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AMG Funds I – ‘N-CSRS’ for 3/31/14

On:  Thursday, 4/17/14, at 3:53pm ET   ·   Effective:  4/17/14   ·   For:  3/31/14   ·   Accession #:  1193125-14-147598   ·   File #:  811-06520

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/17/14  AMG Funds I                       N-CSRS      3/31/14    3:1.4M                                   RR Donnelley/FAAMG Boston Common Global Impact Fund Class I (BRWIX)AMG Managers Brandywine Advisors Mid Cap Growth Fund Class N (BWAFX)AMG Veritas Global Real Return Fund Class I (BLUEX)

Certified Semi-Annual Shareholder Report of a Management Investment Company   —   Form N-CSR
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSRS      Managers Trust I                                    HTML    582K 
 3: EX-99.(906)(CT)  Section 906 Certifications                     HTML     10K 
 2: EX-99.(CERT)  Section 302 Certifications                        HTML     15K 


N-CSRS   —   Managers Trust I
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Letter to Shareholders
"About Your Fund's Expenses
"Fund Performance
"Brandywine Fund
"Brandywine Blue Fund
"Notes to Schedules of Portfolio Investments
"Statement of Assets and Liabilities
"Statement of Operations
"Statements of Changes in Net Assets
"Financial Highlights
"Notes to Financial Statements
"Annual Renewal of Investment Management and Subadvisory Agreements
"Portfolio Statistics and Schedule of Portfolio Investments
"Notes to Schedule of Portfolio Investments

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  Managers Trust I  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSRS

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-06520

 

 

MANAGERS TRUST I

(Exact name of registrant as specified in charter)

 

 

800 Connecticut Avenue, Norwalk, Connecticut 06854

(Address of principal executive offices) (Zip code)

Managers Investment Group LLC

800 Connecticut Avenue, Norwalk, Connecticut 06854

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: (203) 299-3500

Date of fiscal year end: September 30, 2013

Date of reporting period: OCTOBER 1, 2013MARCH 31, 2014

(Semi-Annual Shareholder Report)

 

 

 


Item 1. Reports to Shareholders


LOGO

SAR073-0314


Managers Funds

Semi-Annual Report—March 31, 2014 (unaudited)

 

TABLE OF CONTENTS

   Page  

LETTER TO SHAREHOLDERS

     2   

ABOUT YOUR FUND’S EXPENSES

     3   

FUND PERFORMANCE

     4   

PORTFOLIO STATISTICS AND SCHEDULES OF PORTFOLIO INVESTMENTS

  

Brandywine Fund

     5   

Brandywine Blue Fund

     9   

NOTES TO SCHEDULES OF PORTFOLIO INVESTMENTS

     13   

FINANCIAL STATEMENTS

  

Statement of Assets and Liabilities

     14   

Balance sheets, net asset value (NAV) per share computations and cumulative undistributed amounts

  

Statement of Operations

     15   

Detail of sources of income, expenses, and realized and unrealized gains (losses) during the fiscal period

  

Statements of Changes in Net Assets

     16   

Detail of changes in assets for the past two fiscal periods

  

FINANCIAL HIGHLIGHTS

     17   

Historical net asset values per share, distributions, total returns, income and expense ratios, turnover ratios and net assets

  

NOTES TO FINANCIAL STATEMENTS

     19   

Accounting and distribution policies, details of agreements and transactions with Fund management and affiliates, and descriptions of certain investment risks

  

ANNUAL RENEWAL OF INVESTMENT MANAGEMENT AND SUBADVISORY AGREEMENTS

     24   

Nothing contained herein is to be considered an offer, sale or solicitation of an offer to buy shares of any series of the Managers Family of Funds. Such offering is made only by Prospectus, which includes details as to offering price and other material information.

 

 


LOGO

 

Subadvised by Friess Associates, LLC

   Semi-Annual Report    March 31, 2014

 

Dear Fellow Shareholders:

Stocks dipped and rebounded in the March quarter, ending the first three months of the year only modestly changed. After high investor spirits contributed to robust gains last year, the market displayed a more subdued mood to start 2014.

Brandywine Fund grew 1.53 percent in the March quarter versus gains in the Russell 3000® and Russell 3000® Growth Indexes of 1.97 and 1.07 percent. Brandywine Blue Fund retraced 1.59 percent as the S&P 500®, Russell 1000® and Russell 1000® Growth Indexes added 1.81, 2.05 and 1.12 percent.

Positive momentum toward the end of last year boosted optimism that the economy could finally be poised to break from its extended streak of slow growth. Harsh winter weather, marked by snowfall that ranked among the highest in terms of accumulation in major metropolitan regions in the Midwest and Northeast, quickly put that thinking on ice.

Lost store hours, shipping delays and other weather-related fallout prompted investors to revise their expectations downward for the March quarter. At the same time, less-than-stellar economic reports released during the period raised questions as to whether near-term conditions reflected a weather-driven aberration or signaled more weakness to come.

In addition to a dose of economic uncertainty, the Federal Reserve demonstrated its commitment to continuing to taper its stimulus program, concerns about growth in emerging markets surfaced and Russia annexed Crimea from Ukraine. In retrospect, returns for the March quarter make the period seem less eventful than it was.

A number of industrial holdings exposed to an increase in energy-related construction activity fared particularly well thanks in part to their lack of exposure to the nastiest of the winter weather. Industrial holdings comprised Brandywine’s third largest percentage of assets and represented an overweight position relative to the Russell 3000® Growth Index. Industrial holdings significantly outperformed the sector within the index, making them by far the most notable contributors to Brandywine’s relative and absolute results.

United Rentals, MasTec, H&E Equipment Services and Trinity Industries were among the biggest industrial sector contributors held by Brandywine. All four companies exceeded consensus earnings estimates for the December quarter, posting year-over-year growth ranging from 15 to 59 percent.

Financial holdings also boosted Brandywine’s results versus the benchmark. Allstate Corp. (held by both Funds) and E*Trade Financial Corp. (Brandywine only) were the primary contributors. Allstate’s December-quarter earnings jumped to $1.70 per share from $0.59 in the year-ago period, topping

the consensus estimate by 24 percent. E*Trade also exceeded expectations when it reported $0.20 per share in December-quarter earnings, up from a $0.65 loss per share the year before.

Even though Brandywine’s exposure to energy was limited, the energy sector was the most significant performance detractor due primarily to Bristow Group. The company, which provides helicopter transport services for energy workers traveling between onshore and offshore sites, reaffirmed its earnings guidance for 2014, but fell short of December-quarter estimates because of contract delays.

Companies sensitive to consumer discretion were among the poorest performers during the quarter as investors questioned the strength of consumer spending amid unwelcoming weather conditions. With consumer discretionary holdings representing its largest commitment, Brandywine Blue was negatively impacted by that climate.

Two of Brandywine Blue’s biggest detractors from the sector, GameStop Corp. (both Funds) and LKQ Corp. (Blue only), came under pressure for company-specific reasons. Although GameStop enjoyed solid sales of new gaming systems over the holidays, disappointing software sales trends raised concerns about competition from downloadable games. Chrysler filed suit against LKQ, claiming the aftermarket auto parts maker infringed on design patents.

Brandywine Blue was also hurt by the consumer staples sector or, more specifically, Nu Skin Enterprises (both Funds). The personal and nutritional product company beat estimates by more than doubling December-quarter earnings growth. Nu Skin shares declined on news that Chinese officials launched an investigation into the company’s person-to-person sales model.

Standout performers Xilinx (both Funds) and Avago Technologies (Blue only) helped make technology holdings the biggest boost to Brandywine Blue’s results. Xilinx and Avago both beat estimates in their most recent quarter with earnings growth of 61 and 23 percent.

For more on companies that influenced March-quarter performance, please see Roses & Thorns on page 6 for Brandywine and page 10 for Brandywine Blue.

Thanks for your continued confidence. We’re grateful for the opportunity to invest on your behalf.

 

LOGO

 

Scott Gates   
Chief Investment Officer    April 10, 2014
 

 

 

 

2


 

About Your Fund’s Expenses (unaudited)

 

 

As a shareholder of a Fund, you may incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on $1,000 invested at the beginning of the period and held for the entire period as indicated below.

Actual Expenses

The first line of the following table provides information about the actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your on going costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

Six Months Ended

March 31, 2014

  Expense
Ratio

for
the Period
    Beginning
Account

Value
10/01/13
    Ending
Account

Value
3/31/14
    Expenses
Paid

During
the
Period*
 

Brandywine Fund

       

Based on Actual Fund Return

    1.09   $ 1,000      $ 1,129      $ 5.79   

Hypothetical (5% return before expenses)

    1.09   $ 1,000      $ 1,019      $ 5.49   

Brandywine Blue Fund

       

Based on Actual Fund Return

    1.23   $ 1,000      $ 1,071      $ 6.35   

Hypothetical (5% return before expenses)

    1.23   $ 1,000      $ 1,019      $ 6.19   

 

* Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182), then divided by 365.
 

 

 
3


 

Fund Performance

Periods ended March 31, 2014 (unaudited)

 

 

The table below shows the average annual total returns for the periods indicated for each Fund, as well as each Fund’s relative index for the same time periods ended March 31, 2014.

 

Average Annual Total Retuns1

   Six Months*     One Year     Five Years     Ten Years  

Brandywine Fund 2,3

     12.94     24.88     11.63     4.11

Russell 3000® Growth Index4

     11.43     23.53     21.94     7.95

Russell 3000® Index5

     12.28     22.61     21.93     7.86

S&P 500® Index6

     12.51     21.86     21.16     7.42

Brandywine Blue Fund 2

     7.13     18.90     12.46     4.22

Russell 1000® Growth Index7

     11.67     23.22     21.68     7.86

Russell 1000® Index8

     12.48     22.41     21.73     7.80

S&P 500® Index6

     12.51     21.86     21.16     7.42

 

 

The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. For performance information through the most recent month end, please call (800) 835-3879 or visit our Web site at www.managersinvest.com. Current net asset values per share for each Fund are available on the Funds’ Web site at www.managersinvest.com.

 

Investors should carefully consider the Fund’s investment objectives, risks, charges, and expenses before investing. For this and other information, please call (800) 835-3879 or visit our Web site at www.managersinvest.com for a free prospectus. Read it carefully before investing or sending money. Funds are distributed by Managers Distributors, Inc., member FINRA.

 

*  Not annualized.
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. The listed returns on the Funds are net of expenses and based on the published NAV as of March 31, 2014. All returns are in U.S. dollars ($).
2  The Fund inception dates and returns for all periods prior to October 1, 2013, reflect performance of the Predecessor Funds, Brandywine Fund, Inc. and Brandwine Blue Fund, and was managed by Friess Associates, LLC with the same investment objective and substantially similar investment policies.
3  The Fund invests in growth stocks, which may be more sensitive to market movements because their prices tend to reflect future investor expectations
  rather than just current profits. Growth stocks may underperform value stocks during given periods.
4  The Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. Unlike the Fund, the Russell 3000® Growth Index is unmanaged, is not available for investment, and does not incur expenses.
5  The Russell 3000® Index is composed of the 3,000 largest U.S. companies as measured by market capitalization, and represents about 98% of the U.S. stock market. Unlike the Fund, the Russell 3000® Index is unmanaged, is not available for investment, and does not incur expenses.
6  The S&P 500® Index is capitalization-weighted index of 500 stocks. The S&P 500® Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Unlike the Fund, the S&P 500® Index is unmanaged, is not available for investment, and does not incur expenses.
7  The Russell 1000® Growth Index is a market capitalization weighted index that measures the performance of those Russell 1000® companies with higher price-to-book ratio and higher forecasted growth values. Unlike the Fund, the Russell 1000® Growth Index is unmanaged, is not available for investment, and does not incur expenses.
8  The Russell 1000® Index measures the performance of approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® Index represents approximately 92% of the U.S. market. Unlike the Fund, the Russell 1000® Index is unmanaged, is not available for investment, and does not incur expenses.

The Russell 3000® Growth Index, Russell 3000® Index, Russell 1000® Growth Index and Russell 1000® Index are registered trademarks of Russell Investments. Russell® is a trademark of Russell Investments.

The S&P 500® Index is proprietary data of Standard & Poor’s, a division of McGraw-Hill Companies, Inc. All rights reserved.

Not FDIC insured, nor bank guaranteed. May lose value.

 

 

 
4


LOGO

Portfolio Characteristics as of March 31, 2014

Top Ten Holdings

 

    % of Net     % Change from         % of Net     % Change from  

Security Name

  Assets     Book Cost    

Security Name

  Assets     Book Cost  

United Rentals, Inc.

    2.7     82.3   UnitedHealth Group, Inc.     2.2     5.8

Synaptics, Inc.

    2.5     35.5   E*TRADE Financial Corp.     2.2     7.4

VF Corp.

    2.4     63.5   Dick’s Sporting Goods, Inc.     2.2     4.6

Visa, Inc., Class A

    2.2     86.2   Air Lease Corp.     2.2     75.5

Jarden Corp.

    2.2     41.2   Cardinal Health, Inc.     2.2     7.9

 

Estimated Earnings Growth Rate

of the Fund’s Investments

 

LOGO

Forecasted Increase in Earnings Per Share

2014 vs 2013

Source: Consensus estimates from FactSet Research Systems Inc.

 

This is not a forecast of the Fund’s future performance. Earnings growth for a Fund holding does not guarantee a corresponding increase in the market value of the holding or the Fund. As of March 31, 2014, the S&P 500® Index’s average annual total returns for 1, 5 and 10 years were 21.86, 21.16 and 7.42 percent, respectively.

 

The Portfolio’s Market Capitalization

 

LOGO

 

Top Ten Industry Groups

 

LOGO

 

 

5


 

LOGO

Quarter ending March 31, 2014 “Roses and Thorns”

 

Biggest $ Winners

   $ Gain
(in millions)
     % Gains     

Reason for Move

United Rentals Inc.    $ 4.1         21.8       United Rentals reported 25 percent December-quarter earnings growth, beating Wall Street expectations. Pricing increased 4 percent and fleet utilization continued to rise. Equipment sales were better than expected, with profit margins up from the year-ago period. Management outlined plans to expand the company’s export channels to take advantage of international demand.
MasTec Inc.    $ 3.7         30.7       The infrastructure construction company focused on the energy and communications sectors overcame difficult weather conditions to top December-quarter earnings expectations with 15 percent growth over the prior year. The communications and wireless segments grew 38 percent, with strong demand generated by AT&T and Samsung. The oil-and-gas division reported 100 percent revenue growth.
Under Armour Inc.    $ 3.7         32.4       The maker of athletic apparel, footwear, equipment and accessories grew December-quarter earnings 26 percent, beating the consensus estimate. Cold winter weather drove demand for Under Armour’s cold weather apparel, contributing to 35 percent revenue growth. The period marked the 15th consecutive quarter in which Under Armour grew revenue by 20 percent or more. Under Armour also raised 2014 guidance for revenue and operating income, forecasting growth of at least 22 and 23 percent, respectively.
Air Lease Corp.    $ 3.7         19.6       The aircraft leasing company grew December-quarter earnings 44 percent, topping estimates. Revenue increased 28 percent to $243 million. Air Lease completed the period with its entire fleet leased and with future deliveries profitably placed through 2015. Demand reflected continued growth in air traffic and new, more efficient aircraft models from Boeing and Airbus driving sales for airlines around the world.
Trinity Industries Inc.    $ 3.6         24.8       The company, which makes railcars, inland barges and construction equipment, exceeded the consensus estimate with 59 percent December-quarter earnings growth. Demand for equipment to ship coal, grain and sand used in hydraulic fracturing drove results. Backlogged rail business stood at $5 billion, providing visibility into future growth potential.

Biggest $ Losers

   $ Loss
(in millions)
     % Loss     

Reason for Move

Nu Skin Enterprises Inc.    $ 5.4         45.5       Nu Skin, which makes personal care products and nutritional supplements sold through direct-sales channels, more than doubled year-over-year earnings to $2.02 per share in the December quarter, beating estimates. Shares declined during the March quarter after Chinese regulators announced an investigation into the company’s person-to-person sales model. We sold Nu Skin to fund a new opportunity that we believe offers better earnings visibility.
Apple Inc.    $ 4.2         11.2       The maker of personal computers, software and mobile computing devices reported $14.50 per share in December-quarter earnings, beating the consensus estimate by $0.41. Domestic iPhone 5 sales declined as two major carriers maintained their 24-month upgrade cycle in front of the iPhone 5c and 5s launch, reducing incentive for their customers to switch to new phones. We sold Apple to fund a new purchase that we believe offers greater near-term earnings promise.
Celgene Corp.    $ 3.4         14.2       The biopharmaceutical manufacturer that develops treatments for cancer and immunological diseases reported 14 percent December-quarter earnings growth on sales of more than $1.7 billion. Celgene shares declined due to concerns about a patent lawsuit related to its cancer treatment drug Revlimid. We continue to hold Celgene because we believe the patent challenge is more likely to be resolved through a reasonable settlement than to pose a risk to Celgene’s fundamental outlook.
Himax Technologies Inc.    $ 3.0         18.8       The maker of display-imaging semiconductors reported $0.10 in earnings per share for the December quarter, beating the consensus estimate. The company’s different segments benefited from growth in smartphone, tablet, automotive display and wearable device markets. Himax is a micro-display supplier for Google Glass. Shares declined in the aftermath of a ratings downgrade from a brokerage firm that contended Google Glass is still in too early of a stage to represent a material, near-term benefit to Himax.
GameStop Corp.    $ 2.8         17.1       The November launch of PS4 and Xbox One helped the video game retailer boost new hardware sales, but negative trends in new software sales raised concerns about competitive encroachment by downloadable gaming options. GameStop tempered its 2014 guidance at a time when an acquisition by Amazon and an announcement by Wal-Mart raised the competitive stakes in the video game segment. We sold GameStop to fund a purchase that we believe offers better earnings visibility.

All gains/losses are calculated on an average cost basis from December 31, 2013 through March 31, 2014.

 

 

6


 

Brandywine Fund

Schedule of Portfolio Investments

March 31, 2014 (unaudited)

 

 

Shares

      Cost     Value  

Common Stocks - 98.3%

   

Consumer Discretionary

   
 

Apparel, Accessories & Luxury
Goods - 5.2%

   

 

465,540

 

Kate Spade & Co.*

  $ 15,089,095      $ 17,266,879   

58,400

 

Under Armour, Inc., Class A*

    4,580,648        6,694,976   

322,730

 

VF Corp.

    12,215,772        19,970,533   
 

Auto Parts &
Equipment - 2.0%

   

 

285,020

 

Dorman Products, Inc.*

    13,496,209        16,833,281   
  Broadcasting - 2.0%     

273,825

 

CBS Corp., Class B

    15,875,325        16,922,385   
  Footwear - 2.0%     

224,150

 

NIKE, Inc., Class B

    16,540,656        16,555,719   
  Homebuilding - 1.1%     

1,150,355

 

Standard Pacific Corp.*

    10,407,449        9,559,450   
 

Hotels, Resorts & Cruise Lines - 1.4%

  

 

487,930

 

Hilton Worldwide Holdings, Inc.*

    10,840,746        10,851,563   

17,380

 

Norwegian Cruise Line Holdings, Ltd.*

    577,885        560,853   
 

Housewares & Specialties - 2.2%

  

 

311,890

 

Jarden Corp.*

    13,211,898        18,660,379   
  Internet Retail - 2.2%     

15,129

 

The Priceline Group, Inc.*

    18,371,991        18,032,104   
 

Movies & Entertainment - 2.1%

  

 

542,120

 

Twenty-First Century Fox, Inc., Class A

    15,790,901        17,331,576   
  Restaurants - 2.6%     

126,670

 

Popeyes Louisiana Kitchen, Inc.*

    5,006,613        5,147,869   

224,890

 

Starbucks Corp.

