<PAGE>
MARTIN CURRIE BUSINESS TRUST
JAPAN SMALL COMPANIES FUND
SEMI-ANNUAL REPORT
OCTOBER 31, 1999
(UNAUDITED)
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
PROFILE AT OCTOBER 31, 1999 (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 $153.4m
PERFORMANCE Total return from May 1, 1999 through October 31,
1999
<TABLE>
<S> <C>
- MCBT - Japan Small Companies Fund (excluding all transaction fees) 60.6%
- MCBT - Japan Small Companies Fund (including all transaction fees) 59.8%
- Tokyo Stock Exchange - Second Section Index 62.6%
</TABLE>
Annualized total return from August 15, 1994
through October 31, 1999
<TABLE>
<S> <C>
- MCBT - Japan Small Companies Fund (excluding all transaction fees) 11.0%
- MCBT - Japan Small Companies Fund (including all transaction fees) 9.9%
- Tokyo Stock Exchange - Second Section Index -0.4%
(from September 1, 1994 through October 31, 1999)
</TABLE>
PORTFOLIO We are beginning to see the first signs of recovery in the
COMMENTS Japanese economy. The annualised GDP figures for the first and
second quarters of this year were 8.1% and 0.7% respectively.
While companies' cost-cutting and restructuring efforts are
progressing, the appreciation of the yen weighs against any
recovery of exporters' earnings. Despite the positive GDP
statistics, the government has announced the largest ever
economic `stimulus package' of 18,000 billion yen to try to
secure the recovery. The Bank of Japan also decided to maintain
its zero short-term interest rate policy. The small companies'
rally, which started in October last year, has continued. The TSE
2nd Section (our benchmark) rose 62.6% over the six months to 31
October 1999, far in advance of the 33.8% seen in the TSE 1st
section.
Despite participating in most of this rally and enjoying a 59.8%
rise over the same period, we missed our benchmark by 2.8%. Areas
of strength included the software sector, which at the end of
October accounted for 17% of the portfolio's assets. Price moves
of note included OBIC (+150%), Konami (+140%), Fujitsu Business
Systems (+129%), Trans Cosmos (+112%) and PCA (+102%). Benesse,
an operator of correspondence courses, also rose 123%. The
weakest areas included the real estate, glass/ceramic and
warehousing sectors, in which we hold no stock.
We made a number of changes to the portfolio over the period.
We increased our exposure to the software sector by adding
Trend Micro, a software company specialising in anti-virus
products, and Alpha Systems, a telecom-related software house.
Both have performed superbly since we bought them. We sold
Capcom, a game software company, and Taisho Pharmaceutical.
OUTLOOK
-------
While the fiscal support is likely to keep the Japanese economy
from declining, the strong currency continues to be a major
concern. Some software and telecom-related stocks look
overvalued. But supported by a sufficient inflow of funds
through newly launched investment trusts, stocks in growing
industries such as information technology, biotechnology and
home medical care are likely to continue to perform well.
1
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
PROFILE AT OCTOBER 31, 1999 (Unaudited)
INVESTMENT Michael Thomas manages the MCBT Japan Small Companies Fund.
MANAGER He has managed the 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 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 4.8
Konami Company 4.3
Benesse Corp 4.2
Aiful 3.8
Mabuchi Motor 3.3
Hirose Electric 3.0
Nippon System Development 2.7
Meitec 2.1
Aderans 2.0
Asia Securities Printing 1.8
2
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCK, WARRANTS AND CONVERTIBLE BONDS - 98.3% ------ -----
<S> <C> <C>
COMMON STOCK - 92.0%
ADERANS 60,000 $ 3,003,740
