnings. The shares were sold in September. Also,the Fund sold 2
telecom positions (China Mobile and Compania Anonima Nacional
Telefonos) during the first quarter after they had declined
sharply. Those three positions alone accounted for more than one-
third of the Fund's underperformance.
Looking Ahead
- -------------
Heading into 2004, Ken King believes that despite the tremendous
gains in 2003, the emerging markets remain attractively valued.
His analysis suggests that emerging markets in aggregate trade at
a significant valuation discount to the developed markets (using
Price/Forecasted Earnings) while they project to have faster
earnings growth rates and higher returns on equity. At the
portfolio level, financials and materials remain the Fund's
largest sector weights, as they were at the end of 2002. From a
relative perspective, however, the portfolio manager has also
emphasized the consumer discretionary and staples sectors.
Regionally, over half of the Fund's investments are in Asia. In
particular, the investment team at Rexiter is enthusiastic about
the growth prospects for Thailand and China. While the Fund's
largest country weight is in South Korea, the allocation is
considerably less than that country's weight in the EMF Index
(consistent with Rexiter's fixed-weight philosophy).
36
<Page>
Emerging Markets
- -----------------------------------------------------------------
Cumulative Total Return Performance
- -----------------------------------
Emerging Markets Equity's cumulative total return is based on the
daily change in net asset value (NAV), and assumes that all
distributions were reinvested. The MSCI EMF Index ("EMF") is
compiled by Morgan Stanley Capital International ("MSCI"). It is
a market capitalization-weighted index covering over 1,000 stocks
in 25 emerging nations in the Asia/Far East, South American,
Eastern European and African regions. MSCI designates nations
based upon several factors, most importantly per capita GDP. In
cases where restrictions on foreign investment exist the EMF
Index limits its coverage to the opportunity set generally
available to foreign investors. This chart compares a
hypothetical $10,000 investment made in Emerging Markets Equity
on February 9,1998, to a $10,000 investment made in the EMF for
the same time period. The graph and table do not reflect the
deduction of taxes that a shareholder would pay on a Fund
distribution or redemption of shares. Past performance is not
indicative of future results.
The tables following the performance chart display a full
breakdown of the sector and country allocation of the Fund as
well as the top ten positions as of December 31, 2003.
<Table>
Average Annualized Total Returns (1)
------------------------------------
One Five Since
Year Years Inception*
Emerging ------ ------ -----------
Markets Equity 51.20% 14.03% 7.03%
MSCI EMF Index 56.28% 10.62% 3.93%
</Table>
* Commencement of operations was February 9, 1998.
(1) Total returns would have been lower had certain expenses not
been reduced.
<Table>
Emerging
Year End Markets MSCI EMF
- --------- --------- ---------
9-Feb-98 $10,000 $10,000
31-Dec-98 $7,740 $7,579
31-Dec-99 $14,711 $12,613
31-Dec-00 $10,784 $8,752
31-Dec-01 $10,723 $8,544
31-Dec-02 $9,871 $8,032
31-Dec-03 $14,924 $12,552
</Table>
Managers Emerging Markets Equity Fund
- --------------------------------------
<Table>
Top Ten Holdings (out of 46 securities) % Fund Industry Weightings
- --------------------------------------- ------ --------------------------------
Samsung Electronics, Ltd., GDR Financials 20.6%
representing 1/2 voting shares * 3.4% Materials 17.7
Vestel Elektronik Sanayi* 3.4 Telecommunication
Sanlam, Ltd.* 3.0 Services 10.5
Hyundai Motor Co., Ltd. 2.9 Consumer Discretionary 10.3
China Oilfield Services, Ltd. 2.7 Information Technology 9.4
Hindalco Ind., Ltd., Sponsored GDR 2.7 Energy 9.4
Siam Commercial Bank Public Co., Ltd. 2.6 Consumer Staples 8.7
Siam Cement Public Co., Ltd., The* 2.6 Industrials 6.2
Gerdau SA, Sponsored ADR 2.4 Health Care 3.1
China Steel Corp. 2.4 Other 4.1
Top Ten as a Group 28.1%
</Table>
*Top Ten Holding at June 30, 2003
37
<Page>
Managers Emerging Markets Equity Fund
December 31, 2003
Schedule of Portfolio Investments Emerging Markets
- -----------------------------------------------------------------
<Table>
Security Description Shares Value
- -------------------- ------ -----
Common Stocks - 95.9%
Consumer Discretionary - 10.3%
Consorcio ARA, SA de CV (Mexico)* 266,000 $ 660,902
Genting Berhad (Malaysia)* 189,600 829,019
Hyundai Motor Co., Ltd.
(South Korea)* 55,000 1,056,003
Vestel Elektronik Sanayi ve
Ticaret A.S. (Turkey)* 294,100,000 1,234,926
----------
Total Consumer Discretionary 3,780,850
----------
Consumer Staples - 8.7%
Coca-Cola Femsa, S.A. de C.V.,
Sponsored ADR (Mexico) 32,380 (2) 687,751
Companhia de Bebidas das
Americas, PR ADR (Brazil) 31,500 803,565
IOI Corp., Berhad (Malaysia) 416,000 842,947
IOI Oleochemical Industries
Berhad (Malaysia) 416 909
PT Hanjaya Mandala Sampoerna
Tbk (Indonesia) 1,600,000 848,488
----------
Total Consumer Staples 3,183,660
----------
Energy - 9.4%
China Oilfield Services,
Ltd. (China) 2,750,000 974,097
LUKOIL Holdings, ADR (Russia) 9,300 864,900
MOL Magyar Olaj-es Gazipari Rt.
(Hungary) 26,200 797,212
Petroleo Brasileiro S.A., Sponsored
ADR (Brazil) 28,400 830,416
----------
Total Energy 3,466,625
----------
Financials - 20.6%
ABSA Group, Ltd. (South Africa) 135,000 852,583
BOC Hong Kong Holdings, Ltd.
(Hong Kong) 400,000 752,228
Cheung Kong Holdings, Ltd.
(Hong Kong) 85,000 676,931
Fubon Financial Holding Co., Ltd.
(Taiwan)* 590,000 565,660
Grupo Financiero BBVA Bancomer,
S.A. de C.V., Class B (Mexico)* 680,000 580,925
Kookmin Bank, Sponsored ADR
(South Korea) 21,257 (2) 804,365
Sanlam, Ltd.(South Africa) 820,000 1,082,594
Siam Commercial Bank Public
Company, Ltd. (Thailand) 700,000 954,210
SM Prime Holdings, Inc.
(Philippines) 800 94
State Bank Of India, GDR (India) 27,000 637,349
Sun Hung Kai Properties, Ltd.
(Hong Kong) 80,000 663,454
----------
Total Financials 7,570,392
----------
Health Care - 3.1%
Ranbaxy Laboratories, Ltd.,
GDR (India)* 24,560 591,162
Teva Pharmaceutical Industries, Ltd.,
Sponsored ADR (Israel) 9,800 (2) 555,758
----------
Total Health Care 1,146,920
----------
Industrials - 6.2%
Alfa, S.A. (Mexico) 220,000 659,770
Empresa Brasileira de
Aeronautica, S.A. (Brazil) 23,550 824,957
Malaysia International Shipping
Corporation Berhad (Malaysia) 265,000 785,846
----------
Total Industrials 2,270,573
----------
Information Technology - 9.4%
Hon Hai Precision Industry Co.,
Ltd. (Taiwan) 186,000 730,716
Mediatek, Inc. (Taiwan) 78,300 735,720
Samsung Electronics Co., Ltd.,
GDR, (South Korea) (a)* 6,670 (2) 1,262,346
Taiwan Semiconductor
Manufacturing Co., Ltd. (Taiwan)* 388,800 724,718
----------
Total Information Technology 3,453,500
----------
Materials - 17.7%
Anglo American PLC
(United Kingdom) 26,500 576,125
China Steel Corp. (Taiwan) 1,050,000 872,165
Formosa Chemicals & Fibre Corp.
(Taiwan) 500,000 839,470
Gerdau SA, Sponsored ADR (Brazil) 43,500 (2) 879,570
GMK Norilsk Nickel, Sponsored
ADR (Russia) 9,400 (2) 612,410
Hindalco Ind., Ltd., Sponsored GDR,
(India) (a)* 31,500 (2) 972,304
POSCO, Sponsored ADR
(South Korea) 24,200 (2) 822,074
Siam Cement Public Co., Ltd., The
(Thailand)* 135,000 940,375
----------
Total Materials 6,514,493
----------
Telecommunication Services - 10.5%
PT Telekomunikasi Indonesia
(Indonesia) 1,000,000 809,284
SK Telecom Co., Ltd., Sponsored
ADR (South Korea) 44,000 (2) 820,600
Telekomunikacja Polska S.A.,
Sponsored GDR, (Poland)* 208,000 841,922
Telesp Celular Participacoes, S.A.,
Sponsored ADR (Brazil)* 120,000 (2) 789,600
Turkcell Iletisim Hizmetleri A.S.
(Turkey)* 60,000,000 597,840
----------
Total Telecommunication Services 3,859,246
----------
Total Common Stocks
(cost $26,195,643) 35,246,258
----------
Other Investment Companies - 21.9%
Bank of New York Institutional Cash
Reserves Fund, 1.14% (1), (3) 6,772,212 6,772,212
</Table>
The accompanying notes are an integral part of these financial
statements.
38
<Page>
Managers Emerging Markets Equity Fund
December 31, 2003
Schedule of Portfolio Investments (continued) Emerging Markets
- -----------------------------------------------------------------
<Table>
Security Description Shares Value
- -------------------- ------ -----
Other Investment Companies (continued)
JPMorgan Prime Money Market
Fund, Institutional Class
Shares, 0.95% (1) 1,256,720 $1,256,720
-----------
Total Other Investment Companies
(cost $8,028,932) 8,028,932
-----------
Total Investments - 117.8%
(cost $34,224,575) 43,275,190
Other Assets, less Liabilities - (17.8)% (6,547,528)
-----------
Net Assets - 100.0% $36,727,662
===========
</Table>
<Table>
Summary of Investments by Country
- ---------------------------------
Managers
Emerging MSCI
Markets Equity EMF
Country Fund* Index
- ------- -------------- -----
South Korea 13.0% 18.3%
Taiwan 12.1 12.2
Brazil 11.2 9.3
Mexico 7.1 6.5
Malaysia 6.7 4.6
India 6.0 5.7
Hong Kong 5.7 0.0
South Africa 5.3 13.8
Thailand 5.2 3.3
Turkey 5.0 1.7
Indonesia 4.5 1.5
Russia 4.0 4.8
United States 3.9 0.0
China 2.7 7.9
Poland 2.3 1.3
Hungary 2.2 1.0
United Kingdom 1.6 0.0
Israel 1.5 2.7
Argentina 0.0 0.6
Chile 0.0 2.1
Colombia 0.0 0.1
Croatia 0.0 0.0
Czech Republic 0.0 0.5
Egypt 0.0 0.3
Jordan 0.0 0.2
Morocco 0.0 0.2
Pakistan 0.0 0.2
Peru 0.0 0.6
Philippines 0.0 0.5
Venezuela 0.0 0.1
</Table>
* As a pecent of total market value of common stocks on December
31, 2003.
The accompanying notes are an integral part of these financial
statements.
39
<Page>
Managers Bond Fund Bond
- ----------------------------------------------------------------
Managers Bond Fund ("Bond") seeks current income by investing in
fixed-income securities. Daniel Fuss of Loomis, Sayles & Co. L.P.
("Loomis"), who has been managing a portion of the Fund since its
inception in 1984, is the subadvisor for this Fund.
The Portfolio Manager
- ---------------------
Dan Fuss is a contrarian bond investor who focuses on individual
issues that will provide the highest return over long periods of
time. Dan and his team of credit analysts at Loomis research debt
offerings in the same way equity analysts research stocks,
looking for undervalued bonds where they see a yield premium, the
potential for price appreciation, or both. They analyze the
company's financial condition in detail, as well as the terms of
specific bond offerings. Price appreciation can come from a
variety of catalysts, including improving company fundamentals,
which would lead to credit upgrades, changing market supply and
demand forces, and improving sector or economic trends.
Given the typical shape of the yield curve, longer-term bonds
generally yield more than shorter-term bonds, and Dan is willing
to take the added interest rate risk in order to gain higher
yields. In addition, price improvements as a result of credit
upgrades are more meaningful for longer-term bonds, thus Dan's
portfolios tend to be relatively long in duration*. In order to
mitigate some of the interest rate risk, Dan structures his
portfolio with counter-cyclical elements. In doing so, Dan will
utilize convertible bonds, municipal bonds, preferred stocks,
foreign corporate and government bonds, in addition to the
domestic corporate bonds which make up the majority of the
portfolio. In addition, Dan seeks bonds with call protection,
either through the terms of the bond structure or through deep
price discounts relative to the call price.
The Year in Review
- ------------------
Interest rates rose in 2003 as a consequence of the improved
economic backdrop and increased risk appetite of investors. In
the U.S., interest rates fluctuated throughout the year. Rates
fell fairly consistently during the first half of 2003 but
reversed sharply in July, as rates shot up 100 basis points, from
3.5% to 4.5% causing July to be one of the worst months for the
bond market on record. They did settle a bit in August and
September before creeping higher 0.25% to 0.40% (25-40 bps),
depending on the maturity, during the fourth quarter. The net
change for the year was a modest rise in rates across the yield
curve. For the year, the coupon from government bonds overcame
this rise in rates to deliver a slight positive return for
investors. Meanwhile, the returns from corporate bonds and other
non-government, or "spread", sectors of the bond market were
quite a bit better. The perceived credit quality of corporate
bonds in general rose in response to the improved macro-economic
backdrop. Thus, corporate bonds (+8.2% in 2003) offered bond
investors compelling returns. This improvement in perceived
credit quality, the increase in investors' appetite for risk, and
the search for yield in a low interest rate environment all
conspired to create a near perfect scenario for high yield bonds,
which returned nearly 30% in 2003. The other spread sectors
(mortgages and other asset-backed securities) had mixed results
relative to Treasuries. The mortgage-backed securities sector
survived its worst period of relative performance ever (July) to
finish the year with a return that was essentially in line with
Treasuries. Asset-backed securities modestly outperformed for the
year.
The Fund performed well in 2003. Its total return, including
distributions, was 10.8% compared with 4.7% for the Lehman
Brothers Government/Credit Index ("LB G/C"). It was the ninth
consecutive year that the Fund offered a positive total return.
Despite the volatility in the general level of interest rates,
the bond market backdrop (strong performance from higher
yielding, longer-duration corporate bonds) was favorable to
Loomis' investment philosophy. Still, portfolio manager Dan Fuss,
who heads up the fixed income effort at Loomis, deserves credit.
He made the decision late in 2002 to begin to move the Fund to a
more conservative posture. The core holdings remained Loomis's
bread and butter, longer-duration medium-credit quality corporate
bonds with attractive yields and good call protection. Yet the
peripheral positions became shorter-maturity agencies and the
like. The net result was a drop in the Fund 's overall duration
from late 2002 through early 2003. Thus, from an overall
allocation standpoint the Fund was better positioned to deal with
a more treacherous 2003, with its periods of sharply rising
interest rates.
Credit should also be given to the Loomis research effort.
Indeed, over the past several years they have done an excellent
job at avoiding, or minimizing the cost of, credit blowups. Thus,
the Fund has benefited from the relatively higher yielding bonds
in the portfolio without having to sacrifice capital losses on
poorly perform-
40
<Page>
Bond
ing credits. Also, the Fund held several corporate bonds
throughout the year that offered attractive yields and
experienced significant price appreciation as a result of
improved fundamental performance. While these tended to be
smaller positions, given their somewhat lower credit quality,
their impact was material. An example of this includes an
American President 8% bond, which returned over 50% (coupon plus
price appreciation) as the transportation company benefited from
the economic recovery and the winning of several contracts
related to the rebuilding of Iraq. Also, two El Paso Energy bonds
each returned almost 40%on that company's turnaround in mid-to
late-2003. Finally, currency helped the Fund in 2003. The Fund
typically holds between 10% and 15% of its positions in non-
dollar bonds, but even this modest allocation helped as most
developed currencies appreciated sharply versus the U.S. dollar.
Looking Ahead
- -------------
Looking ahead, Dan and the investment team at Loomis remain
concerned about the bond market in general for a variety of
reasons, particularly because of their outlook for the Federal
budget deficit. Fuss's position is that the combination of peace
(relatively speaking) and prosperity in the late 1990's were key
reasons for the sharp decline in interest rates. Fiscal policies
were tight, and the lack of government demand for credit held
rates lower. The opposite could be true looking ahead, as
government spending relative to defense and military buildup is
compounded by aggressive tax cuts intended to stimulate the
economy. Thus, the government will need to borrow more, pushing
interest rates higher. One corollary of this is that credit
trends might get even better as the economic recovery continues
to blossom. Also, the steepness of yield curves around the globe
allows for some opportunity to add value, and the U.S. dollar may
continue its adjustment relative to other currencies. It is in
these latter three areas, yield curve, currency, and credit, that
Dan will look to add value in what he expects to be a difficult
period for interest rates and bond investors.
