<PAGE>
MARTIN CURRIE BUSINESS TRUST
JAPAN SMALL COMPANIES FUND
SEMI-ANNUAL REPORT
OCTOBER 31, 2000
(UNAUDITED)
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
PROFILE AT OCTOBER 31, 2000 (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 $147.8m
PERFORMANCE Total return from May 1, 1999 through October 31, 2000
o MCBT - Japan Small Companies Fund (excluding all
transaction fees) -16.7%
o Tokyo Stock Exchange - Second Section Index -18.8%
Annualized total return from August 15, 1994 through
October 31, 2000
o MCBT - Japan Small Companies Fund (excluding all
transaction fees) +5.1%
o MCBT - Japan Small Companies Fund
(including all transaction fees) +4.9%
o Tokyo Stock Exchange - Second Section Index -2.9%
(from September 1, 1994 through October 31, 2000)
1
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MCBT JAPAN SMALL COMPANIES FUND
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PROFILE AT OCTOBER 31, 2000 (Unaudited)
PORTFOLIO Over the six months ended October 31, 2000, our
COMMENTS fund fell by 16.7% indollar terms. By comparison,
the TSE First Section fell by 16.9% and the TSE
Second Section by 18.8%.
The recovery in the Japanese economy continued to
be a mild one. Corporate spending remained
relatively strong and led the economic revival.
But as consumers reacted to lower wages and
bonuses, private consumption was weak. Corporate
restructuring remained a threat.
Helped by global economic growth and better
corporate cost control, corporate profits
continued to grow at a record pace. Operating
earnings grew by around 40% y-o-y in the first
half of 2000.
Despite the economy picking up and good news on
earnings, the market struggled as investors
reacted to global technology and telecom concerns.
There was little valuation support for these
sectors, and liquidity support reduced as assets
were allocated to bonds or cash. Also benefiting
from the flow away from new economy stocks were
defensive areas such as health care, utilities and
foods, and energy. These sectors were the best
performers.
As investors sought to hide from the turmoil in
larger defensive stocks, smaller stocks were hit
hardest by the removal of liquidity from the
equity market. Domestic investors could not pick
up the slack from retreating foreign investors.
Despite our heavily overweight position in the
software sector, stock selection provided a major
contribution to performance. The top three
performers were: Konami, Seikoh Giken (optical
components), and Nippon System Development. We
added a number of stocks to the portfolio,
including Toyo Information System and Okamura
(office furniture). We emphasised domestic and
defensive stocks with the acquisition of Santen
Pharmaceutical and Terumo (health care).
OUTLOOK
We continue to see GDP growth of around 1.8% for
the year to March 2001 and the same again for the
following year. There are signs of an improvement
in winter bonuses, and wage income is no longer
falling. This may lead to a pick-up in consumer
spending. Corporate spending should remain at high
levels. We forecast corporate earnings to show
growth of at least 10% next year.
The selling of cross shareholdings continues to
hold back the market, but we may see this peak in
the first quarter of 2001. Given the global
environment and the lack of earnings visibility,
we are looking to invest in stocks more geared to
the domestic economy, but with low levels of
unwinding.
2
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MCBT JAPAN SMALL COMPANIES FUND
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PROFILE AT OCTOBER 31, 2000 (Unaudited)
INVESTMENT Michael Thomas has managed the fund since
MANAGER PROFILE inception. Michael graduated from Bristol
University with a degree in economics and joined
stockbrokers Vickers da Costa in 1973. He began
covering Japan in 1975 and became a director
in 1982. 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.
Kevin Troup assists him. In 1995, Kevin joined
Scottish Life as an investment analyst on the
Japanese desk. He was promoted to fund manager in
1997. He joined Martin Currie's Japan team as an
investment manager in 2000.