AIDA ENGINEERING LIMITED 200,000 914,932
AIFUL 37,700 5,857,293
AIPHONE 113,300 1,901,554
ALPHA SYSTEMS 17,000 2,364,055
ALTECH CORPORATION 55,000 611,873
ASIA SECURITIES PRINTING 170,000 2,853,169
BELLSYSTEM 24, INC. 2,800 2,685,336
BENESSE CORP 30,000 6,416,035
CANON APTEX 118,000 712,957
CIRCLE K JAPAN 59,380 2,380,439
DAIWA INDUSTRIES LIMITED 158,000 560,660
DAIWA KOSHO LEASE 150,000 694,831
DAIWA LOGISTICS 162,800 1,202,225
EIDEN 173,000 1,926,278
FAMILYMART COMPANY 40,000 2,781,241
FANCL CORPORATION 8,000 2,301,717
FUJI MACHINE MANUFACTURING 54,000 2,511,748
FUJITSU BUSINESS SYSTEMS 43,700 2,095,521
FUTABA CORPORATION 47,000 2,294,332
HAKUTO COMPANY 23,100 544,989
HIRATA TECHNICAL 155,400 715,373
HIROSE ELECTRIC 26,800 4,675,285
INAX CORPORATION 200,000 1,334,996
ISB CORPORATION * 30,000 909,178
JONATHAN'S COMPANY LIMITED 106,000 1,402,896
JSR CORPORATION 300,000 2,065,791
KAWASUMI LABORATORIES 50,000 757,648
KINSEKI LIMITED 73,000 483,073
KIRIN BEVERAGE 44,000 595,416
KONAMI COMPANY 67,600 6,548,000
MABUCHI MOTOR 34,000 5,021,578
MAEZAWA INDUSTRIES 100,000 1,353,217
MEITEC 87,800 3,292,395
MIRAI INDUSTRY 13,000 209,456
MITSUMI ELECTRIC COMPANY LIMITED 50,000 1,337,873
MIURA COMPANY LIMITED 25,000 373,070
MOBILEPHONE TELECOMMUNICATIONS INTERNATIONAL LIMITED 3 1,334,996
MOSHI MOSHI HOTLINE INC. 15,000 1,870,145
NAC 26,600 247,454
NICHICON 130,000 2,817,685
NICHII GAKKAN COMPANY 5,100 831,495
NIPPON BROADCASTING SYSTEM 30,000 2,428,311
NIPPON KONPO UNYU SOKO 164,000 1,195,358
NIPPON SYSTEM DEVELOPMENT 49,000 4,182,411
NISHIO RENT ALL 26,500 210,943
NISSHA PRINTING 110,000 760,621
NORITSU KOKI 20,800 955,519
</TABLE>
See notes to financial statements.
3
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
SHARES/PAR VALUE
COMMON STOCK - Continued ---------- -----
<S> <C> <C>
NORITZ CORPORATION 100,000 $ 1,577,635
OBIC COMPANY LIMITED 15,600 7,330,967
ORIENTAL CONSTRUCTION 70,100 423,545
PCA CORPORATION 16,000 744,222
PROMISE 13,430 901,602
RISO KAGAKU 50,000 2,157,859
RYOSAN 65,000 1,586,506
SAILOR PEN COMPANY LIMITED * 161,000 2,609,475
SANKEN ELECTRIC COMPANY LIMITED 130,000 897,669
SANKI ENGINEERING 85,000 467,920
SATO CORPORATION 80,000 2,025,511
SHIMACHU 40,000 744,222
SONY MUSIC ENTERTAINMENT 22,000 2,867,363
SUMITOMO BAKELITE 105,000 1,036,204
TADANO LIMITED 300,000 920,687
TAIYO YUDEN CO. 50,000 1,788,626
TDC SOFTWARE 46,000 2,294,044
TOKYO STYLE COMPANY LIMITED 115,000 1,097,391
TOPPAN FORMS COMPANY 84,500 2,232,641
TOWA CORPORATION 35,000 1,164,764
TRANS COSMOS INCORPORATED 21,000 2,668,553
TREND MICRO 6,000 1,191,138
TSUBAKI NAKASHIMA 160,000 2,301,717
UNI-CHARM 40,000 2,336,242
YUSEN AIR & SEA SERVICE 76,700 2,427,448
ZEXEL CORPORATION 235,000 777,549
-----------------
TOTAL COMMON STOCK - (Cost $87,694,573) 141,096,608
-----------------
CONVERTIBLE BONDS - 6.1%
CAPCOM COMPANY LIMITED, 1.00%, 9/30/2005 (Y) 338,000,000 3,387,455
MITSUI HIGH-TEC INCORPORATED, 1.90%, 1/31/2000 (Y) 100,000,000 1,016,591
NAMCO, 0.80%, 9/28/2001 (Y) 50,000,000 748,058
NITTO DENKO SERIES 4, 3.90%, 3/30/2001 (Y) 70,000,000 2,087,849
TAIYO YUDEN, 1.15%, 9/30/2008 (Y) 50,000,000 1,443,848
TOMY COMPANY LIMITED, 0.25%, 9/30/2003 (Y) 80,000,000 754,196
-----------------
TOTAL CONVERTIBLE BONDS - (COST $6,750,960) 9,437,997
-----------------
WARRANTS - 0.2%
CREDIT SAISON COMPANY LIMITED, 2/15/2000 * 140 128,695
NIPPON ENGINEERING CONSULTANTS, 1/20/2000 * 1,500 1,968
SATORI ELECTRIC, 5/23/2000 * 200 11,250
TAMPOPO (PROMISE), 2/08/2000 * 55 151,938
-----------------
TOTAL WARRANTS - (COST $592,521) 293,851
-----------------
TOTAL COMMON STOCK, WARRANTS AND
CONVERTIBLE BONDS - (COST $95,038,054) o 150,828,456
-----------------
</TABLE>
See notes to financial statements.