    16,486,445        16,502,428   
  Specialty Stores - 3.1%     

333,170

 

Dick’s Sporting Goods, Inc.

    17,390,341        18,194,414   

106,300

 

Tractor Supply Co.

    6,945,190        7,507,969   
   

 

 

   

 

 

 

Total Consumer Discretionary

    192,827,164        216,592,378   

This sector is 12.3% above your Fund’s cost.

  

 

Consumer Staples

   
 

Packaged Foods & Meats - 2.1%

  

 

196,210

 

The Hain Celestial Group, Inc.*

    16,438,777        17,947,329   

This sector is 9.2% above your Fund’s cost.

  

 

Financials

   
 

Investment Banking &
Brokerage - 4.0%

   

 

794,190

 

E*TRADE Financial Corp.*

    17,028,503        18,282,254   

463,942

 

TD Ameritrade Holding Corp.

    15,908,356        15,750,831   
 

Property & Casualty Insurance - 2.1%

  

 

309,025

 

The Allstate Corp.

    10,340,381        17,484,634   
 

Specialized REITs - 2.1%

  

 

213,795

 

American Tower Corp.

    17,386,905        17,503,397   
   

 

 

   

 

 

 

Total Financials

    60,664,145        69,021,116   

This sector is 13.8% above your Fund’s cost.

  

 

Shares

      Cost     Value  

Health Care

   
  Biotechnology - 2.7%     

114,145

 

Celgene Corp.*

  $ 6,135,203      $ 15,934,642   

117,295

 

Enzymotec, Ltd.*,1

    3,249,404        2,582,836   

300,425

 

Repligen Corp.*

    4,196,527        3,863,465   
 

Health Care Distributors - 2.2%

  

 

259,080

 

Cardinal Health, Inc.

    16,807,860        18,130,418   
 

Health Care Equipment - 1.5%

  

 

196,185

 

Cyberonics, Inc.*

    12,543,020        12,801,071   
 

Health Care Technology - 1.3%

  

 

592,450

 

Allscripts Healthcare Solutions, Inc.*

    10,132,370        10,681,874   
 

Managed Health Care - 2.2%

  

 

224,200

 

UnitedHealth Group, Inc.

    17,370,945        18,382,158   
  Pharmaceuticals - 1.1%     

245,120

 

Roche Holding AG, Sponsored ADR

    8,305,555        9,245,926   
   

 

 

   

 

 

 

Total Health Care

    78,740,884        91,622,390   

This sector is 16.4% above your Fund’s cost.

  

 

Industrials

   
 

Construction & Engineering - 2.1%

  

 

73,660

 

Chicago Bridge & Iron Co., N.V.

    5,719,832        6,419,469   

140,970

 

MasTec, Inc.*

    4,056,574        6,123,737   

131,115

 

Quanta Services, Inc.*

    3,405,359        4,838,143   
 

Construction & Farm Machinery & Heavy Trucks - 8.1%

   

 

530,940

 

The Manitowoc Co., Inc.

    16,149,106        16,698,063   

291,965

 

Oshkosh Corp.

    16,659,047        17,187,980   

239,105

 

Trinity Industries, Inc.

    13,787,999        17,232,297   

215,425

 

Wabtec Corp.

    5,856,942        16,695,437   
 

Electrical Components &
Equipment - 1.7%

   

 

236,225

 

Generac Holdings, Inc.

    9,981,176        13,930,188   
  Heavy Electrical Equipment - 0.5%     

193,525

 

PowerSecure International, Inc.*

    3,096,400        4,536,226   
 

Human Resources & Employment Services - 0.4%

   

 

179,360

 

TriNet Group, Inc.*

    3,114,899        3,822,162   
 

Industrial Machinery - 2.9%

  

 

219,465

 

Flowserve Corp.

    16,581,003        17,192,888   

27,920

 

The Middleby Corp.*

    6,839,565        7,376,743   
  Marine - 1.7%     

138,400

 

Kirby Corp.*

    10,982,008        14,013,000   
 

Trading Companies &
Distributors - 6.4%

   

 

487,500

 

Air Lease Corp.

    10,358,376        18,178,875   

303,500

 

H&E Equipment Services, Inc.*

    8,524,322        12,276,575   

239,590

 

United Rentals, Inc.*

    12,477,463        22,746,675   
   

 

 

   

 

 

 

Total Industrials

    147,590,071        199,268,458   

This sector is 35.0% above your Fund’s cost.

  

 

Information Technology

   
 

Application Software - 6.2%

  

 

351,110

 

Guidewire Software, Inc.*

    16,924,094        17,221,945   
 

 

The accompanying notes are an integral part of these financial statements.

 

7


 

Brandywine Fund

Schedule of Portfolio Investments (continued)

 

 

Shares

      Cost     Value  

Information Technology (continued)

  

 

Application Software - 6.2% (continued)

  

 

120,980

 

Informatica Corp.*

  $ 3,679,158      $ 4,570,624   

274,280

 

Salesforce.com, Inc.*

    14,983,731        15,658,645   

435,060

 

Synchronoss Technologies, Inc.*

    15,363,565        14,918,207   
 

Communications Equipment - 4.3%

  

 

726,150

 

Ciena Corp.*

    15,714,719        16,512,651   

208,870

 

CommScope Holding Co., Inc.*

    4,717,594        5,154,912   

1,025,340

 

JDS Uniphase Corp.*

    14,093,336        14,354,760   
 

Data Processing & Outsourced Services - 2.2%

  

 

86,490

 

Visa, Inc., Class A

    10,027,490        18,669,731   
 

Electronic Manufacturing
Services - 0.4%

   

 

547,430

 

Neonode, Inc.*,1

    3,406,545        3,114,877   
 

Internet Software & Services - 1.0%

  

 

111,800

 

Yelp, Inc.*

    7,216,871        8,600,774   
 

Semiconductors - 8.5%

  

 

972,530

 

Himax Technologies, Inc., ADR1

    13,677,782        11,203,546   

575,990

 

International Rectifier Corp.*

    14,646,260        15,782,126   

368,480

 

Micron Technology, Inc.*

    8,684,152        8,718,237   

345,728

 

Synaptics, Inc.*

    15,318,221        20,750,595   

264,900

 

Xilinx, Inc.

    10,682,254        14,376,123   
 

Systems Software - 3.0%

  

 

140,640

 

FireEye, Inc.*

    5,189,713        8,659,205   

306,610

 

Red Hat, Inc.*

    14,375,216        16,244,198   
   

 

 

   

 

 

 

Total Information Technology

    188,700,701        214,511,156   

This sector is 13.7% above your Fund’s cost.

  

 

Shares

      Cost     Value  

Telecommunication Services

   
 

Alternative Carriers - 1.7%

  

 

3,264,550

 

Vonage Holdings Corp.*

  $ 15,051,763      $ 13,939,628   

This sector is -7.4% below your Fund’s cost.

  

 

Total Common Stocks

    700,013,505        822,902,455   
        Principal Amount2        

Short-Term Investments - 0.9%

  

 

Commercial Paper - 0.8%

  

 
 

Prudential Financial LLC, due 04/01/14, discount of 0.15%

    6,910,000        6,910,000   

Repurchase Agreements - 0.1%3

  

 
 

Barclays Capital, dated 03/31/14, due 04/01/14, 0.010%, total to be received $379,814 (collateralized by various U.S. Government Agency Obligations, 0.000% - 2.125%, 12/31/15 - 08/15/34, totaling $387,410)

    379,814        379,814   

Shares

      Cost        

Other Investment
Companies - 0.0%
#,4

   

 

110,344

 

Dreyfus Institutional Cash Advantage Fund, Institutional Class Shares, 0.05%

    110,344        110,344   
   

 

 

   

 

 

 

Total Short-Term Investments

    7,400,158        7,400,158   

Total Investments - 99.2%

  $ 707,413,663        830,302,613   
   

 

 

   

Other Assets, less Liabilities - 0.8%

  

    6,283,048   

Total Net Assets - 100.0%

    $ 836,585,661   
     

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

8


LOGO

Portfolio Characteristics as of March 31, 2014

Top Ten Holdings

 

    % of Net     % Change from         % of Net     % Change from  

Security Name

  Assets     Book Cost    

Security Name

  Assets     Book Cost  

Xilinx, Inc.

    4.1     37.5   The Allstate Corp.     3.6     67.5

Marsh & McLennan Cos., Inc.

    3.9     52.2   Cardinal Health, Inc.     3.5     26.4

Avago Technologies, Ltd.

    3.8     14.6   Visa, Inc., Class A     3.4     86.2

Twenty-First Century Fox, Inc., Class A

    3.7     16.0   Wabtec Corp.     3.4     13.5

CBS Corp., Class B

    3.6     17.1   Hewlett-Packard Co.     3.3     21.6

 

Estimated Earnings Growth Rate

of the Fund’s Investments

 

LOGO

Forecasted Increase in Earnings Per Share

2014 vs 2013

Source: Consensus estimates from FactSet Research Systems Inc.

 

This is not a forecast of the Fund’s future performance. Earnings growth for a Fund holding does not guarantee a corresponding increase in the market value of the holding or the Fund. As of March 31, 2014, the S&P 500® Index’s average annual total returns for 1, 5 and 10 years were 21.86, 21.16 and 7.42 percent, respectively.

 

The Portfolio’s Market Capitalization

 

LOGO

 

 

Top Ten Industry Groups

 

LOGO

 

 

9


LOGO

Quarter ending March 31, 2014 “Roses and Thorns”

 

 

Biggest $ Winners

   $ Gain
(in millions)
     % Gains     

Reason for Move

Under Armour Inc.    $ 2.4         32.3       The maker of athletic apparel, footwear, equipment and accessories grew December-quarter earnings 26 percent, beating the consensus estimate. Cold winter weather drove demand for Under Armour’s cold weather apparel, contributing to 35 percent revenue growth. The period marked the 15th consecutive quarter in which Under Armour grew revenue by 20 per-cent or more. Under Armour also raised 2014 guidance for revenue and operating income, forecasting growth of at least 22 and 23 percent, respectively.
Xilinx Inc.    $ 1.7         17.3       The maker of semiconductors for communications, video and industrial applications experienced strong demand for its 28nm FPGA chips, which continued to capture market share from traditional chip designs in the December quarter. Xilinx reported 60 percent December-quarter earnings growth, beating the consensus estimate. The company’s aerospace and defense segments were strong contributors to the better-than-expected results.
Avago Technologies Ltd.    $ 1.2         14.6       The developer, designer and supplier of analog semiconductor devices reported 29 percent earnings growth, beating expectations in its January quarter. Avago benefited from the continued roll out of 4G LTE, as increased content associated with the network added to band-width demand. The company generated more than half of its revenue for its January quarter from the wireless communications market.
Hewlett-Packard Co.    $ 1.1         15.7       The manufacturer of personal computers, servers and printers grew January-quarter earnings 10 percent, topping the consensus estimate. The company generated $3 billion in cash from operations during the period, up 17 percent from the year before. Commercial PC sales improved, with particular strength in notebook computers.
Gilead Sciences Inc.    $ 0.9         8.5       The research-based biopharmaceutical company develops antiviral and anti-infective drugs for patients suffering from life-threatening diseases. Aiming to help the more than 150 million people worldwide infected with the hepatitis C virus, Gilead in December launched an all-oral regiment treatment called Sovaldi. While expectations for Sovaldi are high, December-quarter sales of the drug were driven by initial stocking and a clinical trial order. Revenue increased 21 percent in the quarter. Gilead beat expectations with 10 percent earnings growth.

Biggest $ Losers

   $ Loss
(in millions)
     % Loss     

Reason for Move

Nu Skin Enterprises Inc.    $ 3.8         45.5       Nu Skin, which makes personal care products and nutritional supplements sold through direct-sales channels, more than doubled year-over-year earnings to $2.02 per share in the December quarter, beating estimates. Shares declined during the March quarter after Chinese regulators announced an investigation into the company’s person-to-person sales model. We sold Nu Skin to fund a new opportunity that we believe offers better earnings visibility.
Celgene Corp.    $ 1.7         14.7       The biopharmaceutical manufacturer that develops treatments for cancer and immunological diseases reported 14 percent December-quarter earnings growth on sales of more than $1.7 billion. Celgene shares declined due to concerns about a patent lawsuit related to its cancer treatment drug Revlimid. We continue to hold Celgene because we believe the patent challenge is more likely to be resolved through a reasonable settlement than to pose a risk to Celgene’s fundamental outlook.
Apple Inc.    $ 1.6         11.2       The maker of personal computers, software and mobile computing devices reported $14.50 per share in December-quarter earnings, beating the consensus estimate by $0.41. Domestic iPhone 5 sales declined as two major carriers maintained their 24-month upgrade cycle in front of the iPhone 5c and 5s launch, reducing incentive for their customers to switch to new phones. We sold Apple to fund a new purchase that we believe offers greater near-term earnings promise.
LKQ Corp.    $ 1.5         20.9       The aftermarket auto parts company reported 29 percent earnings growth in the December quarter, falling short of estimates by a penny per share. Although LKQ provided guidance that predicted 2014 growth in a range that exceeded the consensus estimate on the high side, shares declined on concerns regarding the company’s organic growth rate. Chrysler also filed suit against LKQ contending certain aftermarket parts infringed on Chrysler design patents. We sold LKQ to fund a purchase that we believe offers better earnings visibility.
GameStop Corp.    $ 1.1         17.1       The November launch of PS4 and Xbox One helped the video game retailer boost new hardware sales, but negative trends in new software sales raised concerns about competitive encroachment by downloadable gaming options. GameStop tempered its 2014 guidance at a time when an acquisition by Amazon and an announcement by Wal-Mart raised the competitive stakes in the video game segment. We sold GameStop to fund a purchase that we believe offers better earnings visibility.

All gains/losses are calculated on an average cost basis from December 31, 2013 through March 31, 2014.

 

 
10


 

Brandywine Blue Fund

Schedule of Portfolio Investments

March 31, 2014 (unaudited)

 

 

Shares

      Cost     Value  

Common Stocks - 98.7%

   

Consumer Discretionary

   
  Apparel Retail - 2.3%     

142,500

 

The Gap, Inc.

  $ 6,263,944      $ 5,708,550   
 

Apparel, Accessories & Luxury
Goods - 4.2%

   

 

43,140

 

Under Armour, Inc., Class A*

    3,477,403        4,945,570   

88,500

 

VF Corp.

    3,431,945        5,476,380   
 

Broadcasting - 3.6%

  

 

145,020

 

CBS Corp., Class B

    7,654,623        8,962,236   
 

Footwear - 3.0%

  

 

98,225

 

NIKE, Inc., Class B

    7,505,626        7,254,899   
 

Hotels, Resorts & Cruise Lines - 2.8%

  

 

282,050

 

Hilton Worldwide Holdings, Inc.*

    6,278,765        6,272,792   

19,270

 

Norwegian Cruise Line Holdings, Ltd.*

    640,727        621,843   
 

Internet Retail - 2.6%

  

 

5,255

 

The Priceline Group, Inc.*

    6,323,680        6,263,382   
 

Movies & Entertainment - 6.8%

  

 

116,290

 

Time Warner, Inc.

    7,492,914        7,597,226   

288,890

 

Twenty-First Century Fox, Inc., Class A

    7,959,328        9,235,813   
 

Restaurants - 2.8%

  

 

95,000

 

Starbucks Corp.

    6,998,683        6,971,100   
 

Specialty Stores - 5.6%

  

 

144,610

 

Dick’s Sporting Goods, Inc.

    7,499,847        7,897,152   

85,060

 

Tractor Supply Co.

    5,484,092        6,007,788   
   

 

 

   

 

 

 

Total Consumer Discretionary

    77,011,577        83,214,731   

This sector is 8.1% above your Fund’s cost.

   

Financials

   
 

Insurance Brokers - 3.9%

  

 

197,730

 

Marsh & McLennan Cos., Inc.

    6,404,791        9,748,089   
 

Investment Banking &
Brokerage - 3.1%

   

 

226,850

 

TD Ameritrade Holding Corp.

    7,315,071        7,701,557   
 

Property & Casualty Insurance - 3.6%

  

 

156,300

 

The Allstate Corp.

    5,280,308        8,843,454   
 

Specialized REITs - 3.1%

  

 

92,330

 

American Tower Corp.

    7,678,306        7,559,057   
   

 

 

   

 

 

 

Total Financials

    26,678,476        33,852,157   

This sector is 26.9% above your Fund’s cost.

   

Health Care

   
 

Biotechnology - 3.3%

  

 

57,560

 

Celgene Corp.*

    2,986,691        8,035,376   
 

Health Care Distributors - 3.5%

  

 

125,000

 

Cardinal Health, Inc.

    6,921,750        8,747,500   
 

Managed Health Care - 2.9%

  

 

86,500

 

UnitedHealth Group, Inc.

    6,394,218        7,092,135   

Shares

      Cost     Value  
 

Pharmaceuticals - 1.1%

  

 

73,960

 

Roche Holding AG, Sponsored ADR

  $ 2,505,591      $ 2,789,771   
   

 

 

   

 

 

 

Total Health Care

    18,808,250        26,664,782   

This sector is 41.8% above your Fund’s cost.

   

Industrials

   
 

Airlines - 2.7%

  

 

181,000

 

American Airlines Group, Inc.*

    6,097,890        6,624,600   
 

Construction & Engineering - 4.0%

  

 

36,790

 

Chicago Bridge & Iron Co., N.V.

    2,823,633        3,206,249   

103,945

 

Jacobs Engineering Group, Inc.*

    6,533,425        6,600,507   
 

Construction & Farm Machinery & Heavy Trucks - 3.4%

   

 

107,870

 

Wabtec Corp.

    7,364,561        8,359,925   
 

Industrial Machinery - 3.2%

  

 

102,070

 

Flowserve Corp.

    7,864,272        7,996,164   
   

 

 

   

 

 

 

Total Industrials

    30,683,781        32,787,445   

This sector is 6.9% above your Fund’s cost.

   

Information Technology

   
 

Application Software - 2.5%

  

 

109,470

 

Salesforce.com, Inc.*

    5,930,630        6,249,642   
  Computer Hardware - 3.3%     

250,000

 

Hewlett-Packard Co.

    6,650,700        8,090,000   
 

Data Processing & Outsourced
Services - 3.4%

   

 

39,400

 

Visa, Inc., Class A

    4,567,362        8,504,884   
  Electronic Components - 2.8%     

327,300

 

Corning, Inc.

    6,450,065        6,814,386   
  Semiconductors - 11.0%     

146,790

 

Avago Technologies, Ltd.