TOP TEN HOLDINGS % of net assets
Konami 3.5
Mabuchi Motor 3.2
Nippon System Development 3.2
Obic 3.1
Hirose Electric 2.7
Capcom 2.7
Toyo Information Systems 2.6
Aderans 2.6
Meitec 2.5
Aiful 2.3
3
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MCBT JAPAN SMALL COMPANIES FUND
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SCHEDULE OF INVESTMENTS
OCTOBER 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCK AND CONVERTIBLE BONDS - 95.4%
COMMON STOCK - 85.9%
ADERANS 105,000 $ 3,839,527
AIDA ENGINEERING 305,000 1,369,656
AIFUL 44,050 3,471,842
AIPHONE 50,500 499,840
ALPHA SYSTEMS 5,500 731,888
ALPINE ELECTRONICS 157,000 2,113,669
ALTECH # 88,000 1,258,929
ASIA SECURITIES PRINTING # 170,000 1,868,029
BENESSE 46,100 2,534,940
C TWO-NETWORK 16,100 995,968
C TWO-NETWORK* 8,050 497,984
C. UYEMURA & COMPANY 72,000 1,237,887
CANON APTEX 118,000 1,039,252
CAWACHI* 15,000 855,061
CIRCLE K JAPAN 59,380 1,915,572
DAIWA INDUSTRIES 129,000 336,938
DAIWA KOSHO LEASE 96,000 268,341
DAIWA LOGISTICS # 162,800 686,322
EIDEN # 243,000 1,492,095
FAMILYMART 59,000 1,562,663
FANCL 12,200 771,480
FUJI MACHINE MANUFACTURING 76,700 2,094,726
FUTABA 70,500 2,513,357
HAKUTO 89,100 1,967,933
HIRATA TECHNICAL 400 1,356
HIROSE ELECTRIC 34,200 3,949,228
I-NET 32,000 170,096
JAPAN BUSINESS COMPUTER 54,000 1,108,555
JAPAN MEDICAL DYNAMIC MARKETING 50,700 1,677,377
JSR 484,000 3,238,052
KAWASUMI LABORATORIES # 152,000 1,399,991
KISSEI PHARMACEUTICAL 87,000 1,593,850
KOA 55,000 1,234,936
KONAMI 61,200 5,160,061
KYOTO KIMONO YUZEN # 282 1,654,035
MABUCHI MOTOR 44,800 4,787,316
MAEZAWA INDUSTRIES 95,000 656,463
MEITEC 87,800 3,685,323
MKC-STAT 101,000 1,666,132
MOBILEPHONE TELECOMMUNICATIONS INTERNATIONAL 132 402,841
MORI SEIKI 100,000 910,965
MOSHI MOSHI HOTLINE 25,000 1,775,650
NAMCO 64,000 1,654,035
NICHICON 88,000 1,571,846
NIPPON BROADCASTING SYSTEM 30,000 1,682,628
NIPPON KONPO UNYU SOKO 219,000 1,463,144
NIPPON SYSTEM DEVELOPMENT 43,800 4,748,696
NISHIO RENT ALL # 131,000 737,149
NISSHA PRINTING 234,000 1,226,669
</TABLE>
See notes to financial statements.
4
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MCBT JAPAN SMALL COMPANIES FUND
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SCHEDULE OF INVESTMENTS
OCTOBER 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCK - CONTINUED
NISSHIN FUDOSAN # 50,000 $ 544,838
NISSIN 65,000 1,953,902
NORITZ 145,000 1,375,384
OBIC 13,600 4,549,329
OKAMURA 392,000 1,444,201
PCA # 31,000 497,182
PROMISE 30 2,252
RISO KAGAKU # 44,400 773,129
RYOSAN 146,000 2,709,527
SANKEN ELECTRIC 295,000 1,708,656
SANTEN PHARMACEUTICAL 155,000 3,061,220
SATO 88,000 2,024,286
SHIMACHU 40,000 604,866
STAR MICRONICS 115,000 1,512,395
SUMITOMO BAKELITE 266,000 2,976,548
TAIKISHA 142,000 1,039,802
TDC SOFTWARE # 56,400 1,498,969
TERUMO 86,000 2,435,412
TOKYO STYLE 154,000 1,268,808
TOPPAN FORMS 134,500 2,390,098
TOWA 71,000 1,398,983
TREND MICRO 11,500 1,085,552
TSUBAKI NAKASHIMA 233,500 2,925,304
YOKOWO 75,700 1,387,527
YUSEN AIR & SEA SERVICE # 84,000 1,724,419
-----------------
TOTAL COMMON STOCK - (COST $128,593,228) 126,972,882
-----------------
PRINCIPAL
AMOUNT
CONVERTIBLE BONDS - 9.5%
CAPCOM, 1.00%, 9/30/2005 (Y) 338,000,000 3,918,527
NAMCO, 0.80%, 9/28/2001 (Y) 50,000,000 478,853
NITTO DENKO NO 4, 3.90%, 3/30/2001 (Y) 70,000,000 1,828,346
SODICK, 0.00%, 9/30/2004 ** (Y) 306,000,000 2,446,822
TAIYO YUDEN, 1.15%, 9/30/2008 (Y) 50,000,000 1,581,359
TOYO INFORMATION SYSTEMS, 0.30%, 9/28/2007 (Y) 300,000,000 3,849,150
-----------------
TOTAL CONVERTIBLE BONDS - (COST $11,646,104) 14,103,057
-----------------
TOTAL COMMON STOCK AND CONVERTIBLE BONDS - (COST $140,239,332) + 141,075,939
-----------------
</TABLE>
See notes to financial statements.