Dan Fuss - The portfolio has been and will continue to be
structured to take advantage of improving credit quality trends.
This is accomplished through applying our research driven
investment process to exploit the various pockets of opportunity
in the overall bond market. We anticipate the Federal Reserve to
raise the federal funds rate by 50-75 basis points this year,
most likely through incremental increases in the second half. We
think the yield on the 10-year Treasury will rise by 50-100 basis
points by year-end 2004, while U.S. Treasury issuance will be
heavy during 2004 putting further pressure on rates. As a result
we have been reducing duration gradually to prepare for the
inevitable move upwards in rates. Our high quality holdings are
generally short while credit holdings are slightly longer.
We have made and will continue to make strategic tactical
allocations in non-dollar and non-US issues that are US Dollar
based in the coming months. We anticipate further declines in the
US Dollar due to the current account deficit, fiscal deficit, and
a current government policy biased toward a weaker dollar.
Specific high yield and investment grade issues will continue to
outperform. Structurally, we will continue to underweight
Treasuries and Agency issues and seek added return and yield from
a broad selection of securities
41
<Page>
Bond
- -----------------------------------------------------------------
Cumulative Total Return Performance
- -----------------------------------
Bond's cumulative total return is based on the daily change in
net asset value (NAV), and assumes that all distributions were
reinvested. The Lehman Brothers Government/Credit Index is
comprised of 4,864 government securities and investment grade
corporate securities. The index assumes reinvestment of all
income. This chart compares a hypothetical $10,000 investment
made in Bond on December 31,1993 to a $10,000 investment made in
the Lehman Brothers Government/Credit Index for the same time
period. The graph and table do not reflect the deduction of taxes
that a shareholder would pay on a Fund distribution or redemption
of shares. Past performance is not indicative of future results.
<Table>
Average Annualized Total Returns (1)
------------------------------------
One Five Ten
Year Years Years
------ ----- ------
Bond Fund 10.77% 8.86% 8.31%
Lehman Brothers
Govt/Credit Index 4.67% 6.66% 6.98%
</Table>
(1) Total returns would have been lower had certain expenses not
been reduced.
<Table>
Year End Bond Fund Lehman Brothers Govt/Credit
- --------- --------- ---------------------------
31-Dec-93 $10,000 $10,000
31-Dec-94 $9,274 $9,649
31-Dec-95 $12,141 $11,506
31-Dec-96 $12,745 $11,840
31-Dec-97 $14,073 $12,995
31-Dec-98 $14,537 $14,226
31-Dec-99 $15,069 $13,921
31-Dec-00 $16,491 $15,570
31-Dec-01 $18,081 $16,894
31-Dec-02 $20,066 $18,759
31-Dec-03 $22,227 $19,634
</Table>
*Duration is the weighted average time (typically quoted in
years) to the receipt of cash flows (principal +interest) of a
bond or portfolio. It is used to evaluate the interest rate
sensitivity of a bond or portfolio. The longer the duration, the
more sensitive the price of the bond is to movements in interest
rates.
42
<Page>
Managers Bond Fund
December 31,2003
Schedule of Portfolio Investments Bond
- ----------------------------------------------------------------
<Table>
Principal
Security Description Amount Value
- ------------------------------------- ---------- ------
Corporate Bonds - 41.2%
Asset-Backed Security - 3.2%
Bank of America-First Union National Bank
Commercial Mortgage, Series 2001-3,
Class A2, 5.464%, 04/11/37 $1,500,000 $1,589,082
Community Program Loan Trust, Series
87-A, Class A4, 4.500%, 10/01/18 241,616 241,129
Community Program Loan Trust, Series
87-A, Class A5, 4.500%, 04/01/29 3,225,000 2,787,566
Continental Airlines, Inc.,
6.648%, 09/15/17 1,083,547 1,058,619
-----------
Total Asset-Backed Security 5,676,396
-----------
Convertible Bonds - 2.7%
Devon Energy Corp., 4.900%, 08/15/08 1,250,000 1,276,563
Devon Energy Corp., 4.950%, 08/15/08 1,692,000 1,727,955
Loews Corp., 3.125%, 09/15/07 1,920,000 1,855,200
-----------
Total Convertible Bonds 4,859,718
-----------
Finance - 8.8%
AON Corp.7.375%, 12/14/12 600,000 686,050
EOP Operating LP, 6.750%, 02/15/12 500,000 552,268
First Industrial L.P., 7.600%, 07/15/28 1,750,000 1,844,441
First Industrial L.P., Medium Term,
7.500%, 12/01/17 1,145,000 1,278,893
Ford Motor Credit Co., 7.250%,
02/22/05 GBP 650,000 1,184,082
GMAC, 5.125%, 05/09/08 500,000 (2) 518,488
GMAC, 6.125%, 01/22/08 2,000,000 2,146,478
GMAC, 6.875%, 09/15/11 250,000 269,282
GMAC, 7.000%, 12/07/05 GBP 250,000 458,012
GMAC, 7.500%, 12/01/06 NZD 1,000,000 653,958
GMAC, International Finance BV,
8.000%, 03/14/07 NZD 950,000 624,815
Highwoods Properties,Inc.,7.500%, 04/15/18 2,250,000 2,454,671
KeyCorp Capital II, 6.875%, 03/17/29 500,000 524,174
Loews Corp., 7.000%, 10/15/23 150,000 149,123
New Plan Excel Realty Trust, 5.875%,
06/15/07 1,250,000 1,356,150
NiSource Finance Corp., 6.150%, 03/01/13 1,250,000 1,343,994
Provident Co., Inc., 7.250%, 03/15/28 250,000 249,622
Spieker Properties, Inc., 7.350%, 12/01/17 250,000 285,193
Trinet Corporate Realty Trust,
7.700%, 07/15/17 500,000 548,750
UnumProvident Corp., 6.750%, 12/15/28 1,000,000 952,359
UnumProvident Corp., 7.375%, 06/15/32 450,000 (2) 454,965
-----------
Total Finance 17,311,978
-----------
Industrials - 23.4%
Altria Group, Inc., 7.000%, 11/04/13 1,500,000 (2) 1,600,193
American Airlines, Inc., Series 01-2,
6.978%,04/01/11 2,193,340 (2) 2,216,914
American Airlines, Inc., 8.608%, 04/01/11 125,000 (2) 113,830
American President, Ltd., 8.000%, 01/15/24 250,000 225,000
Arrow Electronics, Inc., 6.875%, 07/01/13 500,000 (2) 532,781
Bausch & Lomb, Inc., 7.125%, 08/01/28 500,000 507,500
Boise Cascade Co., 7.450%, 08/10/11 250,000 255,691
Clear Channel Communications,
4.250%, 05/15/09 1,500,000 1,503,855
Clear Channel Communications,
5.750%, 01/15/13 500,000 (2) 522,053
Continental Airlines, Inc., Series 991A,
6.545%, 02/02/19 1,475,531 1,458,311
Continental Airlines, Inc., Series 01-1,
6.703%, 06/15/21 435,364 426,019
Continental Airlines, Inc., Series 99-2,
7.256%, 03/15/20 401,103 407,552
Dell Computer Corp., 7.100%, 04/15/28 850,000 983,056
Delphi Corp., 7.125%, 05/01/29 1,950,000 1,983,103
Delta Airlines, 8.300%, 12/15/29 500,000 330,625
</Table>
The accompanying notes are an integral part of these
financial statements.
43
<Page>
Managers Bond Fund
December 31,2003
Schedule of Portfolio Investments (continued) Bond
- ----------------------------------------------------------------
<Table>
Principal
Security Description Amount Value
- ------------------------------------- ---------- ------
Industrials (continued)
Dillards, Inc., 7.000%, 12/01/28 $ 225,000 $ 207,000
Foot Locker, Inc., 8.500%, 01/15/22 570,000 632,700
Ford Motor Co., 6.375%, 02/01/29 2,500,000 2,230,310
General Motors Corp., 6.750%, 05/01/28 500,000 (2) 487,705
Georgia-Pacific Corp., 7.250%, 06/01/28 500,000 479,375
Georgia-Pacific Corp., 7.750%, 11/15/29 925,000 922,688
HCA, Inc., 6.250%, 02/15/13 1,940,000 1,985,798
HCA, Inc., 7.050%, 12/01/27 1,600,000 1,572,656
HCA, Inc., 7.580%, 09/15/25 125,000 130,436
Health Care Property, Inc.,
6.000%, 03/01/15 1,500,000 1,548,326
Hutchison Whampoa International, LTD,
5.450%, 11/24/10 (a) 2,225,000 2,256,833
International Telecom Satellite,
7.625%, 04/15/12 1,000,000 1,123,365
Kellwood Co., 7.625%, 10/15/17 250,000 263,125
Lowe 's Co., Inc., 6.875%, 02/15/28 500,000 563,642
Motorola, Inc., 5.800%, 10/15/08 250,000 265,183
Motorola, Inc., 7.625%, 11/15/10 375,000 430,988
Motorola, Inc., 8.000%, 11/01/11 1,075,000 (2) 1,271,337
Penney (JC), Co., 7.125%, 11/15/23 98,000 104,003
Pulte Homes, Inc., 7.625%, 10/15/17 500,000 583,687
Raytheon Co., 6.400%, 12/15/18 400,000 420,137
Raytheon Co., 7.000%, 11/01/28 1,500,000 1,607,084
Raytheon Co., 7.200%, 08/15/27 800,000 874,794
Schering-Plough Corp., 5.300%, 12/01/13 1,500,000 1,526,174
Sprint Capital Corp., 6.875%, 11/15/28 2,300,000 2,244,414
Sprint Capital Corp., 6.900%, 05/01/19 500,000 (2) 510,770
Time Warner, Inc., 6.625%, 05/15/29 1,750,000 1,798,440
Weyerhaeuser Co., 6.950%, 10/01/27 250,000 258,021
-----------
Total Industrials 40,589,258
-----------
Utility - 3.1%
Constellation Energy Group Inc.,
4.550%, 06/15/15 1,675,000 1,539,802
El Paso Corp., 6.750%, 05/15/09 250,000 (2) 238,438
El Paso Corp., 6.950%, 06/01/28 300,000 235,500
El Paso Corp., 7.000%, 05/15/11 500,000 (2) 461,250
Global Marine, Inc., 7.000%, 06/01/28 250,000 277,331
KN Capital Trust III, 7.630%, 04/15/28 250,000 273,444
MidAmerican Energy Holdings, 5.875%,
10/01/12 750,000 786,398
Southern Natural Gas Co.,7.350%, 02/15/31 1,000,000 987,500
Tennessee Gas Pipeline Co.,7.500%, 04/01/17 250,000 (2) 258,125
Transocean, Inc., 7.375%, 04/15/18 500,000 578,402
-----------
Total Utility 5,636,190
-----------
Total Corporate Bonds (cost $68,628,581) 74,073,540
-----------
Foreign Corporate Obligations - 8.4%
AT&T Corp., 6.000%, 11/21/06 EUR 200,000 269,929
Cerro Negro Finance Ltd., 7.900%,
12/01/20 (a) 500,000 432,500
Empresa Nacional de Electricidad, Yankee,
7.875%, 02/01/27 1,650,000 1,652,467
Enersis SA, Yankee, 7.400%, 12/01/16 225,000 229,476
International Bank for Reconstruction &
Development, 0.000%, 08/20/07 (4) NZD 4,800,000 2,525,569
Macmillan Bloedel Ltd., 7.700%, 02/15/26 1,350,000 1,490,760
Petroleos Mexicanos, 8.625%, 12/01/23 (a) 950,000 (2) 1,042,625
PDVSA Finance Ltd., Series 98-1, 7.400%,
08/15/16 300,000 258,750
PDVSA Finance Ltd., Series 98-1, 7.500%,
11/15/28 1,000,000 810,000
</Table>
The accompanying notes are an integral part of these
financial statements.
44
<Page>
Managers Bond Fund
December 31,2003
Schedule of Portfolio Investments (continued) Bond
- ----------------------------------------------------------------
<Table>
Principal
Security Description Amount Value
- ------------------------------------- ---------- ------
Foreign Corporate Obligations (continued)
Pf Export Rec Master Trust, 6.436%,
06/01/15 (a) $ 949,091 $ 967,560
Samsung Electronics Co., Ltd., 7.700%,
10/01/27 (a) 1,800,000 1,991,504
Teck Cominco Ltd., 7.000%, 09/15/12 1,000,000 1,097,866
Telekom Malaysia Berhad, 7.875%,
08/01/25 (a) 250,000 286,374
Tenaga Nasional Berhad, 7.500%,
11/01/25 (a) 2,000,000 (2) 2,157,734
Total Foreign Corporate -----------
Obligations (cost $13,244,029) 15,213,114
-----------
Foreign Government and Agency Obligations - 6.7%
British Columbia Province, General
Residual, 0.000%, 06/18/29 (4) CAD 2,500,000 444,573
British Columbia Province, General
Residual, 0.000%, 08/23/24 (4) CAD 7,425,000 1,729,483
Canadian Government, 4.500%, 09/01/07 CAD 665,000 529,556
Kingdom of Norway, 6.750%, 01/15/07 NOK 21,160,000 3,498,995
Kommunekredit, 5.000%, 06/07/06 NOK 1,600,000 250,685
Mexico Government, 7.500%, 01/14/12 MEX 1,250,000 1,410,000
New Zealand Government, 6.000%,
11/15/11 NZD 500,000 330,601
Ontario Hydro, 0.000%, 10/15/21 (4) CAD 1,700,000 467,673
Province of Alberta, Series CS, Sinking
Fund, 5.930%, 09/16/16 CAD 219,008 182,169
Province of Manitoba,6.500%, 09/22/17 CAD 1,800,000 1,573,511
Republic of South Africa, 10.000%,
02/28/08 ZAR 1,260,000 195,420
Republic of South Africa, Yankee,
8.500%, 06/23/17 ZAR 1,175,000 (2) 1,401,188
Total Foreign Government -----------
and Agency (cost $9,513,584) 12,013,854
-----------
U.S. Government and Agency Obligations - 36.8%
U.S. Government Agency Obligations - 21.8%
FHLMC, 2.875%, 09/01/05 3,500,000 (2) 3,563,991
FHLMC, 4.625%, 02/15/07 EUR 1,750,000 2,298,385
FHLMC, Gold, 5.000%, 12/01/31 349,885 345,605
FHLMC, 5.250%, 01/01/06 3,300,000 (2) 3,510,266
FHLMC, 5.500%, 09/15/11 5,090,000 5,472,427
FHLMC, 6.000%, 11/15/28 697,341 702,248
FNMA, 3.250%, 01/15/08 3,000,000 3,007,995
FNMA, 4.000%, 10/01/18 13,735,236 13,401,911
FNMA, 5.000%, 01/15/07 3,200,000 (2) 3,415,859
FNMA, 5.250%, 04/15/07 3,200,000 3,444,378
FNMA, 6.000%, 07/01/29 58,201 60,296
-----------
Total U.S. Government Agency Obligations 39,223,361
-----------
U.S. Treasury Notes - 15.0%
USTN, 1.625%, 09/30/05 3,500,000 3,498,632
USTN, 1.625%, 10/31/05 7,000,000 (2) 6,989,066
USTN, 1.875%, 12/31/05 12,000,000 (2) 12,007,968
USTN, 2.375%, 08/15/06 985,000 (2) 990,310
USTN, 3.500%, 11/15/06 3,400,000 (2) 3,514,352
-----------
Total U.S. Treasury Notes 27,000,328
-----------
Total U.S. Government and Agency
Obligations (cost $65,307,852) 66,223,689
-----------
Preferred Stock - 3.2%
Entergy Louisiana, Inc., 4.440% 226 15,481
Entergy New Orleans, Inc., 5.560% 100 8,119
Entergy New Orleans, Inc., 4.750% 482 33,424
International Paper Co., 5.250% 77,500 3,913,750
Newell Financial Trust I, 5.250% 32,000 1,464,000
Union Electric Co., 3.500% 350 22,794
Wisconsin Electric Power Co., 3.600% 3,946 258,462
-----------
Total Preferred Stock (cost $5,459,888) 5,716,030
-----------
</Table>
The accompanying notes are an integral part of these
financial statements.
45
<Page>
Managers Bond Fund
December 31,2003
Schedule of Portfolio Investments (continued) Bond
- ----------------------------------------------------------------
<Table>
Security Description Shares Value
- ------------------------------------- ---------- ------
Short-Term Investments - 21.8%
Other Investment Companies - 20.0%
Bank of New York Institutional Cash
Reserves Fund, 1.14% (1), (3) 32,163,005 $32,163,005
JPMorgan Prime Money Market Fund,
Institutional Class Shares, 0.95% (1) 3,743,271 3,743,271
-----------
Total Other Investment Companies 35,906,276
-----------
Other Short-Term Investments - 1.8% Principal
American Honda Finance Corp., 1.034%, Amount
01/16/04 (1), (3) $1,253,774 1,253,774
Bank of America Master Trust, 1.162%,
05/17/04 (1), (3) 1,001,061 1,001,061
Canadian Imperial Bank of Commerce,
1.001%, 03/18/04 (1), (3) 1,000,568 1,000,568
-----------
Total Other Short-Term Investments 3,255,403
-----------
Total Short-Term Investments (cost $39,161,679) 39,161,679
-----------
Total Investments - 118.2% (cost $201,315,613) 212,401,906
Other Assets, less Liabilities - (18.2)% (32,760,813)
-------------
Net Assets -100.0% $179,641,093
=============
</Table>
The accompanying notes are an integral part of these
financial statements.