    8,251,214        9,454,744   

319,000

 

Micron Technology, Inc.*

    7,615,838        7,547,540   

188,920

 

Xilinx, Inc.

    7,455,355        10,252,688   
  Systems Software - 4.2%     

62,780

 

FireEye, Inc.*

    3,869,574        3,865,365   

123,460

 

Red Hat, Inc.*

    5,824,604        6,540,911   
   

 

 

   

 

 

 

Total Information Technology

    56,615,342        67,320,160   

This sector is 18.9% above your Fund’s cost.

   

Total Common Stocks

    209,797,426        243,839,275   
 

 

The accompanying notes are an integral part of these financial statements.

 

11


 

Brandywine Blue Fund

Schedule of Portfolio Investments (continued)

 

 

        Principal Amount2     Value  

Short-Term Investments - 1.7%

  

 

Commercial Paper - 1.7%

   
 

Prudential Financial LLC, due 04/01/14, discount of 0.15%

  $ 4,120,000      $ 4,120,000   

Shares

      Cost        

Other Investment Companies - 0.0%#,4

  

 

118,524

 

Dreyfus Institutional Cash Advantage Fund, Institutional Class Shares, 0.05%

    118,524        118,524   
   

 

 

   

 

 

 

Total Short-Term Investments

    4,238,524        4,238,524   

Total Investments - 100.4%

  $ 214,035,950        248,077,799   
   

 

 

   

Other Assets, less Liabilities - (0.4)%

  

    (913,779

Total Net Assets - 100.0%

    $ 247,164,020   
     

 

 

 
 

 

The accompanying notes are an integral part of these financial statements.

 

12


 

Notes to Schedules of Portfolio Investments (unaudited)

 

 

The following footnotes and abbreviations should be read in conjunction with each of the Schedules of Portfolio Investments previously presented in this report.

At March 31, 2014, the approximate cost of investments for Federal income tax purposes and the aggregate gross unrealized appreciation and/or depreciation based on tax cost were as follows:

 

Fund

   Cost      Appreciation      Depreciation     Net  

Brandywine Fund

   $ 707,435,752       $ 129,552,331       $ (6,685,470   $ 122,866,861   

Brandywine Blue Fund

     214,199,440         34,988,974         (1,110,615     33,878,359   

 

* Non-income producing security.
# Rounds to less than 0.1%.
1  Some or all of these shares were out on loan to various brokers as of March 31, 2014, amounting to the following:

 

Fund

   Market Value      % of Net Assets  

Brandywine Fund

   $ 367,292         0.04

 

2  Amount presented also represents shares held.
3  Collateral received from brokers for securities lending was invested in this short-term investment.
4  Yield shown represents the March 31, 2014, seven-day average yield, which refers to the sum of the previous seven days’ dividends paid, expressed as an annual percentage.

The following table summarizes the inputs used to value the Funds’ net assets by the fair value hierarchy levels as of March 31, 2014. (See Note 1(a) in the Notes to Financial Statements.)

 

    Quoted Prices in Active
Markets for Identical
Investments

Level 1
    Significant Other
Observable
Inputs

Level 2
    Significant Unobservable
Inputs

Level 3
    Total  

Brandywine Fund

       

Investments in Securities

  

     

Common Stocks

  $ 822,902,455        —          —        $ 822,902,455   

Short-Term Investments

       

Commercial Paper

    —        $ 6,910,000        —          6,910,000   

Repurchase Agreements

    —          379,814        —          379,814   

Other Investment Companies

    110,344        —          —          110,344   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

  $ 823,012,799      $ 7,289,814        —        $ 830,302,613   
 

 

 

   

 

 

   

 

 

   

 

 

 
    Quoted Prices in Active
Markets for Identical
Investments

Level 1
    Significant Other
Observable
Inputs

Level 2
    Significant Unobservable
Inputs

Level 3
    Total  

Brandywine Blue Fund

       

Investments in Securities

       

Common Stocks

  $ 243,839,275        —          —        $ 243,839,275   

Short-Term Investments

       

Commercial Paper

    —        $ 4,120,000        —          4,120,000   

Other Investment Companies

    118,524        —          —          118,524   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

  $ 243,957,799      $ 4,120,000        —        $ 248,077,799   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

All common stocks held in the Funds are Level 1 securities. For a detailed breakout of the common stocks by major industry classification, please refer to the respective Schedule of Portfolio Investments.

As of March 31, 2014, the Funds had no transfers between levels from the beginning of the reporting period.

Investment Definitions and Abbreviations:

ADR: ADR after the name of a holding stands for American Depositary Receipt, representing ownership of foreign securities on deposit with a domestic custodian bank. The value of the ADR securities is determined or significantly influenced by trading on exchanges not located in the United States or Canada. Sponsored ADRs are initiated by the underlying foreign company.

 

The accompanying notes are an integral part of these financial statements.

 

 

13


 

Statement of Assets and Liabilities

March 31, 2014 (unaudited)

 

 

 

     Brandywine
Fund
    Brandywine Blue
Fund
 

Assets:

    

Investments at value* (including securities on loan valued at $367,292 and $0, respectively)

   $ 830,302,613      $ 248,077,799   

Receivable for investments sold

     16,091,370        4,335,470   

Receivable for Fund shares sold

     75,557        41,463   

Dividends, interest and other receivables

     609,495        280,318   

Prepaid expenses

     9,507        1,895   

Total assets

     847,088,542        252,736,945   

Liabilities:

    

Payable for investments purchased

     8,786,372        4,709,257   

Payable for Fund shares repurchased

     469,132        510,758   

Payable upon return of securities loaned

     379,814        —     

Accrued expenses:

    

Investment advisory and management fees

     728,948        215,613   

Administrative and accounting fees

     21,314        9,806   

Shareholder servicing fees

     10,934        16,818   

Trustees fees and expenses

     1,220        831   

Other

     105,147        109,842   

Total liabilities

     10,502,881        5,572,925   

Net Assets

   $ 836,585,661      $ 247,164,020   

Net Assets Represent:

    

Paid-in capital

   $ 1,398,706,222      $ 1,253,311,536   

Undistributed net investment loss

     (4,068,212     (180,415

Accumulated net realized loss from investments

     (680,941,299     (1,040,008,950

Net unrealized appreciation of investments

     122,888,950        34,041,849   

Net Assets

   $ 836,585,661      $ 247,164,020   

Shares outstanding

     25,761,765        7,688,596   

Net asset value, offering and redemption price per share

   $ 32.47      $ 32.15   

* Investments at cost

   $ 707,413,663      $ 214,035,950   

 

The accompanying notes are an integral part of these financial statements.

 

14


 

Statement of Operations

For the six months ended March 31, 2014 (unaudited)

 

 

     Brandywine
Fund
    Brandywine
Blue Fund
 

Investment Income:

    

Dividend income

   $ 2,577,377      $ 1,455,808   

Securities lending income

     43,727        16   

Interest income

     12,052        6,944   

Foreign withholding tax

     (41,139     (13,581

Total investment income

     2,592,017        1,449,187   

Expenses:

    

Investment advisory and management fees

     4,164,059        1,326,901   

Administrative and accounting fees

     105,911        42,492   

Shareholder servicing fees

     62,461        103,498   

Transfer agent

     84,823        22,239   

Reports to shareholders

     29,893        63,172   

Custodian

     28,046        10,884   

Registration fees

     26,541        35,358   

Professional fees

     26,364        16,903   

Trustees fees and expenses

     16,125        5,547   

Miscellaneous

     6,420        2,608   

Net expenses

     4,550,643        1,629,602   

Net investment loss

     (1,958,626     (180,415

Net Realized and Unrealized Gain (Loss):

    

Net realized gain on investments

     105,929,320        32,655,041   

Net change in unrealized appreciation (depreciation) of investments

     (2,566,070     (13,855,793

Net realized and unrealized gain

     103,363,250        18,799,248   

Net increase in net assets resulting from operations

   $ 101,404,624      $ 18,618,833   

 

 

The accompanying notes are an integral part of these financial statements.

 

15


 

Statements of Changes in Net Assets

For the six months ended March 31, 2014 (unaudited) and the fiscal year ended September 30, 2013

 

 

     Brandywine
Fund
    Brandywine
Blue Fund
 
     March 31,
2014
    September 30,
2013
    March 31,
2014
    September 30,
2013
 

Increase (Decrease) in Net Assets From Operations:

        

Net investment income (loss)

   $ (1,958,626   $ (1,068,400   $ (180,415   $ 1,946,441   

Net realized gain on investments

     105,929,320        145,947,216        32,655,041        104,298,858   

Net change in unrealized appreciation (depreciation) of investments

     (2,566,070     (23,872,113     (13,855,793     (37,743,866

Net increase in net assets resulting from operations

     101,404,624        121,006,703        18,618,833        68,501,433   

Capital Share Transactions:

        

Proceeds from sale of shares

     2,460,127        9,111,537        6,637,053        44,927,307   

Cost of shares repurchased

     (83,501,413     (376,439,668     (56,711,916     (462,430,622

Net decrease from capital share transactions

     (81,041,286     (367,328,131     (50,074,863     (417,503,315

Total increase (decrease) in net assets

     20,363,338        (246,321,428     (31,456,030     (349,001,882

Net Assets:

        

Beginning of period

     816,222,323        1,062,543,751        278,620,050        627,621,932   

End of period

   $ 836,585,661      $ 816,222,323      $ 247,164,020      $ 278,620,050   

End of period undistributed net investment loss

   $ (4,068,212   $ (2,109,586   $ (180,415     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Share Transactions:

        

Sale of shares

     79,077        370,501        210,272        1,714,608   

Shares repurchased

     (2,707,789     (15,145,877     (1,805,288     (17,532,796

Net decrease in shares

     (2,628,712     (14,775,376     (1,595,016     (15,818,188

 

 

The accompanying notes are an integral part of these financial statements.

 

16


 

Brandywine Fund

Financial Highlights

For a share outstanding throughout each period

 

 

     For the six
months ended
March 31,
2014
    For the fiscal year ended September 30,  
     (unaudited)     2013     2012     2011     2010     2009  

Net Asset Value, Beginning of Period

   $ 28.75      $ 24.62      $ 21.38      $ 22.02      $ 21.11      $ 26.86   

Income from Investment Operations:

            

Net investment loss1

     (0.07     (0.03     (0.05     (0.09     (0.07     (0.05

Net realized and unrealized gain (loss) on investments1

     3.79        4.16        3.29        (0.55     0.98        (5.59

Total from investment operations

     3.72        4.13        3.24        (0.64     0.91        (5.64

Distributions to Shareholders from:

            

Net realized gain on investments

     —          —          —          —          —          (0.11

Net Asset Value, End of Period

   $ 32.47      $ 28.75      $ 24.62      $ 21.38      $ 22.02      $ 21.11   

Total Return

     12.94 %3      16.77     15.15     (2.91 )%      (4.31 )%      (20.98 )% 

Ratio of net expenses to average net assets

     1.09 %4      1.11 %2      1.08     1.09     1.11     1.10

Ratio of net investment loss to average net assets

     (0.47 )%4      (0.12 )%      (0.23 )%      (0.36 )%      (0.33 )%      (0.25 )% 

Portfolio turnover

     122     214     256     234     225     239

Net assets at end of period (000’s omitted)

   $ 836,586      $ 816,222      $ 1,062,544      $ 1,336,871      $ 1,755,754      $ 2,281,681   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 
17


 

Brandywine Blue Fund

Financial Highlights

For a share outstanding throughout each period

 

 

     For the six
months ended
March 31,
2014
    For the fiscal year ended September 30,  
     (unaudited)     2013     2012     2011     2010     2009  

Net Asset Value, Beginning of Period

   $ 30.01      $ 25.00      $ 21.50      $ 21.78      $ 20.67      $ 23.86   

Income from Investment Operations:

            

Net investment income (loss)1

     (0.02     0.12        (0.11     (0.10     (0.06     0.04   

Net realized and unrealized gain (loss) on investments1

     2.16        4.89        3.61        (0.18     1.24        (3.23

Total from investment operations

     2.14        5.01        3.50        (0.28     1.18        (3.19

Distributions to Shareholders from:

            

Net investment income

     —          —          —          —          (0.07     —     

Net Asset Value, End of Period

   $ 32.15      $ 30.01      $ 25.00      $ 21.50      $ 21.78      $ 20.67   

Total Return

     7.13 %3      20.04     16.28     (1.29 )%      5.71     (13.37 )% 

Ratio of net expenses to average net assets

     1.23 %4      1.22 %2      1.23     1.18     1.17     1.16

Ratio of net investment income (loss) to average net assets

     (0.14 )%4      0.45     (0.46 )%      (0.38 )%      (0.27 )%      0.21

Portfolio turnover

     98     202     243     250     212     261

Net assets at end of period (000’s omitted)

   $ 247,164      $ 278,620      $ 627,622      $ 1,487,517      $ 2,057,591      $ 2,461,907   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Notes to Financial Highlights (unaudited)

 

The following footnotes should be read in conjunction with the Financial Highlights of the Funds previously presented in this report.

 

1  Per share numbers have been calculated using average shares.
2  Interest expense is less then 0.005% of average net assets.
3  Not annualized.
4  Annualized.

 

 
18


 

Notes to Financial Statements

March 31, 2014 (unaudited)

 

 

1.Summary of Significant Accounting Policies

Managers Trust I (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 consists of a number of different funds, each having distinct investment management objectives, strategies, risks, and policies. Included in this report are Brandywine Fund (“Brandywine”) and Brandywine Blue Fund (“Brandywine Blue”), each a “Fund” and collectively the “Funds.”

At the start of business on October 1, 2013, Brandywine Fund, Inc. and Brandywine Blue Fund, a series of Brandywine Blue Fund, Inc. (the “Predecessor Funds”), were each reorganized into a respective series of the Trust. As a result of the reorganization, the Funds are the successors to the accounting and performance information of the Predecessor Funds.

The Funds’ financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require management to make estimates and assumptions that affect the reported amounts 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 and such differences could be material. 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. Equity securities primarily traded on an international securities exchange and equity securities traded on NASDAQ or in a U.S. or non-U.S. over-the counter market are valued at the market’s official closing price, or, if there are no trades on the applicable date, at the last quoted bid price. In addition, if the applicable market does not offer an official closing price or if the official closing price is not representative of the overall market, equity securities primarily traded on an international securities exchange and equity securities traded in a non-U.S. over-the counter market are valued at the last quoted sales price. The Funds’ investments are generally valued based on independent market quotations or prices or, if none, “evaluative” or other market based valuations provided by third-party pricing services approved by the Board of Trustees of the Funds (the “Board”).

Short-term debt obligations (debt obligations with maturities of one year or less at the time of issuance) that have 60 days or less remaining until maturity will be valued at amortized cost. Investments in other open-end regulated investment companies are valued at their end of day net asset value per share.

Under certain circumstances, the value of certain Fund investments (including derivatives) may be based on an evaluation of fair value, pursuant to procedures established by and under the general supervision of the Board. The Pricing Committee is the committee formed by the Board to make fair value determinations for such investments. The Fund may use the fair value of a portfolio investment to calculate its net asset value (“NAV”) in the event that the market quotation, price or market based valuation for the

portfolio investment is not deemed to be readily available or otherwise not determinable pursuant to the Board’s valuation procedures, if Managers Investment Group LLC (the “Investment Manager”) believes the quotation, price or market based valuation to be unreliable, or in certain other circumstances. When determining the fair value of an investment, the Pricing Committee seeks to determine the price that the Fund might reasonably expect to receive from a current sale of that investment in an arms length transaction. Fair value determinations shall be based upon consideration of all available facts and information, including, but not limited to (i) attributes specific to the investment; (ii) fundamental analytical data and press releases relating to the investment and its issuer; and (iii) the value of other comparable securities or relevant financial instruments, including derivative securities, traded on other markets or among dealers.

The values assigned to fair value investments are based on available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future developments inherent in long-term investments. Because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material. The Board will be presented with a quarterly report showing as of the most recent quarter end, all securities fair valued by the Pricing Committee, including a comparison with the prior quarter end and the percentage of the Fund that the security represents at each quarter end.

Portfolio investments that trade primarily on foreign markets are priced based upon the market quotation of such securities as of the close of their respective principal markets. Under certain circumstances, on behalf of a fund that invests primarily in international securities, the Investment Manager or applicable subadvisor may recommend an adjustment of such prices based on its determination of the impact of events occurring subsequent to the close of such markets but prior to the time as of which each Fund calculates its NAV. The Board has also adopted a policy that securities held in a fund that invests primarily in international securities and certain foreign debt obligations held by a fund, in each case, that can be fair valued by the applicable fair value pricing service are fair valued on each business day without regard to a “trigger” (e.g., without regard to invoking fair value based upon a change in a U.S. equity securities index exceeding a predetermined level). The Funds may invest in securities that may be thinly traded. The Board has adopted procedures to adjust prices of securities that are judged to be stale so that they reflect fair value. An investment valued on the basis of its fair value may be valued at a price higher or lower than available market quotations.

U.S. GAAP defines fair value as the price that a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on

 

 

 
19


 

Notes to Financial Statements (continued)

 

 

market data obtained from sources independent of the Funds. Unobservable inputs reflect the Funds’ own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation.

The three-tier hierarchy of inputs is summarized below:

Level 1 – inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies)

Level 2 – other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs) (e.g., debt securities, government securities, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities with observable inputs)

Level 3 – inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., fair valued securities with unobservable inputs)

Changes in inputs or methodologies used for valuing investments may result in a transfer in or out of levels within the fair value hierarchy. The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.

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. Dividend and interest income on foreign securities is recorded gross 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.

Effective as of November 25, 2013, the Funds have a “balance credit” arrangement with The Bank of New York Mellon (“BNYM”), the Funds’ custodian, whereby each Fund is credited with an interest factor equal to 0.75% below the effective 90-day T-Bill rate for account balances left uninvested overnight. If the T-Bill rate falls below 0.75%, no credits will be earned. These credits serve to reduce custodian expenses that would otherwise be charged to each Fund. For the period from November 25, 2013 to ended March 31, 2014, the Funds’ custodian expense was not reduced.

Overdraft fees are computed at 1% above the effective Federal Funds rate on the day of the overdraft. For the six months ended March 31, 2014, the Funds did not incur overdraft fees.

d.Dividends and Distributions

Fund distributions resulting from either net investment income, or realized net capital gains, if any, will normally be declared and paid at least annually in December, as described in the Fund’s prospectus. Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined in accordance with Federal income tax regulations, which may differ from net investment income and net realized capital gains for financial statement purposes (U.S. GAAP). Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense and gain or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The most common differences are due to differing treatments for losses deferred due to excise tax regulations, wash sales and market discount transactions. Permanent book and tax basis differences, if any, relating to shareholder distributions will result in reclassifications to paid-in capital.

e.Federal Taxes

Each Fund intends to comply with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, and to distribute substantially all of its taxable income and gains to its shareholders and to meet certain diversification and income requirements with respect to investment companies. Therefore, no provision for Federal income or excise tax is included in the accompanying financial statements.

Additionally, based on each Fund’s understanding of the tax rules and rates related to income, gains and transactions for the foreign jurisdictions in which it invests, each Fund will provide for foreign taxes, and where appropriate, deferred foreign taxes.