4
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
SHORT TERM INVESTMENT - 0.5%
STATE STREET BANK AND TRUST COMPANY REPURCHASE AGREEMENT,
4.60%, 11/01/1999 (a) $ 749,000 $ 749,000
-----------------
TOTAL SHORT TERM INVESTMENT - (Cost $749,000) 749,000
-----------------
TOTAL INVESTMENTS - (COST $95,787,054) - 98.8% 151,577,456
CASH, RECEIVABLES AND OTHER ASSETS, LESS LIABILITIES - 1.2% 1,833,226
-----------------
NET ASSETS - 100.0% $ 153,410,682
=================
</TABLE>
* Non-income producing security.
(Y) Reflected at par and denominated in Japanese yen.
(a) The repurchase agreement, dated 10/29/99, $749,000 par due 11/1/99, is
collateralized by United States Treasury Notes, 7.500% due 11/15/16 with
a market value of $767,720.
o Percentages of long term investments by industry are as follows: Auto
Parts 1.0%, Broadcasting 1.6%, Building & Construction 1.9%, Chemicals
0.7%, Commercial Services 7.8%, Computer Software 6.5%, Computers &
Business Equipment 11.0%, Cosmetics & Toiletries 3.5%, Diversified 1.0%,
Drugs & Health Care 0.5%, Electrical Equipment 8.7%, Electronics 9.0%,
Engineering 0.9%, Entertainment 8.8%, Financial Services 4.6%, Food &
Beverages 1.3%, Industrial Machinery 3.4%, Lease Rental Obligations 0.6%,
Manufacturing 1.2%, Metals 2.2%, Office Furnishings & Supplies 1.7%,
Paper 1.5%, Photography 0.5%, Plastics 1.3%, Printing 5.1%, Retail 2.9%,
Retail Trade 3.3%, Semi-Conductor Manufacturing Equipment 1.3%, Software
0.5%, Telecommunications Services 0.9%, Transportation 3.1%.
See notes to financial statements.
5
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $95,038,054) (Note B) $ 150,828,456
Investments in repurchase agreements, at value (Note B) 749,000
-----------------
Total Investments 151,577,456
Cash 925
Foreign currency, at value (cost $2,896,690) (Note B) 2,929,093
Dividend and interest receivable 227,667
-----------------
TOTAL ASSETS 154,735,141
-----------------
LIABILITIES
Payable for forward foreign currency contracts - net 934,838
Management fee payable (Note C) 355,462
Administration fee payable (Note C) 8,975
Trustees fees payable (Note C) 2,100
Accrued expenses and other liabilities 23,084
-----------------
TOTAL LIABILITIES 1,324,459
-----------------
TOTAL NET ASSETS $ 153,410,682
=================
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 102,408,441
Undistributed net investment loss (289,525)
Accumulated net realized loss on investment and foreign currency transactions (3,601,837)
Net unrealized appreciation on investment and foreign currency transactions 54,893,603
-----------------
TOTAL NET ASSETS $ 153,410,682
=================
NET ASSET VALUE PER SHARE $ 14.81
($153,410,682 / 10,358,950 shares of beneficial interest outstanding) =================
</TABLE>
See notes to financial statements.
6
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1999 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income $ 113,432
Dividend income 284,228
Foreign taxes withheld (45,295)
-----------------
TOTAL INVESTMENT INCOME 352,365
-----------------
EXPENSES
Management fee (Note C) 593,479
Custodian fee 50,068
Administration fee (Note C) 46,604
Audit fee 12,602
Legal fees 3,025
Transfer agent fee 3,428
Trustees fees (Note C) 1,211
Amortization of deferred organization expenses (Note B) 752
Miscellaneous expenses 6,254
-----------------
TOTAL EXPENSES 717,423
-----------------
NET INVESTMENT LOSS (365,058)
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on investments 10,259,222
Net realized gain on foreign currency transactions 342,304
Net realized appreciation (depreciation) on:
Investments 46,043,348
Foreign currency transactions (947,623)
-----------------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS 55,697,251
-----------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 55,332,193
=================
</TABLE>
See notes to financial statements.
7
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year
October 31, 1999 Ended
(Unaudited) 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 (365,058) (208,423)
Net realized gain (loss) on investment transactions 10,259,222 (6,233,672)
Net realized gain on foreign currency transactions 342,304 1,504,427
Net unrealized appreciation (depreciation) on:
Investments 46,043,348 29,291,552
Foreign currency transactions (947,623) 510,095
--------------- ---------------
Net increase in net assets from operations 55,332,193 24,863,979
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 18,409,405 7,678,202
Cost of shares repurchased (2,130,987) (8,256,792)
Paid in capital from subscription and redemption fees -- 8,310
--------------- ---------------
Total increase (decrease) in net assets from capital share transactions 16,278,418 (570,280)
--------------- ---------------
NET INCREASE IN NET ASSETS 71,610,611 24,293,699
--------------- ---------------
NET ASSETS at end of period (net of accumulated net investment $ 153,410,682 $ 81,800,071
income (loss) of ($289,525) and $75,533, respectively) =============== ===============
OTHER INFORMATION:
Capital Share transactions:
Shares sold 1,726,706 1,103,164
Shares issued in reinvestment of distributions to shareholders -- --
Less shares repurchased (177,356) (1,195,384)
--------------- ---------------
Net share transactions 1,549,350 (92,220)
=============== ===============
</TABLE>
See notes to financial statements.