46
<Page>
Managers Global Bond Fund Global Bond
- -----------------------------------------------------------------
Managers Global Bond Fund (the "Fund") seeks both income and
capital appreciation by investing in domestic and foreign fixed-
income securities. Managers has utilized a single independent
subadvisor, Loomis, Sayles & Company L.P. ("Loomis"), to manage
the portfolio since March 2002. Kenneth M. Buntrock, CFA and
David W. Rolley, CFA co-manage and lead the investment team
managing the Fund.
The Portfolio Manager
- ---------------------
Loomis believes that the greatest inefficiencies in bond markets,
hence the greatest opportunities to add value, reside in the
pricing of credit risk. Loomis seeks to identify attractively
valued issues through fundamental research. The investment team
and analysts at Loomis generally seek fixed-income securities of
issuers whose credit profiles they believe are improving. Loomis
also analyzes political, economic, and other fundamental factors
and combines this analysis with a comparison of the yield spreads
of various fixed-income securities in an effort to find
securities that it believes may produce attractive returns in
comparison to their risk. Finally, if a security that is believed
to be attractive is denominated in a foreign currency, Loomis
analyzes whether to accept or to hedge the currency risk.
In deciding which securities to buy and sell, Loomis will
consider, among other things, the stability and volatility of a
country's bond markets, the financial strength of the issuer,
current interest rates, and Loomis's expectations regarding
general trends in interest rates. Loomis typically maintains over
one half of the global portfolio in non-U.S. dollar denominated
securities. Average portfolio quality is AA or higher. Loomis
employs currency hedges defensively, for capital preservation.
Portfolio construction is bottom-up, not top-down. Loomis follows
a broad global universe of securities ranging from AAA
governments to emerging markets, which Loomis believes allows the
portfolio to take advantage of timely opportunities if they
should arise.
The Year in Review
- ------------------
One consequence of the improved economic backdrop and increased
risk appetite of investors during 2003 was a rise in the level of
interest rates around the globe. Medium and longer-term rates
rose in virtually every developed market. Japan was an exception
where rates fell very slightly in the shorter maturity ranges and
were basically unchanged in its medium-to longer-term bonds.
Since bond prices and bond yields move in opposite directions,
bonds did not offer compelling gains, excluding currency effects,
to investors during the year. U.S. investors are exposed to the
currency effect, however, and thus benefited from the rise in
most developed currencies versus the U.S. dollar. Thus, foreign
bonds were a very good source of returns in 2003, with some
developed countries offering dollar-based returns in excess of
20%. Also, investors in corporate bonds benefited from a
dramatically improved outlook for corporate credit quality. As
was the case in the stock market for much of 2003, the more
speculative a bond was, the better it did. This was particularly
true in the U.S., where the corporate bond market is more
established and high yield bonds returned almost 30%. Even in the
foreign bond market, however, corporate bonds offered a bit more
performance than government bonds.
This backdrop proved lucrative to the Loomis investment
philosophy. It was, in fact, the Fund's best calendar year ever.
For 2003, the Fund had a total return of 20.7% compared with
returns of 14.9% for the Citigroup World Government Bond Index
("WGBI") and 12.5% for the Lehman Brothers Global Aggregate Index
("Global Agg"). Since they took over the portfolio in March of
2002, portfolio managers Dave Rolley and Ken Buntrock have
invested in what they perceive to be higher yielding countries
with attractive risk/reward profiles.
This has led to investments in countries such as Australia, New
Zealand, Canada, and Mexico. These markets are comparatively
small in the context of the global bond market. Therefore the
positions taken by the managers, while not large on an absolute
basis, represented a significant overweight relative to the
market. The higher yields of these markets also attracted lots of
foreign buyers and, as Dave and Ken correctly anticipated, drove
their currencies considerably higher. In other words, some of the
Fund's robust performance can be attributed to country
positioning.
Meanwhile, some credit must be assigned to Loomis's corporate
bond research. In addition to the macro-level decisions made by
Dave and Ken, the Fund also received good performance from its
corporate bond holdings. The focus was similar to the approach
the managers took on countries: find yield. The credit analysts
at Loomis take a global approach. The key is to find bonds that
offer attractive yields for one reason or another, but are not
likely (according to Loomis) to miss a coupon payment or be
downgraded. An improvement in credit quality would be ideal, but
is not imperative for their investment thesis. On the contrary,
the key is to avoid deterioration in credit quality. A good
example of a successful investment in 2003 was a Singaporean
Flextronics bond that was held throughout the year. It had a
coupon of almost 10%, it was priced in euros which rose 20%
47
<Page>
Global Bond
- ------------------------------------------------------------
versus the dollar, and it was in an industry (electronic
components) where the fundamentals stabilized.
The summary is that Fund performed very well in 2003 as a result
of good country allocations and good security selection driven by
credit analysis.
Looking Ahead
- -------------
From a country perspective, the Fund's allocations are similar to
where they were at the end of 2002. The overall makeup of the
Fund, however, is more defensively positioned. This posture
reflects concerns from the investment team at Loomis regarding
the potential for substantially higher interest rates in the
quarters ahead. Specifically, Dave and Ken have reduced the
Fund's duration* (or interest rate sensitivity) to 4.6 years, or
1.6 years less than at the end of 2002. This means that the Fund
in general would be less susceptible to a rise in rates than it
was last year. Also, the Fund's allocation to corporate bonds has
fallen to below 40% from the above 50% range of last year. The
net result of all this is that while the core of the Fund is
still invested in the traditional Loomis-like securities (higher
yielding, stable credit outlooks, etc), the managers have made
moves on the margin to protect the portfolio in case rates rise
meaningfully and/or corporate credit quality begins to
deteriorate again.
Dave Rolley and Ken Buntrock - The non-dollar markets are not
just attractive in light of our expectations of additional U.S.
dollar weakness; higher yields are available in bond markets in
countries such as Canada, Australia, and the United Kingdom. We
believe that the Euro bond market is a more defensive market than
U.S. Treasuries if global interest rates rise in 2004.
We have made a number of minor adjustments in portfolio strategy:
we have gradually reduced total duration, we have added small
additional positions in Japanese Yen and Singapore dollars, and
at year end we hedged two percentage points of our Canadian
dollar bond position back into US dollars after a particularly
strong run by the Canadian currency. On balance, we still seek to
tactically reduce duration, maintain a significant non-U.S.
dollar bond exposure, and look for selected corporate ideas where
we feel that total returns can exceed those in the government
markets.
Cumulative Total Return Performance
- -----------------------------------
The Fund's cumulative total return is based on the daily change
in net asset value (NAV), and assumes that all distributions were
reinvested. The WGBI is priced in U.S. dollars, and includes 14
international government bond markets. The index assumes
reinvestment of all dividends. This chart compares a hypothetical
$10,000 investment made in the Fund at its inception on March 25,
1994, to a $10,000 investment made in the WGBI for the same time
period. The graph and table do not reflect the deduction of taxes
that a shareholder would pay on a Fund distribution or redemption
of shares. Past performance is not indicative of future results.
<Table>
Average Annualized Total Returns
--------------------------------
One Five Since
Year Years Inception*
----- ------ ----------
Global Bond 20.69% 4.03% 6.09%
WGBI 14.91% 5.75% 7.04%
</Table>
* Commencement of operations March 25, 1994.
<Table>
Year End Global Bond WGBI
- --------- ----------- --------
31-Mar-94 $10,000 $10,000
31-Dec-95 $11,681 $12,182
31-Dec-96 $12,194 $12,623
31-Dec-97 $12,214 $12,653
31-Dec-98 $14,567 $14,589
31-Dec-99 $13,114 $13,967
31-Dec-00 $12,902 $14,189
31-Dec-01 $12,373 $14,049
31-Dec-02 $14,706 $16,787
31-Dec-03 $17,749 $19,290
</Table>
48
<Page>
Managers Global Bond Fund
December 31, 2003
Schedule of Portfolio Investments Global Bond
- -----------------------------------------------------------------
<Table>
Principal
Security Description Amount Value
- ------------------------------------- ---------- ------
Foreign Government and Agency Obligations - 44.0%
Belgium Government Bond, 3.750%,
03/28/09 EUR $900,000 $1,139,158
Bundes Immobil, 4.625%, 09/27/12 EUR 525,000 671,658
Federal Republic of Brazil, 10.000%,
01/16/07 USD 100,000 112,000
Federal Republic of Brazil, 8.875%,
04/15/24 USD 60,000 (2) 58,500
Irish Government, 4.600%, 04/18/16 EUR 730,000 928,811
Italy Buoni Poliennali Del Tesoro, 4.500%,
03/01/07 EUR 810,000 1,063,789
Kingdom of Denmark, 4.000%, 08/15/08 DKK 4,195,000 721,866
Kingdom of Denmark, 5.000%, 08/15/05 DKK 930,000 163,214
Kingdom of Norway, 5.500%, 05/15/2009 NOK 3,850,000 618,557
Kingdom of Norway, 6.750%, 01/15/07 NOK 840,000 138,902
Mexico Government, 8.375%, 01/14/11 USD 300,000 356,250
Netherlands Government, 5.000%,
07/15/11 EUR 495,000 663,829
New South Wales Treasury Corp., 6.500%,
05/01/06 AUD 200,000 153,972
New Zealand Government, 6.000%, 11/15/11 NZD 25,000 16,530
Ontario Province, 5.700%, 12/01/08 CAD 1,100,000 909,529
Ontario Province, 5.900%, 03/08/06 CAD 250,000 204,415
Queensland Treasury Corp., 8.000%,
09/14/07 AUD 1,325,000 1,077,255
Republic of Austria, 5.000%, 07/15/12 EUR 495,000 658,210
Republic of Austria, 6.000%,
02/14/07 HUF 11,000,000 48,775
Republic of South Africa, 5.250%,
05/16/13 EUR 350,000 425,359
Republic of South Africa, Yankee, 8.500%,
06/23/17 USD 200,000 238,500
Republic of Trinidad & Tobago, 9.750%,
07/01/20 (a) USD 175,000 229,250
Saskatchewan Province, 5.750%, 03/05/29 CAD 500,000 394,564
Spanish Government, 5.400%, 07/30/11 EUR 500,000 684,586
Swedish Government, 5.250%, 03/15/11 SEK 4,715,000 686,218
Swedish Government, 6.500%, 05/05/08 SEK 2,925,000 446,395
U.K. Treasury, 6.250%, 11/25/10 GBP 325,000 634,552
U.K. Treasury, 5.000%, 03/07/12 GBP 250,000 454,611
United Mexican States, 5.375%, 06/10/13 EUR 250,000 304,916
Total Foreign Government and ----------
Agency Obligations (cost $12,682,448) 14,204,171
----------
Corporate Bonds - 38.3%
Convertible Bonds - 1.7%
Corning, Inc., 3.500%, 11/01/08 USD 45,000 (2) 55,744
Genzyme Corp-General Division,
Convertible, 3.000%, 05/15/21 USD 100,000 (2) 101,250
LSI Logic Corp., 4.000%, 11/01/06 USD 70,000 68,425
Nextel Communications Convertible, 5.250%,
01/15/10 USD 70,000 71,050
Nortel Networks, 4.250%, 09/01/08 USD 130,000 123,013
Samsung Electronics Co., Ltd., 7.700%,
10/01/27 (a)USD 125,000 138,299
----------
Total Convertible Bonds 557,781
----------
Finance - 16.6%
Arcel Finance Ltd., 7.048%, 09/01/11 (a) USD 105,000 108,150
Bangkok Bank Public Co. Hong Kong, 9.025%,
03/15/29 (a) USD 125,000 140,448
DEPFA Deutsche Pfandbriefbank AG, 5.000%,
02/03/05 EUR 155,000 200,720
First Industrial L.P., 7.600%, 07/15/28 USD 100,000 105,397
Ford Credit Canada, 7.163%, 04/23/07 CAD 150,000 121,575
Ford Motor Credit Co., 7.250%, 02/22/05 GBP 100,000 182,166
GMAC, 7.000%, 12/07/05 GBP 50,000 91,602
GMAC International Finance BV, 8.000%,
03/14/07 NZD 400,000 263,080
Household Financial, 4.500%, 07/02/08 CAD 100,000 78,042
Household Finance Corp., 5.125%,
06/24/09 EUR 225,000 296,809
KFW International Finance, Inc., 1.000%,
12/20/04 JPY 27,000,000 254,245
Kreditanstalt fuer Wiederaufbau, 5.250%,
01/04/10 EUR 620,000 839,166
</Table>
The accompanying notes are an integral part of these
financial statements.
49
<Page>
Managers Global Bond Fund
December 31, 2003
Schedule of Portfolio Investments (continued) Global Bond
- -----------------------------------------------------------------
<Table>
Principal
Security Description Amount Value
- ------------------------------------- ---------- ------
Finance (continued)
MBNA Europe Funding, PLC., 6.500%,
03/27/07 EUR $ 50,000 $ 68,171
Muenchener Hypothekenbank eG, 5.000%,
01/16/12 EUR 615,000 814,971
National Rural Utilities Cooperative
Finance Corp., 4.125%, 02/24/06 EUR 250,000 320,409
NGG Finance, PLC., 6.125%, 08/23/11 EUR 75,000 102,910
Nordic Investment Bank, 5.250%,
04/20/06 SEK 2,000,000 288,215
Olivetti Finance, 6.875%, 01/24/13 EUR 75,000 106,919
Permanent Financing PLC, 5.100%,
06/11/07 EUR 275,000 365,006
The International Bank for Reconstruction
and Development, 4.750%, 12/20/04 JPY 59,000,000 575,356
Trinet Corporate Realty Trust,
7.700%, 07/15/17 USD 50,000 54,875
----------
Total Finance 5,378,232
----------
Industrials - 16.6%
Alcan, Inc., 5.500%, 05/02/06 EUR 140,000 185,114
Alliance Pipeline LP, 6.996%,
12/31/19 (a)USD 252,878 285,932
Allied Waste North America, 6.500%,
11/15/10 (a) USD 55,000 (2) 56,375
Allied Waste North America, 8.500%,
12/01/08 USD 50,000 55,625
American Standard, Inc., 7.125%,
06/01/06 EUR 75,000 101,995
American Standard, Inc., 8.250%,
06/01/09 GBP 50,000 94,878
Arrow Electronics, Inc., 6.875%,
07/01/13 USD 100,000 106,556
AT&T Corp., 6.000%, 11/21/06 EUR 50,000 67,482
Bavaria S.A., 8.875%, 11/01/10 (a) USD 60,000 61,500
Boise Cascade Corp., 7.350%, 02/01/16 USD 100,000 101,511
Bowater,Inc., 6.500%, 06/15/13 USD 130,000 (2) 126,166
Brascan Corp., 7.125%, 06/15/12 USD 125,000 139,701
Canadian Pacific Railroad, 4.900%,
06/15/10 (a) CAD 50,000 38,687
CITGO Petroleum Corp., 11.375%,
02/01/11 USD 90,000 104,400
Corning Inc., 6.750%, 09/15/13 USD 125,000 126,719
Dana Corp., 9.000%, 08/15/11 EUR 100,000 145,056
Dean Foods Co., 6.625%, 05/15/09 USD 75,000 (2) 78,750
Equistar Chemical LP, 6.500%, 02/15/06 USD 80,000 80,800
Falconbridge Ltd., 7.350%, 06/05/12 USD 150,000 169,419
Flextronics International, Ltd., 9.750%,
07/01/10 EUR 50,000 68,744
Gruma SA de CV, 7.625%, 10/15/07 USD 150,000 161,250
Grupo Tranportacion Ferroviaria Mexicana
S.A. de C.V., 11.750%, 06/15/09 USD 70,000 71,925
Hasbro, Inc., 6.600%, 07/15/28 USD 140,000 135,100
HeidelbergCement AG, 4.750%, 04/09/09 EUR 40,000 48,058
Hutchison Wham International, Ltd., 7.450%,
11/24/33 (a) USD 100,000 104,152
IMC Global, Inc., 10.875%, 06/01/08 USD 45,000 49,500
Koninklijke Vendex Kbb, 7.375%,
11/15/10 (a) EUR 50,000 66,221
Lam Research Corp., 4.000%, 06/01/06 USD 30,000 (2) 30,750
McDonald 's Corp., 3.6275%, 10/10/10 SGD 250,000 144,659
Methanex Corp., 7.750%, 8/15/05 USD 100,000 105,500
Motorola, Inc., 8.000%,11/01/11 USD 75,000 (2) 88,698
News America Holdings, 8.625%,
02/07/14 AUD 350,000 275,330
Noranda, Inc., 7.250%, 07/15/12 USD 125,000 139,879
Park Place Entertainment, 7.875%,
03/15/10 USD 40,000 (2) 44,300
Philippine Long Distance Telephone, 11.375%,
05/15/12 USD 50,000 55,125
Premcor Refining Group, 7.500%,
06/15/15 USD 75,000 76,875
Repsol International Finance, 5.750%,
12/04/06 EUR 100,000 134,044
Rogers Cablesystems, 9.650%, 01/15/14 CAD 250,000 205,016
Schering-Plough Corp., 5.300%, 12/01/13 USD 30,000 30,523
Shaw Communications, Inc., 7.500%,
11/20/13 CAD 175,000 136,639
</Table>
The accompanying notes are an integral part of these
financial statements.
