<PAGE>
MARTIN CURRIE BUSINESS TRUST
JAPAN SMALL COMPANIES FUND
SEMI-ANNUAL REPORT
OCTOBER 31, 1997
(UNAUDITED)
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
PROFILE AT OCTOBER 31, 1997 (Unaudited)
OBJECTIVE Long-term capital appreciation through active management of
a diversified portfolio of equities in Japanese companies
with relatively small capitalization, which may not have
wide market recognition.
LAUNCH DATE August 15, 1994
FUND SIZE $70.1m
PERFORMANCE Total return from May 1, 1997 through October 31, 1997
- MCBT - Japan Small Companies Fund
(excluding all transaction fees) +0.4%
- MCBT - Japan Small Companies Fund
(including all transaction fees) -1.6%
- Tokyo Stock Exchange - Second Section Index -11.4%
Annualized total return from August 15, 1994 through
October 31, 1997
- MCBT - Japan Small Companies Fund
(excluding all transaction fees) -5.1%
- MCBT - Japan Small Companies Fund
(including all transaction fees) -5.7%
- Tokyo Stock Exchange - Second Section Index -20.6%
(from September 1, 1994 through October 31, 1997)
PORTFOLIO The Japanese market has proved very difficult over the last
COMMENTS six months, and a weak yen reduced still further the returns
to a US$-based investor. Small companies fared worse than
their larger counterparts, but our stock and sector
selection has rewarded us with a significant margin of out
performance.
Falling forecasts for economic growth in 1997/8 drove the
stock market down. Interest rates are at historic lows and
capital has been flowing out of Japan. Companies have taken
advantage of these extremely low interest rates to raise
convertible bond issues. This dilutes ordinary
shareholders. A crisis in the financial sector, culminating
after the reporting period in the bankruptcy of Yamaichi
Securities, has eroded confidence further.
During the period, we sold such economically sensitive
stocks as Kato Denki, an electrical retailer. We bought -
and have subsequently sold at a handsome profit - a bond in
Sumitomo Special Metals. New holdings include Aiful, a
consumer loan company, and Aderans, which makes wigs. These
have helped our returns. We also benefited from the strong
performance of Circle K, a medium-sized convenience store,
which was up 6% over the period.
OUTLOOK
It has long been our view that market realism had to come to
Japan if the economy and the stock market were to recover.
Recent events should stimulate long overdue deregulation.
We do not think the ruling LDP will accept the high
unemployment that radical reform would bring, and so the
process will be slow. But at least it has started.
By next summer, we see things improving. Share options and
buy-backs, now legal at last, will be voted on and, we
believe, approved at AGMs due then. That will stimulate
some equity prices and help to absorb the unwinding of
cross-shareholdings. The road will be bumpy and long, but
Japan's long march to modernity has begun.
1
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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PROFILE AT OCTOBER 31, 1997 (Unaudited)
INVESTMENT James Fairweather is Chief Investment Officer. All funds
MANAGER are managed on a team basis with a named director heading
PROFILE each team.
Michael Thomas has managed the MCBT Japan Small Companies
Fund since inception.
Michael graduated from Bristol University with a degree in
Economics and joined stockbrokers Vickers da Costa in 1973.
He began covering the Japanese markets in 1975 and became
Director of the Japanese department in 1982. A specialist
on Japan, he joined Martin Currie in 1989 as a director and
head of the Far East investment team.
He is assisted by Keith Donaldson. Keith graduated from the
University of Kingston-upon-Hull with a degree in Social
Studies. Having spent five years as a financial analyst
with Wood Mackenzie, followed by four years with UBS Philips
and Drew. Keith moved to Tokyo in 1988 as Vice President
and head of Japanese equity sales at Morgan Stanley, then
joined Martin Currie's Japan team as an assistant director
in 1997. He was promoted to director in October, 1997.
The Global Asset Allocation Committee sets limits for
regional allocation. The managers of the funds are
responsible for the selection of countries within those
regions, sectors, and stocks.