Management has analyzed the Funds’ tax positions taken on federal income tax returns as of September 30, 2013 and all open tax years (generally, the three prior taxable years), and has concluded that no provision for federal income tax is required in the Funds’ financial statements. Additionally, the Funds are not aware of any tax position for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.

Net capital losses incurred in taxable years beginning after the enactment of the Regulated Investment Company Modernization Act of 2010, post-enactment capital losses may be carried forward for an unlimited time period. Such losses will be required to be utilized prior to any loss carryovers incurred in pre-enactment taxable years, which generally expire eight years following the close of the taxable year in which they were incurred. As a result of this ordering rule, pre-enactment capital loss carryovers may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward retain their tax character as either short-term or long-term capital losses, unlike pre-enactment losses which are considered all

short-term.

 

 

 
20


 

Notes to Financial Statements (continued)

 

 

f.Capital Loss Carryovers and Deferrals

As of March 31, 2014, 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 future realized capital gains, if any, through the expiration dates listed or in the case of post-enactment losses, for an unlimited time period.

 

     Capital Loss Carryover Amount      Expires

Fund

   Short-Term      Long-Term      September 30,

Brandywine

        

(Pre-Enactment)

   $ 283,704,320         —         2017

(Pre-Enactment)

     503,144,209         —         2018

Brandywine Blue

  

     

(Pre-Enactment)

   $ 876,614,269         —         2017

(Pre-Enactment)

     195,886,232         —         2018

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. The cost of securities contributed to the Funds in connection with the issuance of shares is based on the valuation of those securities in accordance with the Funds’ policy on investment valuation.

At March 31, 2014, certain unaffiliated shareholders of record, specifically omnibus accounts, individually or collectively held greater than 10% of the net assets of the Funds as follows: Brandywine Blue - two collectively own 25%. Transactions by these shareholders may have a material impact on their respective Fund.

h.Repurchase Agreements

The Funds may enter into repurchase agreements provided that the value of the underlying collateral, including accrued interest, will equal 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.

At March 31, 2014, the market value of repurchase agreements outstanding for Brandywine and Brandywine Blue was $379,814, and $0, respectively.

2.Agreements and Transactions with Affiliates

For each of the Funds, the Trust has entered into an investment advisory agreement under which the Investment Manager, a subsidiary of Affiliated Managers Group, Inc. (“AMG”), serves as investment manager to the Funds and is responsible for the Funds’ overall administration and operations. Prior to October 1, 2013, the Predecessor Funds had a similar Investment advisory agreement with Friess Associates, LLC (“Friess”). The Investment Manager selects subadvisors for the Funds (subject to Board approval) and monitors each subadvisor’s investment performance, security holdings and investment strategies. Each Fund’s investment portfolio is managed by Friess through a subadvisory agreement between the Investment Manager and Friess relating to each Fund,

and Friess Associates of Delaware, LLC (“Friess of Delaware”) through a sub-subadvisor agreement among the Investment Manager, Friess and Friess of Delaware relating to each Fund.

Investment management fees are paid directly by the Funds to the Investment Manager based on average net assets. For the six months ended March 31, 2014, the Funds’ investment management fees were paid at the following annual rates of each Fund’s respective average daily net assets:

 

Brandywine

     1.00

Brandywine Blue

     1.00

Prior to October 1, 2013, the Predecessor Funds paid a management fee to Friess at the same investment management fee rates.

The Investment Manager has contractually agreed, through at least February 1, 2016, to waive management fees and/or reimburse Fund’s expenses in order to limit total annual Fund operating expenses after fee waiver and expense reimbursements (exclusive of taxes, interest (including interest incurred in connection with bank and custody overdrafts), brokerage commissions and other transaction costs, acquired fund fees and expenses, and extraordinary expenses) to 2.00% of the Fund’s average daily net assets subject to later reimbursement by the Fund in certain circumstances. Prior to October 1, 2013, the Predecessor Funds, had similar arrangements in place.

Each Fund is obligated to repay the Investment Manager such amounts waived, paid, or reimbursed in future years provided that the repayment occurs within thirty-six (36) months after the waiver or reimbursement and that such repayment would not cause the Fund’s total annual operating expenses after fee waiver and expense reimbursements in any such future year to exceed that Fund’s contractual expense limitation amount.

Each Fund has entered into an Administration and Shareholder Servicing Agreement under which the Investment Manager serves as the Funds’ 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 intermediary with the Funds’ shareholders. The Funds pays a fee to the Administrator at the rate of 0.03% of each Fund’s average daily net assets for the first $300 million of assets under management, 0.025% for the next $200 million, and 0.02% on amounts in excess of $500 million per annum, subject to a $40,000 annual minimum.

Prior to October 1, 2013, the Predecessor Funds had in place a similar agreement with US Bancorp Fund Services, LLC.

The aggregate annual retainer paid to each Independent Trustee of the Board is $130,000, plus $7,000 or $2,500 for each regular or special meeting attended, respectively. The Independent Chairman of the Trust receives an additional payment of $35,000 per year. The Chairman of the Audit Committee receives an additional payment of $15,000 per year. The Trustees’ fees and expenses are allocated among all of the Funds in the Trusts for which the Investment Manager serves as the advisor (the “Managers Funds”) based on the relative net assets of such Funds. The “Trustees fees and expenses” shown in the financial statements represents each Funds’ allocated portion of the total fees and expenses paid by the Managers Funds.

 

 

 
21


 

Notes to Financial Statements (continued)

 

 

For the period from October 1, 2013 to January 1, 2014, the aggregate annual retainer paid to each Independent Trustee of the Board was $105,000, plus $6,000 or $2,500 for each regular or special meeting attended, respectively. The Independent Chairman of the Trust formerly received an additional payment of $25,000 per year. The Chairman of the Audit Committee formerly received an additional payment of $10,000 per year.

Prior to October 1, 2013, the Predecessor Funds each paid the Independent Directors an annual fee of $23,300 each. The Independent Chairman of the Trust formerly received an additional payment of $8,000 per year. The Chairman of the Audit Committee formerly received an additional payment of $5,000 per year. The additional payments made to the Independent Chairman of the Trust and Chairman of the Audit Committee were allocated amongst all of the funds in the Brandywine family of funds.

The Funds are distributed by Managers Distributors, Inc. (the “Distributor” or “MDI”), a wholly-owned subsidiary of the Investment Manager. MDI serves as the distributor and underwriter for each Fund and is a registered broker-dealer and member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Shares of each Fund will be continuously offered and will be sold directly to prospective purchasers and through brokers, dealers or other financial intermediaries who have executed selling agreements with MDI. Subject to the compensation arrangement discussed below, generally MDI bears all or a portion of the expenses of providing services pursuant to the distribution agreement, including the payment of the expenses relating to the distribution of prospectuses for sales purposes and any advertising or sales literature. Certain Trustees and Officers of the Funds are Officers and/or Directors of the Investment Manager, AMG and/or the Distributor.

The Board has approved reimbursement payments to the Investment Manager for shareholder servicing expenses incurred (“shareholder servicing fees”). Shareholder servicing fees include payments to third parties such as a bank, broker-dealer, trust company or other financial intermediaries who provide shareholder recordkeeping, account servicing and other services. The Fund may reimburse the Investment Manager for the actual amount incurred up to a maximum annual rate of each financial intermediary’s average daily net assets.

The impact on the annualized expense ratio for the six months ended March 31, 2014, was as follows:

 

     Maximum Amount     Actual Amount  

Fund

   Allowed     Incurred  

Brandywine

     0.20     0.02

Brandywine Blue

     0.20     0.08

The Securities and Exchange Commission granted an exemptive order that permits the Funds to lend and borrow money for certain temporary purposes directly to and from other eligible Managers Funds. Participation in this interfund lending program is voluntary for both borrowing and lending Funds, and an interfund loan is only made if it benefits each participating Fund. The Investment Manager administers the program according to procedures approved

by the Board, and the Board monitors the operation of the program. An interfund loan must comply with certain conditions set out in the exemptive order, which are designed to assure fairness and protect all participating funds. For the six months March 31, 2014, the Funds neither borrowed from nor lent to other Managers Funds.

3.Line of Credit

Prior to October 1, 2013, the Predecessor Funds had established a line of credit (“LOC”) with U.S. Bank, N.A. to be used for temporary or emergency purposes, primarily for financing redemption payments, using the securities in the Fund’s respective portfolio as collateral. The LOC matured on September 30, 2013 for the Predecessor Fund. The Fund borrowing under the LOC was limited to $4,000,000 unsecured credit, as defined in the LOC. Principal and interest of such loan under the Credit Agreement was due not more than 20 days after the date of the loan. Amounts under the credit facility bore interest at a rate per annum equal to the current prime rate minus one percent on the amount borrowed. For the year ended September 30, 2013, there were no borrowings for the Predecessor Funds.

4.Purchases and Sales of Securities

Purchases and sales of securities (excluding short-term securities and U.S. Government obligations) for the six months ended March 31, 2014, were as follows:

 

     Long-Term Securities  

Fund

   Purchases      Sales  

Brandywine

   $ 986,553,648       $ 1,046,103,331   

Brandywine Blue

   $ 248,217,997       $ 290,088,797   

The Funds had no purchases or sales of U.S. Government obligations during the six months ended March 31, 2014.

5.Portfolio Securities Loaned

Effective January 29, 2014, the Funds participate in a securities lending program offered by BNYM (the “Program”), providing for the lending of securities to qualified brokers. Securities lending income includes earnings of such temporary cash investments, plus or minus any rebate to a borrower. These earnings (after any rebate) are then divided between BNYM, as a fee for its services under the program, and the Funds, according to agreed-upon rates. Collateral received on all securities loaned is accepted in cash and is maintained at a minimum level of 102% (105% in the case of certain foreign securities) of the market value, plus interest, if applicable, of investments on loan. It is the Funds’ policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Funds if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Under the terms of the Program, the Funds are indemnified for such losses by BNYM. Cash collateral is held in a separate account managed by BNYM, who is authorized to exclusively enter into overnight government repurchase agreements. BNYM bears the risk of any deficiency in the amount of the cash collateral available for return to the borrower due to any loss on the collateral invested.

 

 

 
22


 

Notes to Financial Statements (continued)

 

 

6.Commitments and Contingencies

Under the Trust’s organizational documents, its trustees and officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, 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 made against a Fund that have not yet occurred. However, based on experience, the Funds had no prior claims or losses and expect the risks of loss to be remote.

7.Master Netting Agreements

The Funds may enter into master netting agreements with its counterparties for the securities lending program and repurchase agreements, which provide the right, in the event of default (including bankruptcy or insolvency) for the non-defaulting party to liquidate the collateral and calculate net exposure to the defaulting party or request additional collateral. For financial reporting purposes, the Funds does not offset financial assets and financial liabilities that are subject to master netting agreements in the Statement of Assets and Liabilities. The following table is a summary of the Funds’ open securities lending and repurchase agreements which are subject to a master netting agreement as of March 31, 2014:

 

          Gross Amounts
Offset in the
Statement of
Assets and
Liabilities
    Net Amounts of
Assets Presented in
the Statement of
Assets and
Liabilities
    Gross Amount Not Offset in the        
              Statement of Assets and Liabilities        
                             
    Gross Amounts of         Financial     Cash Collateral        
    Recognized Assets         Instruments     Received     Net Amount  

Brandywine

           

Securities lending

  $ 367,292        —         $ 367,292        —         $ 367,292        —      

Repurchase agreements

    379,814        —           379,814      $  379,814        —           —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 747,106        —         $ 747,106      $ 379,814      $ 367,292        —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

8.Subsequent Events

On January 21, 2014, Affiliated Managers Group, Inc., a global asset management company, announced that the Funds’ Investment Manager and Administrator, Managers Investment Group LLC, will be rebranded as AMG Funds LLC. The rebranding is expected to become effective during the second quarter of 2014 once the appropriate regulatory filings have taken place.

Each Fund has determined that no other material events or transactions occurred through the issuance date of the Funds’ financial statements which require additional disclosure in or adjustment of the Funds’ financial statements.

 

 
23


 

Annual Renewal of Investment Management and Subadvisory Agreements (unaudited)

 

 

At a meeting held on May 21, 2013, the Board of Trustees (the “Trustees”) of Managers Trust I (the “Trust”), including all of the Trustees who are not “interested persons” of the Trust (“Independent Trustees”) within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”), unanimously voted to approve, with respect to the Brandywine Fund, Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund, each a new series of the Trust (each, a “New Fund,” and collectively, the “New Funds”), in connection with the reorganizations of Brandywine Fund, a class of Brandywine Fund, Inc., and Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund, each a class of Brandywine Blue Fund, Inc. (each, a “Predecessor Fund,” and collectively, the “Predecessor Funds”) into the New Funds (the “Reorganizations”), an amendment to the Investment Management Agreement between Managers Investment Group LLC (“Managers” or the “Investment Manager”) and the Trust with respect to the New Funds (the “Investment Management Agreement”), a new Subadvisory Agreement between Managers and Friess Associates, LLC (“Friess Associates”) with respect to each New Fund (each, a “Subadvisory Agreement,” and collectively, the “Subadvisory Agreements”) and a new Sub-Subadvisory Agreement among Managers, Friess Associates and Friess Associates of Delaware, LLC (“Friess of Delaware” and, together with Friess Associates, “Friess”) with respect to each New Fund (each, a “Sub-Subadvisory Agreement,” collectively, the “Sub-Subadvisory Agreements,” and, together with the Investment Management Agreement and the Subadvisory Agreements, the “New Fund Agreements”). The Subadvisory Agreements and the Sub-Subadvisory Agreements are referred to collectively herein as the “Friess Agreements.” The Trustees were separately represented by independent counsel in their consideration of the New Fund Agreements. The Reorganizations were proposed in connection with Affiliated Managers Group, Inc.’s anticipated transfer of its indirect majority ownership interest in Friess to the management team of Friess (the “Transaction”).

In considering the New Fund Agreements, the Trustees reviewed a variety of materials relating to the New Funds, Managers and Friess, including fee and expense information for an appropriate peer group of similar mutual funds for each New Fund (each, a “Peer Group”) and other information regarding the nature, extent and quality of services to be provided by Managers and Friess under their respective agreements. Because each New Fund is a newly created series of the Trust and has not yet begun operations, no comparative performance information for the New Funds was provided. The Trustees, however, considered the performance of the Predecessor Funds for one, three, five and ten-year periods ended March 31, 2013. Prior to voting, the Independent Trustees: (a) reviewed the foregoing information with their independent legal counsel and with management and (b) discussed with legal counsel the legal standards applicable to their consideration of the New Fund Agreements.

Nature, extent and quality of services.

In considering the nature, extent and quality of the services to be provided by Managers under the Investment Management Agreement, the Trustees took into account information provided periodically throughout the previous year by Managers in Board meetings relating to Managers’ financial information, operations and personnel, the performance of its duties with respect to other funds in the Managers Fund complex (the “Funds”) and the Trustees’ knowledge of Managers’ management and the quality of the performance of its duties.

In the course of their deliberations regarding the Investment Management Agreement, the Trustees evaluated, among other things: (a) the quality of the monitoring services performed by Managers in overseeing the portfolio management responsibilities of Friess; (b) Managers’ ability to supervise the New Funds’ other service providers; and (c) Managers’ compliance program. The Trustees also took into account that, in performing its functions under the Investment Management Agreement and supervising Friess, the Investment Manager will: perform periodic detailed analysis and reviews of the performance by Friess of its obligations to each New Fund, including without limitation a review of Friess’s investment performance in respect of each New Fund; prepare and present periodic reports to the Trustees regarding the investment performance of Friess and other information regarding Friess, at such times and in such forms as the Trustees may reasonably request; review and consider any changes in the personnel of Friess responsible for performing Friess’s obligations and make appropriate reports to the Trustees; review and consider any changes in the ownership or senior management of Friess and make appropriate reports to the Trustees; perform periodic in-person or telephonic diligence meetings, including with respect to compliance matters, with representatives of Friess; assist the Trustees and management of the Trust in developing and reviewing information with respect to the annual consideration of each Friess Agreement; prepare recommendations with respect to the continued retention of Friess or the replacement of Friess; identify potential successors to or replacements of Friess or potential additional subadvisors, perform appropriate due diligence, and develop and present to the Trustees a recommendation as to any such successor, replacement, or additional subadvisor; designate and compensate from its own resources such personnel as the Investment Manager may consider necessary or appropriate to the performance of its services; and perform such other review and reporting functions as the Trustees shall reasonably request consistent with the Investment Management Agreement, each Friess Agreement and applicable law. The Trustees also took into account the financial condition of Managers with respect to its ability to provide the services required under the Investment Management Agreement and noted that, as of March 28, 2013, Managers had approximately $30 billion in assets under management. The Trustees also considered Managers’ risk management processes.

 

 

 
24


 

Annual Renewal of Investment Management and Subadvisory Agreements (continued)

 

 

In the course of their deliberations regarding the nature, extent and quality of services to be provided by Friess under the Friess Agreements, the Trustees evaluated, among other things: (a) the expected services to be rendered by Friess to each New Fund; (b) the qualifications and experience of Friess’s personnel; and (c) Friess’s compliance programs. The Trustees also took into account the financial condition of Friess with respect to its ability to provide the services required under the Friess Agreements and noted that, as of March 31, 2013, Friess had approximately $1.6 billion in assets under management on a combined basis. The Trustees also considered Friess’s risk management processes.

The Trustees considered the investment philosophy, strategies and techniques that are intended to be used in managing each New Fund. Among other things, the Trustees reviewed biographical information on portfolio management and other professional staff, information regarding Friess’s organizational and management structure and Friess’s brokerage policies and practices. The Trustees considered specific information provided regarding the experience of the individuals at Friess that are expected to have portfolio management responsibility for the New Funds, including the information set forth in the New Funds’ prospectuses and statement of additional information to be filed with the Securities and Exchange Commission. The Trustees noted that one of the proposed portfolio managers has managed the Predecessor Funds since 1997 and has worked at Friess Associates for twenty-nine years. The Trustees also noted that another portfolio manager has managed the Predecessor Funds since 2010, and has worked at Friess since 2003. The Trustees considered that one portfolio manager serves as Chief Investment Officer of Friess and another portfolio manager serves as Chief Executive Officer of Friess and is in the process of transitioning to a new role as Chairman of Friess. The Trustees observed that each New Fund’s portfolio would be managed in substantially the same manner and by the same personnel as the corresponding Predecessor Fund. In addition, the Trustees considered that Friess is a research-driven firm with a bottom-up, fundamental style.

Performance.