50
<Page>
Managers Global Bond Fund
December 31, 2003
Schedule of Portfolio Investments (continued) Global Bond
- -----------------------------------------------------------------
<Table>
Principal
Security Description Amount Value
- ------------------------------------- ---------- ------
Industrials (continued)
Sing Telecommunications, 6.000%,
11/21/11 EUR 50,000 68,933
Starwood Hotels & Resorts, 7.875%,
05/01/12 USD 80,000 (2) 90,000
Stena AB, 7.500%, 11/01/13 (a) USD 75,000 77,250
Teck Cominco Ltd., 7.000%, 09/15/12 USD 100,000 109,787
Telefonica Europe, BV, 5.125%, 02/14/13 EUR 50,000 64,827
Telekom Malaysia Berhad, 7.875%,
08/01/25 (a)USD 200,000 229,099
Videotron, Ltee., 6.875%, 01/15/14 (a) USD 90,000 (2) 92,925
WPP Group, PLC, 6.000%, 06/18/08 EUR 250,000 338,799
----------
Total Industrials 5,370,574
----------
Utility - 3.4%
Enersis SA, Yankee, 7.400%, 12/01/16 USD 275,000 280,471
Petroleos Mexicanos, 8.625%,
12/01/23 (a) USD 100,000 109,750
Petroleos Mexicanos, 9.500%, 09/15/27 USD 325,000 (2) 383,500
Pioneer Natural Resources Co., 7.200%,
01/15/28 USD 65,000 69,584
Tenaga Nasional Berhad, 7.500%,
11/01/25 (a) USD 225,000 242,745
----------
Total Utility 1,086,050
----------
Total Corporate Bonds (cost $10,636,358) 12,392,637
----------
U.S. Government and Agency Obligations - 8.2%
U.S. Government Agency Obligations - 2.5%
FHLMC, 5.500%, 04/01/33 USD 215,162 217,872
FNMA, 1.750%, 03/26/08 60,000,000 588,243
Total U.S. Government Agency Obligations 806,115
U.S. Treasury Notes - 5.7%
USTN, 6.875%, 05/15/06 USD 760,000 (2) 844,877
USTN, 1.875%, 12/31/05 USD 1,000,000 1,000,664
----------
Total U.S. Treasury Notes 1,845,541
----------
Total U.S. Government and Agency
Obligations (cost $2,621,647) 2,651,656
----------
Other Investment Companies - 11.3%
Bank of New York Institutional Cash
Reserves Fund, 1.14% (1), (3) 2,088,065 2,088,065
JPMorgan Prime Money Market, Institutional
Class Shares, 0.95% (1) 1,565,563 1,565,563
Total Other Investment Companies (cost $3,653,628) 3,653,628
----------
Total Investments - 101.8%
(cost $29,594,081) 32,902,092
Other Assets, less Liabilities - (1.8)% (594,996)
------------
Net Assets - 100.0% $32,307,096
============
</Table>
The accompanying notes are an integral part of these
financial statements.
51
<Page>
Notes to Schedules of Portfolio Investments
- --------------------------------------------
The following footnotes and abbreviations should be read in
conjunction with each of the Schedules of Portfolio Investments
previously presented in this report.
At December 31,2003,the cost of securities for Federal income tax
purposes and the gross aggregate unrealized appreciation and/or
depreciation based on tax cost were approximately:
<Table>
Fund Cost Appreciation Depreciation Net
- ---------------- ----------- ------------ ------------ -----------
Value $92,394,684 $16,978,710 $(1,495,408) $15,483,302
Capital Appreciation 107,419,625 15,813,556 (1,473,016) 14,340,540
Small Company 15,893,274 5,245,673 (160,131) 5,085,542
Special Equity 2,920,193,968 836,420,244 (76,654,146) 759,766,098
International Equity 233,575,757 59,261,844 (5,997,493) 53,264,351
Emerging Markets 34,586,691 9,185,743 (497,244) 8,688,499
Bond 201,320,135 11,552,002 (470,231) 11,081,771
Global Bond 29,601,623 3,313,906 (13,437) 3,300,469
</Table>
*Non-income-producing security
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933.This security may be resold in
transactions exempt from registration, normally to qualified
buyers. At December 31, 2003, the value of these securities
amounted to the following:
<Table>
Fund Market Value % of Net Assets
- ----------------- --------------- ---------------
Emerging Markets $2,234,650 6.1%
Bond 9,135,130 5.1%
Global Bond 1,980,783 6.1%
</Table>
(1) Yield shown for each investment company represents its
December 31, 2003, seven-day average yield, which refers to the
sum of the previous seven days' dividends paid, expressed as an
annual percentage.
(2) Some or all of these shares were out on loan to various
brokers as of December 31, 2003, amounting to:
<Table>
Fund Market Value % of Net Assets
- ----------------- ---------------- ---------------
Value $5,944,687 5.9%
Capital Appreciation 9,131,830 8.2%
Small Company 2,185,951 11.7%
Special Equity 367,683,896 11.2%
International Equity 20,152,360 7.6%
Emerging Markets 6,589,860 17.9%
Bond 36,917,451 20.6%
Global Bond 2,041,305 6.3%
</Table>
(3) Collateral received from brokers for securities lending was
invested in these short-term investments.
(4) Zero coupon security.
(5) Affiliated Company - See Note 10 in the Notes to Financial
Statements.
Investments Definitions and Abbreviations:
- ------------------------------------------
ADR/GDR: ADR after the name of a holding stands for American
Depositary Receipt, representing ownership of foreign securities
on deposit with a domestic custodian bank; a GDR (Global
Depositary Receipt) is comparable, but foreign securities are
held on deposit in a non-U.S. bank. The value of the ADR/GDR
securities is determined or significantly influenced by trading
on exchanges not located in the United States or Canada.
Sponsored ADR/GDRs are initiated by the underlying foreign
company.
FHLMC: Federal Home Loan Mortgage Corp.
USTB: United States Treasury Bond
FNMA: Federal National Mortgage Association
USTN: United States Treasury Note
GNMA: Government National Mortgage Association
GMAC: General Motors Acceptance Corp.
Registered shares: A security whose owner has been recorded with
its issuer or issuer's registrar.
Abbreviations have been used throughout the portfolios to
indicate amounts shown in currencies other than the U.S. dollar
(USD):
AUD: Australian Dollar
SEK: Swedish Krona
CAD: Canadian Dollar
SGD: Singapore Dollar
DKK: Danish Krone
NZD: New Zealand Dollar
EUR: euro
NOK: Norwegian Krone
GBP: British Pound
ZAR: South African Rand
HUF: Hungarian Forint
JPY: Japanese Yen.53
52
<Page>
Statement of Assets and Liabilities
December 31, 2003
- ----------------------------------------------------
<Table>
Managers Managers
Managers Capital Small
Value Appreciation Company
Fund Fund Fund
---------- ----------- -----------
Assets:
Investments at value* $107,877,986 $121,760,165 $20,978,816
Cash - 44,315 -
Foreign currency** - - -
Receivable for investments
sold - 84,277 86,185
Receivable for Fund shares
sold 218,515 373,866 66,372
Receivable for open forward
foreign currency contracts- - -
Dividends, interest and
other receivables 161,703 80,184 1,942
Prepaid expenses 22,628 14,319 5,851
---------- ----------- -----------
Total assets 108,280,832 122,357,126 21,139,166
---------- ----------- -----------
Liabilities:
Payable to Custodian 1,295 - 4,415
Payable for Fund shares
repurchased 40,168 1,235,900 1,205
Payable upon return of
securities loaned 6,121,191 9,392,809 2,266,071
Payable for investments
purchased 1,227,824 604,672 66,398
Payable for open forward
foreign currency contracts - - -
Accrued expenses:
Investment advisory and
management fees 61,567 74,585 14,021
Administrative fees 20,522 23,308 3,895
Other 88,293 123,288 33,152
---------- ----------- -----------
Total liabilities 7,560,860 11,454,562 2,389,157
---------- ----------- -----------
Net Assets $100,719,972 $110,902,564 $18,750,009
============ ============ ===========
Shares outstanding 3,838,193 4,355,368 2,040,355
---------- ----------- -----------
Net asset value, offering and
redemption price per share $26.24 $25.46 $9.19
Net Assets Represent:
Paid-in capital $91,074,085 $263,237,659 $22,672,738
Undistributed net investment
income (loss) 8,557 - -
Accumulated net realized gain
(loss) from investments
and foreign currency
transactions (6,637,959) (166,855,506) (9,079,833)
Net unrealized appreciation
of investments and foreign
currency contracts and
translations 16,275,289 14,520,411 5,157,104
---------- ----------- -----------
Net Assets $100,719,972 $110,902,564 $18,750,009
============ ============ ===========
* Investments at cost $91,602,697 $107,239,754 $15,821,712
---------- ----------- -----------
** Foreign currency at cost - - -
---------- ----------- -----------
</Table>
53
<Page>
<Table>
Managers
Managers Managers Emerging Managers Managers
Special International Markets Managers Global
Equity Equity Equity Bond Bond
Fund Fund Fund Fund Fund
- ----------- -------------- ----------- ----------- -----------
$3,679,960,066 $286,840,108 $43,275,190 $212,401,906 $32,902,092
895,518 - - - -
- 525,947 130,243 90 10,945
67,106,587 1,093,996 - - -
38,080,461 375,443 139,440 741,053 2,194,764
- - - - 231,811
1,177,758 847,715 114,794 2,251,033 635,031
134,400 27,199 15,807 37,016 2,585
- --------------- ------------ ----------- ------------ -----------
3,787,354,790 289,710,408 43,675,474 215,431,098 35,987,228
- --------------- ------------ ----------- ------------ -----------
- 14,962 54,235 - 9,702
14,390,246 1,359,908 19,967 168,321 25,413
383,950,208 21,008,181 6,772,212 35,418,408 2,088,065
104,781,866 - - - 1,232,635
- - - - 228,952
2,427,080 198,598 34,067 60,371 16,871
674,189 55,266 7,406 36,737 4,820
1,812,931 462,722 59,925 106,168 73,674
508,036,520 23,099,637 6,947,812 35,790,005 3,680,132
- --------------- ------------ ----------- ------------ -----------
$3,279,318,270 $266,610,771 $36,727,662 $179,641,093 $32,307,096
=============== ============ =========== ============ ===========
41,784,170 6,482,432 2,769,662 7,309,390 1,455,878
- --------------- ------------ ----------- ------------ -----------
$78.48 $41.13 $13.26 $24.58 $22.19
======== ======== ======= ======== ========
$2,904,807,759 $375,107,463 $30,524,499 $167,967,393 $28,855,454
782,667 (137,750) - 37,682 115,438
(405,478,667) (162,179,741) (2,850,493) 517,092 (7,542)
779,206,511 53,820,799 9,053,656 11,118,926 3,343,746
- --------------- ------------ ----------- ------------ -----------
$3,279,318,270 $266,610,771 $36,727,662 $179,641,093 $32,307,096
=============== ============ =========== ============ ===========
$2,900,753,555 $233,171,433 $34,224,575 $201,315,613 $29,594,081
- --------------- ------------ ----------- ------------ -----------
- 513,275 126,874 90 10,956
- --------------- ------------ ----------- ------------ -----------
</Table>
The accompanying notes are an integral part of these financial
Statements.
54
<Page>
Statements of Operations
For the year ended December 31, 2003
- --------------------------------------------------------------
<Table>
Managers Managers
Managers Capital Small
Value Appreciation Company
Fund Fund Fund
---------- ----------- -----------
Investment Income:
Dividend income $1,313,694 $ 671,839 $ 29,127
Interest income 41,938 40,545 5,031
Foreign withholding tax (7,105) (23,616) (163)
Securities lending fees 4,554 10,804 1,926
---------- ----------- -----------
Total investment income 1,353,081 699,572 35,921
---------- ----------- -----------
Expenses:
Investment advisory and
management fees 546,934 848,776 133,481
Administrative fees 182,311 265,242 37,078
Transfer agent 177,456 320,115 7,834
Custodian 35,353 53,731 10,123
Professional fees 42,578 51,829 20,867
Registration fees 24,996 20,563 8,510
Trustees fees and expenses 4,136 6,248 764
Insurance 2,663 5,163 899
Miscellaneous 17,360 40,553 2,313
Total expenses before ---------- ----------- -----------
offsets 1,033,787 1,612,220 221,869
---------- ----------- -----------
Expense (reimbursement) /
recoupment - - (2,315)
Expense reductions (109,664) (202,919) (4,986)
---------- ----------- -----------
Net expenses 924,123 1,409,301 214,568
---------- ----------- -----------
Net investment income (loss) 428,958 (709,729) (178,647)
---------- ----------- -----------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on
investment transactions 326,249 (12,737,985) 652,393
Net realized gain (loss)
on foreign currency
contracts and transactions - - -
Net unrealized appreciation
of investments 19,154,237 37,420,403 5,031,669
Net unrealized appreciation of
Foreign currency contracts
and translations - - -
---------- ----------- -----------
Net realized and unrealized gain 19,480,486 24,682,418 5,684,062
---------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations $19,909,444 $23,972,689 $5,505,415
========== =========== ===========
</Table>
55
<Page>
<Table>
Managers
Managers Managers Emerging Managers
Special International Markets Managers Global
Equity Equity Equity Bond Bond
Fund Fund Fund Fund Fund
- ------------ ------------- ------------ ------------ -----------
$14,372,022 $7,127,876 $ 589,201 $ 327,403 $ -
2,259,591 376,579 6,675 8,223,257 1,313,654
- (774,510) (58,598) (687) (382)
880,966 256,886 15,547 54,103 1,750
- ------------ ------------- ------------ ------------ -----------
17,512,579 6,986,831 552,825 8,604,076 1,315,022
- ------------ ------------- ------------ ------------ -----------
22,084,470 2,599,973 302,985 978,910 178,411
6,134,575 722,215 65,866 391,564 50,975
5,381,695 717,725 26,184 102,202 60,308
835,846 621,906 45,868 79,387 72,425
535,959 123,178 30,938 65,163 42,910
124,083 53,328 20,045 41,173 14,790
140,100 16,462 1,454 8,595 1,493
97,958 17,005 1,196 5,664 1,039
389,161 117,713 23,373 41,883 4,916
- ------------ ------------- ------------ ------------ -----------
35,723,847 4,989,505 517,909 1,714,541 427,267
- ------------ ------------- ------------ ------------ -----------
- - 12,664 (162,127) -
(524,162) (21,801) (13) (18) (6)
35,199,685 4,967,704 530,560 1,552,396 427,261
- ------------ ------------- ------------ ------------ -----------
(17,687,106) 2,019,127 22,265 7,051,680 887,761
- ------------ ------------- ------------ ------------ -----------
112,083,619 (7,935,483) 2,848,211 2,529,804 723,212
- 429,149 (8,991) 90,995 1,369,141
822,956,114 84,208,590 9,083,399 6,430,241 1,876,866
- 202,762 13,206 58,715 11,808
- ------------ ------------- ------------ ------------ -----------
935,039,733 76,905,018 11,935,825 9,109,755 3,981,027
- ------------ ------------- ------------ ------------ -----------
$917,352,627 $78,924,145 $11,958,090 $16,161,435 $4,868,788
============ ============= ============ ============ ===========
</Table>
The accompanying notes are an integral part of these financial
Statements.