LARGEST HOLDINGS % OF NET ASSETS
Circle K Japan 4.4
Sumitomo Special Metals 3.8
Promise 3.8
Taisho Pharmaceutical 3.7
Meitec 3.5
2
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MCBT JAPAN SMALL COMPANIES FUND
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SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997 (Unaudited)
COMMON STOCK, CONVERTIBLE BONDS, AND WARRANTS - 102.6%
COMMON STOCK - 84.4%
ADERANS 64,000 $ 1,722,975
AIFUL * 15,000 1,090,569
AIPHONE 63,600 681,712
ASIA SECURITIES PRINTING 85,000 1,235,978
BRIDGESTONE METALPHA 60,000 284,919
CANON APTEX 88,000 1,199,169
CAPCOM 70,000 1,163,274
CHIYODA 70,000 668,882
CHIYODA FIRE & MARINE 550 1,997
CHUGOKU BANK 100,000 1,495,638
CIRCLE K JAPAN 60,480 3,105,662
COCO'S JAPAN 70,000 354,798
DAIFUKU 100,000 749,481
DAIWA LOGISTICS 94,800 543,515
EIDEN SAKAKIYA 74,000 408,891
EXEDY 200 1,662
FUJI MACHINE MANUFACTURING 70,000 2,029,913
FUJITSU BUSINESS SYSTEMS 40,000 817,615
HIKARI TSUSHIN 26,910 1,252,148
HIRATA TECHNICAL 155,400 800,565
HIROSE ELECTRIC 30,800 2,008,974
KIRIN BEVERAGE 110,000 1,828,002
KOMORI 80,000 1,462,401
MABUCHI MOTOR 28,000 1,558,787
MAEZAWA INDUSTRIES 100,000 1,204,819
MEITEC 82,800 2,442,376
MICRONICS JAPAN 1,500 55,339
MIURA 44,000 475,280
NICHICON 107,000 1,324,719
NIPPON BROADCASTING SYSTEM 14,000 855,006
NIPPON KONPO UNYU SOKO 160,000 1,023,681
NIPPON SYSTEM DEVELOPMENT 49,000 1,221,437
NISSHA PRINTING 110,000 923,141
NITTO KOHKI 33,000 589,530
NORITSU KOKI 40,600 1,349,398
ORIENTAL CONSTRUCTION 60,500 422,268
PROMISE 45,430 2,657,476
RISO KAGAKU 20,000 1,178,230
ROHTO PHARMACEUTICAL 80,000 658,081
RYOSAN 65,000 1,258,413
SANKI ENGINEERING 160,000 1,329,456
SANKYO 60,300 1,287,669
SANTEN PHARMACEUTICAL 88,770 1,571,085
SHIMACHU 40,000 850,852
SONY MUSIC ENTERTAINMENT 50,000 1,757,374
TAISHO PHARMACEUTICAL 100,000 2,559,202
TOKAI LEASE 60,000 199,418
TSUBAKI NAKASHIMA 140,000 959,701
SEE NOTES TO FINANCIAL STATEMENTS.
3
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MCBT JAPAN SMALL COMPANIES FUND
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SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997 (UNAUDITED)
SHARES VALUE
------ -----
COMMON STOCK - CONTINUED
UNI-CHARM 50,000 $ 1,682,592
XEBIO
YOROZU 40,000 375,571
YUSEN AIR & SEA SERVICE 49,000 1,547,154
-------------
TOTAL COMMON STOCK - (COST $70,614,611) 59,113,376
-------------
CONVERTIBLE BONDS - 17.8%
JONAS, 1.35%, 12/30/1999 Y106,500,000 1,221,188
KONAMI, 0.75%, 03/31/2000 Y160,000,000 1,688,409
MIRAI INDUSTRY, 2.30%, 03/20/2002 Y160,000,000 1,373,328
NAMCO, 0.80%, 09/28/2001 Y50,000,000 506,855
NAMCO, 0.90%, 09/30/2003 Y110,000,000 1,133,361
NAMCO, 4.70%, 09/30/1998 Y40,000,000 432,073
NITTO DENKO, NO 4, 3.90%, 03/30/2001 Y70,000,000 987,619
RISO KAGAKU, 4.50%, 03/31/1999 Y61,000,000 541,321
SATORI ELECTRIC, 0.50%, 11/29/2002 Y60,000,000 493,560
SHOWA, 1.70%, 09/29/2000 Y111,000,000 972,115
SUMITOMO SPECIAL METALS, 0.25%, 09/30/2004 Y250,000,000 2,665,143
TAIYO YUDEN, 1.15%, 09/30/2008 Y50,000,000 475,696
-------------
TOTAL CONVERTIBLE BONDS - (COST $12,597,608) 12,490,668
-------------
WARRANTS - 0.4%
NIPPON ENGINEERING CONSULTANTS * 1,500 3,749
SATORI ELECTRIC * 200 63,750
TAMPOPO (PROMISE) * 100 230,313
-------------
TOTAL WARRANTS - (COST $453,803) 297,812
-------------
TOTAL COMMON STOCK, CONVERTIBLE BONDS,
AND WARRANTS - (COST $83,666,022) +
71,901,856
-------------
PRINCIPAL
AMOUNT
---------
SHORT TERM INVESTMENT - 2.6%
STATE STREET BANK AND TRUST REPURCHASE
AGREEMENT, 5.15%, 11/03/1997 (a) $ 1,780,000 1,780,000
-------------
TOTAL SHORT TERM INVESTMENT - (COST $1,780,000) 1,780,000
-------------
TOTAL INVESTMENTS - (COST $85,446,022) - 105.2% 73,681,856
-------------
CASH, RECEIVABLES AND OTHER ASSETS, LESS