Because the New Funds have not yet commenced operations, the Trustees noted that they could not draw any conclusions regarding the performance of the New Funds. The Trustees, however, considered the performance of the Predecessor Funds. The Trustees noted that, for the one-year, three-year, five-year and ten-year periods ended March 31, 2013, the performance of the Brandywine Fund was below the performance of the Russell 3000® Growth Index and Russell 3000® Index, the performance of the Brandywine Blue Fund was below the performance of the Russell 1000® Growth Index and Russell 1000® Index and the performance of the Brandywine Advisors Midcap Growth Fund was below the performance of the Russell Midcap® Growth Index and Russell Midcap® Index. For the quarter ended March 31, 2013, the Trustees also noted that the performance of the Brandywine Fund was above and below, respectively, the performance of the Russell 3000® Growth Index and Russell 3000® Index, the

performance of the Brandywine Blue Fund was above and below, respectively, the performance of the Russell 1000® Growth Index and Russell 1000® Index and the performance of the Brandywine Advisors Midcap Growth Fund was above and below, respectively, the performance of the Russell Midcap® Growth Index and Russell Midcap® Index. Notwithstanding the forgoing, the Trustees concluded that other factors relevant to performance supported the approval of the Friess Agreements. These factors varied from, but included one or more of the following: (1) that the underperformance was attributable, to a significant extent, to investment decisions by Friess that were reasonable and consistent with the Predecessor Fund’s investment objective and policies; (2) that recent performance showed improvement; and (3) that Friess had taken steps designed to help improve performance. Following such evaluation the Trustees concluded, within the context of their full deliberations, that the performance of the Predecessor Funds supported the approval of the Friess Agreements.

Advisory Fees and Profitability.

In considering the reasonableness of the advisory fee charged by Managers for managing the New Funds, the Trustees noted that Managers, and not the New Funds, is responsible for paying the fees charged by Friess Associates, and, in turn, Friess Associates is responsible for paying the fees charged by Friess of Delaware, and, therefore, that the fees paid to Managers cover the cost of providing portfolio management services as well as the cost of providing search, selection and monitoring services in operating a “manager-of-managers” complex of mutual funds. The Trustees concluded that, in light of the additional high quality supervisory services provided by Managers and the fact that Managers and Friess Associates are paying the fees under the Subadvisory Agreements and Sub-Subadvisory Agreements, respectively, the advisory fee payable by each New Fund to Managers can reasonably be expected to exceed the median advisory fee for the Peer Group, which consists of many funds that do not operate with a manager-of-managers structure. The Trustees noted that each of the Brandywine Fund, Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund’s estimated advisory fees (which include both the advisory fee and administration fee) and total gross expenses as of March 31, 2013 were higher than and lower than, respectively, the average for each such New Fund’s Peer Group. The Trustees also took into account the fact that Managers has contractually agreed, through at least February 1, 2016, to limit the total annual operating expenses (exclusive of taxes, interest (including interest incurred in connection with bank and custody overdrafts), shareholder servicing fees, distribution and service (12b-1) fees, brokerage commissions and other transaction costs, acquired fund fees and expenses, and extraordinary expenses) of each of the Brandywine Fund, Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund to 2.00%, 2.00% and 1.95%, respectively, of the average daily net assets attributable to such New Fund, noting that the net expenses of each New Fund were lower than the average for the New Fund’s corresponding Peer Group. The Trustees concluded that, in light of

 

 

 
25


 

Annual Renewal of Investment Management and Subadvisory Agreements (continued)

 

 

the nature, extent and quality of the services to be provided by Managers and Friess and the considerations noted above with respect to Managers and Friess, each New Fund’s advisory fees, including subadvisory fees, are reasonable.

In considering the anticipated profitability of Managers with respect to the provision of investment advisory services to the New Funds, the Trustees considered all revenues and other benefits, both direct and indirect (including any so-called “fallout benefits” such as reputational value derived from Managers serving as investment manager to a New Fund), received by Managers and its affiliates attributable to managing all the Funds, the cost of providing such services and the resulting profitability to Managers and its affiliates from these relationships. The Trustees also noted that all of the advisory fees paid to Managers by the New Funds would be paid in turn to Friess Associates, and that Friess Associates is responsible for paying the fees charged by Friess of Delaware. Based on the foregoing, the Trustees concluded that the profitability to Managers is expected to be reasonable and that Managers is not expecting to realize material benefits from economies of scale during the initial period of the New Funds’ operations. With respect to economies of scale, the Trustees also noted that as each New Fund’s assets increase over time, the New Fund may realize other economies of scale to the extent that the increase in assets is proportionally greater than the increase in certain other expenses.

In considering the anticipated profitability of Friess with respect to the provision of subadvisory services to the New Funds, the Trustees considered information regarding Friess’s organization, management and financial stability, and noted that, because Managers would no longer be an affiliate of Friess following the Transaction, such profitability would not be directly or indirectly shared with Managers. The Trustees relied on the ability of Managers to negotiate the terms of the Friess Agreements at arm’s length as part of the manager-of-managers structure.

The Trustees also noted that the fees charged by Friess Associates will be paid by Managers out of its advisory fee, and, in turn, Friess Associates will be responsible for paying the fees charged by Friess of Delaware. As a consequence, the cost of services to be provided by Friess and the profitability to Friess of its relationship with the New Funds were not material factors in the Trustees’ deliberations at this time. For similar reasons, the Trustees did not consider potential economies of scale in the management of the New Funds by Friess to be a material factor in their deliberations at the time.

After consideration of the foregoing, the Trustees reached the following conclusions (in addition to the conclusions discussed above) regarding the New Fund Agreements: (a) Managers and Friess have demonstrated that they possess the capability and resources to perform the duties required of them under the Investment Management Agreement and the Friess Agreements; (b) Friess’s investment strategy is appropriate for pursuing each New Fund’s investment objectives; (c) Friess is reasonably likely to execute its investment strategy consistently over time; and (d) Managers and Friess maintain appropriate compliance programs.

Based on all of the above-mentioned factors and their related conclusions, with no single factor or conclusion being determinative and with each Trustee not necessarily attributing the same weight to each factor, the Trustees concluded that approval of the New Fund Agreements would be in the best interests of each New Fund and its shareholders. Accordingly, on May 21, 2013, the Trustees, including all of the Independent Trustees, unanimously voted to approve the New Fund Agreements.

*    *    *    *

 

 

 
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Investment Manager and Administrator

Managers Investment Group LLC

800 Connecticut Avenue

Norwalk, CT 06854

(800) 835-3879

Distributor

Managers Distributors, Inc.

800 Connecticut Avenue

Norwalk, CT 06854

(800) 835-3879

Subadvisor

Friess Associates of Delaware, LLC

P.O. Box 4166

Greenville, DE 19807

Friess Associates, LLC

P.O. Box 576

Jackson, Wyoming 83001

Custodian

The Bank of New York Mellon

2 Hanson Place

Brooklyn, NY 11217

Legal Counsel

Ropes & Gray LLP

Prudential Tower, 800 Boylston Street

Boston, MA 02199-3600

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Attn: Managers

P.O. Box 9769

Providence, RI 02940

(800) 548-4539

Trustees

Bruce B. Bingham

Christine C. Carsman

William E. Chapman II

Edward J. Kaier

Kurt Keilhacker

Steven J. Paggioli

Richard F. Powers III

Eric Rakowski

Victoria Sassine

Thomas R. Schneeweis

 

 

 

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MANAGERS AND MANAGERS AMG FUNDS

 

EQUITY FUNDS

 

BALANCED FUNDS

BRANDYWINE   SKYLINE SPECIAL EQUITIES   CHICAGO EQUITY PARTNERS BALANCED
BRANDYWINE BLUE   PORTFOLIO   Chicago Equity Partners, LLC
BRANDYWINE ADVISORS MIDCAP GROWTH   Skyline Asset Management, L.P.  
Friess Associates, LLC    

ALTERNATIVE FUNDS

  AMG SOUTHERNSUN SMALL CAP  
CADENCE CAPITAL APPRECIATION   AMG SOUTHERNSUN U.S. EQUITY   FQ GLOBAL ALTERNATIVES

CADENCE MID-CAP

  SouthernSun Asset Management, LLC   FQ GLOBAL ESSENTIALS
CADENCE EMERGING COMPANIES     First Quadrant, L.P.
Cadence Capital Management, LLC   SPECIAL EQUITY  
  Ranger Investment Management, L.P.  

INCOME FUNDS

ESSEX SMALL/MICRO CAP GROWTH   Lord, Abbett & Co. LLC  
Essex Investment Management Co., LLC   Smith Asset Management Group, L.P.   BOND (MANAGERS)
  Federated MDTA LLC   GLOBAL INCOME OPPORTUNITY
FQ TAX-MANAGED U.S. EQUITY     Loomis, Sayles & Co., L.P.
FQ U.S. EQUITY   SYSTEMATIC VALUE  
First Quadrant, L.P.   SYSTEMATIC MID CAP VALUE   BOND (MANAGERS PIMCO)
  Systematic Financial Management, L.P.   Pacific Investment Management Co. LLC
FRONTIER SMALL CAP GROWTH    
Frontier Capital Management Company, LLC   TIMESSQUARE INTERNATIONAL   GW&K FIXED INCOME
  SMALL CAP   GW&K MUNICIPAL BOND
GW&K SMALL CAP EQUITY   TIMESSQUARE MID CAP GROWTH   GW&K MUNICIPAL ENHANCED YIELD
Gannett Welsh & Kotler, LLC   TIMESSQUARE SMALL CAP GROWTH   Gannett Welsh & Kotler, LLC
  TSCM GROWTH EQUITY  
MICRO-CAP   TimesSquare Capital Management, LLC   HIGH YIELD
Lord, Abbett & Co. LLC     J.P. Morgan Investment Management Inc.
WEDGE Capital Management L.L.P.   TRILOGY GLOBAL EQUITY  
Next Century Growth Investors, LLC   TRILOGY EMERGING MARKETS EQUITY   INTERMEDIATE DURATION GOVERNMENT
RBC Global Asset Management (U.S.) Inc.   TRILOGY INTERNATIONAL SMALL CAP   SHORT DURATION GOVERNMENT
  Trilogy Global Advisors, L.P.   Amundi Smith Breeden LLC
REAL ESTATE SECURITIES    
CenterSquare Investment Management, Inc.  

YACKTMAN

YACKTMAN FOCUSED

 
   
RENAISSANCE LARGE CAP GROWTH   Yacktman Asset Management LP  
The Renaissance Group LLC    

 

This report is prepared for the Funds’ shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus. To receive a free copy of the prospectus or Statement of Additional Information, which includes additional information about Fund Trustees, please contact us by calling 800.835.3879. Distributed by Managers Distributors, Inc., member FINRA.

 

Current net asset values per share for each Fund are available on the Funds’ Web site at www.managersinvest.com.

 

A description of the policies and procedures each Fund uses to vote its proxies is available: (i) without charge, upon request, by calling 800.835.3879, or (ii) on the Securities and Exchange Commission’s (SEC) Web site at www. sec.gov. For information regarding each Fund’s proxy voting record for the 12-month period ended June 30, call 800.835.3879 or visit the SEC Web site at www.sec.gov.

 

The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC’s Web site at www.sec.gov. A Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330. To review a complete list of the Funds’ portfolio holdings, or to view the most recent quarterly holdings report, semiannual report, or annual report, please visit www.managersinvest.com.

  

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SAR075-0314


Managers Funds

 

Semi-Annual Report—March 31, 2014 (unaudited)

 

TABLE OF CONTENTS

   Page  

LETTER TO SHAREHOLDERS

     2   

ABOUT YOUR FUND’S EXPENSES

     3   

FUND PERFORMANCE

     4   

PORTFOLIO STATISTICS AND SCHEDULE OF PORTFOLIO INVESTMENTS

     5   

NOTES TO SCHEDULE OF PORTFOLIO INVESTMENTS

     9   

FINANCIAL STATEMENTS

  

Statement of Assets and Liabilities

     10   

Balance sheet, net asset value (NAV) per share computations and cumulative undistributed amounts

  

Statement of Operations

     11   

Detail of sources of income, expenses, and realized and unrealized gains (losses) during the fiscal period

  

Statements of Changes in Net Assets

     12   

Detail of changes in assets for the past two fiscal periods

  

FINANCIAL HIGHLIGHTS

     13   

Historical net asset values per share, distributions, total returns, income and expense ratios, turnover ratios and net assets

  

NOTES TO FINANCIAL STATEMENTS

     14   

Accounting and distribution policies, details of agreements and transactions with Fund management and affiliates, and descriptions of certain investment risks

  

ANNUAL RENEWAL OF INVESTMENT MANAGEMENT AND SUBADVISORY AGREEMENTS

     19   

Nothing contained herein is to be considered an offer, sale or solicitation of an offer to buy shares of any series of the Managers Family of Funds. Such offering is made only by Prospectus, which includes details as to offering price and other material information.

 

 


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Subadvised by Friess Associates, LLC    Semi-Annual Report    March 31, 2014

 

Dear Fellow Shareholders:

Stocks dipped and rebounded in the March quarter, ending the first three months of the year only modestly changed. After high investor spirits contributed to robust gains last year, the market displayed a more subdued mood to start 2014.

Brandywine Advisors Midcap Growth Fund grew 2.47 percent in the March quarter, outpacing gains in the S&P 500® and Russell Midcap® Growth Indexes of 1.81 and 2.04 percent. The Russell Midcap® Index gained 3.53 percent.

Positive momentum toward the end of last year boosted optimism that the economy finally could be poised to break from its extended streak of slow growth. Harsh winter weather, marked by snowfall that ranked among the highest in terms of accumulation in major metropolitan regions in the Midwest and Northeast, quickly put that thinking on ice.

Lost store hours, shipping delays and other weather-related fallout prompted investors to revise their expectations downward for the March quarter. At the same time, less-than-stellar economic reports released during the period raised questions as to whether near-term conditions reflected a weather-driven aberration or signaled more weakness to come.

In addition to a dose of economic uncertainty, the Federal Reserve demonstrated its commitment to continuing to taper its stimulus program, concerns about growth in emerging markets surfaced and Russia annexed Crimea from Ukraine. In retrospect, returns for the March quarter make the period seem less eventful than it was.

A number of industrial holdings exposed to an increase in energy-related construction activity fared particularly well thanks in part to their lack of exposure to the nastiest of the winter weather. Industrial holdings comprised the Fund’s second largest percentage of assets and represented an overweight position relative to the Russell Midcap® Growth Index. Industrial holdings significantly outperformed the sector within the index, making them by far the most notable contributors to relative and absolute results.

United Rentals, MasTec, Trinity Industries and Air Lease Corp. were among the biggest industrial sector contributors held by Brandywine Advisors. All four companies exceeded consensus earnings estimates for the December quarter, posting year-over-year growth ranging from 15 to 59 percent.

Technology holdings, which represented the portfolio’s largest position, were the second greatest performance contributors. Investors applauded FireEye on news that the company planned

to bolster its portfolio of cyber-security offerings by acquiring Mandiant. Other standout performers included Xilinx and Avago Technologies, which beat estimates in their most recent quarter with earnings growth of 61 and 23 percent.

Financial holdings also boosted results versus the benchmark. Allstate Corp. and E*Trade Financial Corp. were the primary contributors. Allstate’s December-quarter earnings jumped to $1.70 per share from $0.59 in the year-ago period, topping the consensus estimate by 24 percent. E*Trade also exceeded expectations when it reported $0.20 per share in December-quarter earnings, up from a $0.65 loss per share in the year-ago period.

Relative results suffered due to the consumer staples sector or, more specifically, Nu Skin Enterprises. The personal and nutritional product company beat estimates by more than doubling December-quarter earnings growth. Nu Skin shares declined on news that Chinese officials launched an investigation into the company’s person-to-person sales model. Although exposure to consumer staples was limited, the sector was the biggest performance detractor versus the Russell Midcap® Growth.

The Fund’s experience with the energy sector was similar. Energy exposure was limited overall, but the sector was still a notable detractor. Bristow Group was the most significant detractor from the sector. The company, which provides helicopter transport services for energy workers traveling between onshore and offshore sites, reaffirmed its earnings guidance for 2014, but fell short of December-quarter estimates because of contract delays. Other detractors from the sector included Oceaneering International and Oasis Petroleum.

 

For more on companies that influenced March-quarter performance, please see Roses & Thorns on page 6.

 

Thanks for your continued confidence. We’re grateful for the opportunity to invest on your behalf.

 

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Scott Gates   
Chief Investment Officer    April 9, 2014
 

 

 
2


 

About Your Fund’s Expenses (unaudited)

 

 

As a shareholder of a Fund, you may incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on $1,000 invested at the beginning of the period and held for the entire period as indicated below.

Actual Expenses

The first line of the following table provides information about the actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your on going costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

Six Months Ended

March 31, 2014

  Expense
Ratio

for
the Period
    Beginning
Account
Value
10/01/13
    Ending
Account
Value
3/31/14
    Expenses
Paid
During
the
Period*
 

Brandywine Advisors Midcap Growth Fund

       

Based on Actual Fund Return

    1.15   $ 1,000      $ 1,071      $ 5.94   

Hypothetical (5% return before expenses)

    1.15   $ 1,000      $ 1,019      $ 5.79   

 

* Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182), then divided by 365.
 

 

 
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Fund Performance

Periods ended March 31, 2014 (unaudited)

 

 

The table below shows the average annual total returns for the Brandywine Advisors Midcap Growth Fund, the Russell Midcap® Growth Index, the Russell Midcap® Index and the S&P 500® Index for the same time periods ended March 31, 2014.

 

Average Annual Total Retuns1

   Six Months*     One Year     Five Years     Ten Years  

Brandywine Advisors Midcap Growth Fund 2,3

     12.95     20.92     10.42     3.83

Russell Midcap® Growth Index4

     10.44     24.22     24.73     9.47

Russell Midcap® Index5

     12.21     23.51     25.55     10.05

S&P 500® Index6

     12.51     21.86     21.16     7.42

 

 

The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. For performance information through the most recent month end, please call (800) 835-3879 or visit our Web site at www.managersinvest.com. Current net asset values per share for the Fund are available on the Fund’s Web site at www.managersinvest.com.

 

Investors should carefully consider the Fund’s investment objectives, risks, charges, and expenses before investing. For this and other information, please call (800) 835-3879 or visit our Web site at www.managersinvest.com for a free prospectus. Read it carefully before investing or sending money. Funds are distributed by Managers Distributors, Inc., member FINRA.

 

*  Not annualized.
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. The listed returns on the Funds are net of expenses and based on the published NAV as of March 31, 2014. All returns are in U.S. dollars ($).
2  The Fund inception dates and returns for all periods beginning prior to October 1, 2013 reflects performance of the precessor Fund,
  Brandywine Advisors Midcap Growth Fund, and was managed by Friess Associates, LLC with the same investment objectives and substantially similar investment policies.
3  The Fund is subject to risks associated with investments in mid-capitalization companies such as erratic earnings patterns, competitive conditions, limited earnings history, and a reliance on one or a limited number of products.
4  The Russell Midcap® Growth Index measures the performance of the Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000® Growth Index. Unlike the Fund, the Indices are unmanaged, are not available for investment, and do not incur expenses.
5  The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25 percent of the total market capitalization of the Russell 1000® Index. Unlike the Fund, the Indices are unmanaged, are not available for investment, and do not incur expenses.
6  The S&P 500® Index is capitalization-weighted index of 500 stocks. The S&P 500® Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Unlike the Fund, the Indices are unmanaged, are not available for investment, and do not incur expenses.

The Russell Midcap® Growth Index and the Russell Midcap® Index are registered trademarks of Russell Investments. Russell® is a trademark of Russell Investments.

The S&P 500® Index is proprietary data of Standard & Poor’s, a division of McGraw-Hill Companies, Inc. All rights reserved.

Not FDIC insured, nor bank guaranteed. May lose value.