56
<Page>
Statement of Changes in Net Assets
For the year ended December 31,
- -------------------------------------------------------------
<Table>
Managers Capital
Managers Value Fund Appreciation Fund
2003 2002 2003 2002
---------- ---------- ---------- -----------
Increase (Decrease) in Net Assets
From Operations:
Net investment income (loss) $ 428,958 $ 334,172 $ (709,729) (1,497,152)
Net realized gain (loss)
on investments and foreign
currency transactions 326,249 (6,225,158) (12,737,985) (30,321,712)
Net unrealized appreciation
(depreciation) of investments
and foreign currency
translations 19,154,237 (9,422,689) 37,420,403 (22,222,488)
---------- ---------- ---------- -----------
Net increase (decrease) in net
assets resulting from operations 19,909,444 (15,313,675) 23,972,689 (54,041,352)
---------- ---------- ---------- -----------
Distributions to Shareholders:
From net investment income (438,692) (362,134) - -
From net realized gain on
investments - (230,982) - -
---------- ---------- ---------- -----------
Total distributions to shareholders (438,692) (593,116) - -
---------- ---------- ---------- -----------
From Capital Share Transactions:
Proceeds from sale of shares 47,708,843 21,685,373 22,460,907 41,555,483
Reinvestment of dividends and
distributions 425,823 582,405 - -
Cost of shares repurchased (14,886,224) (21,988,663) (43,075,991) (66,844,887)
Net increase (decrease) from
capital share transactions 33,248,442 279,115 (20,615,084) (25,289,404)
---------- ---------- ---------- -----------
Total increase (decrease) in
net assets 52,719,194 (15,627,676) 3,357,605 (79,330,756)
---------- ---------- ---------- -----------
Net Assets:
Beginning of year 48,000,778 63,628,454 107,544,959 186,875,715
------------ ---------- ------------ ------------
End of year $100,719,972 $48,000,778 $110,902,564 $107,544,959
============ ========== ============ ============
End of year undistributed
net investment income (loss) $8,557 $18,865 $- $-
---------- ---------- ---------- -----------
Share Transactions:
Sale of shares 2,171,992 917,781 1,000,544 1,709,407
Reinvested shares 16,473 24,916 - -
Shares repurchased (670,271) (940,479) (1,927,145) (2,808,321)
---------- ---------- ---------- -----------
Net increase (decrease) in shares 1,518,194 2,218 (926,601) (1,098,914)
---------- ---------- ---------- -----------
</Table>
57
<Page>
<Table>
Managers Small Company Managers Special Equity Managers International
Fund Fund Equity Fund
- -------------------------- ------------------------------- ----------------------------
2003 2002 2003 2002 2003 2002
- ---------- ---------- -------------- --------------- ----------- ------------
$ (178,647) $ (255,176) $ (17,687,106) $(12,143,233) $ 2,019,127 $ 2,392,602
652,393 (2,115,708) 112,083,619 (253,372,972) (7,506,334) (69,703,532)
5,031,669 (3,562,952) 822,956,114 (283,156,757) 84,411,352 (7,735,248)
- ---------- ---------- -------------- --------------- ----------- ------------
5,505,415 (5,933,836) 917,352,627 (548,672,962) 78,924,145 (75,046,178)
- ---------- ---------- -------------- --------------- ----------- ------------
- - - - (3,048,493) (1,120,045)
- - - - - -
- ---------- ---------- -------------- --------------- ----------- ------------
- - - - (3,048,493) (1,120,045)
- ---------- ---------- -------------- --------------- ----------- ------------
5,332,694 9,073,336 1,063,154,651 1,149,374,210 806,194,386 871,905,009
- - - - 2,327,700 871,895
(4,697,715) (17,294,049) (722,009,661) (875,114,615) (980,348,314) (994,651,635)
634,979 (8,220,713) 341,144,990 274,259,595 (171,826,228) (121,874,731)
- ---------- ---------- -------------- --------------- ----------- ------------
6,140,394 (14,154,549) 1,258,497,617 (274,413,367) (95,950,576) (198,040,954)
- ---------- ---------- -------------- --------------- ----------- ------------
12,609,615 26,764,164 2,020,820,653 2,295,234,020 362,561,347 560,602,301
- ----------- ----------- -------------- ---------------- ------------ ------------
$18,750,009 $12,609,615 $3,279,318,270 $2,020,820,653 $266,610,771 $362,561,347
=========== =========== ============== ================ ============ ============
$- $- $782,667 $727,412 $(137,750) $460,298
- ---------- ---------- -------------- --------------- ----------- ------------
691,683 1,235,450 16,496,840 18,231,988 25,132,128 25,336,017
- - - - 58,033 27,968
(622,350) (2,544,247) (11,400,533) (14,059,826) (30,322,340) (28,655,040)
- ---------- ---------- -------------- -------------- ----------- ------------
69,333 (1,308,797) 5,096,307 4,172,162 (5,132,179) (3,291,055)
- ---------- ---------- -------------- -------------- ----------- ------------
</Table>
The accompanying notes are an integral part of these financial
Statements.
58
<Page>
Statement of Changes in Net Assets (continued)
For the year ended December 31,
- -------------------------------------------------------------
<Table>
Managers Emerging Markets
Equity Fund Managers Bond Fund
---------------------------- ---------------------
2003 2002 2003 2002
----------- ------------ ---------- -----------
Increase (Decrease) in Net Assets
From Operations:
Net investment income (loss) $ 22,265 $ 75,611 $ 7,051,680 $ 5,195,981
Net realized gain (loss) on
investments and foreign
currency transactions 2,839,220 (3,724,194) 2,620,799 (137,200)
Net unrealized appreciation
(depreciation) of investments
and foreign currency
translations 9,096,605 134,712 6,488,956 5,423,065
Net increase (decrease) in net
assets resulting from ----------- ------------ ---------- -----------
operations 11,958,090 (3,513,871) 16,161,435 10,481,846
----------- ------------ ---------- -----------
Distributions to Shareholders:
From net investment income (122,962) - (7,242,910) (5,176,925)
From net realized gain on
investments - - (1,652,619) -
Total distributions to ----------- ------------ ---------- -----------
shareholders (122,962) - (8,895,529) (5,176,925)
----------- ------------ ---------- -----------
From Capital Share Transactions:
Proceeds from sale of shares 115,364,722 65,785,537 138,938,793 107,397,740
Reinvestment of dividends and
distributions 119,204 - 8,197,878 4,840,905
Cost of shares repurchased (112,802,639) (55,262,191) (103,102,078) (56,020,017)
Net increase (decrease) from ----------- ------------ ---------- -----------
capital share transactions 2,681,287 10,523,346 44,034,593 56,218,628
----------- ------------ ---------- -----------
Total increase (decrease)
in net assets 14,516,415 7,009,475 51,300,499 61,523,549
----------- ------------ ---------- -------------
Net Assets:
Beginning of year 22,211,247 15,201,772 128,340,594 66,817,045
----------- ------------ ------------ -------------
End of year $36,727,662 $22,211,247 $179,641,093 $128,340,594
=========== ============ ============ =============
End of year undistributed
net investment income (loss) $ - $ 68,494 $ 37,682 $ 120,528
----------- ------------ ------------ -------------
Share Transactions:
Sale of shares 11,585,328 6,863,890 5,752,592 4,739,162
Reinvested shares 9,141 - 338,265 213,942
Shares repurchased (11,349,104) (5,929,474) (4,256,109) (2,471,701)
----------- ------------ ------------ ------------
Net increase (decrease)
in shares 245,365 934,416 1,834,748 2,481,403
----------- ------------ ------------ ------------
</Table>
59
<Page>
<Table>
Managers Global Bond Fund
- ------------------------------------
2003 2002
- ------------ ------------
$ 887,761 $ 790,401
2,092,353 268,818
1,888,674 2,196,080
- ------------ ------------
4,868,788 3,255,299
- ------------ ------------
(2,551,417) (517,386)
(644,990) (202,091)
- ------------ ------------
(3,196,407) (719,477)
- ------------ ------------
54,118,889 15,897,478
3,177,019 717,129
(46,407,165) (19,283,886)
10,888,743 (2,669,279)
- ------------ ------------
12,561,124 (133,457)
- ------------ ------------
19,745,972 19,879,429
- ------------ ------------
$32,307,096 $19,745,972
============ ============
$ 115,438 $ 409,953
- ------------ ------------
2,429,610 822,185
144,148 35,233
(2,077,261) (1,004,342)
- ------------ ------------
496,497 (146,924)
- ------------ ------------
</Table>
The accompanying notes are an integral part of these financial
Statements.
60
<Page>
Financial Highlights
For a share outstanding throughout each fiscal year ended December 31,
- ----------------------------------------------------------------------
<Table>
Managers Value Fund
-------------------------------------
2003 2002 2001 2000 1999
------ ------- ------- ------ ------
Net Asset Value, Beginning of Year $20.69 $27.45 $27.73 $27.50 $30.67
------ ------- ------- ------ ------
Income from Investment Operations:
Net investment income 0.11 0.15 0.09 0.17 0.30
Net realized and unrealized
gain (loss) on investments 5.56 (6.65) 0.70 2.45 0.91
------ ------- ------- ------ ------
Total from investment operations 5.67 (6.50) 0.79 2.62 1.21
------ ------- ------- ------ ------
Less Distributions to Shareholders
from:
Net investment income (0.12) (0.16) (0.08) (0.17) (0.29)
Net realized gain on investments - (0.10) (0.99) (2.22) (4.09)
------ ------- ------- ------ ------
Total distributions to shareholders (0.12) (0.26) (1.07) (2.39) (4.38)
------ ------- ------- ------ ------
Net Asset Value, End of Year $26.24 $20.69 $27.45 $27.73 $27.50
====== ======= ======= ====== ======
Total Return (1) 27.39% (23.79)% 2.92% 9.80% 4.15%
Ratio of net expenses to average
net assets (1) 1.27% 1.28% 1.25% 1.30% 1.35%
Ratio of total expenses to average
net assets (1) 1.42% (5) 1.35% 1.35% 1.38% 1.35%
Ratio of net investment income
to average net assets 0.59% 0.60% 0.43% 0.61% 0.92%
Portfolio turnover 41% 53% 147% 153% 94%
Net assets at end of year
(000's omitted) $100,720 $48,001 $63,628 $57,300 $42,471
</Table>
<Table>
Managers Capital Appreciation Fund
-------------------------------------
2003 2002 2001 2000 1999
------ ------- ------- ------ ------
Net Asset Value, Beginning of Year $20.36 $29.29 $42.79 $61.12 $33.78
------ ------- ------- ------ ------
Income from Investment Operations:
Net investment loss (0.16) (0.28) (0.25) (0.42) (0.27)
Net realized and unrealized
gain (loss) on investments 5.26 (8.65) (13.25) (13.25) 34.81
------ ------- ------- ------ ------
Total from investment operations 5.10 (8.93) (13.50) (13.67) 34.54
------ ------- ------- ------ ------
Less Distributions to Shareholders from:
Net realized gain on investments - - - (4.66) (7.20)
------ ------- ------- ------ ------
Net Asset Value, End of Year $25.46 $20.36 $29.29 $42.79 $61.12
====== ======= ======= ====== ======
Total Return (1) 25.05% (30.49)%(31.55)%(22.20)%103.02%
Ratio of net expenses to
average net assets (1) 1.33% 1.39% 1.34% 1.23% 1.26%
Ratio of total expenses to average
net assets (1) 1.52%(5)1.43% 1.40% 1.26% 1.30%
Ratio of net investment loss
to average net assets (0.67)% (1.07)% (0.75)% (0.82)% (0.86)%
Portfolio turnover 109% 141% 265% 306% 200%
Net assets at end of
year (000's omitted) $110,903 $107,545 $186,876 $286,515 $248,487
</Table>
61
<Page>
Financial Highlights
For a share outstanding throughout each fiscal year ended December 31,
- ----------------------------------------------------------------------
<Table>
Managers Small Company Fund
-------------------------------
2003 2002 2001 2000*
------ ------- ------- -------
Net Asset Value, Beginning of Period $6.40 $ 8.16 $ 9.29 $10.00
------ ------- ------- -------
Income from Investment Operations:
Net investment loss (0.09) (0.13) (0.07) (0.01)
Net realized and unrealized
gain (loss) on investments 2.88 (1.63) (1.06) (0.70)
------ ------- ------- -------
Total from investment operations 2.79 (1.76) (1.13) (0.71)
------ ------- ------- -------
Net Asset Value, End of Period $9.19 $6.40 $8.16 $9.29
====== ======= ======= =======
Total Return (1) 43.59% (21.57)% (12.16)% (7.10)% (2)
Ratio of net expenses to
average net assets (1) 1.45% 1.40% 1.30% 1.30% (3)
Ratio of total expenses to average
net assets (1) 1.50% (5) 1.70% 1.71% 1.72% (3)
Ratio of net investment loss
to average net assets (1.20)% (1.17)% (0.92)% (0.45)% (3)
Portfolio turnover 48% 134% 95% 55% (2)
Net assets at end of
period (000's omitted) $18,750 $12,610 $26,764 $25,705
</Table>
* Commencement of operations was June 19, 2000.
<Table>
Managers Special Equity Fund
2003 2002 2001 2000 1999
---------- ----------- ----------- ----------- --------
Net Asset Value,
Beginning of Year $55.08 $70.59 $76.82 $91.42 $61.23
---------- ----------- ----------- ----------- --------
Income from Investment
Operations:
Net investment loss (0.43) (0.34) (0.18) (0.12) (0.29)
Net realized and unrealized
gain (loss) on investments 23.83 (15.17) (6.05) (2.71) 33.30
Total from investment ---------- ----------- ----------- ----------- --------
operations 23.40 (15.51) (6.23) (2.83) 33.01
---------- ----------- ----------- ----------- --------
Less Distributions to
Shareholders from:
Net realized gain on investments - - - (11.77) (2.82)
---------- ----------- ----------- ----------- --------
Net Asset Value, End of Year $78.48 $55.08 $70.59 $76.82 $91.42
========== =========== =========== =========== ========
Total Return (1) 42.50% (21.98)% (8.07)% (2.56)% 54.11%
Ratio of net expenses to
average net assets (1) 1.43% 1.31% 1.29% 1.26% 1.31%
Ratio of total expenses
to average net assets (1) 1.46% (5) 1.32% 1.30% 1.26% 1.31%
Ratio of net investment loss
to average net assets (0.72)% (0.56)% (0.27)% (0.16)% (0.47)%
Portfolio turnover 64% 67% 62% 69% 89%
Net assets at end of
year (000's omitted) $3,279,318 $2,020,821 $2,295,234 $2,132,376 $1,543,150
</Table>
62
<Page>
Financial Highlights
For a share outstanding throughout each fiscal year ended December 31,
- ----------------------------------------------------------------------
<Table>
Managers International Equity Fund
-------------------------------------
2003 2002 2001 2000 1999
------ ------- ------- ------ ------
Net Asset Value, Beginning of Year $31.22 $37.61 $49.38 $58.71 $48.85
------ ------- ------- ------ ------
Income from Investment Operations:
Net investment income 0.34 0.19 0.20 (4) 0.27 0.35
Net realized and unrealized gain
(loss) on investments 10.04 (6.48) (11.72)(4)(5.38) 11.96
------ ------- ------- ------ ------
Total from investment operations 10.38 (6.29) (11.52) (5.11) 12.31
------ ------- ------- ------ ------
Less Distributions to Shareholders from:
Net investment income (0.47) (0.10) (0.25) (0.24) (0.35)
Net realized gain on investments - - - (3.98) (2.10)
------ ------- ------- ------ ------
Total distributions to shareholders (0.47) (0.10) (0.25) (4.22) (2.45)
------ ------- ------- ------ ------
Net Asset Value, End of Year $41.13 $31.22 $37.61 $49.38 $58.71
====== ======= ======= ====== ======
Total Return (1) 33.21% (16.71)% (23.35)% (8.46)% 25.28%
Ratio of net expenses to average
net assets (1) 1.72% 1.54% 1.45% 1.41% 1.40%
Ratio of total expenses to
average net assets (1) 1.73% 1.56% 1.46% 1.42% 1.41%
Ratio of net investment income
to average net assets 0.70% 0.54% 0.46% (4)0.42% 0.66%
Portfolio turnover 80% 132% 108% 99% 43%
Net assets at end of
year (000's omitted) $266,611 $362,561 $560,602 $656,630 $704,209
</Table>
<Table>
Managers Emerging Markets Equity Fund
-------------------------------------
2003 2002 2001 2000 1999
------ ------- ------- ------ ------
Net Asset Value, Beginning of Year $8.80 $9.56 $9.63 $14.67 $7.74
------ ------- ------- ------ ------
Income from Investment Operations:
Net investment income (loss) 0.01 0.03 (0.01) (0.04) 0.03
Net realized and unrealized
gain (loss) on investments 4.50 (0.79) (0.04) (3.90) 6.93
------ ------- ------- ------ ------
Total from investment operations 4.51 (0.76) (0.05) (3.94) 6.96
------ ------- ------- ------ ------
Less Distributions to Shareholders from:
Net investment income (0.05) - - - (0.03)
Net realized gain on investments - - (0.02) (1.10) -
------ ------- ------- ------ ------
Total distributions to shareholders (0.05) - (0.02) (1.10) (0.03)
------ ------- ------- ------ -------
Net Asset Value, End of Year $13.26 $8.80 $9.56 $9.63 $14.67
====== ======= ======= ====== =======
Total Return (1) 51.20% (7.95)% (0.57)% (26.69)% 90.06%
Ratio of net expenses to average
net assets (1) 1.99% 1.97% 1.94% 1.98% 1.85%
Ratio of total expenses to average
net assets (1) 1.97%(5) 2.18% 2.36% 2.48% 2.52%
Ratio of net investment income
(loss) to average net assets 0.08% 0.32% (0.09)% (0.34)% 0.37%
Portfolio turnover 79% 68% 69% 40% 119%
Net assets at end of year
(000's omitted) $36,728 $22,211 $15,202 $12,390 $12,434
</Table>
63
<Page>
Financial Highlights
For a share outstanding throughout each fiscal year ended December 31,
- ----------------------------------------------------------------------
<Table>
Managers Bond Fund
-------------------------------------
2003 2002 2001 2000 1999
------ ------- ------- ------ ------
Net Asset Value, Beginning of Year $23.44 $22.32 $21.75 $21.45 $22.19
------ ------- ------- ------ ------
Income from Investment Operations:
Net investment income 1.08 1.24 1.44 1.49 1.45
Net realized and unrealized
gain (loss) on investments 1.40 1.12 0.60 0.48 (0.65)
------ ------- ------- ------ ------
Total from investment operations 2.48 2.36 2.04 1.97 0.80
------ ------- ------- ------ ------
Less Distributions to Shareholders from:
Net investment income (1.11) (1.24) (1.45) (1.50) (1.45)
Net realized gain on
investments (0.23) - (0.02) (0.17) (0.09)
------ ------- ------- ------ ------
Total distributions to shareholders (1.34) (1.24) (1.47) (1.67) (1.54)
------ ------- ------- ------ ------
Net Asset Value, End of Year $24.58 $23.44 $22.32 $21.75 $21.45
====== ======= ======= ====== ======
Total Return (1) 10.77% 10.98% 9.64% 9.44% 3.66%
Ratio of net expenses to average
net assets (1) 0.99% 1.00% 1.18% 1.19% 1.25%
Ratio of total expenses to average
net assets (1) 1.09% (5) 1.17% 1.18% 1.20% 1.26%
Ratio of net investment income
to average net assets 4.50% 5.55% 6.45% 6.91% 6.52%
Portfolio turnover 73% 24% 16% 10% 39%
Net assets at end of
year (000's omitted) $179,641 $128,341 $66,817 $51,383 $33,389
</Table>
<Table>
Managers Global Bond Fund
-------------------------------------
2003 2002 2001 2000 1999
------ ------- ------- ------ ------
Net Asset Value, Beginning of Year $20.58 $17.97 $18.98 $19.44 $22.38
------ ------- ------- ------ ------
Income from Investment Operations:
Net investment income 0.80 0.81 0.57 (4) 0.72 0.82
Net realized and unrealized
gain (loss) on investments 3.43 2.57 (1.33)(4)(1.06) (3.05)
------ ------- ------- ------ ------
Total from investment operations 4.23 3.38 (0.76) (0.34) (2.23)
------ ------- ------- ------ ------
Less Distributions to
Shareholders from:
Net investment income (2.09) (0.55) - (0.12) (0.49)
Net realized gain on investments (0.53) (0.22) (0.25) - (0.22)
------ ------- ------- ------ ------
Total distributions to shareholders (2.62) (0.77) (0.25) (0.12) (0.71)
------ ------- ------- ------ ------
Net Asset Value, End of Year $22.19 $20.58 $17.97 $18.98 $19.44
====== ======= ======= ====== ======
Total Return (1) 20.69% 18.85% (4.10)% (1.62)%(9.97)%
Ratio of net expenses to average
net assets (1) 1.68% 1.55% 1.45% 1.47% 1.54%
Ratio of total expenses to average
net assets (1) 1.68% 1.56% 1.46% 1.50% 1.54%
Ratio of net investment income
to average net assets 3.48% 4.01% 2.87% (4) 4.07% 3.77%
Portfolio turnover 152% 220% 244% 176% 171%
Net assets at end of
year (000's omitted) $32,307 $19,746 $19,879 $22,723 $19,073
</Table>
64
<Page>
Financial Highlights
For a share outstanding throughout each fiscal year Ended
December 31,
- ----------------------------------------------------------------
The following notes should be read in conjunction with the
Financial Highlights of the Funds presented on the preceding
pages.
