DRACENA FUNDS, INC.
FX CURRENCY VALUE FUND
SEMIANNUAL REPORT
APRIL 30, 1996
<PAGE>
FX CURRENCY VALUE FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 1996
- ------------------------------------------------------------------------
Par Value
(000) (Note2)
----- -------
GOVERNMENT BONDS - 32.6
Australian Government, 7.00%, 04/15/00
(COST $46,246)............................ AUD 60 $ 45,158
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U.S. TREASURY OBLIGATIONS - 77.3%
U.S. Treasury Notes, 5.50%, 12/31/00
(COST $100,187)........................... 100 96,406
TOTAL INVESTMENTS (COST $146,433)* - 113.5%............ 141,564
OTHER ASSETS AND LIABILITIES, NET - (13.5)%............ (16,782)
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NET ASSETS - 100.0%.................................... $ 124,782
==========
* Represents cost for income tax purposes and differs from value by
unrealized depreciation of $4,869.
See Notes To Financial Statements
1
FX CURRENCY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996 (Unaudited)
ASSETS:
Investments, at market (COST $146,433)(Note 2)......... $ 141,564
Cash................................................... 92,552
Interest receivable.................................... 2,223
-----------
Total assets........................................ 236,339
-----------
LIABILITIES:
Accrued expenses....................................... 111,557
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NET ASSETS:............................................ $ 124,782
===========
NET ASSETS CONSIST OF:
Common stock........................................... $ 308
Additional paid in capital............................. 284,613
Accumulated net investment loss........................ (157,082)
Accumulated net realized loss on foreign
currency transactions................................ (1,988)
Accumulated net realized gain on investments........... 812
Net unrealized depreciation on investments............. (1,881)
-----------
NET ASSETS (30,777 shares outstanding)................. $ 124,782
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NET ASSET VALUE and redemption price per share......... $4.05
===========
Maximum offering price per share (100/95.50 of $4.05).. $4.24
===========
See Notes to Financial Statements
2
FX CURRENCY VALUE FUND
STATEMENT OF OPERATIONS
For the Six-Month Period Ended April 30, 1996 (Unaudited)
INVESTMENT INCOME:
Interest................................. $ 7,263
EXPENSES:
Management and Advisory fees (Note 4).... $ 1,691
Administration fee (Note 4).............. 24,861
Accounting fee (Note 4).................. 37,293
Distribution expenses (Note 4)........... 533
Shareholder servicing fees (Note 4)...... 253
Custodian fees (Note 4).................. 6,134
Reports to shareholders.................. 3,000
Audit fees............................... 14,900
Legal fees............................... 49,787
Registration fees........................ 1,500
Directors' fees and expenses (Note 4).... 9,400
Transfer agency fees (Note 4)............ 19,821
Amortization of organization expenses
(Note 2)............................... (6,942)
Other.................................... 3,805
---------
Total expenses before waiver from
Manager and Advisers................. 166,036
Total expenses waived by Manager and
Advisers (Note 4).................... (1,691)
---------
Expenses, net......................... 164,345
---------
Net investment loss...................... (157,082)
---------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Investments.............................. 870
Foreign currency transactions............ (1,988)
Net unrealized depreciation on investments. (513)
Net realized and unrealized loss from ---------
investments and foreign currency......... (1,631)
---------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS................................ $(158,713)
==========
See Notes to Financial Statements
3
FX CURRENCY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Period
For the Six-Month July 27, 1995
Period Ended (Commencement of
April 30, 1996 Operations) through
(UNAUDITED) October 31, 1995
---------------- ------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................. $(157,082) $(83,141)
Net realized gain (loss) from:
Investments........................ 870 (58)
Foreign currency transactions...... (1,988) (435)
Net unrealized depreciation on
investments........................ (513) (1,368)
---------- ----------
Change in net assets resulting
from operations..................... (158,713) (85,002)
Change in net assets from Fund share
transactions (Note 5)............... 0 368,497
---------- ----------
Total increase (decrease) in net
assets............................. (158,713) 283,495
NET ASSETS:
Beginning of period.................. 283,495 0
---------- ----------
End of period........................ $124,782 $283,495
========== ==========
See Notes to Financial Statements
4
FX CURRENCY VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
_____________________________________________________________________
1. DESCRIPTION OF THE FUND. The FX Currency Value Fund (the
"Fund") is a series of Dracena Funds, Inc. (the "Company"),
incorporated in Maryland on March 21, 1994. The Fund is a non-
diversified, open-end investment company, and is registered under the
Investment Company Act of 1940, as amended. The Fund, the only
series established, commenced operations on July 27, 1995.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of
the significant accounting policies of the Fund:
SECURITY VALUATION. Securities that are traded primarily on a
domestic or foreign exchange are valued at the last sale price on
that exchange or, if there is no recent sale, at the last current bid
quotation. Securities that are traded primarily on foreign
securities exchanges generally are valued at the exchange's closing
price of the securities on the preceding day. Securities for which
market quotations are not readily available are valued at fair value
as determined in good faith pursuant to guidelines established by the
Board of Directors of the Company
FEDERAL INCOME TAXES. The Fund intends to qualify annually and
elect to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 and to distribute
all of its taxable income to its shareholders. Therefore, no federal
income or excise tax provision is required
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. Distributions of net
investment income and net realized gains 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 foreign currency transactions and deferrals
of certain losses. Distributions to shareholders are recorded on ex-
dividend date and are made annually. Additional distributions may be
made to the extent necessary to avoid the payment of a 4% excise tax.
