<PAGE>
MARTIN CURRIE BUSINESS TRUST
JAPAN SMALL COMPANIES FUND
ANNUAL REPORT
APRIL 30, 2000
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
PROFILE AT APRIL 30, 2000
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 $149.8m
PERFORMANCE Total return from May 1, 1999 through April 30, 2000
<TABLE>
<S> <C>
- MCBT - Japan Small Companies Fund (excluding all transaction fees) +58.6%
- Tokyo Stock Exchange - Second Section Index +65.9%
Annualized total return from August 15, 1994 through April 30, 2000
- MCBT - Japan Small Companies Fund (excluding all transaction fees) +8.9%
- MCBT - Japan Small Companies Fund (including all transaction fees) +8.6%
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) +9.0%
- MCBT - Japan Small Companies Fund (including all transaction fees) +8.6%
- Tokyo Stock Exchange - Second Section Index +0.2%
</TABLE>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
9/1/94(a) 4/30/95 4/30/96 4/30/97 4/30/98 4/30/99 4/30/00
MCBT Japan Small Companies Fund $10,000 $9,410 $10,652 $8,229 $6,993 $10,057 $15,945
TSE Second Section Index $10,000 $8,325 $ 8,853 $5,425 $4,210 $ 6,100 $10,119
</TABLE>
(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.
1
<PAGE>
PORTFOLIO Over the 12 months to April 30, 2000 our fund rose by 58.6%.
COMMENTS By comparison, the TSE First Section rose by 36.2% and the TSE
Second Section by 65.9%.
The Japanese economy hit bottom in the second quarter of 1999.
But thanks to generous fiscal spending, an increase in exports
and growth in information-related investments, GDP for the
fiscal year 1999 is expected to grow for the first time in
three years. Despite these positive signs, the recovery is a
mild one. Private consumption, which accounts for 60% of the
economy, remains weak. Cost-cutting and restructuring by
companies have had a negative effect on household income.
Polarisation between so-called `old economy' and `new economy'
stocks remained striking. The best performing sectors include
telecommunications, computer software and technology. Mining,
construction, warehousing and basic materials were the worst
performers. The poor performance of `old economy' stocks was
amplified by an acceleration of the unwinding of cross
shareholdings. On unjustifiable valuations and a sharp
correction in Nasdaq, technology stocks fell recently.
Smaller stocks outperformed large stocks significantly.
Smaller companies are generally younger, and have less cross
holdings. In addition, domestic institutions, which did not
invest previously in small cap stocks, have started buying.
This follows the relaxation of restrictions on some of their
funds.
Despite our heavily overweight position in the software
sector, we underperformed the TSE II index, but we
outperformed TSE I, where the majority of our holdings are
listed. Poor performance of some stocks in other sectors
diluted the success. The top three performers were: TRANS
COSMOS (+244%), OBIC (+209%) and CAPCOM (+178%). We added a
number of stocks to the portfolio, including TREND MICRO, an
anti-virus software specialist, SES, a semiconductor
production equipment maker, and JAPAN MDM, a medical related
outsourcing company.
OUTLOOK
The recovery of `old economy' companies still looks rather
fragile. In addition to the government's intention to continue
its expansionary fiscal policy, the Bank of Japan is likely to
retain its zero-interest rate policy. As the unwinding of
cross shareholdings is scheduled to continue over the next few
years, we will retain our overweight position to `new economy'
stocks. Of the 106 trillion yen from expired postal savings
over the next two years, a certain amount is expected to flow
into growth stocks.
2
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
PROFILE AT APRIL 30, 2000
INVESTMENT Michael Thomas has managed the fund since inception.
MANAGER PROFILE
Michael graduated from Bristol University with a degree in
economics and joined stockbrokers Vickers da Costa in 1973. He
began covering 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 became head of the Japan team in
1993.
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.
In 1988 Keith moved to Tokyo, where he became the chief equity
strategist and head of equity research for Salomon Brothers.
He returned to London in 1996 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.