(1) See Note 1(c) of "Notes to Financial Statements."
(2) Not Annualized.
(3) Annualized.
(4) Effective January 1, 2001, the Trust adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium and discount on all debt securities,
as required. The effect of this change during the year ended
December 31, 2001 on International Equity, Intermediate Bond and
Global Bond was to decrease net investment income and increase
net realized and unrealized gain (loss) per share by $0.01, $0.04
and $0.04, respectively. The effect of this change on the
remaining Funds was not significant. Without this change the
ratio of net investment income to average net assets for the year
ended December 31, 2001 for International Equity and Global Bond
would have been 0.46% and 3.08%, respectively. Per share data,
ratios and supplemental data for prior periods have not been
restated to reflect this change.
(5) Excludes the impact of expense (reimbursement)/recoupment and
expense offsets such as brokerage credits, but includes non-
reimbursable expenses such as interest and taxes. (See Note 1c
to the Notes to Financial Statements.)
65
<Page>
Notes to Financial Statements
December 31, 2003
- -----------------------------------------------------------------
(1) Summary of Significant Accounting Policies
- ----------------------------------------------
The Managers Funds (the "Trust") is an open-end management
investment company, organized as a Massachusetts business trust,
and registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). Currently, the Trust is comprised of
nine investment series. Included in this report are six equity
funds, Managers Value Fund ("Value"), Managers Capital
Appreciation Fund ("Capital Appreciation"), Managers Small
Company Fund ("Small Company"), Managers Special Equity Fund
("Special Equity"), Managers International Equity Fund
("International Equity") and Managers Emerging Markets Equity
Fund ("Emerging Markets Equity") (collectively the "Equity
Funds") and two fixed-income funds, Managers Bond Fund ("Bond")
and Managers Global Bond Fund ("Global Bond") (collectively the
"Fixed-Income Funds"), collectively the "Funds."
The Funds' financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America, which require management to make estimates and
assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of income and expenses during the reporting periods. Actual
results could differ from those estimates. The following is a
summary of significant accounting policies followed by the Funds
in the preparation of their financial statements:
(a) Valuation of Investments
- ----------------------------
Equity securities traded on a domestic or international
securities exchange are valued at the last quoted sale price, or,
lacking any sales, at the last quoted bid price. Over-the-counter
securities are valued at the Nasdaq Official Closing Price, if
one is available. Lacking any sales, over-the-counter securities,
are valued at the last quoted bid price. International Equity and
Emerging Markets Equity invest in securities that trade in
foreign markets. Because substantial time may pass between the
time the local market for a security closes and the time a Fund
calculates its NAV (typically the close of the NYSE), intervening
events may call into question the reliability of the closing
local market price for that security. On behalf of International
Equity and Emerging Markets Equity, the Manager monitors
intervening events that may affect the value of securities held
in each Fund's portfolio and, in accordance with procedures
adopted by the Funds' Trustees, will adjust the prices of
securities traded in foreign markets, as appropriate, to reflect
fair value as of the time each Fund's NAV is calculated. Fixed-
income securities are valued based on valuations furnished by
independent pricing services that utilize matrix systems, which
reflect such factors as security prices, yields, maturities and
ratings, and are supplemented by dealer and exchange quotations.
Short-term investments having a remaining maturity of 60 days or
less are valued at amortized cost, which approximates market
value. Investments in other regulated investment companies are
valued at their end of day net asset value per share except
iShares, which are valued the same as equity securities.
Securities (including derivatives) for which market quotations
are not readily available are valued at fair value, as determined
in good faith, and pursuant to procedures adopted by the Board of
Trustees of the Trust.
Investments in certain mortgage-backed, stripped mortgage-backed,
preferred stocks, convertible securities and other debt
securities not traded on an organized market, are valued on the
basis of valuations provided by dealers or by a pricing service
which uses information with respect to transactions in such
securities, various relationships between securities and yield to
maturity in determining value.
(b) Security Transactions
- -------------------------
Security transactions are accounted for as of trade date.
Realized gains and losses on securities sold are determined on
the basis of identified cost.
(c) Investment Income and Expenses
- ----------------------------------
Dividend income is recorded on the ex-dividend date, except
certain dividends from foreign securities where the ex-dividend
date may have passed. These dividends are recorded as soon as the
Trust is informed of the ex-dividend date. Dividend income on
foreign securities is recorded net of any withholding tax.
Interest income, which includes amortization of premium and
accretion of discount on debt securities, is accrued as earned.
Non-cash dividends included in dividend income, if any, are
reported at the fair market value of the securities received.
Other income and expenses are recorded on an accrual basis.
Expenses that cannot be directly attributed to a fund are
apportioned among the Funds in the Trust and in some cases other
affiliated funds based upon their relative average net assets or
number of shareholders.
The following Funds had certain portfolio trades directed to
various brokers who paid a portion of such Fund's expenses. For
the year ended December 31,2003, under these arrangements the
amount by which the Funds' expenses were reduced and the impact
on the expense ratios were as follows: Value - $109,619 or 0.15%;
Capital Appreciation - $202,686 or 0.19%; Special Equity -
$507,248 or 0.02%; Small Company - $4,983 or 0.03%; and
International Equity - $21,335 or less than 0.01%.
66
<Page>
Notes to Financial Statements (continued)
- -----------------------------------------
In addition, each of the Funds has a "balance credit" arrangement
with The Bank of New York ("BNY "), the Funds' custodian, whereby
each Fund is credited with an interest factor equal to 1% below
the effective 90 day T-Bill rate for account balances left
uninvested overnight. These credits serve to reduce custody
expenses that would otherwise be charged to each Fund. For the
year ended December 31, 2003, the custodian expense was reduced
under this arrangement as follows: Value -$45; Capital
Appreciation -$233; Small Company -$3; Special Equity -$2,484;
International Equity -$466; Emerging Markets Equity -$13; Bond -
$18; and Global Bond -$6. In each case the reduction in the
Fund's expense ratio was less than 0.01%.
The Managers Funds LLC (the "Investment Manager"), a subsidiary
of Affiliated Managers Group, Inc. ("AMG"), has contractually
agreed, through at least May 1, 2004, to waive fees and pay or
reimburse expenses of Small Company, Emerging Markets Equity, and
Bond to the extent that the total operating expenses (exclusive
of brokerage, interest, taxes and extraordinary expenses) of the
Fund exceed 1.45%, 1.99% and 0.99%, respectively, of each Fund's
average daily net assets. Each Fund is obligated to repay the
Investment Manager such amounts waived, paid or reimbursed in
future years provided that the repayment occurs within three (3)
years after the waiver or reimbursement and that such repayment
would not cause the Fund's expenses in any such year to exceed
1.45%, 1.99% and 0.99%, respectively, of the Fund's average daily
net assets. For the year ended December 31, 2003, Small Company
and Emerging Markets Equity made such repayments to the
Investment Manager in the amount of $7,235 and $19,180,
respectively. At December 31, 2003, the cumulative amount of
reimbursement for Small Company, Emerging Markets Equity and Bond
equaled $175,937, $3,006 and $322,415, respectively.
The Investment Manager has agreed to waive a portion of its fee
or reimburse expenses of Special Equity commensurate with the
reduction in the fee paid to Essex Investment Management Company
LLC ("Essex") (sub-advisor to Special Equity since December 19,
2003), which is 0.10% of the average daily net assets of the
portion of the Fund managed by Essex in excess of $100 million.
For the period from December 19, 2003 to December 31, 2003, the
amount reimbursed equaled $14,430.
Total returns and net investment income for the Funds would have
been lower had certain expenses not been offset.
(d) Dividends and Distributions
- -------------------------------
Dividends resulting from net investment income, if any, normally
will be declared and paid annually for Global Bond and the Equity
Funds. Dividends resulting from net investment income, if any,
normally will be declared and paid monthly for Bond.
Distributions of capital gains, if any, will be made on an annual
basis and when required for Federal excise tax purposes. Income
and capital gain distributions are determined in accordance with
Federal income tax regulations, which may differ from generally
accepted accounting principles. These differences are primarily
due to differing treatments for losses deferred due to wash
sales, equalization accounting for tax purposes, foreign currency
and market discount transactions. Permanent book and tax basis
differences, if any, relating to shareholder distributions will
result in reclassifications to paid-in-capital. The tax character
of distributions paid during 2003 were as follows:
<Table>
Value Capital Appreciation
2003 2002 2003 2002
-------------------- ---------------------
Distributions paid from:
Ordinary income $438,692 $344,183 $ - $ -
Short-term capital gains - 18,462 - -
Long-term capital gains - 230,471 - -
----------- ---------- --------- ---------
$438,692 $593,116 $ - $ -
As a % of distributions paid:
Qualified ordinary income 100.00% - - -
Odinary income - dividends
received deduction 100.00% 100.00% - -
Qualified long-term gains - - - -
</Table>
<Table>
Small Company Special Equity
2003 2002 2003 2002
---------- ---------- ---------- -----------
Distributions paid from:
Ordinary income $ - $ - $ - $ -
Short-term capital gains - - - -
Long-term capital gains - - - -
---------- ---------- ---------- -----------
$ - $ - $ - $ -
As a % of distributions paid:
Qualified ordinary income - - - -
Odinary income - dividends
received deduction - - - -
Qualified long-term gains - - - -
</Table>
<Table>
International Equity Emerging Markets
2003 2002 2003 2002
---------- ---------- ----------- ----------
Distributions paid from:
Ordinary income $ 3,048,493 $1,120,045 $122,962 $ -
Short-term capital gains - - - -
Long-term capital gains - - - -
----------- ---------- --------- ---------
$ 3,048,493 $1,120,045 $122,962 $ -
As a % of distributions paid:
Qualified ordinary income 87.46% - 70.46% -
Ordinary income - dividends
received deduction - - - -
Qualified long-term gains - - - -
</Table>
<Table>
Bond Global Bond
2003 2002 2003 2002
---------- ---------- ------------ ---------
Distributions paid from:
Ordinary income $ 7,242,910 $5,176,925 $2,551,416 $517,386
Short-term capital gains 1,005,942 - 436,611 202,091
Long-term capital gains 646,677 - 208,379 -
----------- ---------- --------- ---------
$ 8,895,529 $5,176,925 $3,196,406 $719,477
As a % of distributions paid:
Qualified ordinary income - - - -
Ordinary income - dividends
received deduction - - - -
Qualified long-term gains 100% - 76.47% -
</Table>
67
<Page>
Notes to Financial Statements (continued)
- ----------------------------------------------------------
As of December 31, 2003, the components of distributable earnings
(excluding unrealized appreciation/depreciation) on a tax basis
consisted of:
<Table>
Capital Special Small
Value Appreciation Equity Company
------------------------------------------------------------
Capital loss carryforward $(5,605,699) $(166,675,633) $(385,255,587) $(9,008,271)
Undistributed ordinary income 8,557 - - -
Undistributed long-term
capital gains - - - -
Undistributed long-term
capital gains - - - -
------------------------------------------------------------
$(5,597,142) $(166,675,633) $(385,255,587) $(9,008,271)
</Table>
<Table>
International Emerging Global
Equity Markets Bond Bond
---------------------------------------------------------
Capital loss carryforward $(161,302,578) $(2,488,378) $ - $ -
Undistributed ordinary income 39,291 - 37,682 118,299
Undistributed long-term
capital gains - - 286,368 -
Undistributed long-term
capital gains - - 235,226 -
---------------------------------------------------------
$(161,263,287) $(2,488,378) $ 559,276 $118,299
</Table>
(e) Federal Taxes
- -----------------
Each Fund intends to comply with the requirements under
Subchapter M of the Internal Revenue Code of 1986,as amended, to
distribute substantially all of its taxable income and gains to
its shareholders and to meet certain diversification and income
requirements with respect to investment companies. Therefore, no
provision for Federal income or excise tax is included in the
accompanying financial statements.
(f) Capital Loss Carryovers
- ----------------------------
As of December 31,2003,the following Funds had accumulated net
realized capital loss carryovers from securities transactions for
Federal income tax purposes as shown in the following chart.
These amounts may be used to offset realized capital gains, if
any, through the expiration dates listed.
<Table>
Capital Loss
Fund Carryover Amount Expires Dec. 31,
- ---------------------- ----------------- ----------------
Value $5,605,699 2010
Capital Appreciation 122,787,551 2009
30,988,593 2010
12,899,489 2011
Small Company 1,040,860 2008
6,267,133 2009
1,700,278 2010
Special Equity 143,377,771 2009
241,877,816 2010
International Equity 52,865,926 2009
92,266,533 2010
16,170,119 2011
Emerging Markets Equity 2,488,378 2010
</Table>
(g) Capital Stock
- -----------------
The Trust's Declaration of Trust authorizes for each series the
issuance of an unlimited number of shares of beneficial interest,
without par value. Each Fund records sales and repurchases of its
capital stock on the trade date. Dividends and distributions to
shareholders are recorded on the ex-dividend date.
At December 31, 2003, certain unaffiliated shareholders,
specifically omnibus accounts, individually held greater than 10%
of the outstanding shares of the following Funds: Value - one
owns 40%; Capital Appreciation - one owns 19%; Special Equity -
one owns 24%; International Equity - three own 50%; Emerging
Markets Equity - two own 64%; Bond - three own 56%; and Global
Bond - one owns 20%.
(h) Repurchase Agreements
- -------------------------
Each Fund may enter into repurchase agreements provided that the
value of the underlying collateral, including accrued interest,
will be equal to or exceed the value of the repurchase agreement
during the term of the agreement. The underlying collateral for
all repurchase agreements is held in safekeeping by the Fund 's
custodian or at the Federal Reserve Bank.
If the seller defaults and the value of the collateral declines,
or if bankruptcy proceedings commence with respect to the seller
of the security, realization of the collateral by the Fund may be
delayed or limited.
68
<Page>
Notes to Financial Statements (continued)
- -----------------------------------------------------------
(i) Foreign Currency Translation
- --------------------------------
The books and records of the Funds are maintained in U.S.
dollars. The value of investments, assets and liabilities
denominated in currencies other than U.S. dollars are translated
into U.S. dollars based upon current foreign exchange rates.