DEFERRED ORGANIZATION COSTS. Costs borne by the Fund in connection
with the initial registration and public offering of shares amounting
to $18,724 have been amortized on a straight-line basis over the
period from the date that the Fund commenced operations through
February 19, 1996.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund
are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities at the closing rates of exchange at the financial
statement date, and
(ii) purchases and sales of investment securities, interest income
and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.
5
FX CURRENCY VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)- CONTINUED
_____________________________________________________________________
2. SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
The Fund isolates that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities
held.
Reported net realized gains or losses from foreign currency
transactions arise from sales and maturities of securities, purchases
and sales of foreign currencies, currency gains or losses realized
between the trade and settlement dates on securities transactions,
and the difference between the amounts of interest and expenses
recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized gains or losses
from foreign currency transactions arise from changes in the value of
assets and liabilities other than investments in securities at the
end of the fiscal period, resulting from changes in exchange rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with
portfolio purchases and sales of securities denominated in a foreign
currency, the Fund may enter into forward foreign currency exchange
contracts. Additionally, the Fund may enter into these contracts to
hedge certain transactions to protect against adverse currency
movements. Foreign currency exchange contracts are recorded at
market value. Certain risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the
terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The forward
exchange contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for
financial statement purposes as unrealized until contract settlement
date, at which time 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
INVESTMENT TRANSACTIONS AND RELATED INCOME. Investment security
transactions are accounted for on a trade date basis. The Fund uses
the specific identification method for determining realized gains or
losses on investments. Interest income is recorded on an accrual
basis. All premiums or original issue discounts are amortized or
accreted for both financial and federal income tax reporting
purposes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
3. PURCHASES AND SALES OF INVESTMENT SECURITIES. Purchases and
sales of investment securities (excluding short-term investments) for
the six-month period ended April 30, 1996 were $243,640 and $178,362,
respectively.
6
FX CURRENCY VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)- CONTINUED
_____________________________________________________________________
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. The
Fund employs Dracena Funds Group, Inc. ("DFG" or the "Manager") to
establish a fund management team to have overall management
responsibility for the Fund pursuant to a signed agreement (the
"Management Agreement"). Subject to overall supervision by the Board
of Directors, and in accordance with the Fund's stated policies, the
Manager, in conjunction with the Fund advisers (described below) (the
"Advisers"), have sole discretion for the Fund, and will make
decisions affecting the Fund's portfolio. The Manager and KAM, Inc.,
one of the Fund's Advisers, are affiliates. The Fund pays DFG a
monthly fee at the annual rate of 0.60% of the Fund's average daily
net assets. DFG has agreed to permanently waive the management fee
for the six-month period ended April 30, 1996 which amounted to $597.
KAM, Inc. ("KAM") serves as a co-investment adviser to the Fund.
Subject to the supervision of the Fund's Board of Directors and the
Manager, KAM concentrates on currencies, in accordance with the
Fund's investment objectives and stated investment policies, pursuant
to an investment advisory agreement executed by Dracena Funds, Inc.
(the "Advisory Agreement"). Pursuant to the Advisory Agreement, KAM
receives a monthly fee at the annual rate of 0.50% of the Fund's
average daily net assets. KAM has agreed to permanently waive the
advisory fee payable to KAM for the six-month period ended April 30,
1996 which amounted to $498.
Princeton International L.L.P. ("PI") serves as a co-investment
adviser to the Fund, concentrating in sovereign debt and cash
investing, pursuant to an advisory agreement with Dracena Funds, Inc.
PI receives a monthly fee at the annual rate of 0.30% of the Fund's
average daily net assets for the performance of its services to the
Fund. PI has agreed to permanently waive the advisory fee payable to
PI for the six-month period ended April 30, 1996 which amounted to
$298.
Rohden Capital Management, Ltd. ("RCM") also serves as a co-adviser
to the Fund, concentrating in debt instruments, pursuant to an
advisory agreement with Dracena Funds, Inc. RCM receives a monthly
fee at the annual rate of 0.30% of the Fund's average daily net
assets for the performance of its services to the Fund. RCM has
agreed to permanently waive the advisory fee payable to RCM for the
six-month period ended April 30, 1996 which amounted to $298.
