<PAGE>
MARTIN CURRIE BUSINESS TRUST
JAPAN SMALL COMPANIES FUND
ANNUAL REPORT
APRIL 30, 1999
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROFILE AT APRIL 30, 1999
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 $81.8m
PERFORMANCE Total return from May 1, 1998 through April 30,
1999
- MCBT - Japan Small Companies Fund
(excluding all transaction fees) +43.8%
- MCBT - Japan Small Companies Fund
(including all transaction fees) +40.9%
- Tokyo Stock Exchange - Second
Section Index +48.9%
(September 1, 1994 through April 30, 1999)
Annualized total return from August 15, 1994
through April 30, 1999
- MCBT - Japan Small Companies Fund
(excluding all transaction fees) +0.6%
- MCBT - Japan Small Companies Fund
(including all transaction fees) +0.2%
The graph below represents the annualized total
return of the portfolio including all transaction
fees through September 30, 1998, versus the Tokyo
Stock Exchange (TSE) - Second Section Index from
September 1, 1994 through April 30, 1999.
- MCBT - Japan Small Companies Fund
(excluding all transaction fees) +0.6%
- MCBT - Japan Small Companies Fund
(including all transaction fees) +0.1%
- Tokyo Stock Exchange - Second
Section Index -10.1%
[GRAPH]
(a) Performance for the benchmark is not available from August 15, 1994
(commencement of investment operations). For that reason, performance is
shown from September 1, 1994.
Performance shown is net of all fees after reimbursement from the Manager.
Returns and net asset values of fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. The total returns would have been lower had certain expenses
not been waived during the period shown. Each performance figure including
all transaction fees assumes purchase at the beginning and redemption at the
end of the stated period and is calculated using an offering price which
prior to October 1, 1998, reflects a transaction fee of 100 basis points on
purchase and 100 basis points on redemption. Transaction fees are paid to the
Fund to cover trading costs. Transaction fees were eliminated effective
October 1, 1998. Past performance is not indicative of future performance.
See notes to financial statements.
1
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
PROFILE AT APRIL 30, 1999
PORTFOLIO Japan's economy remains in the doldrums. But in
COMMENTS establishing the financial sector and
encouraging demand through capital injections
and tax incentives, the government has made
important progress. By revealing a new
aggressive attitude towards cost reduction and
business restructuring, corporate Japan also
helped improve sentiment. In addition, the Bank
of Japan adopted a loose monetary stance,
bringing short-term rates to zero. Against this
background, smaller company indices in Japan
enjoyed a period of strong out performance. The
TSE 2nd Section (our benchmark) rose 48.9% over
the period, far in advance of the 21.0% seen in
the TSE 1st Section.
We participated in most of this rally, enjoying a
43.8% rise, but we missed our benchmark by 5.1%.
Areas of strength included the software sector,
which accounted for 21.2% of the portfolio's
assets at the end of the year. Price moves of note
included OBIC (+163%), KONAMI (+115%), and NIPPON
SYSTEM DEVELOPMENT (+85%). All three were among
our top ten holdings. Weaker areas included the
other finance and retail sectors (7% and 8% of the
portfolio's assets in aggregate), both of which
under performed the benchmark by a substantial
margin.
We made a number of changes to the portfolio over
the period. Through participation in initial
public offerings of FSAS and OBIC, we increased
our exposure to the software sector. And we added
a number of companies that we believe are in the
process of boosting returns through restructuring.
By selling out of Xebio, Chiyoda, Santen
Pharmaceuticals, and Tokai Lease, we reduced our
exposure to the retail, drug and housing sectors.
OUTLOOK
The economy is likely to remain weak, but does
appear to be establishing. More companies are
seeing restructuring as the way forward. We expect
this focus on profitability to help the general
market. Although it will take some time for
restructuring to filter through to the majority of
smaller companies, we believe that areas such as
software and outsourcing services will be in
strong demand. We will continue to look for such
companies to add to the portfolio.
INVESTMENT Michael Thomas has managed the MCBT Japan Small
MANAGER Companies Fund since inception.
PROFILE
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 in 1979
with a degree in Social Studies. After five years
as a financial analyst with Wood Mackenzie, he
spent 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.
See notes to financial statements.