Purchases and sales of foreign investments, income and expenses
are converted into U.S. dollars based on currency exchange rates
prevailing on the respective dates of such transactions. Net
realized and unrealized gain (loss)on foreign currency
transactions represent: (1) foreign exchange gains and losses
from the sale and holdings of foreign currencies; (2) gains and
losses between trade date and settlement date on investment
securities transactions and forward foreign currency exchange
contracts; and (3) gains and losses from the difference between
amounts of interest and dividends recorded and the amounts
actually received.
In addition, the Funds do not isolate the net realized and
unrealized gain or loss resulting from changes in exchange rates
from the fluctuations resulting from changes in market prices of
securities held. Such fluctuations are included with the net
realized and unrealized gain or loss on investments.
(2) Agreements and Transactions with Affiliates
- -----------------------------------------------
The Trust has entered into a Fund Management Agreement under
which the Investment Manager provides or oversees investment
advisory and management services to the Funds. The Investment
Manager selects portfolio managers for each Fund (subject to
Trustee approval), allocates assets among portfolio managers and
monitors the portfolio managers' investment programs and results.
Each Fund's investment portfolio is managed by portfolio managers
who serve pursuant to Portfolio Management Agreements with the
Investment Manager and the Fund. The Funds are distributed by
Managers Distributors, Inc. ("MDI"), a wholly-owned subsidiary of
The Managers Funds LLC. Certain Trustees and Officers of the
Funds are Officers and/or Directors of the Investment Manager,
AMG and/or MDI.
Investment advisory and management fees are paid directly by each
Fund to the Investment Manager based on average daily net assets.
The annual investment advisory and management fee rates, as a
percentage of average daily net assets for the year ended
December 31, 2003, were as follows:
<Table>
Investment Advisory
Fund and Management Fee
- ---- -------------------
Value 0.75%
Capital Appreciation 0.80%
Small Company 0.90%
Special Equity 0.90%
International Equity 0.90%
Emerging Markets Equity 1.15%
Bond 0.625%
Global Bond 0.70%
</Table>
The Trust has entered into an Administration and Shareholder
Servicing Agreement under which The Managers Funds LLC serves as
each Fund's administrator (the "Administrator") and is
responsible for all aspects of managing the Funds' operations,
including administration and shareholder services to each Fund,
its shareholders, and certain institutions, such as bank trust
departments, broker-dealers and registered investment advisers,
that advise or act as an intermediary with the Funds'
shareholders. During the year ended December 31, 2003, each of
the Funds, except Global Bond, paid a fee to the Administrator at
the rate of 0.25% per annum of the Fund's average daily net
assets. Global Bond paid a fee to the Administrator at the rate
of 0.20% per annum of the Fund's average daily net assets.
The aggregate annual fee paid to each Independent Trustee for
serving as a Trustee of the Trust is $20,000. In addition, the
in-person and telephonic meeting fees the Trustees receive are
$1,000 and $500 per meeting, respectively. The Trustee fee
expense shown in the financial statements represents each Fund's
allocated portion of the total fees and expenses paid by the
Trust and other affiliated funds in the complex.
69
<Page>
Notes to Financial Statements (continued)
- ----------------------------------------
(3) Purchases and Sales of Securities
Purchases and sales of securities, excluding short-term
securities, for the year ended December 31, 2003, were as
follows:
<Table>
Long-Term Securities U. S. Government Securities
Fund Purchases Sales Purchases Sales
- ------------------- ---------- ---------- ----------- --------------
Value $59,394,377 $28,117,788 N/A N/A
Capital Appreciation 110,864,858 134,275,204 N/A N/A
Small Company 6,752,871 7,506,376 N/A N/A
Special Equity 1,641,962,279 1,436,929,354 N/A N/A
International Equity 219,544,078 385,982,016 N/A N/A
Emerging Markets Equity 23,004,105 19,671,861 N/A N/A
Bond 40,366,658 29,892,071 $108,299,809 $79,317,107
Global Bond 30,242,548 26,374,792 13,147,316 10,828,275
</Table>
(4) Portfolio Securities Loaned
- -------------------------------
The Funds may participate in a securities lending program offered
by BNY providing for the lending of equities, corporate bonds and
government securities to qualified brokers. Collateral on all
securities loaned is accepted in cash and/or government
securities. Collateral is maintained at a minimum level of 102%
of the market value, plus interest, if applicable, of investments
on loan. Collateral received in the form of cash is invested
temporarily in institutional money market funds or other short-
term investments by BNY. Earnings of such temporary cash
investments are divided between BNY, as a fee for its services
under the program, and the Fund loaning the security, according
to agreed-upon rates.
(5) Commitments and Contingencies
- ---------------------------------
In the normal course of business, the Funds may enter into
contracts and agreements that contain a variety of
representations and warranties, which provide general
indemnifications. The maximum exposure to the Funds under these
arrangements is unknown, as this would involve future claims that
may be against the Funds that have not yet occurred. However,
based on experience, the Funds expect the risks of loss to be
remote.
(6) Risks Associated with Collateralized Mortgage Obligations ("CMOs")
- ----------------------------------------------------------------------
The net asset value of Funds may be sensitive to interest rate
fluctuations because the Funds may hold several instruments,
including CMOs and other derivatives, whose values can be
significantly impacted by interest rate movements.
CMOs are obligations collateralized by a portfolio of mortgages
or mortgage-related securities. Payments of principal and
interest on the mortgage are passed through to the holder of the
CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the
receipt of prepayments on the mortgages.
Therefore, the investment in CMOs may be subject to a greater or
lesser risk of prepayment than other types of mortgage-related
securities. CMOs may have a fixed or variable rate of interest.
(7) Forward Commitments
- -----------------------
Certain transactions, such as futures and forward transactions,
dollar roll agreements, or purchases of when-issued or delayed
delivery securities may have a similar effect on a Fund's net
asset value as if the Fund had created a degree of leverage in
its portfolio. However, if a Fund enters into such a transaction,
the Fund will establish a segregated account with its custodian
in which it will maintain cash, U.S. government securities or
other liquid securities equal in value to its obligations in
respect to such transaction. Securities and other assets held in
the segregated account may not be sold while the transaction is
outstanding, unless other suitable assets are substituted.
(8) Forward Foreign Currency Contracts
- --------------------------------------
During the year ended December 31,2003,International Equity and
Global Bond invested in forward foreign currency exchange
contracts to manage currency exposure. These investments may
involve greater market risk than the amounts disclosed in the
Funds' financial statements.
A forward foreign currency exchange contract is an agreement
between a Fund and another party to buy or sell a currency at a
set price at a future date. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract
is marked-to-market daily, and the change in market value is
recorded as an unrealized gain or loss. Gain or loss on the
purchase or sale of contracts having the same settlement date,
amount and counter party is realized on the date of offset,
otherwise gain or loss is realized on settlement date.
70
<Page>
Notes to Financial Statements (continued)
- -------------------------------------------------------------
The Funds, except Value, Capital Appreciation, Small Company and
Special Equity may invest in non - U.S. dollar denominated
instruments subject to limitations, and enter into forward
foreign currency exchange contracts to facilitate transactions in
foreign securities and to protect against a possible loss
resulting from an adverse change in the relationship between the
U.S. dollar and such foreign currency. Risks may arise upon
entering into these contracts from the potential inability of
counter parties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
Open forward foreign currency exchange contracts (in U.S.
Dollars) at December 31, 2003, were as follows:
<Table>
Global Bond
----------------------------------------------------------
Settlement Contract Value Current Value Unrealized
Foreign Currency Date (Payable Amount) (Receivable Amount) Gain/Loss
- ---------------- ----------- ---------------- ----------------- ----------
Australian Dollar
Contracts 01/02/04 $ 102,332 $ 103,674 $ 1,342
Danish Krone Contracts 01/05/04 25,099 25,343 244
Norwegian Krone
Contracts 01/05/04 50,416 51,194 778
Swedish Krona Contracts 01/05/04 51,105 51,600 495
---------- ---------- ----------
$ 228,952 $ 231,811 $ 2,859
</Table>
(9) Futures Contracts Held or Issued for Purposes other than Trading
- --------------------------------------------------------------------
International Equity uses interest-rate futures contracts for risk
management purposes in order to reduce fluctuations in net asset
value relative to the Fund 's targeted option-adjusted duration. On
entering into a futures contract, either cash or securities in an
amount equal to a certain percentage of the contract value (initial
margin) must be deposited with the futures broker. Subsequent
payments (variation margin) are made or received each day. The
variation margin payments equal the daily changes in the contract
value and are recorded as unrealized gains or losses. The Fund
recognizes a realized gain or loss when the contract is closed or
expires equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed. The
Fund had the following open futures contracts as of December 31,
2003: Long -3-month Eurodollar, 18 contracts, expiring March 2004
with an unrealized gain of $17,737.
(10) Transactions with Affiliated Companies
- -------------------------------------------
An affiliated company is a company that is directly or indirectly
controlled by a related party or a company in which a fund has
ownership of at least 5%of the voting securities. Transactions
during the year ended December 31, 2003, with companies which are
or were affiliates are as follows:
Summary of Transactions with Affiliated
Companies - Special Equity
- ----------------------------------------
<Table>
Purchase Sales Dividend Market
Affiliate Cost Cost Income Value
- -------------------------- ---------- -------- ---------- ------------
AK Steel Holding Corp. $ - $ - $ - $31,034,520
Axsys Technologies, Inc. - 1,502,798 - 6,155,622
Brandywine Realty Trust 696,024 930,388 374,044 5,851,922
Duckwall-ALCO Stores, Inc. - - - 3,890,460
Meristar Hospitality Corp. 15,826,288 - - 31,597,587
---------- -------- ---------- ------------
Totals $16,522,312 $2,433,186 $374,044 $78,530,111
</Table>
71
<Page>
Report of Independent Auditors
- --------------------------------------------------------------
To the Trustees of The Managers Funds and the Shareholders of
Managers Value Fund, Managers Capital Appreciation Fund, Managers
Small Company Fund, Managers Special Equity Fund, Managers
International Equity Fund, Managers Emerging Markets Equity Fund,
Managers Bond Fund and Managers Global Bond Fund:
In our opinion, the accompanying statements of assets and
liabilities, including the schedules of portfolio investments,
and the related statements of operations and of changes in net
assets and the financial highlights present fairly, in all
material respects, the financial positions of Managers Value
Fund, Managers Capital Appreciation Fund, Managers Small Company
Fund, Managers Special Equity Fund, Managers International Equity
Fund, Managers Emerging Markets Equity Fund, Managers Bond Fund
and Managers Global Bond Fund (eight of the series constituting
The Managers Funds, hereafter referred to as the "Funds"), at
December 31, 2003,and the results of each of their operations,
the changes in each of their net assets and the financial
highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to
express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits, which included
confirmation of securities at December 31, 2003 by correspondence
with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 2004
72
<Page>
Trustees and Officers (unaudited)
- ---------------------------------
The Trustees and Officers of the Trust, their business addresses,
principal occupations for the past five years and dates of birth
are listed below. Unless otherwise noted, the address of each
Trustee or Officer is the address of the Trust: 40 Richards
Avenue, Norwalk, Connecticut 06854.
The Trustees hold office without limit in time except that (a)
any Trustee may resign or retire; (b) any Trustee may be removed
with or without cause by at least two-thirds of the number of
Trustees remaining after such removal (provided that there shall
not be fewer than 3 remaining Trustees); (c) shareholders may
vote to remove a Trustee at a special meeting of shareholders
held at the written request of shareholders of 10%or more of the
outstanding shares of the Trust.
Independent Trustees
- --------------------
The following Trustees are not "interested persons" of the Trust
within the meaning of the 1940 Act:
<Table>
Name, Date of Birth, Number of Principal Occupation(s)During Past 5 Years and
Funds Overseen in Fund Complex* Other Directorships Held by Trustee
- ------------------------------- ---------------------------------------------
Jack W. Aber, 9/9/37 Professor of Finance, Boston University School
* Trustee since 1999 of Management (1972-Present); Trustee of
* Oversees 21 Funds in Appleton Growth Fund (1 portfolio); Trustee of
Fund Complex Third Avenue Trust (4 portfolios); Trustee of
Third Avenue Variable Trust (1 portfolio)
- ------------------------------- ---------------------------------------------
William E. Chapman, II, 9/23/41 President and Owner, Longboat Retirement
* Trustee since 1999 Planning Solutions (1998-Present);Hewitt
* Oversees 21 Funds Associates, LLC (part time)(provider of
in Fund Complex Retirement and Investment Education Seminars);
Interim Executive Vice President, QuadraMed
Corporation (2001); President Retirement Plans
Group, Kemper Funds (1990-1998); Trustee of
Bowdoin College (2002-Present); Trustee of
Third Avenue Trust (4 portfolios); Trustee of
Third Avenue Variable Trust (1 portfolio)
- ------------------------------- ---------------------------------------------
Edward J. Kaier, 9/23/45 Partner, Hepburn, Willcox, Hamilton & Putnam
* Trustee since 1999 (1977-Present); Trustee of Third Avenue Trust
* Oversees 21 Funds in Fund (4 portfolios);Trustee of Third Avenue Variable
Complex Trust (1 portfolio)
- ------------------------------- ---------------------------------------------
Madeline H. McWhinney, 3/11/22 Member, Investment Committee, New Jersey
* Trustee since 1987 Supreme Court (1990-Present); Member, Advisory
* Oversees 13 Funds in Fund Board on Professional Ethics, New Jersey
Complex Supreme Court (1983-1998); President, Dale,
Elliott & Company, Inc. (Management Consultant)
(1977-1994); No other directorships held by
trustee.
- ------------------------------- ---------------------------------------------
Steven J.Paggioli,4/3/50 Consultant (2001-Present); Formerly Executive
* Trustee since 1993 Vice President and Director, The Wadsworth
* Oversees 13 Funds in Fund Group (1986-2001); Executive Vice President,
Complex Secretary and Director, Investment Company
Administration, LLC (1990-2001); Vice
President, Secretary and Director, First Fund
Distributors, Inc. (1991-2001); Trustee,
Professionally Managed Portfolios (15
portfolios); Director, Sustainable Growth
Advisors, LP.
- ------------------------------- ---------------------------------------------
Eric Rakowski, 6/5/58 Professor, University of California at Berkeley
* Trustee since 1999 School of Law (1990-Present); Visiting
* Oversees 21 Funds in Fund Professor, Harvard Law School (1998-1999);
Complex Trustee of Third Avenue Trust (4 portfolios);
Trustee of Third Avenue Variable Trust (1
portfolio)
- ------------------------------- ---------------------------------------------
Thomas R. Schneeweis, 5/10/47 Professor of Finance, University of
* Trustee since 1987 Massachusetts (1985-Present); Managing
* Oversees 13 Funds in Fund Director, CISDM at the University of
Complex Massachusetts, (1994-Present); President and
Chief Executive Officer, Schneeweis Partners,
LLC (2001-Present); No other directorships held
by trustee.
- ------------------------------- ---------------------------------------------
</Table>
*The Fund Complex consists of Managers AMG Funds, The Managers
Funds, Managers Trust I and Managers Trust II.
Interested Trustees
- -------------------
The following Trustees are "interested persons" of the Trust
within the meaning of the 1940 Act. Mr. Healey is an interested
person of the Trust within the meaning of the 1940 Act by virtue
of his positions with, and interest in securities of, Affiliated
Managers Group, Inc. Mr. Lebovitz is an interested person of the
Trust within the meaning of the 1940 Act by virtue of his
positions with The Managers Funds LLC and Managers Distributors,
Inc.
73
<Page>
Trustees and Officers (continued) (unaudited)
- ---------------------------------------------------------------
<Table>
Name, Date of Birth, Number of Principal Occupation(s)During Past 5 Years and
Funds Overseen in Fund Complex* Other Directorships Held by Trustee
- ------------------------------- ---------------------------------------------
Sean M. Healey, 5/9/61 President and Chief Operating Officer,
* Trustee since 1999 Affiliated Managers Group, Inc. (1999-Present);
* Oversees 21 Funds in Director, Affiliated Managers Group, Inc.
Fund Complex (2001-Present); Executive Vice President,
Affiliated Managers Group, Inc. (1995-1999); Vice
President, Goldman, Sachs & Company (1987-1995);
No other directorships held by trustee.
- ------------------------------- ---------------------------------------------
Peter M. Lebovitz, 1/18/55 President and Chief Executive Officer, The
* Trustee & President since 2002 Managers Funds LLC (1999-Present); President,
* Oversees 21 Funds in Fund Managers Distributors, Inc. (2000-Present);
Complex Director of Marketing, The Managers Funds, LP
(1994-1999); Director of Marketing, Hyperion
Capital Management, Inc. (1993-1994); Senior Vice
President, Greenwich Asset Management, Inc.
(1989-1993); No other directorships held by
trustee.
- ------------------------------- ---------------------------------------------
</Table>
*The Fund Complex consists of Managers AMG Funds, The Managers
Funds, Managers Trust I and Managers Trust II.