Rodney Square Management Corporation ("RSMC"), a wholly owned
subsidiary of Wilmington Trust Company ("WTC"), serves as
Administrator to the Fund pursuant to an Administration Agreement
with the Company. As Administrator, RSMC is responsible for services
such as financial reporting, compliance monitoring and corporate
management. For the services provided, RSMC receives a monthly
administration fee from the Fund at an annual rate based upon the
average daily net assets of the Fund, with a minimum annual fee of
$50,000. The administration fee paid to RSMC for the six-month
period ended April 30, 1996 amounted to $24,861.
Rodney Square Distributors, Inc. ("RSD"), a wholly owned subsidiary
of WTC, serves as distributor of the Fund's shares. RSD is paid an
annual fee by the Fund of 0.40% of the Fund's average daily net
assets, plus reimbursement of actual expenses incurred above the
amount of the fee up to a combined maximum of 0.75% of the Fund's
average daily net assets, for certain expenses incurred in connection
with the offering and sale of shares. The annual fee has been
authorized pursuant to a Distribution Plan (the "Plan") adopted by
the Fund pursuant to Rule 12b-1 under the 1940
7
FX CURRENCY VALUE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)- CONTINUED
_____________________________________________________________________
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES. -
CONTINUED
Act, and is used by RSD to cover expenses that are primarily intended
to result in, or that are primarily attributable to, the sale of
shares of the Fund. For the six-month period ended April 30, 1996,
such expenses amounted to $533. In addition, a related Shareholder
Servicing Plan authorizes up to 0.25% of average daily net assets for
shareholder servicing. The Shareholder Servicing Plan authorizes
expenses relating to shareholder account administration and
servicing. For the six-month period ended April 30, 1996, such
expenses amounted to $253.
RSMC determines the net asset value per share and provides accounting
services to the Fund pursuant to an Accounting Services Agreement
with the Company. For its services, RSMC receives a monthly
accounting fee from the Fund at an annual rate based upon the average
daily net assets of the Fund, with a minimum annual fee of $75,000.
For the six-month period ended April 30, 1996, RSMC's fees for
accounting services amounted to $37,293.
RSMC serves as the Fund's transfer agent pursuant to a transfer
agency agreement. For the six-month period ended April 30, 1996
RSMC's fees for transfer agent services amounted to $19,821.
Barclays Bank plc (the "Custodian") serves as custodian of the Fund's
investments.
Certain offficers of the Fund are also officers of the Manager and
Advisers.
5. FUND SHARE TRANSACTIONS. At April 30, 1996, there were
200,000,000 shares of $0.01 par value common stock authorized. There
were no transactions in shares of the Fund for the six-month period
ended April 30, 1996. Transactions in shares of the Fund for the
period from July 27, 1995 (Commencement of Operations) through
October 31, 1995, were as follows:
SHARES AMOUNT
-------- --------
Shares sold............. 31,175 $373,226
Shares redeemed......... (398) (4,729)
-------- --------
Net increase............ 30,777 $368,497
======== ========
6. LIQUIDATION OF THE CORPORATION. On March 12, 1996, the Board
of Directors of the Company approved the submission to shareholders
of a proposal to liquidate and dissolve the Company. A special
meeting of shareholders is scheduled to be held on or about June 12,
1996 to consider the proposal. If approved by the shareholders, the
Company would be liquidated and dissolved as soon thereafter as is
practicable.
8
FX CURRENCY VALUE FUND
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM
THE FINANCIAL STATEMENTS. IT SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO.
For the Period
For the Six-Month July 27, 1995
Period Ended (Commencement of
April 30, 1996 Operations) through
(UNAUDITED) October 31, 1995
---------------- ------------------
NET ASSET VALUE - BEGINNING OF PERIOD.... $9.21 $12.00
---------- ----------
INVESTMENT OPERATIONS:
Net investment loss................... (5.10) (2.70)
Net realized and unrealized loss
on investment and foreign currency
transactions........................ (0.06) (0.09)
---------- ----------
Total from investment operations... (5.16) (2.79)
---------- ----------
NET ASSET VALUE - END OF PERIOD.......... $4.05 $9.21
========== ==========
TOTAL RETURN(1).......................... (56.03)% (23.25)%
RATIOS (TO AVERAGE NET ASSETS)/
SUPPLEMENTAL DATA:
Expenses(2)........................... 165.22%* 96.82%*
Net investment loss................... (157.92)%* (91.81)%*
Portfolio turnover rate.................. 295.12%* 48.14%
Net assets at end of year (000 omitted).. $125 $283
(1) Total return excludes sales load and has not been annualized.
(2) The Manager and Advisers waived their entire fees amounting to
$0.05 per share for each period. If these fees had been
incurred by the Fund, the ratio of expenses to average daily net
assets for the six-month period ended April 30, 1996 and for the
period ended October 31, 1995 would have been 166.92% and
98.52%, respectively.
* Annualized
9