LIABILITIES - (5.2)% (3,629,570)
-------------
NET ASSETS - 100.0% $ 70,052,286
-------------
-------------
SEE NOTES TO FINANCIAL STATEMENTS.
4
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MCBT JAPAN SMALL COMPANIES FUND
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SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997 (Unaudited)
* NON-INCOME PRODUCING SECURITY.
Y REFLECTED AT PAR AND DENOMINATED IN JAPANESE YEN.
(a) THE REPURCHASE AGREEMENT, DATED 10/31/97, $1,780,000 PAR, DUE 11/03/97, IS
COLLATERALIZED BY UNITED STATES TREASURY NOTES, 5.875%, DUE 8/31/99, WITH
A MARKET VALUE OF $1,816,956.
+ PERCENTAGES OF LONG TERM INVESTMENTS BY INDUSTRY ARE AS FOLLOWS: AUTO PARTS
3.1%, BANKS 2.1%, BROADCASTING 1.2%, BUILDING & CONSTRUCTION 2.6%,
COMMERCIAL SERVICES 0.3%, COMPUTERS & BUSINESS EQUIPMENT 9.8%, COSMETICS
2.5%, DRUGS & HEALTH CARE 8.6%, ELECTRICAL EQUIPMENT 10.0%, ELECTRONICS
7.3%, ENGINEERING 3.8%, ENTERTAINMENT 2.5%, FINANCIAL SERVICES 5.7%, FOOD &
BEVERAGES 4.4%, INDUSTRIAL MACHINERY 7.2%, METALS 5.6%, PAPER 2.4%,
PHOTOGRAPHY 1.7%, PRINTING 5.2%, RETAIL TRADE 9.0%, SEMI-CONDUCTOR
MANUFACTURING EQUIPMENT 0.8%, SOFTWARE 2.4%, TRANSPORTATION 4.4%.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997 (UNAUDITED)
ASSETS
INVESTMENTS IN SECURITIES, AT VALUE
(COST $83,666,022) (NOTE B) $ 71,901,856
INVESTMENTS IN REPURCHASE AGREEMENTS,
AT VALUE (NOTE B) 1,780,000
-------------
Total Investments 73,681,856
Cash 195
Foreign currency, at value (cost $942,108) (Note B) 951,475
Receivable for investments sold 804,733
Dividend and interest receivable 170,373
Prepaid insurance 3,029
Deferred organization expenses (Note B) 4,564
-------------
TOTAL ASSETS 75,616,225
-------------
-------------
LIABILITIES
Payable for investments purchased 122,093
Payable for fund shares repurchase 5,202,000
Management fee payable (Note C) 203,015
Administration fee payable (Note C) 4,860
Trustees fees payable (Note C) 1,143
Accrued expenses and other liabilities 30,828
-------------
TOTAL LIABILITIES 5,563,939
-------------
TOTAL NET ASSETS $ 70,052,286
-------------
-------------
COMPOSITION OF NET ASSETS:
Paid-in-capital$ 87,440,388
Undistributed net investment loss (86,754)
Accumulated net realized loss on investment
and foreign currency transactions (5,547,311)
Net unrealized depreciation on investment
and foreign currency transactions (11,754,037)
-------------
TOTAL NET ASSETS $ 70,052,286
-------------
-------------
NET ASSET VALUE PER SHARE $ 7.75
-------------
-------------
($70,052,286 / 9,042,912 shares of beneficial interest outstanding)
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1997 (Unaudited)
INVESTMENT INCOME
Interest income $ 143,473
Dividend income 235,712
Foreign taxes withheld (41,056)
-------------
TOTAL INVESTMENT INCOME 338,129
-------------
EXPENSES
Management fee (Note C) 407,383
Custodian fee 46,295
Administration fee (Note C) 32,081
Audit fee 12,545
Legal fees 3,911
Transfer agent fee 3,459
Trustees fees (Note C) 1,027
Amortization of deferred organization expenses 1,277
Miscellaneous expenses 6,470
-------------
TOTAL EXPENSES 514,448
-------------
NET INVESTMENT LOSS (176,319)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on investments (2,671,027)
Net realized gain on foreign currency transactions 106,868
Net unrealized appreciation on:
Investments 1,210,135
Foreign currency transactions 14,727
-------------
NET LOSS ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS (1,339,297)
-------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (1,515,616)
-------------
-------------
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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STATEMENT OF CHANGES IN NET ASSETS
Six Months