2
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MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
PROFILE AT APRIL 30, 1999
LARGEST HOLDINGS % OF NET ASSETS
Obic Company Limited 4.8
Aiful 4.1
Konami 3.4
Sony Music Entertainment 3.1
Nippon System Development 3.1
Benesse Corp 3.1
Hirose Electric 3.0
Aderans 3.0
Mabuchi Motor 2.7
Promise 2.3
See notes to financial statements.
3
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
APRIL 30, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCK, WARRANTS, AND CONVERTIBLE
BONDS - 95.0%
COMMON STOCK - 85.9%
ADERANS 60,000 $ 2,426,729
AIFUL 40,800 3,337,933
AIPHONE 100,300 1,217,845
ALTECH CORPORATION 55,000 571,094
ASIA SECURITIES PRINTING 85,000 1,264,110
BENESSE CORP 30,000 2,502,094
CANON APTEX 118,000 760,844
CAPCOM 70,000 1,289,566
CIRCLE K JAPAN 41,380 1,871,144
DAIWA INDUSTRIES LIMITED 73,000 292,196
DAIWA KOSHO LEASE 150,000 567,744
DAIWA LOGISTICS 162,800 820,680
EIDEN 173,000 1,361,749
FAMILYMART COMPANY 31,000 1,466,672
FUJI MACHINE MANUFACTURING 43,000 1,533,914
FUJITSU BUSINESS SYSTEMS 43,700 797,739
FUJITSU SUPPORT AND SERVICES INC. (FSAS) 7,000 855,803
HIRATA TECHNICAL 155,400 598,593
HIROSE ELECTRIC 26,800 2,491,040
INAX CORPORATION 110,000 776,503
KINSEKI LIMITED 73,000 434,014
KIRIN BEVERAGE 44,000 816,111
MABUCHI MOTOR 28,000 2,173,505
MAEZAWA INDUSTRIES 100,000 1,531,569
MEITEC 54,800 1,780,472
MIRAI INDUSTRY 13,000 174,175
MITSUMI ELECTRIC COMPANY LIMITED 50,000 954,614
MOSHI MOSHI HOTLINE INC. 15,000 854,128
NAC 26,600 126,964
NICHICON 100,000 1,318,875
NICHII GAKKAN COMPANY 5,175 403,010
NIPPON BROADCASTING SYSTEM 30,000 1,369,117
NIPPON KONPO UNYU SOKO 164,000 1,181,042
NIPPON SYSTEM DEVELOPMENT 49,000 2,502,931
NISHIO RENT ALL 26,500 254,082
NISSHA PRINTING 110,000 764,529
NORITSU KOKI 20,800 686,250
NORITZ CORPORATION 100,000 1,178,195
OBIC COMPANY LIMITED 20,000 3,935,689
ORIENTAL CONSTRUCTION 60,500 248,242
PCA CORPORATION 16,000 321,554
PROMISE 33,430 1,903,567
RISO KAGAKU 37,200 1,775,582
RYOSAN 65,000 1,159,354
SANKI ENGINEERING 85,000 607,855
SATO CORPORATION 50,000 1,109,529
SHIMACHU 40,000 904,371
</TABLE>
See notes to financial statements.