 

 

 
4


LOGO

 

Portfolio Characteristics as of March 31, 2014

Top Ten Holdings

 

    % of Net     % Change from         % of Net     % Change from  

Security Name

  Assets     Book Cost    

Security Name

  Assets     Book Cost  

United Rentals, Inc.

    4.0     80.8   Trinity Industries, Inc.     3.1     26.3

Wabtec Corp.

    3.9     156.4   Kate Spade & Co.     3.1     14.7

Avago Technologies, Ltd.

    3.5     14.6   Xilinx, Inc.     3.1     34.1

Jarden Corp.

    3.4     41.3   JDS Uniphase Corp.     3.0     2.3

Air Lease Corp.

    3.1     57.5   E*TRADE Financial Corp.     3.0     12.6

 

Estimated Earnings Growth Rate

of the Fund’s Investments

 

LOGO

Forecasted Increase in Earnings Per Share

2014 vs 2013

Source: Consensus estimates from FactSet Research

Systems Inc.

 

This is not a forecast of the Fund’s future performance. Earnings growth for a Fund holding does not guarantee a corresponding increase in the market value of the holding or the Fund. As of March 31, 2014, the S&P 500® Index’s average annual total returns for 1, 5 and 10 years were 21.86, 21.16 and 7.42 percent, respectively.

The Portfolio’s Market Capitalization

 

LOGO

 

 

Top Ten Industry Groups

 

LOGO

 

 
5


 

LOGO

Quarter ending March 31, 2014 “Roses and Thorns”

 

Biggest $ Winners

   $ Gain
(in millions)
     % Gains     

Reason for Move

Under Armour Inc.    $ 1,257         32.0       The maker of athletic apparel, footwear, equipment and accessories grew December-quarter earnings 26 percent, beating the consensus estimate. Cold winter weather drove demand for Under Armour’s cold weather apparel, contributing to 35 percent revenue growth. The period marked the 15th consecutive quarter in which Under Armour grew revenue by 20 percent or more. Under Armour also raised 2014 guidance for revenue and operating income, forecasting growth of at least 22 and 23 percent, respectively.
MasTec Inc.    $ 1,181         31.8       The infrastructure construction company focused on the energy and communications sectors overcame difficult weather conditions to top December-quarter earnings expectations with 15 percent growth over the prior year. The communications and wireless segments grew 38 percent, with strong demand generated by AT&T and Samsung. The oil-and-gas division reported 100 percent revenue growth.
United Rentals Inc.    $ 1,104         21.8       United Rentals reported 25 percent earnings growth, beating Wall Street expectations. Pricing increased 4 percent and fleet utilization continued to rise. Equipment sales were better than expected, with profit margins up from the year-ago period. Management outlined plans to expand the company’s export channels to take advantage of international demand.
Trinity Industries Inc.    $ 1,004         26.3       The company, which makes railcars, inland barges and construction equipment, exceeded the consensus estimate with 59 percent December-quarter earnings growth. Demand for equipment to ship coal, grain and sand used in hydraulic fracturing drove results. Back-logged rail business stood at $5 billion, providing visibility into future growth potential.
FireEye Inc.    $ 965         35.4       The vendor of tools that detect and block advanced cyber attacks reported an 81 percent year-over-year increase in revenue. Shares rose during the March quarter on FireEye’s announcement of its intention to acquire Mandiant, a provider of endpoint security and remediation solutions. We believe Mandiant’s incident response and remediation capabilities are a great addition to FireEye’s already potent lineup of security offerings.

Biggest $ Losers

   $ Loss
(in millions)
     % Loss     

Reason for Move

Nu Skin Enterprises Inc.    $ 1,886         45.5       Nu Skin, which makes personal care products and nutritional supplements sold through direct-sales channels, more than doubled year-over-year earnings to $2.02 per share in the December quarter, beating estimates. Shares declined during the March quarter after Chinese regulators announced an investigation into the company’s person-to-person sales model. We sold Nu Skin to fund a new opportunity that we believe offers better earnings visibility.
Himax Technologies Inc.    $ 896         19.7       The maker of display-imaging semiconductors reported $0.10 in earnings per share for the December quarter, beating the consensus estimate. The company’s different segments benefited from growth in smartphone, tablet, automotive display and wearable device markets. Himax is a micro-display supplier for Google Glass. Shares declined in the aftermath of a ratings downgrade from a brokerage firm that contended Google Glass is still in too early of a stage to represent a material, near-term benefit to Himax.
LKQ Corp.    $ 731         21.0       The aftermarket auto parts company reported 29 percent earnings growth in the December quarter, falling short of estimates by a penny per share. Although LKQ provided guidance that predicted 2014 growth in a range that exceeded the consensus estimate on the high side, shares declined on concerns regarding the company’s organic growth rate. Chrysler also filed suit against LKQ contending certain aftermarket parts infringed on Chrysler design patents. We sold LKQ to fund a purchase that we believe offers better earnings visibility.
GameStop Corp.    $ 547         17.1       The November launch of PS4 and Xbox One helped the video game retailer boost new hardware sales, but negative trends in new software sales raised concerns about competitive encroachment by downloadable gaming options. GameStop tempered its 2014 guidance at a time when an acquisition by Amazon and an announcement by Wal-Mart raised the competitive stakes in the video game segment. We sold GameStop to fund a purchase that we believe offers better earnings visibility.
Bristow Group Inc.    $ 506         11.4       The company provides helicopter transport services for energy workers traveling between onshore bases and offshore production platforms, drilling rigs and other installations. Bristow reaffirmed its earnings guidance for 2014, but fell short of December-quarter estimates because of contract delays. We sold Bristow to fund a purchase that we believe offers better earnings visibility.

All gains/losses are calculated on an average cost basis from December 31, 2013 through March 31, 2014.

 

 

6


 

Brandywine Advisors Midcap Growth Fund

Schedule of Portfolio Investments

March 31, 2014 (unaudited)

 

 

Shares

      Cost     Value  

Common Stocks - 95.7%

   

Consumer Discretionary

   
 

Apparel, Accessories & Luxury
Goods - 5.3%

   

 

130,000

 

Kate Spade & Co.*

  $ 4,202,898      $ 4,821,700   

30,050

 

Under Armour, Inc., Class A*

    2,393,257        3,444,932   
 

Footwear - 2.7%

  

 

115,329

 

Steven Madden, Ltd.*

    3,917,492        4,149,537   
 

Homebuilding - 2.4%

  

 

450,000

 

Standard Pacific Corp.*

    4,038,360        3,739,500   
 

Hotels, Resorts & Cruise Lines - 0.2%

  

 

11,470

 

Norwegian Cruise Line Holdings, Ltd.*

    381,377        370,137   
 

Housewares & Specialties - 3.4%

  

 

87,000

 

Jarden Corp.*

    3,683,143        5,205,210   
 

Specialty Stores - 5.5%

  

 

83,500

 

Dick’s Sporting Goods, Inc.

    4,335,151        4,559,935   

55,000

 

Tractor Supply Co.

    3,631,031        3,884,650   
   

 

 

   

 

 

 

Total Consumer Discretionary

    26,582,709        30,175,601   

This sector is 13.5% above your Fund’s cost.

  

 

Consumer Staples

   
 

Packaged Foods & Meats - 2.6%

  

 

44,500

 

The Hain Celestial Group, Inc.*

    3,711,440        4,070,415   

This sector is 9.7% above your Fund’s cost.

  

 

Financials

   
 

Investment Banking &
Brokerage - 3.0%

   

 

203,000

 

E*TRADE Financial Corp.*

    4,150,519        4,673,060   

This sector is 12.6% above your Fund’s cost.

  

 

Health Care

   
 

Health Care Technology - 2.1%

  

 

179,685

 

Allscripts Healthcare Solutions, Inc.*

    3,165,300        3,239,721   

This sector is 2.4% above your Fund’s cost.

  

 

Industrials

   
 

Construction & Engineering - 5.2%

  

 

34,240

 

Chicago Bridge & Iron Co., N.V.

    2,664,064        2,984,016   

62,800

 

MasTec, Inc.*

    1,772,426        2,728,032   

63,200

 

Quanta Services, Inc.*

    1,671,519        2,332,080   
 

Construction & Farm Machinery & Heavy Trucks - 10.0%

   

 

147,000

 

The Manitowoc Co., Inc.

    4,485,300        4,623,150   

67,000

 

Trinity Industries, Inc.

    3,824,252        4,828,690   

77,400

 

Wabtec Corp.

    2,339,470        5,998,500   
 

Electrical Components &
Equipment - 2.1%

   

 

55,300

 

Generac Holdings, Inc.

    2,334,205        3,261,041   
 

Industrial Machinery - 5.6%

  

 

58,000

 

Flowserve Corp.

    4,461,542        4,543,720   

15,460

 

The Middleby Corp.*

    3,790,154        4,084,687   

Shares

      Cost     Value  
  Marine - 2.6%     

39,300

 

Kirby Corp.*

  $ 3,179,502      $ 3,979,125   
 

Trading Companies &
Distributors - 7.1%

   

 

130,000

 

Air Lease Corp.

    3,078,265        4,847,700   

65,000

 

United Rentals, Inc.*

    3,412,456        6,171,100   
   

 

 

   

 

 

 

Total Industrials

    37,013,155        50,381,841   

This sector is 36.1% above your Fund’s cost.

  

 

Information Technology

   
  Application Software - 2.6%     

60,340

 

Guidewire Software, Inc.*

    2,909,168        2,959,677   

28,040

 

Informatica Corp.*

    952,776        1,059,351   
  Communications Equipment - 8.1%     

165,430

 

Ciena Corp.*

    3,587,147        3,761,878   

165,000

 

CommScope Holding Co., Inc.*

    3,850,913        4,072,200   

336,000

 

JDS Uniphase Corp.*

    4,596,254        4,704,000   
  Internet Software & Services - 1.0%     

19,310

 

Yelp, Inc.*

    1,246,335        1,485,518   
  Semiconductor Equipment - 2.7%     

243,500

 

GT Advanced Technologies, Inc.*

    4,127,739        4,151,675   
  Semiconductors - 16.3%     

83,210

 

Avago Technologies, Ltd.

    4,677,314        5,359,556   

272,900

 

Himax Technologies, Inc., ADR1

    3,809,679        3,143,808   

150,000

 

International Rectifier Corp.*

    4,152,090        4,110,000   

224,050

 

Marvell Technology Group, Ltd.

    3,609,714        3,528,788   

72,100

 

Synaptics, Inc.*

    4,339,304        4,327,442   

88,600

 

Xilinx, Inc.

    3,585,835        4,808,322   
  Systems Software - 5.2%     

60,000

 

FireEye, Inc.*

    2,440,207        3,694,200   

82,500

 

Red Hat, Inc.*

    3,878,660        4,370,850   
   

 

 

   

 

 

 

Total Information Technology

    51,763,135        55,537,265   

This sector is 7.3% above your Fund’s cost.

  

 

Total Common Stocks

    126,386,258        148,077,903   
 

 

The accompanying notes are an integral part of these financial statements.

 

7


 

Brandywine Advisors Midcap Growth Fund

Schedule of Portfolio Investments (continued)

 

 

        Principal Amount2     Value  

Short-Term Investments - 3.4%

  

 

Commercial Paper - 3.2%

   
 

Prudential Financial LLC, due 04/01/14, discount of 0.15%

  $ 5,000,000      $ 5,000,000   

Repurchase Agreements - 0.1%3

  

 
 

Merrill Lynch, Pierce, Fenner & Smith, Inc., dated 03/31/14, due 04/01/14, 0.050%, total to be received $105,840 (collateralized by various U.S. Government Agency Obligations, 0.000% - 7.500%, 05/08/14 - 08/15/43, totaling $107,957)

    105,840        105,840   

 

Shares

      Cost     Value  

Other Investment Companies - 0.1%4

  

 

125,393

 

Dreyfus Institutional Cash Advantage Fund, Institutional Class Shares, 0.05%

  $ 125,393      $ 125,393   
   

 

 

   

 

 

 

Total Short-Term Investments

    5,231,233        5,231,233   

Total Investments - 99.1%

  $ 131,617,491        153,309,136   
   

 

 

   

Other Assets, less Liabilities - 0.9%

      1,343,546   

Total Net Assets - 100.0%

    $ 154,652,682   
     

 

 

 
 

 

The accompanying notes are an integral part of these financial statements.

 

8


 

Notes to Schedule of Portfolio Investments (unaudited)

 

 

The following footnotes and abbreviations should be read in conjunction with the Schedule of Portfolio Investments previously presented in this report.

Based on the approximate cost of investments of $131,628,071 for Federal income tax purposes at March 31, 2014, the aggregate gross unrealized appreciation and depreciation were $22,791,915 and $1,110,850, respectively, resulting in net unrealized appreciation of investments of $21,681,065.

 

* Non-income producing security.
1  Some or all of this security, amounting to a market value of $100,144, or 0.06% of net assets, were out on loan to various brokers.
2  Amount presented also represents shares held.
3  Collateral received from brokers for securities lending was invested in this short-term investment.
4  Yield shown represents the March 31, 2014, seven-day average yield, which refers to the sum of the previous seven days’ dividends paid, expressed as an annual percentage.

The following table summarizes the inputs used to value the Fund’s net assets by the fair value hierarchy levels as of March 31, 2014. (See Note 1(a) in the Notes to the Financial Statements)

 

     Quoted Prices in Active
Markets for Identical
Investments

Level 1
     Significant Other
Observable
Inputs

Level 2
     Significant Unobservable
Inputs

Level 3
     Total  

Brandywine Advisors Midcap Growth Fund

  

        

Investments in Securities

           

Common Stocks

   $ 148,077,903         —           —         $ 148,077,903   

Short-Term Investments

           

Commercial Paper

     —         $ 5,000,000         —           5,000,000   

Repurchase Agreements

     —           105,840         —           105,840   

Other Investment Companies

     125,393         —           —           125,393   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

   $ 148,203,296       $ 5,105,840         —         $ 153,309,136   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

All common stocks held in the Fund are Level 1 securities. For a detailed breakout of the common stocks by major industry classification, please refer to the Schedule of Portfolio Investments.

As of March 31, 2014, the Fund had no transfers between levels from the beginning of the reporting period.

Investment Definitions and Abbreviations:

ADR: ADR after the name of a holding stands for American Depositary Receipt, representing ownership of foreign securities on deposit with a domestic custodian bank. The value of the ADR securities is determined or significantly influenced by trading on exchanges not located in the United States or Canada. Sponsored ADRs are initiated by the underlying foreign company.

 

The accompanying notes are an integral part of these financial statements.

 

9


 

Statement of Assets and Liabilities

March 31, 2014 (unaudited)

 

 

Assets:

  

Investments at value* (including securities on loan valued at $100,144)

   $ 153,309,136   

Receivable for investments sold

     4,216,181   

Dividends, interest and other receivables

     14,574   

Receivable for Fund shares sold

     120   

Prepaid expenses

     888   

Total assets

     157,540,899   

Liabilities:

  

Payable for investments purchased

     2,560,565   

Payable upon return of securities loaned

     105,840   

Payable for Fund shares repurchased

     43,897   

Accrued expenses:

  

Investment advisory and management fees

     133,982   

Distribution fees

     12,714   

Administrative and accounting fees

     7,357   

Shareholder servicing fees

     1,206   

Other

     22,656   

Total liabilities

     2,888,217   

Net Assets

   $ 154,652,682   

Net Assets Represent:

  

Paid-in capital

   $ 160,873,504   

Undistributed net investment loss

     (1,066,844

Accumulated net realized loss from investments

     (26,845,623

Net unrealized appreciation of investments

     21,691,645   

Net Assets

   $ 154,652,682   

Shares outstanding

     15,563,882   

Net asset value, offering and redemption price per share

   $ 9.94   

* Investments at cost

   $ 131,617,491   

 

The accompanying notes are an integral part of these financial statements.

 

10


 

Statement of Operations

For the six months ended March 31, 2014 (unaudited)

 

 

Investment Income:

  

Dividend income

   $ 320,806   

Interest income

     4,494   

Foreign withholding tax

     (360

Securities lending income

     1,830   

Total investment income

     326,770   

Expenses:

  

Investment advisory and management fees

     733,144   

Administrative and accounting fees

     24,679   

Distribution fees

     19,574   

Shareholder servicing fees

     6,598   

Registration fees

     20,577   

Professional fees

     14,337   

Reports to shareholders

     10,375   

Custodian

     6,199   

Transfer agent

     4,187   

Trustees fees and expenses

     2,627   

Miscellaneous

     1,670   

Net expenses

     843,967   

Net investment loss

     (517,197

Net Realized and Unrealized Gain (Loss):

  

Net realized gain on investments

     14,455,031   

Net change in unrealized appreciation (depreciation) of investments

     3,692,327   

Net realized and unrealized gain

     18,147,358   

Net increase in net assets resulting from operations

   $ 17,630,161   

 

The accompanying notes are an integral part of these financial statements.

 

11


 

Statements of Changes in Net Assets

For the six months ended March 31, 2014 (unaudited) and the fiscal year ended September 30, 2013

 

 

     March 31,
2014
    September 30,
2013
 

Increase (Decrease) in Net Assets From Operations:

    

Net investment loss

   $ (517,197   $ (255,893

Net realized gain on investments

     14,455,031        10,128,477   

Net change in unrealized appreciation (depreciation) of investments

     3,692,327        8,506,279   

Net increase in net assets resulting from operations

     17,630,161        18,378,863   

Distributions to Shareholders:

    

From net investment income

     —          (96,485

Capital Share Transactions:

    

Proceeds from sale of shares

     342,618        982,334   

Reinvestment of dividends and distributions

     —          3,171   

Cost of shares repurchased

     (566,384     (1,790,607

Net decrease from capital share transactions

     (223,766     (805,102

Total increase in net assets

     17,406,395        17,477,276   

Net Assets:

    

Beginning of period

     137,246,287        119,769,011   

End of period

   $ 154,652,682      $ 137,246,287   

End of period undistributed net investment loss

   $ (1,066,844   $ (549,647
  

 

 

   

 

 

 

Share Transactions:

    

Sale of shares

     36,239        118,240   

Reinvested shares from dividends and distributions

     —          439   

Shares repurchased

     (60,102     (226,959

Net decrease in shares

     (23,863     (108,280

 

The accompanying notes are an integral part of these financial statements.

 

12


 

Brandywine Advisors Midcap Growth Fund

Financial Highlights

For a share outstanding throughout each period

 

 

     For the six
months ended
March 31, 2014
    For the fiscal year ended September 30,  
     (unaudited)     2013     2012     2011     2010     2009  

Net Asset Value, Beginning of Period

   $ 8.80      $ 7.63      $ 6.82      $ 7.13      $ 6.86      $ 8.65   

Income from Investment Operations:

            

Net investment loss1

     (0.03     (0.02     (0.03     (0.05     (0.02     (0.04

Net realized and unrealized gain (loss) on investments1

     1.17        1.20        0.84        (0.26     0.29        (1.75

Total from investment operations

     1.14        1.18        0.81        (0.31     0.27        (1.79

Distributions to Shareholders from:

            

Net investment income

     —          (0.01     —          —          —          —     

Net Asset Value, End of Period

   $ 9.94      $ 8.80      $ 7.63      $ 6.82      $ 7.13      $ 6.86   

Total Return

     12.95 %3      15.43     11.88     (4.35 )%      3.94     (20.69 )% 

Ratio of net expenses to average net assets

     1.15 %4      1.22     1.22 %2      1.25 %2      1.28     1.30

Ratio of net investment loss to average net assets

     (0.71 )%4      (0.20 )%      (0.37 )%      (0.63 )%      (0.30 )%      (0.62 )% 

Portfolio turnover

     134     235     266     241     226     240

Net assets at end of period (000’s omitted)

   $ 154,653      $ 137,246      $ 119,769      $ 122,926      $ 178,780      $ 148,518   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Notes to Financial Highlights (unaudited)

 

The following footnotes should be read in conjunction with the Financial Highlights of the Fund.