Ended Year
October 31, 1997 Ended
(Unaudited) April 30, 1997
--------- --------------
NET ASSETS at beginning of period $ 66,748,656 $ 88,863,054
DECREASE IN NET ASSETS FROM OPERATIONS:
Net investment loss (176,319) (325,801)
Net realized loss on investment
transactions (2,671,027) (1,933,163)
Net realized gain on foreign currency
transactions 106,868 2,960,291
Net unrealized appreciation
(depreciation) on:
Investments 1,210,135 (21,908,955)
Foreign currency transactions 14,727 449,601
------------- -------------
Net decrease in net assets from
operations (1,515,616) (20,758,027)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income 0 (1,659,257)
In excess of net investment income 0 (2,562,640)
Net realized gains 0 (814,535)
In excess of net realized gains 0 (330,947)
------------- -------------
Total distributions 0 (5,367,379)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 9,921,033 7,729,431
Reinvestment of dividends and
distributions to shareholders 0 5,251,397
Cost of shares repurchased (5,202,000) (9,125,750)
Paid in capital from subscription
and redemption fees 100,213 155,930
------------- -------------
Total increase in net assets from
capital share transactions 4,819,246 4,011,008
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS 3,303,630 (22,114,398)
------------- -------------
NET ASSETS at end of period (net of
accumulated net investment $ 70,052,286 $ 66,748,656
income (loss) of $(86,754) and ------------- -------------
$89,565, respectively) ------------- -------------
OTHER INFORMATION:
CAPITAL SHARE TRANSACTIONS:
Shares sold 1,067,234 816,185
Shares issued in reinvestment of
distributions to shareholders 0 628,158
Less shares repurchased (671,226) (1,045,143)
------------- -------------
Net share transactions 396,008 399,200
------------- -------------
------------- -------------
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR THE PERIOD
<TABLE>
<CAPTION>
Six Months
Ended Year Year (5) August 15, 1994 *
October 31, 1997 Ended Ended through
(Unaudited) April 30, 1997 April 30, 1996 April 30, 1995
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 7.720 $ 10.770 $ 9.610 $ 10.000
Net investment income (loss) (0.020) (0.027) (0.034) 0.013
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions 0.043 (2.384) 1.248 (0.492)
------------- ------------- ------------- -------------
Total from investment operations 0.023 (2.411) 1.214 (0.479)
------------- ------------- ------------- -------------
Less distributions:
Net investment income 0.000 (0.203) 0.000 (0.002)
In excess of net investment income 0.000 (0.314) (0.097) 0.000
Net realized gains 0.000 (0.100) 0.000 (0.003)
In excess of net realized gains 0.000 (0.040) 0.000 (0.000)
------------- ------------- ------------- -------------
Total distributions 0.000 (0.657) (0.097) (0.005)
------------- ------------- ------------- -------------
Paid in capital from subscription and
redemption fees (Note B) 0.007 0.018 0.043 0.094
------------- ------------- ------------- -------------
Net asset value, end of period $ 7.750 $ 7.720 $ 10.770 $ 9.610
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL INVESTMENT RETURN (1) (2) 0.39% (22.69)% 13.13% (3.85)%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 70,052,286 $ 66,748,656 $ 88,863,054 $ 44,969,083
Operating expenses, net, to average
net assets (Note C) 1.26%(3) 1.26% 1.37% 1.50%(3)
Operating expenses, gross, to average
net assets (Note C) 1.26%(3) 1.26% 1.37% 1.72%(3)
Net investment income(loss) to average net
assets (0.43)%(3) (0.41)% (0.36)% 0.37%(3)
Portfolio turnover rate 9% 26% 37% 33%
Average commission rate per share (4) $ 0.0741 $ 0.0612 $ 0.0763 N/A
Per share amount of fees waived (Note C) $ 0.000 $ 0.000 $ 0.000 $ 0.008