4
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
APRIL 30, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCK - CONTINUED
SONY MUSIC ENTERTAINMENT 35,000 $ 2,549,824
TAISHO PHARMACEUTICAL 59,000 1,813,180
TAIYO YUDEN CO 50,000 665,718
TDC SOFTWARE 30,000 929,493
TOKYO STYLE COMPANY LIMITED 70,000 735,639
TOPPAN FORMS COMPANY 94,500 1,796,307
TRANS COSMOS INCORPORATED 30,000 1,570,089
TSUBAKI NAKASHIMA 140,000 978,898
UNI-CHARM 20,000 906,046
YUSEN AIR & SEA SERVICE 49,000 611,372
ZEXEL CORPORATION 147,000 411,137
--------------
TOTAL COMMON STOCK - (COST $61,897,991) 70,241,021
--------------
CONVERTIBLE BONDS - 8.7%
JONAS, 1.35%, 12/30/1999 (Y) 106,500,000 1,271,584
KONAMI, 0.75%, 3/31/2000 (Y) 160,000,000 2,786,803
MITSUI HIGH-TEC INCORPORATED, 1.90%,
1/31/2000 (Y) 100,000,000 1,004,857
NAMCO, 0.80%, 9/28/2001 (Y) 50,000,000 438,369
NITTO DENKO, NO 4, 3.90%, 3/30/2001 (Y) 70,000,000 1,018,757
TAIYO YUDEN, 1.15%, 9/30/2008 (Y) 50,000,000 602,077
--------------
TOTAL CONVERTIBLE BONDS - (COST $5,469,837) 7,122,447
--------------
WARRANTS - 0.4%
CREDIT SAISON COMPANY LIMITED, 2/15/2000 * 140 138,250
NIPPON ENGINEERING CONSULTANTS, 1/20/2000 * 1,500 1,966
SATORI ELECTRIC, 5/23/2000 * 200 13,750
TAMPOPO (PROMISE), 2/8/2000 * 100 226,250
--------------
TOTAL WARRANTS - (COST $628,802) 380,216
--------------
TOTAL COMMON STOCK, WARRANTS AND CONVERTIBLE
BONDS - (COST $67,996,630) + 77,743,684
--------------
PRINCIPAL
AMOUNT
SHORT TERM INVESTMENT - 2.1%
STATE STREET BANK AND TRUST COMPANY REPURCHASE
AGREEMENT, 4.250%, 5/3/1999 (A) $ 1,721,000 1,721,000
--------------
TOTAL SHORT TERM INVESTMENT - (COST $1,721,000) 1,721,000
--------------
TOTAL INVESTMENTS - (COST $69,717,630) - 97.1% 79,464,684
CASH, RECEIVABLES AND OTHER ASSETS, LESS LIABILITIES - 2.9% 2,335,387
--------------
NET ASSETS - 100.0% $ 81,800,071
--------------
--------------
</TABLE>
See notes to financial statements.
5
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
APRIL 30, 1999
* Non-income producing security.
(Y) Reflected at par and denominated in Japanese yen.
(a) The repurchase agreement, dated 4/30/1999, $1,721,000 par due 5/3/1999,
is collateralized by United States Treasury Notes, 12.000% due 8/15/2013
with a market value of $1,762,687.
+ Percentages of long term investments by industry are as follows: Auto
Parts 1.2%, Broadcasting 1.7%, Building & Construction 1.5%, Commercial
Services 4.8%, Computer Software 3.8%, Computers & Business Equipment
13.6%, Cosmetics & Toiletries 3.0%, Diversified 1.4%, Drugs & Health
Care 2.2%, Electrical Equipment 8.1%, Electronics 8.5%, Engineering
1.6%, Entertainment 3.1%, Financial Services 6.9%, Food & Beverages
2.6%, Industrial Machinery 3.7%, Lease Rental Obligations 1.0%,
Manufacturing 0.8%, Metals 2.4%, Paper 1.1%, Photography 0.9%, Printing
6.0%, Retail 3.0%, Retail Trade 5.1%, Software 3.8%, Transportation
3.2%.
See notes to financial statements.
6
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $67,996,630) (Note B) $ 77,743,684
Investments in repurchase agreements, at value (Note B) 1,721,000
-----------------
Total Investments 79,464,684
Cash 392
Foreign currency, at value (cost $2,664,228) (Note B) 2,692,762
Receivable for investments sold 122,810
Receivable for forward currency contracts (Note B) 20,027
Dividend and interest receivable 231,549
Prepaid insurance expense 15
Deferred organization expense (Note B) 752
-----------------
TOTAL ASSETS 82,532,991
-----------------
LIABILITIES
Payable for investments purchases 520,169
Management fee payable (Note C) 171,414
Administration fee payable (Note C) 4,456
Trustees fees payable (Note C) 2,104
Accrued expenses and other liabilities 34,777
-----------------
TOTAL LIABILITIES 732,920
-----------------
TOTAL NET ASSETS $ 81,800,071
-----------------
-----------------
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 86,130,023
Undistributed net investment income 75,533
Accumulated net realized loss on investment and foreign currency transactions (14,203,363)
Net unrealized appreciation on investment and foreign currency transactions 9,797,878
-----------------
TOTAL NET ASSETS $ 81,800,071
-----------------
-----------------
NET ASSET VALUE PER SHARE $ 9.29
($81,800,071 / 8,809,600 shares of beneficial interest outstanding) -----------------
-----------------
</TABLE>
See notes to financial statements.