8
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR THE PERIOD
<TABLE>
<CAPTION>
Six Months Year Year Year Year (4)
Ended Ended Ended Ended Ended August 15, 1994 *
October 31, April 30, April 30, April 30, April 30, through
(Unaudited) 1999 1998 1997 1996 April 30, 1995
----------- ---------- --------- --------- --------- --------------
<S> <C> <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 $ 10.000
------------ ----------- ----------- ----------- ---------- -----------
Net investment income (loss) (0.037) 0.102 (0.005) (0.027) (0.034) 0.013
Net realized and unrealized gain (loss)
on investmentand foreign currency
transactions 5.557 2.727 (1.189) (2.384) 1.248 (0.492)
------------ ----------- ----------- ----------- ---------- -----------
Total from investment operations 5.520 2.829 (1.194) (2.411) 1.214 (0.479)
------------ ----------- ----------- ----------- ---------- -----------
Less distributions:
Net investment income 0.000 0.000 (0.069) (0.203) 0.000 (0.002)
In excess of net investment income 0.000 0.000 0.000 (0.314) (0.097) 0.000
Return of capital 0.000 0.000 (0.029) 0.000 0.000 0.000
Net realized gains 0.000 0.000 0.000 (0.100) 0.000 (0.003)
In excess of net realized gains 0.000 0.000 0.000 (0.040) 0.000 0.000
------------ ----------- ----------- ----------- ---------- -----------
Total distributions 0.000 0.000 (0.098) (0.657) (0.097) (0.005)
------------ ----------- ----------- ----------- ---------- -----------
Paid in capital from subscription and
redemption fees (Note B) 0.000 0.001 0.032 0.018 0.043 0.094
------------ ----------- ----------- ---------- ---------- -----------
Net asset value, end of period $ 14.810 $ 9.290 $ 6.460 $ 7.720 $ 10.770 $ 9.610
============ =========== =========== =========== ========== ===========
TOTAL INVESTMENT RETURN (1) (2) 59.42% 43.80% (15.01)% (22.69)% 13.13% (3.85)%
- ----------------------- ============ =========== =========== =========== ========== ===========
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $153,410,682 $81,800,071 $57,506,372 $66,748,656 $88,863,054 $44,969,083
Operating expenses, net, to average
net assets (Note C) 1.21%(3) 1.31% 1.29% 1.26% 1.37% 1.50%(3)
Operating expenses, gross, to average
net assets (Note C) 1.21%(3) 1.31% 1.29% 1.26% 1.37% 1.72%(3)
Net investment income(loss) to
average net assets (0.61)%(3) (0.34)% (0.30)% (0.41)% (0.36)% 0.37%(3)
Portfolio turnover rate (2) 17% 27% 26% 26% 37% 33%
Per share amount of fees waived (Note C) $ 0.000 $ 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.
9
<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.
10
<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 contracts at October
31, 1999:
<TABLE>
<CAPTION>
Unrealized
Appreciation
Delivery Date Local Currency Face Amount Value (Depreciation)
------------- -------------- ----------- ----- --------------
<S> <C> <C> <C> <C> <C>
Japanese Yen (buy) 11/22/1999 2,088,750,258 $ 19,841,838 $ 20,100,858 $ 259,020
Japanese Yen (sell) 11/22/1999 2,088,750,258 18,907,000 20,100,858 (1,193,858)
-------------
$ (934,838)
=============
</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 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.
11
<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.
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 six months ended October 31, 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 six months ended October 31, 1999 were $36,288,012
and $19,500,165, 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, 1999 were as follows:
<TABLE>
<CAPTION>
Identified Gross Unrealized Net Unrealized
Cost Appreciation (Depreciation) Appreciation
--------------- ------------ -------------- ---------------
<S> <C> <C> <C>
$ 95,787,054 $ 64,618,763 $ (8,828,361) $ 55,790,402
</TABLE>
12
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE E - PRINCIPAL SHAREHOLDERS
As of October 31, 1999, there was one shareholder who owned greater than 10%
of the Fund's outstanding shares, representing 35% 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.
- ------------------------------------------------------------------------------
13
<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.
- -------------------------------------------------------------------------------