</TABLE>
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* Commencement of investment operations.
(1) Total return at net asset value assuming all distributions reinvested and
no purchase premiums or redemption fees.
Total return would have been lower had certain expenses not been waived.
(2) Periods less than one year are not annualized.
(3) Annualized.
(4) The average commission rate paid is applicable for Funds that invest
greater than 10% of average net assets in equity transactions on which
commissions are charged. This disclosure is required for fiscal periods
beginning on or after September 1, 1995.
(5) The per share amounts were computed using an average number of shares
outstanding during the year.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Martin Currie Business Trust ("MCBT") (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an open-end
management investment company organized as a Massachusetts business trust on May
20, 1994. The Trust offers seven funds which have differing investment
objectives and policies: Global Growth Fund, Opportunistic EAFE Fund, Global
Emerging Markets Fund, Japan Small Companies Fund, Emerging Americas Fund,
Emerging Asia Fund and the EMEA Fund, (the "Funds"). The MCBT Japan Small
Companies Fund (the "Fund") commenced investment operations on August 15, 1994.
The Fund's Declaration of Trust permits the Board of Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, without
par value.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
VALUATION OF INVESTMENTS - The Fund's portfolio securities traded on a
securities exchange are valued at the last quoted sale price, or, if no sale
occurs, at the mean of the most recent quoted bid and asked prices. Unlisted
securities for which market quotations are readily available are valued at the
mean of the most recent quoted bid and asked prices. Prices for securities
which are primarily traded in foreign markets are furnished by quotation
services expressed in the local currency's value and are translated into U.S.
dollars at the current rate of exchange. Short-term securities and debt
securities with a remaining maturity of 60 days or less are valued at their
amortized cost. Options and futures contracts are valued at the last sale price
on the market where such options or futures contract is principally traded.
Options traded over-the-counter are valued based upon prices provided by market
makers in such securities or dealers in such currencies. Securities for which
current market quotations are unavailable or for which quotations are not deemed
by the investment adviser to be representative of market values are valued at
fair value as determined in good faith by the Trustees of the Fund, or by
persons acting pursuant to procedures established by the Trustees.
REPURCHASE AGREEMENTS - In connection with transactions in repurchase
agreements, the Fund's custodian takes possession of the underlying collateral
securities, the value or market price of which is at least equal to the
principal amount, including interest, of the repurchase transaction. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to ensure the adequacy of
the collateral. In the event of default of the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal proceedings that
could delay or increase the cost of such realization or retention.
INVESTMENT TRANSACTIONS - Investment security transactions are recorded on the
date of purchase or sale. Realized gains and losses from security transactions
are determined on the basis of identified cost.
INVESTMENT INCOME - Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned. Investment income is recorded net of
foreign taxes withheld where recovery of such taxes is uncertain.