LARGEST HOLDINGS % OF NET ASSETS
Obic Company Limited 5.1
Nippon System Development 3.7
Aiful 2.5
Fuji Machine Manufacturing 2.5
Mabuchi Motor 2.5
Konami Company Limited 2.4
Konami Company Limited (new) 2.4
Nichicon 2.3
Hirose Electric 2.3
Trans Cosmos Incorporated 2.0
3
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
<TABLE>
<CAPTION>
SHARES/PAR VALUE
---------- -----
<S> <C> <C>
COMMON STOCK, WARRANTS AND
CONVERTIBLE BONDS - 98.0%
COMMON STOCK - 90.8%
ADERANS 60,000 $ 2,616,303
AIDA ENGINEERING LIMITED 200,000 751,747
AIFUL 37,700 3,804,379
AIFUL (NEW) * 18,850 1,902,190
AIPHONE 51,900 670,282
ALPHA SYSTEMS INCORPORATED 5,500 1,084,572
ALTECH CORPORATION 62,000 832,292
ASIA SECURITIES PRINTING 170,000 2,234,875
BENESSE CORPORATION 32,100 2,802,416
BENESSE CORPORATION (NEW) * 32,100 2,936,148
C TWO-NETWORK COMPANY LIMITED 8,000 1,333,148
C. UYEMURA & COMPANY LIMITED 50,000 1,004,490
CANON APTEX # 118,000 764,709
CIRCLE K JAPAN 59,380 2,314,399
DAIWA INDUSTRIES LIMITED 158,000 435,902
DAIWA KOSHO LEASE 150,000 405,499
DAIWA LOGISTICS # 162,800 738,527
EIDEN 173,000 1,476,702
FAMILYMART COMPANY 40,000 1,466,463
FANCL CORPORATION 12,220 1,779,573
FUJI MACHINE MANUFACTURING 54,000 3,754,479
FUJITSU BUSINESS SYSTEMS 37,700 1,054,057
FUTABA CORPORATION 70,000 2,689,441
HAKUTO COMPANY LIMITED 58,100 1,957,913
HIRATA TECHNICAL 155,400 474,767
HIROSE ELECTRIC 28,200 3,409,638
I-NET CORPORATION 55,000 611,026
INAX CORPORATION 200,000 1,092,441
JAPAN MEDICAL DYNAMIC MARKETING INCORPORATED 47,000 1,553,395
JSR CORPORATION 300,000 2,341,342
KAWASUMI LABORATORIES INCORPORATED 102,000 906,541
KISSEI PHARMACEUTICAL COMPANY LIMITED 19,000 311,522
KOA CORPORATION 13,000 377,911
KONAMI COMPANY LIMITED (NEW) * 60,600 3,540,119
KONAMI COMPANY LIMITED 58,500 3,574,504
KOSE CORPORATION 40,800 872,546
KYOTO KIMONO YUZEN COMPANY LIMITED 267 1,680,878
MABUCHI MOTOR 34,000 3,745,776
MAEZAWA INDUSTRIES 100,000 800,815
MEITEC 87,800 2,755,562
MKC-STAT CORPORATION 80,000 1,644,216
MOBILEPHONE TELECOMMUNICATIONS INTERNATIONAL LIMITED * 42 832,107
MOSHI MOSHI HOTLINE INCORPORATED 15,000 2,013,609
NAMCO LIMITED 45,000 1,837,245
NICHICON 130,000 3,490,256
NICHII GAKKAN COMPANY * 7,600 696,570
</TABLE>
See notes to financial statements.
