THE DARUMA FUNDS, INC.
237 Park Avenue
Suite 801
New York, NY 10017
tel(212) 808-7407
fax (212) 808-2480
February 20, 1997
VIA EDGAR TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, NW
Washington DC 20549
Re: Daruma Mid-Cap Value Fund, a series of The Daruma
Funds, Inc.
Registration No. 333-03709
ICA No. 811-07621
Gentlemen:
Transmitted herewith for filing is the Daruma Mid-Cap
Value Fund's Semi-Annual Report to Shareholders dated
December 31, 1996.
Please do not hesitate to contact me at (212) 808-2424
with any questions or comments you may have regarding
this letter.
Very truly yours,
Mary B. O'Byrne
Secretary
/mo'b
Enclosures
cc: Thomas R. Westle, Battle Fowler LLP
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DARUMA MID-CAP VALUE FUND
Notes to Financial Statements (unaudited)
1. Summary of Significant Accounting Policies
Daruma Mid-Cap Value Fund (the "Fund") is a series
of The Daruma Funds, Inc., a diversified open-end
management company incorporated under the laws of
Maryland. The Fund commenced operations on August 16,
1996.
The preparation of financial statements in
conformity with generally accepted accounting principles
requires the Fund's management to make estimates and
assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results
could differ from those estimates.
a. Valuation of investments:
Market values for securities listed on an exchange
are based upon the latest quoted sales prices as of 4:00
p.m. eastern time, on the valuation date. Securities not
traded on the valuation date are valued at the mean of
the latest quoted bid and asked prices. Securities not
listed on an exchange are valued at the latest quoted bid
price. Temporary cash investments and debt obligations
with 60 days or less remaining to maturity are valued at
cost, unless the Board of Directors determines that this
does not represent fair value. All prices of listed
securities are taken from the exchange where the security
is primarily traded. Securities may be valued on the
basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of
such securities. Securities for which market quotations
are not readily available or which are restricted as to
sale, and other assets are valued by such methods the
Board of Directors deems in good faith to reflect fair
value.
b. Investment transactions and related investment income:
Investment transactions are accounted for on the
trade date and dividend income is recorded on the ex-dividend
date. Interest income is recorded
on the accrual basis. Realized gains and losses from investment
transactions are calculated using the identified cost
method.
c. Taxes:
As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the Fund is
not subject to income taxes to the extent that it
distributes substantially all of its taxable income for
its fiscal year. The schedule of investment includes
information regarding income taxes under the caption
"Income Tax Information".
d. Distributions:
Dividends and distributions are recorded on the
ex-dividend date and usually paid annually in
December. Any
taxable income or gain remaining at fiscal year-end will
be distributed in December.
<PAGE>
Notes to Financial Statements (continued)(unaudited)
e. Repurchase agreements:
The Fund may enter into repurchase agreements with
respect to its portfolio securities solely with Star
Bank, N.A., the custodian of its investments. The Fund
restricts repurchase agreements to maturities of no more
than seven days. Securities pledged as collateral for
repurchase agreements are held by Star Bank until
maturity of the repurchase agreements. Repurchase
agreements could involve certain risks in the event of
default or insolvency of Star Bank, including possible
delays or restrictions upon the ability of the Fund to
dispose of the underlying securities.
f. Organizational expenses:
Costs incurred by the Fund in connection with its
organization and initial registration of shares of
$11,710 have been deferred and are being amortized on a
straight line basis over a five-year period from the date
of commencement of operations.
g. Star Treasury Fund:
The Star Treasury Fund is an open-end, diversified
investment management company. The Fund seeks to achieve
stability of principal and current income, and invests
exclusively in short-term U.S. Treasury obligations. At
December 31, 1996, the Fund had $52,366 invested in the
Star Treasury Fund.
2. Investment Adviser:
Under the Fund's investment advisory agreement with
CastleRock Capital Management, Inc. ("CCM"), the Fund
accrued $2,040 in fees which were voluntarily waived by
CCM for the period August 16, 1996 through December 31,
1996. The agreement provides for fees equal to 1% per
annum of the Fund's first $100 million of the Fund's
average daily net assets; 0.75% of the next $100 million
of such net assets; and .50% of the Fund's average daily
net assets more than $200 million. In addition, CCM
voluntarily reimbursed other expenses of $14,116 for the
period August 16, 1996 through December 31, 1996.