5
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MCBT JAPAN SMALL COMPANIES FUND
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SCHEDULE OF INVESTMENTS
OCTOBER 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT TERM INVESTMENT - 0.9%
STATE STREET BANK AND TRUST, 5.50%, 11/01/2000 (a) $ 1,300,000 $ 1,300,000
-----------------
TOTAL SHORT TERM INVESTMENT - (Cost $1,300,000) 1,300,000
-----------------
TOTAL INVESTMENTS - (Cost $141,539,332) - 96.3% 142,375,939
CASH, RECEIVABLES AND OTHER ASSETS, LESS LIABILITIES - 3.7% 5,425,664
-----------------
NET ASSETS - 100.0% $ 147,801,603
-----------------
-----------------
</TABLE>
* Non-income producing security.
** Zero coupon bond.
# 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 10/31/2000 $1,300,000 par due 11/1/2000,
is collateralized by United States Treasury Note, 5.875%, due 10/31/2001
with a market value of $1,329,159.
+ Percentages of long term investments by industry are as follows: Auto
Parts (less than 0.1%), Broadcasting 1.1%, Chemicals 2.9%, Commercial
Services 2.9%, Computer Services 1.2%, Computer Software 5.7%, Computers
& Business Equipment 9.5%, Cosmetics & Toiletries 3.1%, Diversified 0.9%,
Drugs & Health Care 6.9%, Electrical Equipment 12.0%, Electronics 9.3%,
Engineering 0.7%, Entertainment 6.1%, Financial Services 3.7%, Food &
Beverages 1.0%, Industrial Machinery 3.4%, Lease Rental Obligations 1.1%,
Leisure 1.1%, Metals 2.0%, Office Furnishings & Supplies 1.0%,
Photography 0.7%, Plastics 2.2%, Printing 5.1%, Retail 3.8%, Retail Trade
2.7%, Semi-Conductor Manufacturing Equipment 2.1%, Software 0.3%,
Telecommunications Services 0.3%, Transportation 2.6%.
See notes to financial statements.
6
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $140,239,332) (Note B) $ 141,075,939
Investments in repurchase agreements, at value (Note B) 1,300,000
-----------------
Total Investments 142,375,939
Cash 229
Foreign currency, at value (cost $4,722,130) (Note B) 4,711,847
Receivable for investments sold 827,381
Dividend and interest receivable 337,494
-----------------
TOTAL ASSETS 148,252,890
-----------------
LIABILITIES
Management fee payable (Note C) 411,831
Administration fee payable (Note C) 12,006
Trustees fees payable (Note C) 876
Accrued expenses and other liabilities 26,574
-----------------
TOTAL LIABILITIES 451,287
-----------------
TOTAL NET ASSETS $ 147,801,603
-----------------
-----------------
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 126,649,621
Distributions in excess of net investment income (1,258,734)
Accumulated net realized gain on investment and foreign currency transactions 21,589,452
Net unrealized appreciation on investments and foreign currency translations 821,264
-----------------
TOTAL NET ASSETS $ 147,801,603
-----------------
-----------------
NET ASSET VALUE PER SHARE $ 12.21
($147,801,603 / 12,102,311 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
SIX MONTHS ENDED OCTOBER 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income $ 164,417
Dividend income 462,070
Foreign taxes withheld (72,614)
-----------------
TOTAL INVESTMENT INCOME 553,873
-----------------
EXPENSES
Management fee (Note C) 777,416
Custodian fee 62,428
Administration fee (Note C) 59,248
Audit fee 12,602
Legal fees 3,025
Transfer agent fee 2,904
Trustees fees (Note C) 1,211
Miscellaneous expenses 6,209
-----------------
TOTAL EXPENSES 925,043
-----------------
NET INVESTMENT LOSS (371,170)
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on investments 8,857,829
Net realized gain on foreign currency transactions 58,299
Net realized appreciation (depreciation) on:
Investments (36,926,502)
Foreign currency translations 5,812
-----------------
NET LOSS ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS (28,004,562)
------------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (28,375,732)
------------------
------------------
</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>
Six Months Ended Year
October 31, 2000 Ended
(Unaudited) April 30, 2000
------------------- ---------------
<S> <C> <C>
NET ASSETS, beginning of period $ 149,821,497 $ 81,800,071
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss (371,170) (808,444)
Net realized gain on investment transactions 8,857,829 28,145,395
Net realized gain (loss) on foreign currency transactions 58,299 (699,730)
Net unrealized appreciation (depreciation) on:
Investments (36,926,502) 28,016,055
Foreign currency translations 5,812 (71,979)
--------------- ----------------
Net increase (decrease) in net assets from operations (28,375,732) 54,581,297
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- --
In excess of net investment income -- --
Net realized gains -- (922,966)
---------------- ---------------
Total distributions -- (922,966)
---------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 34,019,838 23,860,070
Reinvestment of dividends and distributions to shareholders -- 904,844
Cost of shares repurchased (7,664,000) (10,401,819)
---------------- ----------------
Total increase in net assets from capital share transactions 26,355,838 14,363,095
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS (2,019,894) 68,021,426
---------------- ---------------
NET ASSETS, end of period (includes distributions in excess of net $ 147,801,603 $ 149,821,497
investment income of ($1,258,734) and ($887,564), respectively) ---------------- ---------------
---------------- ---------------
OTHER INFORMATION:
Capital Share transactions:
Shares sold 2,414,925 2,058,163
Shares issued in reinvestment of distributions to shareholders -- 52,394
Less shares repurchased (537,754) (695,017)
--------------- ---------------
Net share transactions 1,877,171 1,415,540
--------------- ---------------
--------------- ---------------
</TABLE>
See notes to financial statements.