7
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income $ 173,647
Dividend income 496,993
Foreign taxes withheld (83,743)
-----------------
TOTAL INVESTMENT INCOME 586,897
-----------------
EXPENSES
Management fee (Note C) 608,552
Custodian fee 74,037
Administration fee (Note C) 57,598
Audit fee 24,999
Legal fees 6,299
Transfer agent fee 6,899
Trustees fees (Note C) 3,016
Amortization of deferred organization expenses (Note B) 2,548
Miscellaneous expenses 11,372
-----------------
TOTAL EXPENSES 795,320
-----------------
NET INVESTMENT LOSS (208,423)
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on investments (6,233,672)
Net realized gain on foreign currency transactions 1,504,427
Net unrealized appreciation on:
Investments 29,291,552
Foreign currency transactions 510,095
-----------------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS 25,072,402
-----------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 24,863,979
-----------------
-----------------
</TABLE>
See notes to financial statements.
8
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
April 30, 1999 April 30, 1998
-------------- --------------
<S> <C> <C>
NET ASSETS at beginning of year $ 57,506,372 $ 66,748,656
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss (208,423) (210,529)
Net realized loss on investment transactions (6,233,672) (5,451,368)
Net realized gain (loss) on foreign currency transactions 1,504,427 (47,734)
Net unrealized appreciation (depreciation) on:
Investments 29,291,552 (6,570,197)
Foreign currency transactions 510,095 (454,673)
--------------- ---------------
Net increase (decrease) in net assets from operations 24,863,979 (12,734,501)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income 0 (586,947)
Return of capital 0 (249,391)
--------------- ---------------
Total distributions 0 (836,338)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 7,678,202 16,045,506
Reinvestment of dividends and distributions to shareholders 0 785,178
Cost of shares repurchased (8,256,792) (12,791,111)
Paid in capital from subscription and redemption fees 8,310 288,982
--------------- ---------------
Total increase (decrease) in net assets from capital share transactions (570,280) 4,328,555
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS 24,293,699 (9,242,284)
--------------- ---------------
NET ASSETS at end of year (net of accumulated net investment $ 81,800,071 $ 57,506,372
income (loss) of $75,533 and ($827,685), respectively) --------------- ---------------
--------------- ---------------
OTHER INFORMATION:
CAPITAL SHARE TRANSACTIONS:
Shares sold 1,103,164 1,970,622
Shares issued in reinvestment of distributions to shareholders 0 125,628
Less shares repurchased (1,195,384) (1,841,334)
--------------- ---------------
Net share transactions (92,220) 254,916
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to financial statements.
9
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR THE PERIOD
<TABLE>
<CAPTION>
Year Year Year Year(4) August 15, 1994*
Ended Ended Ended Ended through
April 30, 1999 April 30, 1998 April 30, 1997 April 30, 1996 April 30, 1995
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 6.460 $ 7.720 $ 10.770 $ 9.610 $ 10.000
Net investment income (loss) 0.102 (0.005) (0.027) (0.034) 0.013
Net realized and unrealized gain (loss) on investment
and foreign currency transactions 2.727 (1.189) (2.384) 1.248 (0.492)
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.829 (1.194) (2.411) 1.214 (0.479)
----------- ----------- ----------- ----------- -----------
Less distributions:
Net investment income 0.000 (0.069) (0.203) 0.000 (0.002)
In excess of net investment income 0.000 0.000 (0.314) (0.097) 0.000
Return of capital 0.000 (0.029) 0.000 0.000 0.000
Net realized gains 0.000 0.000 (0.100) 0.000 (0.003)
In excess of net realized gains 0.000 0.000 (0.040) 0.000 0.000
----------- ----------- ----------- ----------- -----------
Total distributions 0.000 (0.098) (0.657) (0.097) (0.005)
----------- ----------- ----------- ----------- -----------
Paid in capital from subscription and
redemption fees (Note B) 0.001 0.032 0.018 0.043 0.094
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 9.290 $ 6.460 $ 7.720 $ 10.770 $ 9.610
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN (1) (2) 43.80% (15.01)% (22.69)% 13.13% (3.85)%
- ----------------------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period $81,800,071 $57,506,372 $66,748,656 $88,863,054 $ 44,969,083
Operating expenses, net, to average
net assets (Note C) 1.31% 1.29% 1.26% 1.37% 1.50%(3)
Operating expenses, gross, to average
net assets (Note C) 1.31% 1.29% 1.26% 1.37% 1.72%(3)
Net investment income (loss) to average net assets (0.34)% (0.30)% (0.41)% (0.36)% 0.37%(3)
Portfolio turnover rate 27% 26% 26% 37% 33%
Per share amount of fees waived (Note C) $ 0.000 $ 0.000 $ 0.000 $ 0.000 $ 0.008
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 per share amounts were computed using an average number of shares
outstanding during the year.