FOREIGN CURRENCY TRANSLATIONS - The records of the Fund are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S. dollars at a current
rate of exchange of such currency to determine the value of investments, other
assets and liabilities on the date of any determination of net asset value of
the Fund. Purchases and sales of securities and income and expenses are
converted at the prevailing rate of exchange on the respective dates of such
transactions.
The Fund may realize currency gains or losses between the trade and settlement
dates on security transactions. To minimize such currency gains or losses, the
Fund may enter into forward foreign currency contracts.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund on each day and the resulting net unrealized
appreciation, depreciation and related net receivable or payable amounts are
determined by using forward currency exchange rates supplied by a quotation
service.
10
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MCBT JAPAN SMALL COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
FOREIGN CURRENCY TRANSLATIONS (CONTINUED) - Reported net realized gains and
losses on foreign currency transactions represent net gains and losses from
sales and maturities of forward currency contracts, disposition of foreign
currencies, currency gains and losses realized between the trade and settlement
dates on security transactions, and the difference between the amount of net
investment income accrued and the U.S. dollar amount actually received. The
effects of changes in foreign currency exchange rates on investments in
securities are not segregated in the Statement of Operations from the effects of
changes in market prices of those securities, and are included with the net
realized and unrealized gain or loss on investment securities.
FORWARD FOREIGN CURRENCY CONTRACTS - A forward foreign currency contract
("Forward") is an agreement between two parties to buy and sell a currency at a
set price on a future date. The market value of the Forward fluctuates with
changes in currency exchange rates. The Forward is marked-to-market daily and
the change in the market value is recorded by the Fund as an unrealized gain or
loss. When the Forward is closed, the Fund records a realized gain or loss
equal to the difference between the value at the time it was opened and the
value at the time it was closed. The Fund could be exposed to risk if a
counterparty is unable to meet the terms of the contract or if the value of the
currency changes unfavorably. The Fund may enter into Forwards in connection
with planned purchases and sales of securities, to hedge specific receivables or
payables against changes in future exchange rates or to hedge the U.S. dollar
value of portfolio securities denominated in a foreign currency.
EXPENSES - Expenses directly attributable to the Fund are charged to the Fund.
Expenses not directly attributable to a particular Fund are either split evenly
among the affected Funds, allocated on the basis of relative average net assets,
or otherwise allocated among the Funds as the Board of Trustees may direct or
approve. Certain costs incurred in connection with the organization of the
Trust and each Fund have been deferred and are being amortized on a straight
line basis over a five year period starting on each Fund's commencement of
operations.
DISTRIBUTIONS TO SHAREHOLDERS - The Fund declares and distributes dividends from
net investment income, if any, and distributes its net realized capital gains,
if any, at least annually. All distributions will be reinvested in shares of
the Fund at the net asset value unless the shareholder elects in the
subscription agreement either to receive cash in respect of all distributions or
to receive cash with respect to distributions of income and to reinvest in
shares of the Fund with respect to distributions of realized capital gains.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for passive foreign
investment companies (PFIC's), foreign currency transactions, losses deferred
due to wash sales, post October 31 losses and excise tax regulations. Permanent
book and tax differences relating to shareholder distributions will result in
reclassifications to paid-in-capital. Distributions are recorded on the
ex-dividend date.
PURCHASES AND REDEMPTIONS OF FUND SHARES - There is a purchase premium for cash
investments into the Fund of 1.00% of the amount invested and a redemption fee
on cash redemptions of 1.00% of the amount redeemed. All purchase premiums and
redemption fees are paid to and retained by the Fund and are recorded as
paid-in-capital by the Fund. These fees are intended to offset brokerage and
transaction costs arising in connection with the purchase and redemption. The
purchase and redemption fees may be waived by the Manager, however, if these
brokerage and transaction costs are minimal or in other circumstances at the
Manager's discretion. For the six months ended October 31, 1997, $100,213 was
collected in purchase premiums.
INCOME TAXES - Each Fund of the Trust is treated as a separate entity for U.S.
federal income tax purposes. Each Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. By so qualifying, the Funds will not be subject to federal
income taxes to the extent that they distribute substantially all of their
taxable income, including realized capital gains, if any, for the fiscal year.