4
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
<TABLE>
<CAPTION>
SHARES/PAR VALUE
---------- -----
<S> <C> <C>
COMMON STOCK - CONTINUED
NIPPON BROADCASTING SYSTEM (NEW)* 30,000 $ 2,146,924
NIPPON BROADCASTING SYSTEM 30,000 2,146,924
NIPPON KONPO UNYU SOKO 219,000 1,119,178
NIPPON SYSTEM DEVELOPMENT # 58,800 5,612,443
NISSHA PRINTING 110,000 682,313
NISSIN COMPANY LIMITED 57,000 2,427,441
NORITSU KOKI 20,800 596,954
NORITZ CORPORATION 135,000 1,716,012
OBIC COMPANY LIMITED 13,600 7,617,461
ORIENTAL CONSTRUCTION 51,300 196,623
PCA CORPORATION 20,800 725,973
PROMISE 30 2,430
RISO KAGAKU 44,400 1,233,162
RYOSAN 73,000 1,277,323
S.E.S COMPANY LIMITED 90,000 1,341,480
SAILOR PEN COMPANY LIMITED 161,000 2,817,109
SANKEN ELECTRIC COMPANY LIMITED 130,000 812,387
SANKI ENGINEERING 85,000 328,936
SATO CORPORATION 88,000 2,444,105
SHIMACHU 40,000 681,387
SHINKO SECURITIES 300,000 1,313,706
SODICK COMPANY LIMITED * 171,000 1,100,264
SUMITOMO BAKELITE COMPANY LIMITED 136,000 1,497,051
TADANO LIMITED 250,000 388,835
TDC SOFTWARE 38,700 1,039,022
TOKYO STYLE COMPANY LIMITED 115,000 920,937
TOPPAN FORMS COMPANY 134,500 2,801,694
TOWA CORPORATION 35,000 1,309,077
TRANS COSMOS INCORPORATED 14,800 2,945,887
TREND MICRO INCORPORATED 11,500 1,724,760
TSUBAKI NAKASHIMA 159,500 1,996,426
UNI-CHARM 20,000 1,355,367
YUSEN AIR & SEA SERVICE 92,040 2,045,049
ZEXEL CORPORATION 235,000 267,602
--------------
TOTAL COMMON STOCK - (COST $102,140,312) 136,005,534
--------------
CONVERTIBLE BONDS - 7.2%
CAPCOM COMPANY LIMITED, 1.00%, 9/30/2005 (Y)338,000,000 3,801,972
NAMCO, 0.80%, 9/28/2001 (Y) 50,000,000 626,765
NITTO DENKO NO 4, 3.90%, 3/30/2001 (Y) 70,000,000 2,108,781
TAIYO YUDEN, 1.15%, 9/30/2008 (Y) 50,000,000 2,922,742
YOKOWO COMPANY LIMITED, 0.01%, 3/31/2004 (Y)125,000,000 1,340,477
--------------
TOTAL CONVERTIBLE BONDS - (COST $6,749,150) 10,800,737
--------------
WARRANTS - 0.0%
SATORI ELECTRIC, 5/23/2000 * 200 1,300
TOTAL WARRANTS - (COST $155,000) 1,300
TOTAL COMMON STOCK, WARRANTS AND
CONVERTIBLE BONDS - (COST $109,044,462)+ 146,807,571
--------------
</TABLE>
See notes to financial statements.
5
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
APRIL 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
SHORT TERM INVESTMENT - 1.2%
STATE STREET BANK AND TRUST COMPANY, 5.25%, 5/01/2000 (a) $ 1,798,000 $ 1,798,000
--------------
TOTAL SHORT TERM INVESTMENT - (COST $1,798,000) 1,798,000
--------------
TOTAL INVESTMENTS - (COST $110,842,462) - 99.2% 148,605,571
CASH, RECEIVABLES AND OTHER ASSETS, LESS LIABILITIES - 0.8% 1,215,926
--------------
NET ASSETS - 100.0% $ 149,821,497
</TABLE>
* Non-income producing security.
# Illiquid security. Some restrictions may apply to the resale of this
security due to limited trading volume.
(Y) Reflected at par and denominated in Japanese yen.
(a) The repurchase agreement, dated 4/28/2000 $1,798,000 par due 5/1/2000,
is collateralized by United States Treasury Bond, 10.75%, due 5/15/03
with a market value of $1,835,348.