See notes to financial statements.
10
<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 five funds which have differing investment
objectives and policies: Opportunistic EAFE Fund, Global Emerging Markets
Fund, Japan Small Companies Fund, Asia Pacific ex Japan Fund (formerly
"Emerging Asia Fund") and 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.
11
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 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.
Although forward currency contracts limit the risk of loss due to a decline
in the value of hedged currency, they also limit any potential gain that
might result should the value of the currency increase. In addition, the
Funds could be exposed to additional risks if the counterparties to the
contracts are unable to meet the terms of their contracts.
The Fund had the following open forward foreign currency contract at April
30, 1999:
<TABLE>
<CAPTION>
Unrealized
Delivery Date Local Currency Face Amount Value Appreciation
------------- -------------- ----------- ----- ------------
<S> <C> <C> <C> <C> <C>
Japanese Yen (sell) July 6, 1999 1,316,788,440 $ 11,146,000 $ 11,125,973 $ 20,027
</TABLE>
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 - Effective through September 30,
1998, there was 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 were
paid to and retained by the Fund and recorded as paid-in-capital. These fees
were intended to offset brokerage and transaction costs arising in connection
with the purchase and redemption. The purchase and redemption fees could be
waived by the Manager, however, if these brokerage and transaction costs were
minimal or in other circumstances at the Manager's discretion. Effective
October 1, 1998, the Fund eliminated all such fees. For the period ended
September 30, 1998, $960 was collected in purchase premiums and $7,350 was
collected in redemption fees.
12
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS (Continued)
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. As of April 30, 1999 the Fund has a realized capital loss carryforward,
for Federal income tax purposes, of $12,484,289 ($5,060,484 expires April 30,
2006 and $7,423,805 expires April 30, 2007), available to be used to offset
future realized capital gains. As of April 30, 1999, the Fund has elected for
Federal income tax purposes to defer a $1,697,797 current year post October
31 capital loss as though the loss was incurred on the first day of the next
fiscal year.
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.
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 year ended April 30, 1999, 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 year ended April 30, 1999 were $16,281,413 and
$19,193,500, 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 April 30, 1999 were as follows:
<TABLE>
<CAPTION>
IDENTIFIED GROSS UNREALIZED NET UNREALIZED
COST APPRECIATION (DEPRECIATION) APPRECIATION
--------------- ------------ -------------- ---------------
<S> <C> <C> <C>
$ 70,347,119 $ 20,703,348 $ (11,585,783) $ 9,117,565
</TABLE>
13
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE E - PRINCIPAL SHAREHOLDERS
As of April 30, 1999, there was one shareholder who owned greater than 10% of
the Fund's outstanding shares, representing 32% 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.
- ------------------------------------------------------------------------------
ADDITIONAL FEDERAL TAX INFORMATION - (UNAUDITED)
The Fund intends to make an election under Internal Revenue Code 853 to pass
through foreign taxes paid by the Fund to its shareholders. During the year
ended April 30, 1999, the total amount of foreign taxes that will be passed
through to the shareholders and the foreign source income for information
reporting purposes will be $83,743 (of the total $83,743 taxes withheld) and
$612,679, respectively.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Trustees and Shareholders of the
Martin Currie Business Trust - Japan Small Companies Fund
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Japan Small
Companies Fund (the "Fund") at April 30, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and the financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at April 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 24, 1999
15
<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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