In addition, by distributing substantially all of their net investment income,
realized capital gains and certain other amounts, if any, during the calendar
year, the Funds will not be subject to a federal excise tax.
The Fund may be subject to taxes imposed by countries in which it invests. Such
taxes are generally based on income and/or capital gains earned or repatriated.
Taxes are accrued and applied to net investment income, net realized gains and
unrealized appreciation as such income and/or gains are earned.
11
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
income and expenses at the date of the financial statements. Actual results
could differ from these estimates.
NOTE C - AGREEMENTS AND FEES
The Fund has entered into a Management Contract with Martin Currie Inc. (the
"Investment Manager"), a wholly owned subsidiary of Martin Currie Ltd. Under
the Management Contract, the Fund pays the Investment Manager a quarterly
management fee at the annual rate of 1.00% of the Fund's average net assets.
The Investment Manager has voluntarily undertaken to reduce its fee until
further notice to the extent necessary to limit the Fund's annual expenses
(including the management fee but excluding brokerage commissions, transfer
taxes, and extraordinary expenses) to 1.50% of the Fund's average net assets on
an annualized basis. For the six months ended October 31, 1997, it was not
necessary for the Investment Manager to waive any of its fees.
State Street Bank and Trust Company (the "Administrator") serves as
administrator of the Fund. The Administrator performs certain administrative
services for the Fund. The Fund pays the Administrator a fee at the rate of
0.08% of the Fund's average net assets up to $125 million, 0.06% of the next
$125 million, and 0.04% of those assets in excess of $250 million, subject to
certain minimum requirements, plus certain out of pocket costs. State Street
Bank and Trust Company also receives fees and compensation of expenses for
certain custodian and transfer agent services.
Trustees of the Trust who are not interested persons receive aggregate annual
fees of $20,000 ($10,000 per Trustee).
NOTE D - INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding
short-term securities for the six months ended October 31 1997 were $17,131,530
and $6,688,567, respectively.
The identified cost of investments in securities and repurchase agreements owned
for federal income tax purposes and their respective gross unrealized
appreciation and depreciation at October 31, 1997 were as follows:
IDENTIFIED GROSS UNREALIZED NET UNREALIZED
COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
--------------- ------------ -------------- --------------
$ 85,446,022 $ 7,540,001 $ (19,304,167) $ (11,764,166)
NOTE E - PRINCIPAL SHAREHOLDERS
As of October 31, 1997 there was one shareholder who owned greater than 10% of
the Fund's outstanding shares, representing 29% of the Fund.
NOTE F - CONCENTRATION OF RISK
Investment in foreign securities generally involves special risks. Additional
risks are present in the case of a fund such as the Japan Small Companies Fund
which will invest most of its assets in the issuers of a single foreign country.
This means that the Fund's performance will be directly affected by political,
economic and market conditions in Japan. In addition, since the Japanese
economy depends to some extent on foreign trade, the relationships between Japan
and its trading partners and between the yen and other currencies are expected
to have a significant impact on particular Japanese companies and on the
Japanese economy generally. The Fund is designed for investors who are willing
to accept the risks associated with changes in such conditions and
relationships.
12
<PAGE>
MARTIN CURRIE BUSINESS TRUST
--------------------
TRUSTEES AND OFFICERS
C. James P. Dawnay, TRUSTEE AND PRESIDENT *
Simon D. Eccles, TRUSTEE
Patrick R. Wilmerding, TRUSTEE
Colin Winchester, VICE PRESIDENT AND TREASURER
J. Grant Wilson, VICE PRESIDENT
Julian M.C. Livingston, CLERK
* INTERESTED TRUSTEE
---------------------
INVESTMENT MANAGER
Martin Currie, Inc.
Saltire Court
20 Castle Terrace
Edinburgh EH1 2ES
011-44-131-229-5252
Regulated by IMRO
Registered Investment Adviser with the SEC
--------------------
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The information contained in this report is intended for general
informational purposes only. This report is not authorized for
distribution to prospective investors unless preceded or accompanied
by a current Private Placement Memorandum which contains important
information concerning the Fund and its current offering of shares.
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