9
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MCBT JAPAN SMALL COMPANIES FUND
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FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING FOR THE PERIOD
<TABLE>
<CAPTION>
Six Months
Ended Year Year Year Year Year
October 31, 2000 Ended Ended Ended Ended Ended
(Unaudited) April 30, 2000 April 30, 1999 April 30, 1998 April 30, 1997 April 30, 1996
---------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $ 14.650 $ 9.290 $ 6.460 $ 7.720 $ 10.770 $ 9.610
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) (0.017) (0.095) 0.102 (0.005) (0.027) (0.034)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (2.423) 5.544 2.727 (1.189) (2.384) 1.248
------------ ----------- ----------- ----------- ----------- -----------
Total from investment operations (2.440) 5.449 2.829 (1.194) (2.411) 1.214
------------ ----------- ----------- ----------- ----------- -----------
Less distributions:
Net investment income 0.000 0.000 0.000 (0.069) (0.203) 0.000
In excess of net investment income 0.000 0.000 0.000 0.000 (0.314) (0.097)
Return of capital 0.000 0.000 0.000 (0.029) 0.000 0.000
Net realized gains 0.000 (0.089) 0.000 0.000 (0.100) 0.000
In excess of net realized gains 0.000 0.000 0.000 0.000 (0.040) 0.000
------------ ----------- ----------- ----------- ----------- -----------
Total distributions 0.000 (0.089) 0.000 (0.098) (0.657) (0.097)
------------ ----------- ----------- ----------- ----------- -----------
Paid in capital from subscription and
redemption fees (Note B) 0.000 0.000 0.001 0.032 0.018 0.043
------------ ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 12.210 $ 14.650 $ 9.290 $ 6.460 $ 7.720 $ 10.770
------------ ----------- ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN (1) (2) (16.66)% 58.55% 43.80% (15.01)% (22.69)% 13.13%
------------ ----------- ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $147,801,603 $149,821,497 $81,800,071 $ 57,506,372 $66,748,656 $ 88,863,054
Operating expenses, net, to average
net assets (Note C) 1.19%(3) 1.21% 1.31% 1.29% 1.26% 1.37%
Operating expenses, gross, to average
net assets (Note C) 1.19%(3) 1.21% 1.31% 1.29% 1.26% 1.37%
Net investment loss to average
net assets (0.48)%(3) (0.57)% (0.34)% (0.30)% (0.41)% (0.36)%
Portfolio turnover rate (2) 25% 37% 27% 26% 26% 37%
</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.
(2) Periods less than one year are not annualized.
(3) Annualized.
See notes to financial statements.
10
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MCBT JAPAN SMALL COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS (Unaudited)
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
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MCBT JAPAN SMALL COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (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 October 31, 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.
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
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MCBT JAPAN SMALL COMPANIES FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (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, 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 six months ended October 31, 2000 were $57,912,787
and $35,538,255, 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, 2000 were as follows:
Identified Gross Unrealized Net Unrealized
Cost Appreciation (Depreciation) Appreciation
--------------- ------------ -------------- ---------------
$ 141,539,332 $27,493,006 ($26,656,399) $ 836,607
13
<PAGE>
MCBT JAPAN SMALL COMPANIES FUND
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE E - PRINCIPAL SHAREHOLDERS
As of October 31, 2000, there were two shareholders who owned greater than 10%
of the Fund's outstanding shares, representing 44% 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.
14
<PAGE>
MARTIN CURRIE BUSINESS TRUST
--------------------
TRUSTEES AND OFFICERS
Timothy J.D. Hall, 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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