Officers
- --------
<Table>
Name, Date of Birth, Position(s)
Held With Fund &Length of
Time Served Principal Occupation(s)During Past 5 Years
- ------------------------------- -------------------------------------------------
Galan G.Daukas, 10/24/63 Chief Operating Officer, The Managers Funds LLC,
* Chief Financial Officer (2002-Present); Chief Financial Officer, Managers
since 2002 AMG Funds, Managers Trust I and Managers Trust II
(2002-Present); Chief Operating Officer and
Chairman of the Management Committee, Harbor
Capital Management Co., Inc. (2000-2002); Chief
Operating Officer, Fleet Investment Advisors
(1992-2000).
- ------------------------------- -------------------------------------------------
Donald S. Rumery, 9/23/58 Director, Finance and Planning, The Managers
* Treasurer since 1995 Funds LLC, (1994-Present); Treasurer and
* Secretary since 1997 Chief Financial Officer, Managers Distributors,
Inc. (2000-Present); Treasurer and Secretary of
Managers Trust I and Managers Trust II (2000-
Present); Treasurer of Managers AMG Funds (1999-
Present)
- ------------------------------- -------------------------------------------------
</Table>
74
<Page>
MANAGERS
- --------
Investment Manager and Administrator
The Managers Funds LLC
40 Richards Avenue
Norwalk, Connecticut 06854-2325
(203) 857-5321 or (800) 835-3879
Distributor
- -----------
Managers Distributors, Inc.
40 Richards Avenue
Norwalk, Connecticut 06854-2325
(203) 857-5321 or (800) 835-3879
Custodian
- ---------
The Bank of New York
101 Barclay Street, 13th Floor
New York, New York 10286
Legal Counsel
- -------------
Goodwin Procter LLP
Exchange Place
Boston, Massachusetts 02109
Transfer Agent
- -------------
Boston Financial Data Services, Inc.
Attn: The Managers Funds
P.O. Box 8517
Boston, Massachusetts 02266-8517
(800) 252-0682
For ManagersChoice Only
- -----------------------
The Managers Funds
PFPC Inc. c/o Wrap Services
P.O. Box 9847
Providence, RI 02940
(800) 358-7668
<Page>
MANAGERS
- --------
The Managers Funds
- ------------------
Equity Funds:
VALUE FUND
Armstrong Shaw Associates Inc.
Osprey Partners Investment Management, LLC
CAPITAL APPRECIATION FUND
Essex Investment Management Co., LLC
Bramwell Capital Management, Inc.
SMALL COMPANY FUND
Kalmar Investment Advisers, Inc.
SPECIAL EQUITY FUND
Donald Smith & Co., Inc.
Essex Investment Management Co., LLC
Kern Capital Management LLC
Skyline Asset Management, L.P.
Westport Asset Management, Inc.
INTERNATIONAL EQUITY FUND
Lazard Asset Management, LLC
Bernstein Investment Research and Management
Mastholm Asset Management, L.L.C.
EMERGING MARKETS EQUITY FUND
Rexiter Capital Management Limited
FIRST QUADRANT TAX-MANAGED EQUITY FUND
First Quadrant, L.P.
Income Funds:
MONEY MARKET FUND
J.P. Morgan Fleming Asset Management (USA), Inc.
SHORT DURATION GOVERNMENT FUND
Smith Breeden Associates, Inc.
TOTAL RETURN BOND FUND
Merganser Capital Management LP
INTERMEDIATE DURATION GOVERNMENT FUND
Smith Breeden Associates, Inc.
BOND FUND
Loomis, Sayles & Co., L.P.
GLOBAL BOND FUND
Loomis, Sayles & Co., L.P.
Managers AMG Funds
- ------------------
Equity Funds:
ESSEX AGGRESSIVE GROWTH FUND
ESSEX LARGE CAP GROWTH FUND
Essex Investment Management Co., LLC
RORER LARGE-CAP FUND
RORER MID-CAP FUND
Rorer Asset Management, LLC
SYSTEMATIC VALUE FUND
Systematic Financial Management, LLP
BURRIDGE SMALL CAP GROWTH FUND
The Burridge Group LLC
This report is prepared for the information of shareholders. It
is authorized for distribution to prospective investors only when
preceded or accompanied by an effective prospectus, which is
available by calling 1-800-835-3879. Distributed by Managers
Distributors, Inc., member NASD.
www.managersfunds.com
www.managersamg.com
www.managerschoice.com
<Page>
Item 2. CODE OF ETHICS.
====================================================================
Registrant has adopted a Code of Ethics. See attached Exhibit 10(a).
Item 3. AUDIT COMMITTEE FINANCIAL EXPERT.
====================================================================
Registrant's Board of Trustees has determined that independent
Trustees Mr. Jack W. Aber and Steven J. Paggioli each qualify as the
Audit Committee Financial Expert. Mr. Aber and Mr. Paggioli are
"independent" as such term is defined in Form N-CSR.
Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
====================================================================
(a) Audit Fees.
-----------
For the fiscal years ended December 31, 2003 and December 31,
2002, the aggregate Audit Fees billed by PricewaterhouseCoopers
LLP ("PwC") for professional services rendered for the audits of
the financial statements, or services that are normally provided
in connection with statutory and regulatory filings or
engagements for those fiscal years, for Managers Value Fund,
Managers Capital Appreciation Fund, Managers Small Company Fund,
Managers Special Equity Fund, Managers International Equity Fund,
Managers Emerging Markets Equity Fund, Managers Bond Fund and
Managers Global Bond Fund (each a "Fund" and collectively the
"Funds") and for all funds in The Managers Funds Family of Funds
Complex are shown in the table below.
<Table>
Fund 2003 (A) 2002 (A)
- ---- -------- --------
Managers Value Fund $19,645 $19,185
Managers Capital Appreciation Fund 21,481 21,738
Managers Small Company Fund 11,133 11,770
Managers Special Equity Fund 55,328 57,293
Managers International Equity Fund 34,733 39,540
Managers Emerging Markets Equity Fund 14,233 13,797
Managers Bond Fund 26,003 22,660
Managers Global Bond Fund 23,235 22,244
All funds in The Managers Funds Family of Funds
Complex audited by PwC $318,166 $281,165
</Table>
(A) Aggregate amounts may reflect rounding.
(b) Audit-Related Fees.
-------------------
In each of the fiscal years ended December 31, 2003 and December
31, 2002, the aggregate Audit-Related Fees billed by PwC for
services rendered for assurance and related services to the Funds
that are reasonably related to the performance of the audit or
review of the Funds' financial statements, but not reported as
Audit Fees, are shown in the table below.
<Table>
Fund 2003 (A), (B) 2002 (A), (B)
- ---- ------------- -------------
Managers Value Fund $0 $0
Managers Capital Appreciation Fund 0 0
Managers Small Company Fund 0 0
Managers Special Equity Fund 0 0
Managers International Equity Fund 0 0
Managers Emerging Markets Equity Fund 0 0
Managers Bond Fund 0 0
Managers Global Bond Fund 0 0
</Table>
(A) Aggregate amounts may reflect rounding.
(B) Amounts related to non-audit services prior to May 6, 2003
that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
<Page>
In each of the fiscal years ended December 31, 2003 and December
31, 2002, the aggregate Audit-Related Fees that were billed by
PwC that were required to be approved by the Audit Committee for
services rendered on behalf of Affiliated Managers Group, Inc.
("AMG") and entities controlling, controlled by, or under common
control with AMG (not including any subadvisor whose role is
primarily portfolio management and is subcontracted with or
overseen by another investment adviser) that provide ongoing
services to the Funds ("Fund Service Providers") for assurance
and related services that relate directly to the operations and
financial reporting of the Funds that are reasonably related to
the performance of the audit or review of the Funds' financial
statements, but not reported as Audit Fees, are shown in the
table below.
<Table>
Billed By 2003 (A), (B) 2002 (A), (B)
- --------- ------------- -------------
PwC $0 $0
</Table>
(A) Aggregate amounts may reflect rounding.
(B) Amounts related to non-audit services prior to May 6, 2003
that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
Fees included in the audit-related category comprise assurance
and related services (e.g., due diligence services) that are
traditionally performed by the independent accountant. These
audit-related services include due diligence related to mergers
and acquisitions, accounting consultations and audits in
connection with acquisitions, internal control reviews, attest
services that are not required by statute or regulation and
consultation concerning financial accounting and reporting
standards.
(c) Tax Fees.
---------
In each of the fiscal years ended December 31, 2003 and December
31, 2002, the aggregate Tax Fees billed by PwC for professional
services rendered for tax compliance, tax advice, and tax
planning for the Funds is shown in the table below.
<Table>
Fund 2003 (A), (B) 2002 (A), (B)
- ---- ------------- -------------
Managers Value Fund $2,269 $5,038
Managers Capital Appreciation Fund 2,527 5,847
Managers Small Company Fund 2,004 5,766
Managers Special Equity Fund 4,124 9,251
Managers International Equity Fund 3,574 8,310
Managers Emerging Markets Equity Fund 2,757 6,517
Managers Bond Fund 3,040 6,317
Managers Global Bond Fund 3,006 7,014
</Table>
(A) Aggregate amounts may reflect rounding.
(B) Amounts related to non-audit services prior to May 6, 2003
that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
In each of the fiscal years ended December 31, 2003 and December
31, 2002, the aggregate Tax Fees billed by PwC that were required
to be approved by the Audit Committee for professional services
rendered on
<Page>
behalf of the Fund Service Providers for tax compliance, tax
advice, and tax planning that relate directly to the
operations and financial reporting of the fund is shown in the
table below.
<Table>
Billed By 2003 (A), (B) 2002 (A), (B)
- --------- ------------- -------------
PwC $0 $0
</Table>
(A) Aggregate amounts may reflect rounding.
(B) Amounts related to non-audit services prior to May 6, 2003
that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
Fees included in the Tax Fees category comprise all services
performed by professional staff in the independent accountant's
tax division except those services related to the audit.
Typically, this category would include fees for tax compliance,
tax planning, and tax advice. Tax compliance, tax advice, and tax
planning services include preparation of original and amended tax
returns, claims for refund and tax payment-planning services,
assistance with tax audits and appeals, tax advice related to
mergers and acquisitions and requests for rulings or technical
advice from taxing authorities.
(d) All Other Fees.
---------------
In each of the fiscal years ended December 31, 2003 and December
31, 2002, the aggregate Other Fees billed by PwC for all other
non-audit services rendered to the Funds is shown in the table
below.
<Table>
Fund 2003 (A), (B) 2002 (A), (B)
- ---- ------------- -------------
Managers Value Fund $0 $203
Managers Capital Appreciation Fund 0 515
Managers Small Company Fund 0 80
Managers Special Equity Fund 0 7,940
Managers International Equity Fund 0 1,642
Managers Emerging Markets Equity Fund 0 88
Managers Bond Fund 0 344
Managers Global Bond Fund 0 72
</Table>
(A) Aggregate amounts may reflect rounding.
(B) Amounts related to non-audit services prior to May 6, 2003
that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
In each of the fiscal years ended December 31, 2003 and December
31, 2002, the aggregate Other Fees billed by PwC that were
required to be approved by the Audit Committee for all other non-
audit services rendered on behalf of the Fund Service Providers
that relate directly to the operations and financial reporting of
the Funds is shown in the table below.
<Table>
Billed By 2003 (A), (B) 2002 (A), (B)
- --------- ------------- -------------
PwC $0 $0
</Table>
(A) Aggregate amounts may reflect rounding.
(B) Amounts related to non-audit services prior to May 6, 2003
that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
<Page>
Fees included in the All Other Fees category include services
related to internal control reviews, strategy and other
consulting, financial information systems design and
implementation, consulting on other information systems, and
other tax services unrelated to the Funds.
(e) (1) Audit Committee Pre-Approval Policies and Procedures:
-----------------------------------------------------
The Audit Committee has adopted pre-approval policies and
procedures as follows: Before PwC is engaged to render audit or
non-audit services, the engagement is approved by the
Audit Committee. The Chairman of the Audit Committee is
authorized on behalf of the Board of Trustees and the Audit
Committee to approve any other non-audit services to be performed
by PwC involving fees of not more than $20,000, provided that the
Chairman notifies members of the Audit Committee of such pre-
approval not later than the next meeting of the Audit Committee
following the date of such pre-approval.
(e) (2) Services approved pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X:
- -----------------------------------------------------------------
Audit-Related Fees:
- -------------------
There were no amounts that were approved by the Audit Committee
pursuant to the de minimis exception for the fiscal years ended
December 31, 2003 and December 31, 2002 on behalf of the Funds.
These percentages include amounts related to non-audit services
prior to May 6, 2003 that would have been subject to pre-approval
if the SEC rules relating to the pre-approval of non-audit
services had been in effect at that time.
There were no amounts that were required to be approved by the
Audit Committee pursuant to the de minimis exception for the
fiscal years ended December 31, 2003 and December 31, 2002 on
behalf of the Fund Service Providers that relate directly to the
operations and financial reporting of the Funds. These
percentages include amounts related to non-audit services prior
to May 6, 2003 that would have been subject to pre-approval if
the SEC rules relating to the pre-approval of non-audit services
had been in effect at that time.
Tax Fees:
- ---------
There were no amounts that were approved by the Audit Committee
pursuant to the de minimis exception for the fiscal years ended
December 31, 2003 and December 31, 2002 on behalf of the Funds.
These percentages include amounts related to non-audit services
prior to May 6, 2003 that would have been subject to pre-approval
if the SEC rules relating to the pre-approval of non-audit
services had been in effect at that time.
There were no amounts that were required to be approved by the
Audit Committee pursuant to the de minimis exception for the
fiscal years ended December 31, 2003 and December 31, 2002 on
behalf of the Fund Service Providers that relate directly to the
operations and financial reporting of the Funds. These
percentages include amounts related to non-audit services prior
to May 6, 2003 that would have been subject to
<Page>
pre-approval if the SEC rules relating to the pre-approval of
non-audit services had been in effect at that time.
All Other Fees:
- ---------------
There were no amounts that were approved by the Audit Committee
pursuant to the de minimis exception for the fiscal years ended
December 31, 2003 and December 31, 2002 on behalf of the Funds.
These percentages include amounts related to non-audit services
prior to May 6, 2003 that would have been subject to pre-approval
if the SEC rules relating to the pre-approval of non-audit
services had been in effect at that time.
There were no amounts that were required to be approved by the
Audit Committee pursuant to the de minimis exception for the
fiscal years ended December 31, 2003 and December 31, 2002 on
behalf of the Fund Service Providers that relate directly to the
operations and financial reporting of the Funds. These
percentages include amounts related to non-audit services prior
to May 6, 2003 that would have been subject to pre-approval if
the SEC rules relating to the pre-approval of non-audit services
had been in effect at that time.
(f) According to PwC for the fiscal year ended December 31, 2003,
the percentage of hours spent on the audit of the Funds'
financial statements for the most recent fiscal year that were
attributed to work performed by persons who are not full-time,
permanent employees of PwC is as follows:
<Table>
Fund 2003
- ---- ----
Managers Value Fund 0%
Managers Capital Appreciation Fund 0%
Managers Small Company Fund 0%
Managers Special Equity Fund 0%
Managers International Equity Fund 0%
Managers Emerging Markets Equity Fund 0%
Managers Bond Fund 0%
Managers Global Bond Fund 0%
</Table>
(g) The following table sets forth the non-audit services
provided by PwC to the Funds' advisers The Managers Funds and
entities controlling, controlled by or under common control with
The Managers Funds LLC that provide ongoing services to the Funds
("Control Affiliates") for the last two fiscal years.
<Table>
Audit-related fees (A) Tax fees (A) All other fees (A)
---------------------- ------------ ------------------
2002 2003 2002 2003 2002 2003
---- ---- ---- ---- ---- ----
Control Affiliates $0 $0 $17,800 $16,350 $0 $0
</Table>
(A) Aggregate amounts may reflect rounding.
<Page>
(h) The Trust's Audit Committee has considered Non-Covered
Services that were not pre-approved that were provided by PwC to
Fund Service Providers to be compatible with maintaining the
independence of PwC in its audit of the Funds, taking into
account representations from PwC, in accordance with Independence
Standards Board Standard No. 1, regarding its independence from
the Funds and its related entities.
Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
====================================================================
Not applicable.
Item 6. [RESERVED]
====================================================================
Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-
END MANAGEMENT INVESTMENT COMPANIES.
====================================================================
Not applicable.
Item 8. [RESERVED]
====================================================================
Item 9. CONTROLS AND PROCEDURES.
====================================================================
(a) The registrant's principal executive officer and principal
financial officer have evaluated the registrant's disclosure
controls and procedures within 90 days of this filing and have
concluded that the registrant's disclosure controls and procedures
were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was
recorded, processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal
financial officer are aware of no changes in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal half-year that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. EXHIBITS
====================================================================
(a) Any code of ethics or amendments hereto. Filed herewith.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. Filed herewith.
(c) Certifications pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. Filed herewith.
SIGNATURES
==========
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE MANAGERS FUNDS
By: /s/ Peter M. Lebovitz
----------------------------
Peter M. Lebovitz, President
Date: March 5, 2004
-------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Peter M. Lebovitz
----------------------------
Peter M. Lebovitz, President
Date: March 5, 2004
-------------
By: /s/ Galan G. Daukas
----------------------------------------
Galan G. Daukas, Chief Financial Officer
Date: March 5, 2004
-------------
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