+ Percentages of long term investments by industry are as follows: Auto
Parts 0.5%, Broadcasting 2.9%, Building & Construction 1.1%, Chemicals
1.7%, Commercial Services 5.6%, Computer Services 1.5%, Computer Software
5.1%, Computers & Business Equipment 11.4%, Cosmetics & Toiletries 3.5%,
Diversified 1.1%, Drugs & Health Care 1.9%, Electrical Equipment 9.8%,
Electronics 8.2%, Engineering 0.6%, Entertainment 7.3%, Financial
Services 6.3%, Food & Beverages 0.9%, Industrial Machinery 4.4%, Lease
Rental Obligations 0.3%, Leisure 1.2%, Metals 1.3%, Office Furnishings &
Supplies 1.9%, Paper 0.9%, Photography 0.5%, Plastics 1.6%, Printing
5.4%, Retail 3.0%, Retail Trade 3.0%, Semi-Conductor Manufacturing
Equipment 1.4%, Software 0.5%, Telecommunications Services 0.6%,
Transportation 2.6%.
See notes to financial statements.
6
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $109,044,462) (Note B) $ 146,807,571
Investments in repurchase agreements, at value (Note B) 1,798,000
---------------
Total Investments 148,605,571
Cash 621
Foreign currency, at value (cost $3,128,610) (Note B) 3,086,937
Receivable for investments sold 1,047,959
Dividend and interest receivable 389,803
---------------
TOTAL ASSETS 153,130,891
---------------
LIABILITIES
Payable for investment purchases 2,827,973
Management fee payable (Note C) 416,689
Administration fee payable (Note C) 11,207
Trustees fees payable (Note C) 1,124
Accrued expenses and other liabilities 52,401
---------------
TOTAL LIABILITIES 3,309,394
---------------
TOTAL NET ASSETS $ 149,821,497
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 100,293,783
Undistributed net investment loss (887,564)
Accumulated net realized gain on investment and foreign currency transactions 12,673,324
Net unrealized appreciation on investment and foreign currency transactions 37,741,954
---------------
TOTAL NET ASSETS $ 149,821,497
===============
NET ASSET VALUE PER SHARE $ 14.65
($149,821,497 / 10,225,140 shares of beneficial interest outstanding) ===============
</TABLE>
See notes to financial statements.
7
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income $ 205,704
Dividend income 827,583
Foreign taxes withheld (130,072)
----------------
TOTAL INVESTMENT INCOME 903,215
----------------
EXPENSES
Management fee (Note C) 1,424,398
Custodian fee 126,129
Administration fee (Note C) 109,957
Audit fee 24,716
Legal fees 5,223
Transfer agent fee 5,691
Trustees fees (Note C) 1,603
Amortization of deferred organization expenses (Note B) 752
Miscellaneous expenses 13,190
----------------
TOTAL EXPENSES 1,711,659
----------------
NET INVESTMENT LOSS (808,444)
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on investments 28,145,395
Net realized loss on foreign currency transactions (699,730)
Net realized appreciation (depreciation) on:
Investments 28,016,055
Foreign currency transactions (71,979)
----------------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS 55,389,741
----------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 54,581,297
================
</TABLE>
See notes to financial statements.
8
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Year
Ended Ended
April 30, 2000 April 30, 1999
-------------- --------------
<S> <C> <C>
NET ASSETS at beginning of period $ 81,800,071 $ 57,506,372
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss (808,444) (208,423)
Net realized gain (loss) on investment transactions 28,145,395 (6,233,672)
Net realized gain (loss) on foreign currency transactions (699,730) 1,504,427
Net unrealized appreciation (depreciation) on:
Investments 28,016,055 29,291,552
Foreign currency transactions (71,979) 510,095
-------------- --------------
Net increase in net assets from operations 54,581,297 24,863,979
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income 0 0
In excess of net investment income 0 0
Net realized gains (922,966) 0
-------------- --------------
Total distributions (922,966) 0
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 23,860,070 7,678,202
Reinvestment of dividends and distributions to shareholders 904,844 0
Cost of shares repurchased (10,401,819) (8,256,792)
Paid in capital from subscription and redemption fees 0 8,310
-------------- --------------
Total increase (decrease) in net assets from capital share transactions 14,363,095 (570,280)
-------------- --------------
NET INCREASE IN NET ASSETS 68,021,426 24,293,699
-------------- --------------
NET ASSETS at end of period (net of accumulated net investment
income (loss) of ($887,564) and $75,533, respectively) $ 149,821,497 $ 81,800,071
============== ==============
OTHER INFORMATION:
CAPITAL SHARE TRANSACTIONS:
Shares sold 2,058,163 1,103,164
Shares issued in reinvestment of distributions to shareholders 52,394 0
Less shares repurchased (695,017) (1,195,384)
-------------- --------------
Net share transactions 1,415,540 (92,220)
============== ==============
</TABLE>
See notes to financial statements.