 

1  Per share numbers have been calculated using average shares.
2  Interest expense is less then 0.005% of average net assets.
3  Not annualized.
4  Annualized.

 

 
13


 

Notes to Financial Statements

March 31, 2014 (unaudited)

 

 

1.Summary of Significant Accounting Policies

Managers Trust I (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 consists of a number of different Funds, each having distinct investment management objectives, strategies, risks, and policies. Included in this report is the Brandywine Advisors Midcap Growth Fund (the “Fund”).

At the start of business on October 1, 2013, Brandywine Advisors Midcap Growth Fund, a series of Brandywine Blue Fund, Inc. (the “Predecessor Fund”), was reorganized into a series of the Trust. As a result of the reorganization, the Fund is the successor to the accounting and performance information of the Predecessor Fund.

The Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), 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 and such differences may be material. The following is a summary of significant accounting policies followed by the Fund in the preparation of its 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. Equity securities primarily traded on an international securities exchange and equity securities traded on NASDAQ or in a U.S. or non-U.S. over-the-counter market are valued at the market’s official closing price, or, if there are no trades on the applicable date, at the last quoted bid price. In addition, if the applicable market does not offer an official closing price or if the official closing price is not representative of the overall market, equity securities primarily traded on an international securities exchange and equity securities traded in a non-U.S. over-the-counter market are valued at the last quoted sales price. The Fund’s investments are generally valued based on independent market quotations or prices or, if none, “evaluative” or other market based valuations provided by third-party pricing services approved by the Board of Trustees of the Fund (the “Board”).

Short-term debt obligations (debt obligations with maturities of one year or less at the time of issuance) that have 60 days or less remaining until maturity will be valued at amortized cost. Investments in other open-end regulated investment companies are valued at their end of day net asset value per share.

Under certain circumstances, the value of certain Fund investments (including derivatives) may be based on an evaluation of fair value, pursuant to procedures established by and under the general supervision of the Board. The Pricing Committee is the committee formed by the Board to make fair value determinations for such investments. The Fund may use the fair value of a portfolio investment to calculate its net asset value (“NAV”) in the event that the market quotation, price or market based valuation for the portfolio investment is not deemed to be readily available or otherwise not determinable pursuant to the Board’s valuation

procedures, if Managers Investment Group LLC (the “Investment Manager”) believes the quotation, price or market based valuation to be unreliable, or in certain other circumstances. When determining the fair value of an investment, the Pricing Committee seeks to determine the price that the Fund might reasonably expect to receive from a current sale of that investment in an arms length transaction. Fair value determinations shall be based upon consideration of all available facts and information, including, but not limited to (i) attributes specific to the investment; (ii) fundamental analytical data and press releases relating to the investment and its issuer; and (iii) the value of other comparable securities or relevant financial instruments, including derivative securities, traded on other markets or among dealers.

The values assigned to fair value investments are based on available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future developments inherent in long-term investments. Because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material. The Board will be presented with a quarterly report showing as of the most recent quarter end, all securities fair valued by the Pricing Committee, including a comparison with the prior quarter end and the percentage of the Fund that the security represents at each quarter end.

Portfolio investments that trade primarily on foreign markets are priced based upon the market quotation of such securities as of the close of their respective principal markets. Under certain circumstances, on behalf of a fund that invests primarily in international securities, the Investment Manager or applicable subadvisor may adjust such prices based on its determination of the impact of events occurring subsequent to the close of such markets but prior to the time as of which the Fund calculates its NAV. The Board has also adopted a policy that securities held in a fund that invests primarily in international securities and certain foreign debt obligations held by a fund, in each case, that can be fair valued by the applicable fair value pricing service are fair valued on each business day without regard to a “trigger” (e.g., without regard to invoking fair value based upon a change in a U.S. equity securities index exceeding a pre-determined level). The Fund may invest in securities that may be thinly traded. The Board has adopted procedures to adjust prices of securities that are judged to be stale so that they reflect fair value. An investment valued on the basis of its fair value may be valued at a price higher or lower than available market quotations.

U.S. GAAP defines fair value as the price that a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the

 

 

 
14


 

Notes to Financial Statements (continued)

 

 

assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation.

The three-tier hierarchy of inputs is summarized below:

Level 1 – inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies)

Level 2 – other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs) (e.g., debt securities, government securities, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities with observable inputs)

Level 3 – inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., fair valued securities with unobservable inputs)

Changes in inputs or methodologies used for valuing investments may result in a transfer in or out of levels within the fair value hierarchy. The inputs or methodologies used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.

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. Dividend and interest income on foreign securities is recorded gross 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.

Effective as of November 25, 2013, the Fund has a “balance credit” arrangement with The Bank of New York Mellon (“BNYM”), the Fund’s custodian, whereby the Fund is credited with an interest factor equal to 0.75% below the effective 90-day T-Bill rate for account balances left uninvested overnight. If the T-Bill rate falls below 0.75%, no credits will be earned. These credits serve to reduce custodian expenses that would otherwise be charged to the Fund. For the period from November 25, 2013 to March 31, 2014, the Fund’s custodian expense was not reduced.

Overdraft fees are computed at 1% above the Federal Funds rate on the day of the overdraft. For the six months ended March 31, 2014, the Fund did not incur overdraft fees.

d.Dividends and Distributions

Fund distributions resulting from either net investment income or realized net capital gains, if any, will normally be declared and paid at least annually in December, as described in the Fund’s prospectus. Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined in accordance with Federal income tax regulations, which may differ from net investment income and net realized capital gains for financial statement purposes (U.S. GAAP). Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense and gain or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The most common differences are due to differing treatments for losses deferred due to excise tax regulations, wash sales and market discount transactions. Permanent book and tax basis differences, if any, relating to shareholder distributions will result in reclassifications to paid-in capital.

e.Federal Taxes

The 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.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for the foreign jurisdictions in which it invests, the Fund will provide for foreign taxes, and where appropriate, deferred foreign taxes.

Management has analyzed the Fund’s tax positions taken on federal income tax returns as of September 30, 2013 and for all open tax years (generally, the three prior taxable years), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. Additionally, the Fund is not aware of any tax position for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.

Net capital losses incurred in taxable years beginning after the enactment of the Regulated Investment Company Modernization Act of 2010 (post-enactment capital losses) may be carried forward for an unlimited time period. Such losses will be required to be utilized prior to any loss carryovers incurred in pre-enactment taxable years, which generally expire eight years following the close of the taxable year in which they were incurred. As a result of this ordering rule, pre-enactment capital loss carryovers may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward retain their tax character as either short-term or long-term capital losses, unlike pre-enactment losses which are considered all short-term.

 

 

 
15


 

Notes to Financial Statements (continued)

 

 

f.Capital Loss Carryovers and Deferrals

As of March 31, 2014, the Fund 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 future realized capital gains, if any, through the expiration dates listed or in the case of post-enactment losses, for an unlimited time period.

 

    Capital Loss Carryover Amounts     Expires
    Short-Term     Long-Term     September 30,

(Pre-Enactment)

  $ 9,338,872        —        2017

(Pre-Enactment)

    31,951,201        —        2018
 

 

 

   

 

 

   

Total

  $ 41,290,073        —       
 

 

 

   

 

 

   

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. The Fund records sales and repurchases of its capital stock on the trade date. The cost of securities contributed to the Fund in connection with the issuance of shares is based on the valuation of those securities in accordance with the Fund’s policy on investment valuation.

At March 31, 2014, one affiliated shareholder of record held approximately 97% of the net assets of the Fund. Transactions by this shareholder may have a material impact on the Fund.

h.Repurchase Agreements

The Fund may enter into repurchase agreements provided that the value of the underlying collateral, including accrued interest, will equal 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. At March 31, 2014, the market value of repurchase agreements outstanding was $105,840.

2.Agreements and Transactions with Affiliates

The Trust has entered into an investment advisory agreement under which the Investment Manager, a subsidiary of Affiliated Managers Group, Inc. (“AMG”), serves as investment manager to the Fund and is responsible for the Fund’s overall administration and operations. Prior to October 1, 2013, the Predecessor Fund had a similar Investment Advisory Agreement with Friess Associates, LLC (“Friess”). The Investment Manager selects subadvisors for the Fund (subject to Board approval) and monitors the subadvisor’s investment performance, security holdings and investment strategies. The Fund’s investment portfolio is managed by Friess through a subadvisory agreement between the Investment Manager and Friess relating to the Fund, and Friess Associates of Delaware, LLC (“Friess of Delaware”) through a sub-subadvisory agreement among the Investment Manager, Friess and Friess of Delaware relating to the Fund.

Investment management fees are paid directly by the Fund to the Investment Manager based on average daily net assets. For the six months ended March 31, 2014, the Fund paid an investment management fee at the annual rate of 1.00% of the average daily net

assets of the Fund. Prior to October 1, 2013, the Predecessor Fund paid a management fee to Friess at the same investment management fee rate.

The Investment Manager has contractually agreed, through at least February 1, 2016, to waive management fees and/or reimburse Fund expenses in order to limit total annual Fund operating expenses after fee waiver and expense reimbursements (exclusive of taxes, interest (including interest incurred in connection with bank and custody overdrafts), brokerage commissions and other transaction costs, acquired fund fees and expenses, and extraordinary expenses) to 1.95% of the Fund’s average daily net assets subject to later reimbursement by the Fund in certain circumstances. Prior to October 1, 2013, the Predecessor Fund had similar arrangements in place.

The Fund is obligated to repay the Investment Manager such amounts waived, paid or reimbursed in future years provided that the repayment occurs within thirty-six (36) months after the waiver or reimbursement and that such repayment would not cause the Fund’s total annual operating expenses after fee waiver and expense reimbursement in any such future year to exceed the Fund’s expense contractual expense limitation amount.

The Fund has entered into an Administration and Shareholder Servicing Agreement under which the Investment Manager serves as the Fund’s administrator (the “Administrator”) and is responsible for all aspects of managing the Fund’s operations, including administration and shareholder services to the Fund, its shareholders, and certain institutions, such as bank trust departments, broker-dealers and registered investment advisers, that advise or act as intermediary with the Fund’s shareholders. The Fund pays a fee to the Administrator at the rate of 0.03% of the Fund’s average daily net assets for the first $300 million of assets under management, 0.025% for the next $200 million, and 0.02% on amounts in excess of $500 million per annum, subject to a $40,000 annual minimum.

Prior to October 1, 2013, the Predecessor Fund had in place a similar agreement with US Bancorp Fund Services, LLC.

The aggregate annual retainer paid to each Independent Trustee of the Board is $130,000, plus $7,000 or $2,500 for each regular or special meeting attended, respectively. The Independent Chairman of the Trust receives an additional payment of $35,000 per year. The Chairman of the Audit Committee receives an additional payment of $15,000 per year. The Trustees’ fees and expenses are allocated among all of the Funds in the Trusts for which the Investment Manager serves as the advisor (the “Managers Funds”) based on the relative net assets of such Funds. The “Trustees fees and expenses” shown in the financial statements represent the Fund’s allocated portion of the total fees and expenses paid by the Managers Funds.

For the period from October 1, 2013 to January 1, 2014, the aggregate annual retainer paid to each Independent Trustee of the Board was $105,000, plus $6,000 or $2,500 for each regular or special meeting attended, respectively. The Independent Chairman of the Trust formerly received an additional payment of $25,000 per year. The Chairman of the Audit Committee formerly received an additional payment of $10,000 per year.

Prior to October 1, 2013, the Predecessor Fund paid the Independent Directors an annual fees of $3,400 each. The

 

 

 
16


 

Notes to Financial Statements (continued)

 

 

Independent Chairman of the Trust formerly received an additional payment of $8,000 per year. The Chairman of the Audit Committee formerly received an additional payment of $5,000 per year. The additional payments made to the Independent Chairman of the Trust and Chairman of the Audit Committee were allocated amongst all of the funds in the Brandywine family of funds.

The Fund is distributed by Managers Distributors, Inc. (the “Distributor” or “MDI”), a wholly-owned subsidiary of the Investment Manager. MDI serves as the distributor and underwriter for the Fund and is a registered broker-dealer and member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Shares of the Fund will be continuously offered and will be sold directly to prospective purchasers and through brokers, dealers or other financial intermediaries who have executed selling agreements with MDI. Subject to the compensation arrangement discussed below, generally MDI bears all or a portion of the expenses of providing services pursuant to the distribution agreement, including the payment of the expenses relating to the distribution of prospectuses for sales purposes and any advertising or sales literature. Certain Trustees and Officers of the Fund are Officers and/or Directors of the Investment Manager, AMG and/or the Distributor.

The Trust has adopted a distribution and service plan (the “Plan”) with respect to the Fund in accordance with the requirements of Rule 12b-1 under the 1940 Act and the requirements of the applicable rules of FINRA regarding asset-based sales charges. Pursuant to the Plan, the Fund may make payments to reimburse the Distributor for its expenditures in financing any activity primarily intended to result in the sale of Fund shares and for maintenance and personal service provided to existing shareholders. The Plan authorizes payments to the Distributors of up to 0.25% annually of the Fund’s average daily net assets attributable to the sale of the Fund’s shares.

Prior to October 1, 2013, the Predecessor Fund had a similar plan in place.

The Board has approved reimbursement payments to the Investment Manager for shareholder servicing expenses incurred (“shareholder servicing fees”). Shareholder servicing fees include payments to third parties such as a bank, broker-dealer, trust company or other financial intermediaries who provide shareholder recordkeeping, account servicing and other services. The Fund may reimburse the Investment Manager for the actual amount incurred up to a maximum annual rate of each financial intermediary’s average daily net assets. The impact on the annualized expense ratio for the six months ended March 31, 2014, was as follows: maximum rate 0.20%; actual rate 0.01%.

The Securities and Exchange Commission granted an exemptive order that permits the Fund to lend and borrow money for certain temporary purposes directly to and from other eligible Managers Funds. Participation in this interfund lending program is voluntary for both borrowing and lending Funds, and an interfund loan is only made if it benefits each participating Fund. The Investment Manager administers the program according to procedures approved by the Board, and the Board monitors the operation of the program. An interfund loan must comply with certain conditions set out in the exemptive order, which are designed to assure fairness and protect

all participating funds. For the six months ended March 31, 2014, the Fund neither borrowed from nor lent to other Managers Funds.

3.Line of Credit

Prior to October 1, 2013, the Predecessor Fund had established a line of credit (“LOC”) with U.S. Bank, N.A. to be used for temporary or emergency purposes, primarily for financing redemption payments, using the securities in the Fund’s respective portfolio as collateral. The LOC matured on September 30, 2013 for the Predecessor Fund. The Fund borrowing under the LOC was limited to $4,000,000 unsecured credit, as defined in the LOC. Principal and interest of such loan under the Credit Agreement was due not more than 20 days after the date of the loan. Amounts under the credit facility bore interest at a rate per annum equal to the current prime rate minus one percent on the amount borrowed. For the year ended September 30, 2013, there were no borrowings for the Predecessor Fund.

4.Purchases and Sales of Securities

Purchases and sales of securities (excluding short-term securities and U.S. Government obligations) for the six months ended March 31, 2014, were $189,944,728 and $186,862,525, respectively. There were no purchases or sales of U.S. Government obligations for the Fund.

5.Portfolio Securities Loaned

Effective January 29, 2014, the Fund commenced participation in a securities lending program offered by BNYM (the “Program”), providing for the lending of securities to qualified brokers. Securities lending income includes earnings of such temporary cash investments, plus or minus any rebate to a borrower. These earnings (after any rebate) are then divided between BNYM, as a fee for its services under the program, and the Fund, according to agreed-upon rates. Collateral received on all securities loaned is accepted in cash and/or government securities and is maintained at a minimum level of 102% (105% in the case of certain foreign securities) of the market value, plus interest, if applicable, of investments on loan. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Under the terms of the Program, the Fund is indemnified for such losses by BNYM. Cash collateral is held in a separate account managed by BNYM, who is authorized to exclusively enter into overnight government repurchase agreements. BNYM bears the risk of any deficiency in the amount of the cash collateral available for return to the borrower due to any loss on the collateral invested.

 

 

 
17


 

Notes to Financial Statements (continued)

 

 

6.Commitments and Contingencies

Under the Trust’s organizational documents, its trustees and officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Fund under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund had no prior claims or losses and expects the risk of loss to be remote.

7.Master Netting Agreements

The Fund may enter into master netting agreements with its counterparties for the securities lending program and repurchase agreements, which provide the right, in the event of default (including bankruptcy or insolvency) for the non-defaulting party to liquidate the collateral and calculate net exposure to the defaulting party or request additional collateral. For financial reporting purposes, the Fund does not offset financial assets and financial liabilities that are subject to master netting agreements in the Statement of Assets and Liabilities. The following table is a summary of the Fund’s open securities lending and repurchase agreements which are subject to a master netting agreement as of March 31, 2014:

 

            Gross Amounts
Offset in the
Statement of
Assets and
Liabilities
     Net Amounts of
Assets Presented in
the Statement of
Assets and
Liabilities
               
                  Gross Amount Not Offset in the         
     Gross Amounts of
Recognized Assets
           Statement of Assets and Liabilities         
              Financial
Instruments
     Cash Collateral
Received
     Net Amount  

Securities lending

   $ 100,144         —         $ 100,144         —         $ 100,144         —     

Repurchase agreements

     105,840         —           105,840       $ 105,840         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 205,984         —         $ 205,984       $ 105,840       $ 100,144         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

8.Subsequent Events

On January 21, 2014, Affiliated Managers Group, Inc., a global asset management company, announced that the Fund’s Investment Manager and Administrator, Managers Investment Group LLC, will be rebranded as AMG Funds LLC. The rebranding is expected to become effective during the second quarter of 2014 once the appropriate regulatory filings have taken place.

The Fund has determined that no other material events or transactions occurred through the issuance date of the Fund’s financial statements which require additional disclosure in or adjustment of the Fund’s financial statements.