9
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR THE PERIOD
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
April 30, 2000 April 30, 1999 April 30, 1998 April 30, 1997 April 30, 1996
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 9.290 $ 6.460 $ 7.720 $ 10.770 $ 9.610
----------- ----------- ----------- ----------- -----------
Net investment income (loss) (0.095) 0.102 (0.005) (0.027) (0.034)
Net realized and unrealized gain (loss)
on investmentand foreign currency
transactions 5.544 2.727 (1.189) (2.384) 1.248
----------- ----------- ----------- ----------- -----------
Total from investment operations 5.449 2.829 (1.194) (2.411) 1.214
----------- ----------- ----------- ----------- -----------
Less distributions:
Net investment income 0.000 0.000 (0.069) (0.203) 0.000
In excess of net investment income 0.000 0.000 0.000 (0.314) (0.097)
Return of capital 0.000 0.000 (0.029) 0.000 0.000
Net realized gains (0.089) 0.000 0.000 (0.100) 0.000
In excess of net realized gains 0.000 0.000 0.000 (0.040) 0.000
----------- ----------- ----------- ----------- -----------
Total distributions (0.089) 0.000 (0.098) (0.657) (0.097)
----------- ----------- ----------- ----------- -----------
Paid in capital from subscription and
redemption fees (Note B) 0.000 0.001 0.032 0.018 0.043
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 14.650 $ 9.290 $ 6.460 $ 7.720 $ 10.770
=========== =========== =========== =========== ===========
TOTAL INVESTMENT RETURN (1) 58.55% 43.80% (15.01)% (22.69)% 13.13%
----------------------- ========== ========= ========== =========== ==========
RATIOS AND SUPPLEMENTAL DATA
----------------------------
Net assets, end of period $149,821,497 $81,800,071 $57,506,372 $66,748,656 $88,863,054
Operating expenses, net, to average
net assets (Note C) 1.21% 1.31% 1.29% 1.26% 1.37%
Operating expenses, gross, to average
net assets (Note C) 1.21% 1.31% 1.29% 1.26% 1.37%
Net investment income (loss) to
average net assets (0.57)% (0.34)% (0.30)% (0.41)% (0.36)%
Portfolio turnover rate 37% 27% 26% 26% 37%
Per share amount of fees waived (Note C) $0.000 $0.000 $0.000 $0.000 $0.000
</TABLE>
(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.
See notes to financial statements.
10
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
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. There were no
open forward foreign currency contracts at April 30, 2000.
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.
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 were deferred and were 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 are 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 are minimal or in other
circumstances at the Manager's discretion. Effective October 1, 1998, the Fund
eliminated all such 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,
2000, the Fund has elected for Federal income tax purposes to defer a $886,206
current year post October 31 currency 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, 2000, 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, 2000 were $63,095,703 and
$50,297,186, 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, 2000 were as follows:
IDENTIFIED GROSS UNREALIZED NET UNREALIZED
COST APPRECIATION (DEPRECIATION) APPRECIATION
-------------- ------------ -------------- --------------
$ 110,845,070 $54,875,796 $(17,115,295) $ 37,760,501
13
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE E - PRINCIPAL SHAREHOLDERS
As of April 30, 2000, there were two shareholders who owned greater than 10% of
the Fund's outstanding shares, representing 46% 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)
On December 30, 1999, the Fund declared a distribution of $922,966 of which
$219,194 represents long term capital gains.
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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, 2000, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 23, 2000
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
--------------------
--------------------------------------------------------------------------------
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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