 

 
18


 

Annual Renewal of Investment Management and Subadvisory Agreements (unaudited)

 

 

At a meeting held on May 21, 2013, the Board of Trustees (the “Trustees”) of Managers Trust I (the “Trust”), including all of the Trustees who are not “interested persons” of the Trust (“Independent Trustees”) within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”), unanimously voted to approve, with respect to the Brandywine Fund, Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund, each a new series of the Trust (each, a “New Fund,” and collectively, the “New Funds”), in connection with the reorganizations of Brandywine Fund, a class of Brandywine Fund, Inc., and Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund, each a class of Brandywine Blue Fund, Inc. (each, a “Predecessor Fund,” and collectively, the “Predecessor Funds”) into the New Funds (the “Reorganizations”), an amendment to the Investment Management Agreement between Managers Investment Group LLC (“Managers” or the “Investment Manager”) and the Trust with respect to the New Funds (the “Investment Management Agreement”), a new Subadvisory Agreement between Managers and Friess Associates, LLC (“Friess Associates”) with respect to each New Fund (each, a “Subadvisory Agreement,” and collectively, the “Subadvisory Agreements”) and a new Sub-Subadvisory Agreement among Managers, Friess Associates and Friess Associates of Delaware, LLC (“Friess of Delaware” and, together with Friess Associates, “Friess”) with respect to each New Fund (each, a “Sub-Subadvisory Agreement,” collectively, the “Sub-Subadvisory Agreements,” and, together with the Investment Management Agreement and the Subadvisory Agreements, the “New Fund Agreements”). The Subadvisory Agreements and the Sub-Subadvisory Agreements are referred to collectively herein as the “Friess Agreements.” The Trustees were separately represented by independent counsel in their consideration of the New Fund Agreements. The Reorganizations were proposed in connection with Affiliated Managers Group, Inc.’s anticipated transfer of its indirect majority ownership interest in Friess to the management team of Friess (the “Transaction”).

In considering the New Fund Agreements, the Trustees reviewed a variety of materials relating to the New Funds, Managers and Friess, including fee and expense information for an appropriate peer group of similar mutual funds for each New Fund (each, a “Peer Group”) and other information regarding the nature, extent and quality of services to be provided by Managers and Friess under their respective agreements. Because each New Fund is a newly created series of the Trust and has not yet begun operations, no comparative performance information for the New Funds was provided. The Trustees, however, considered the performance of the Predecessor Funds for one, three, five and ten-year periods ended March 31, 2013. Prior to voting, the Independent Trustees: (a) reviewed the foregoing information with their independent legal counsel and with management and (b) discussed with legal counsel the legal standards applicable to their consideration of the New Fund Agreements.

Nature, extent and quality of services.

In considering the nature, extent and quality of the services to be provided by Managers under the Investment Management Agreement, the Trustees took into account information provided periodically throughout the previous year by Managers in Board meetings relating to Managers’ financial information, operations and personnel, the performance of its duties with respect to other funds in the Managers Fund complex (the “Funds”) and the Trustees’ knowledge of Managers’ management and the quality of the performance of its duties.

In the course of their deliberations regarding the Investment Management Agreement, the Trustees evaluated, among other things: (a) the quality of the monitoring services performed by Managers in overseeing the portfolio management responsibilities of Friess; (b) Managers’ ability to supervise the New Funds’ other service providers; and (c) Managers’ compliance program. The Trustees also took into account that, in performing its functions under the Investment Management Agreement and supervising Friess, the Investment Manager will: perform periodic detailed analysis and reviews of the performance by Friess of its obligations to each New Fund, including without limitation a review of Friess’s investment performance in respect of each New Fund; prepare and present periodic reports to the Trustees regarding the investment performance of Friess and other information regarding Friess, at such times and in such forms as the Trustees may reasonably request; review and consider any changes in the personnel of Friess responsible for performing Friess’s obligations and make appropriate reports to the Trustees; review and consider any changes in the ownership or senior management of Friess and make appropriate reports to the Trustees; perform periodic in-person or telephonic diligence meetings, including with respect to compliance matters, with representatives of Friess; assist the Trustees and management of the Trust in developing and reviewing information with respect to the annual consideration of each Friess Agreement; prepare recommendations with respect to the continued retention of Friess or the replacement of Friess; identify potential successors to or replacements of Friess or potential additional subadvisors, perform appropriate due diligence, and develop and present to the Trustees a recommendation as to any such successor, replacement, or additional subadvisor; designate and compensate from its own resources such personnel as the Investment Manager may consider necessary or appropriate to the performance of its services; and perform such other review and reporting functions as the Trustees shall reasonably request consistent with the Investment Management Agreement, each Friess Agreement and applicable law. The Trustees also took into account the financial condition of Managers with respect to its ability to provide the services required under the Investment Management Agreement and noted that, as of March 28, 2013, Managers had approximately $30 billion in assets under management. The Trustees also considered Managers’ risk management processes.

 

 

 
19


 

Annual Renewal of Investment Management and Subadvisory Agreements (continued)

 

 

In the course of their deliberations regarding the nature, extent and quality of services to be provided by Friess under the Friess Agreements, the Trustees evaluated, among other things: (a) the expected services to be rendered by Friess to each New Fund; (b) the qualifications and experience of Friess’s personnel; and (c) Friess’s compliance programs. The Trustees also took into account the financial condition of Friess with respect to its ability to provide the services required under the Friess Agreements and noted that, as of March 31, 2013, Friess had approximately $1.6 billion in assets under management on a combined basis. The Trustees also considered Friess’s risk management processes.

The Trustees considered the investment philosophy, strategies and techniques that are intended to be used in managing each New Fund. Among other things, the Trustees reviewed biographical information on portfolio management and other professional staff, information regarding Friess’s organizational and management structure and Friess’s brokerage policies and practices. The Trustees considered specific information provided regarding the experience of the individuals at Friess that are expected to have portfolio management responsibility for the New Funds, including the information set forth in the New Funds’ prospectuses and statement of additional information to be filed with the Securities and Exchange Commission. The Trustees noted that one of the proposed portfolio managers has managed the Predecessor Funds since 1997 and has worked at Friess Associates for twenty-nine years. The Trustees also noted that another portfolio manager has managed the Predecessor Funds since 2010, and has worked at Friess since 2003. The Trustees considered that one portfolio manager serves as Chief Investment Officer of Friess and another portfolio manager serves as Chief Executive Officer of Friess and is in the process of transitioning to a new role as Chairman of Friess. The Trustees observed that each New Fund’s portfolio would be managed in substantially the same manner and by the same personnel as the corresponding Predecessor Fund. In addition, the Trustees considered that Friess is a research-driven firm with a bottom-up, fundamental style.

Performance.

Because the New Funds have not yet commenced operations, the Trustees noted that they could not draw any conclusions regarding the performance of the New Funds. The Trustees, however, considered the performance of the Predecessor Funds. The Trustees noted that, for the one-year, three-year, five-year and ten-year periods ended March 31, 2013, the performance of the Brandywine Fund was below the performance of the Russell 3000® Growth Index and Russell 3000® Index, the performance of the Brandywine Blue Fund was below the performance of the Russell 1000® Growth Index and Russell 1000® Index and the performance of the Brandywine Advisors Midcap Growth Fund was below the performance of the Russell Midcap® Growth Index and Russell Midcap® Index. For the quarter ended March 31, 2013, the Trustees also noted that the performance of the Brandywine Fund was above and below, respectively, the performance of the Russell 3000® Growth Index and Russell 3000® Index, the

performance of the Brandywine Blue Fund was above and below, respectively, the performance of the Russell 1000® Growth Index and Russell 1000® Index and the performance of the Brandywine Advisors Midcap Growth Fund was above and below, respectively, the performance of the Russell Midcap® Growth Index and Russell Midcap® Index. Notwithstanding the forgoing, the Trustees concluded that other factors relevant to performance supported the approval of the Friess Agreements. These factors varied from, but included one or more of the following: (1) that the underperformance was attributable, to a significant extent, to investment decisions by Friess that were reasonable and consistent with the Predecessor Fund’s investment objective and policies; (2) that recent performance showed improvement; and (3) that Friess had taken steps designed to help improve performance. Following such evaluation the Trustees concluded, within the context of their full deliberations, that the performance of the Predecessor Funds supported the approval of the Friess Agreements.

Advisory Fees and Profitability.

In considering the reasonableness of the advisory fee charged by Managers for managing the New Funds, the Trustees noted that Managers, and not the New Funds, is responsible for paying the fees charged by Friess Associates, and, in turn, Friess Associates is responsible for paying the fees charged by Friess of Delaware, and, therefore, that the fees paid to Managers cover the cost of providing portfolio management services as well as the cost of providing search, selection and monitoring services in operating a “manager-of-managers” complex of mutual funds. The Trustees concluded that, in light of the additional high quality supervisory services provided by Managers and the fact that Managers and Friess Associates are paying the fees under the Subadvisory Agreements and Sub-Subadvisory Agreements, respectively, the advisory fee payable by each New Fund to Managers can reasonably be expected to exceed the median advisory fee for the Peer Group, which consists of many funds that do not operate with a manager-of-managers structure. The Trustees noted that each of the Brandywine Fund, Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund’s estimated advisory fees (which include both the advisory fee and administration fee) and total gross expenses as of March 31, 2013 were higher than and lower than, respectively, the average for each such New Fund’s Peer Group. The Trustees also took into account the fact that Managers has contractually agreed, through at least February 1, 2016, to limit the total annual operating expenses (exclusive of taxes, interest (including interest incurred in connection with bank and custody overdrafts), shareholder servicing fees, distribution and service (12b-1) fees, brokerage commissions and other transaction costs, acquired fund fees and expenses, and extraordinary expenses) of each of the Brandywine Fund, Brandywine Blue Fund and Brandywine Advisors Midcap Growth Fund to 2.00%, 2.00% and 1.95%, respectively, of the average daily net assets attributable to such New Fund, noting that the net expenses of each New Fund were lower than the average for the New Fund’s

 

 

 
20


 

Annual Renewal of Investment Management and Subadvisory Agreements (continued)

 

 

corresponding Peer Group. The Trustees concluded that, in light of the nature, extent and quality of the services to be provided by Managers and Friess and the considerations noted above with respect to Managers and Friess, each New Fund’s advisory fees, including subadvisory fees, are reasonable.

In considering the anticipated profitability of Managers with respect to the provision of investment advisory services to the New Funds, the Trustees considered all revenues and other benefits, both direct and indirect (including any so-called “fallout benefits” such as reputational value derived from Managers serving as investment manager to a New Fund), received by Managers and its affiliates attributable to managing all the Funds, the cost of providing such services and the resulting profitability to Managers and its affiliates from these relationships. The Trustees also noted that all of the advisory fees paid to Managers by the New Funds would be paid in turn to Friess Associates, and that Friess Associates is responsible for paying the fees charged by Friess of Delaware. Based on the foregoing, the Trustees concluded that the profitability to Managers is expected to be reasonable and that Managers is not expecting to realize material benefits from economies of scale during the initial period of the New Funds’ operations. With respect to economies of scale, the Trustees also noted that as each New Fund’s assets increase over time, the New Fund may realize other economies of scale to the extent that the increase in assets is proportionally greater than the increase in certain other expenses.

In considering the anticipated profitability of Friess with respect to the provision of subadvisory services to the New Funds, the Trustees considered information regarding Friess’s organization, management and financial stability, and noted that, because Managers would no longer be an affiliate of Friess following the Transaction, such profitability would not be directly or indirectly shared with Managers. The Trustees relied on the ability of Managers to negotiate the terms of the Friess Agreements at arm’s length as part of the manager-of-managers structure.

The Trustees also noted that the fees charged by Friess Associates will be paid by Managers out of its advisory fee, and, in turn, Friess Associates will be responsible for paying the fees charged by Friess of Delaware. As a consequence, the cost of services to be provided by Friess and the profitability to Friess of its relationship with the New Funds were not material factors in the Trustees’ deliberations at this time. For similar reasons, the Trustees did not consider potential

economies of scale in the management of the New Funds by Friess to be a material factor in their deliberations at the time.

After consideration of the foregoing, the Trustees reached the following conclusions (in addition to the conclusions discussed above) regarding the New Fund Agreements: (a) Managers and Friess have demonstrated that they possess the capability and resources to perform the duties required of them under the Investment Management Agreement and the Friess Agreements; (b) Friess’s investment strategy is appropriate for pursuing each New Fund’s investment objectives; (c) Friess is reasonably likely to execute its investment strategy consistently over time; and (d) Managers and Friess maintain appropriate compliance programs.

Based on all of the above-mentioned factors and their related conclusions, with no single factor or conclusion being determinative and with each Trustee not necessarily attributing the same weight to each factor, the Trustees concluded that approval of the New Fund Agreements would be in the best interests of each New Fund and its shareholders. Accordingly, on May 21, 2013, the Trustees, including all of the Independent Trustees, unanimously voted to approve the New Fund Agreements.

 

 

 
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Investment Manager and Administrator

Managers Investment Group LLC

800 Connecticut Avenue

Norwalk, CT 06854

(800) 835-3879

Distributor

Managers Distributors, Inc.

800 Connecticut Avenue

Norwalk, CT 06854

(800) 835-3879

Subadvisor

Friess Associates of Delaware, LLC

P.O. Box 4166

Greenville, DE 19807

Friess Associates, LLC

P.O. Box 576

Jackson, Wyoming 83001

Custodian

The Bank of New York Mellon

2 Hanson Place

Brooklyn, NY 11217

Legal Counsel

Ropes & Gray LLP

Prudential Tower, 800 Boylston Street

Boston, MA 02199-3600

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Attn: Managers

P.O. Box 9769

Providence, RI 02940

(800) 548-4539

Trustees

Bruce B. Bingham

Christine C. Carsman

William E. Chapman II

Edward J. Kaier

Kurt Keilhacker

Steven J. Paggioli

Richard F. Powers III

Eric Rakowski

Victoria Sassine

Thomas R. Schneeweis

 

 

 

LOGO

 


MANAGERS FUNDS

 

EQUITY FUNDS

 

BALANCED FUNDS

BRANDYWINE   SKYLINE SPECIAL EQUITIES   CHICAGO EQUITY PARTNERS BALANCED
BRANDYWINE BLUE   PORTFOLIO   Chicago Equity Partners, LLC
BRANDYWINE ADVISORS MIDCAP GROWTH   Skyline Asset Management, L.P.  
Friess Associates, LLC    

ALTERNATIVE FUNDS

  AMG SOUTHERNSUN SMALL CAP  
CADENCE CAPITAL APPRECIATION   AMG SOUTHERNSUN U.S. EQUITY   FQ GLOBAL ALTERNATIVES

CADENCE MID-CAP

  SouthernSun Asset Management, LLC   FQ GLOBAL ESSENTIALS
CADENCE EMERGING COMPANIES     First Quadrant, L.P.
Cadence Capital Management, LLC   SPECIAL EQUITY  
  Ranger Investment Management, L.P.  

INCOME FUNDS

ESSEX SMALL/MICRO CAP GROWTH   Lord, Abbett & Co. LLC  
Essex Investment Management Co., LLC   Smith Asset Management Group, L.P.   BOND (MANAGERS)
  Federated MDTA LLC   GLOBAL INCOME OPPORTUNITY
FQ TAX-MANAGED U.S. EQUITY     Loomis, Sayles & Co., L.P.
FQ U.S. EQUITY   SYSTEMATIC VALUE  
First Quadrant, L.P.   SYSTEMATIC MID CAP VALUE   BOND (MANAGERS PIMCO)
  Systematic Financial Management, L.P.   Pacific Investment Management Co. LLC
FRONTIER SMALL CAP GROWTH    
Frontier Capital Management Company, LLC   TIMESSQUARE INTERNATIONAL   GW&K FIXED INCOME
  SMALL CAP   GW&K MUNICIPAL BOND
GW&K SMALL CAP EQUITY   TIMESSQUARE MID CAP GROWTH   GW&K MUNICIPAL ENHANCED YIELD
Gannett Welsh & Kotler, LLC   TIMESSQUARE SMALL CAP GROWTH   Gannett Welsh & Kotler, LLC
  TSCM GROWTH EQUITY  
MICRO-CAP   TimesSquare Capital Management, LLC   HIGH YIELD
Lord, Abbett & Co. LLC     J.P. Morgan Investment Management Inc.
WEDGE Capital Management L.L.P.   TRILOGY GLOBAL EQUITY  
Next Century Growth Investors, LLC   TRILOGY EMERGING MARKETS EQUITY   INTERMEDIATE DURATION GOVERNMENT
RBC Global Asset Management (U.S.) Inc.   TRILOGY INTERNATIONAL SMALL CAP   SHORT DURATION GOVERNMENT
  Trilogy Global Advisors, L.P.   Amundi Smith Breeden LLC
REAL ESTATE SECURITIES    
CenterSquare Investment Management, Inc.  

YACKTMAN

YACKTMAN FOCUSED

 
   
RENAISSANCE LARGE CAP GROWTH   Yacktman Asset Management LP  
The Renaissance Group LLC    

 

This report is prepared for the Fund’s shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus. To receive a free copy of the prospectus or Statement of Additional Information, which includes additional information about Fund Trustees, please contact us by calling 800.835.3879. Distributed by Managers Distributors, Inc., member FINRA.

 

Current net asset values per share for the Fund are available on the Fund’s Web site at www.managersinvest.com.

 

A description of the policies and procedures the Fund uses to vote its proxies is available: (i) without charge, upon request, by calling 800.835.3879, or (ii) on the Securities and Exchange Commission’s (SEC) Web site at www. sec.gov. For information regarding each Fund’s proxy voting record for the 12-month period ended June 30, call 800.835.3879 or visit the SEC Web site at www.sec.gov.

 

The Fund file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s Web site at www.sec.gov. A Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800.SEC.0330. To review a complete list of the Fund’s portfolio holdings, or to view the most recent quarterly holdings report, semiannual report, or annual report, please visit www.managersinvest.com.

  

LOGO

 

 

 

 

LOGO

  

 


Item 2. CODE OF ETHICS

Not applicable for the semi-annual shareholder report.

 

Item 3. AUDIT COMMITTEE FINANCIAL EXPERT

Not applicable for the semi-annual shareholder report.

 

Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not applicable for the semi-annual shareholder report.

 

Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS

Not applicable.

 

Item 6. SCHEDULE OF INVESTMENTS

The schedule of investments in unaffiliated issuers as of the close of the reporting period is included as part of the shareholder report contained in Item 1 hereof.

 

Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable.

 

Item 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable.

 

Item 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS

Not applicable.

 

Item 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


Item 11. CONTROLS AND PROCEDURES

 

  (a) The registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the registrant’s disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the registrant’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

  (b) There were no changes in the registrant’s internal control over financial reporting during the registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

 

Item 12. EXHIBITS

 

  (a)(1) Not applicable.

 

  (a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 - Filed herewith.

 

  (a)(3) Not applicable.

 

  (b) Certifications pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 - 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.

 

MANAGERS TRUST I
By:  

/s/ Keitha L. Kinne

  Keitha L. Kinne, President
Date:   April 17, 2014

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/ Keitha L. Kinne

  Keitha L. Kinne, President
Date:   April 17, 2014
By:  

/s/ Donald S. Rumery

  Donald S. Rumery, Chief Financial Officer
Date:   April 17, 2014

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSRS’ Filing    Date    Other Filings
2/1/16
Filed on / Effective on:4/17/14
4/10/14
4/9/14
For Period End:3/31/14NSAR-A
1/29/14
1/21/14
1/1/14
12/31/13N-Q
11/25/13485BPOS,  497K
10/1/13485BPOS,  497K
9/30/13485BPOS,  497K
5/21/13
3/31/13
3/28/13
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