3. Fund Shares:
The Board of Directors has authority to issue an
unlimited number of shares of capital stock of the Fund,
par value $.001. Share transactions were as follows:
For the
period
August 16, 1996
through
December 31, 1996
Shares Amount
Balance (beginning of period). . . .10,192 $101,924
Sold . . . . . . . . . . . . . . . .82,802 862,369
Issued as reinvested dividends
and distributions. . . . . . . . . . . 108 1,146
Redeemed . . . . . . . . . . . . . . .(975) (10,015)
Balance (end of period). . . . . . .92,127 $955,424
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Notes to Financial Statements (continued)(unaudited)
4. Purchases and Sales of Securities:
For the period ended December 31, 1996, the cost of
purchases and the proceeds from sales of investment
securities, other than short-term securities, amounted to
$984,941 and $64,108, respectively.
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PORTFOLIO SUMMARY (unaudited)
% of Net
Portfolio Composition Value Assets
Common Stocks 958421 96.7 %
Preferred Stock & Bonds 52390 5.3
Cash & Other Net Assets -19494 -2
Total Net Assets 991317 100 %
Portfolio Characteristics
Average Market Capitalization 2042 million
Median Market Capitalization 943 million
Average P/E Ratio 18.5 x
Average Portfolio Yield 0.8 %
Common Stock Sectors % of Net Assets
Business Services 12.6 %
Consumer Non-Durable 12.6
Basic Industries 12.1
Healthcare 12.4
Capital Goods 11.1
Consumer Staples 8.4
Financial Services 8.4
Technology 7.5
Transportation 7.3
Media 6.3
Energy 1.2
% of Net
Top Ten Positions Value Assets
1 "Arrow International, Inc." 39760 4 %
2 "Dime Bancorp, Inc." 36138 3.6
3 "ADVO, Inc." 35630 3.6
4 Corning Incorporated 34685 3.5
5 Hormel Foods Corp. 34560 3.5
6 Keane Inc. 32385 3.3
7 R.P. Scherer Corp. 32160 3.2
8 General Instruments Corp. 31789 3.2
9 "A. Schulman, Inc." 29400 3
10 W.R. Grace & Co. 28721 2.9
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DARUMA MID-CAP VALUE FUND
"Schedule of Investments at December 31, 1996 "
(Unaudited)
Common Stocks - 96.7%
Shares Value
BASIC INDUSTRIES - 12.1%
750 Corning Incorporated 34685
555 W.R. Grace & Co. 28721
655 Minerals Technologies Inc. 26855
1200 "A. Schulman, Inc." 29400
119661
BUSINESS SERVICES - 12.6%
1020 "Keane, Inc." 32385
1745 National Education Corporation 26611
2560 "Owens & Minor, Inc." 26240
810 Pittston Brink's Group 21870
900 "Unisource Worldwide, Inc." 18225
125331
CAPITAL GOODS - 11.1%
280 Alco Standard Corporation 14455
2980 ANTEC Corporation 26448
1120 "BW/IP, Inc." 18480
1300 Federal-Mogul Corporation 28600
660 USG Corporation 22358
110341
CONSUMER NON-DURABLE - 12.6%
1200 "Casey's General Stores, Inc." 22500
1400 "Chico's FAS, Inc." 5775
1470 General Instruments Corporation 31789
880 MacFrugal's Bargains Close-Outs Inc. 22990
1050 The Scotts Company Cl. A 20869
1000 "The Wet Seal, Inc." 21375
125298
CONSUMER STAPLES - 8.4%
1280 Hormel Foods Corporation 34560
870 "IBP, Inc." 21098
860 Newell Co. 27090
82748
ENERGY - 1.2%
150 Tosco Corporation 11869
FINANCIAL SERVICES - 8.4%
2450 "Dime Bancorp, Inc." 36138
440 "Fleet Financial Group, Inc." 21945
820 Signet Banking Corportion 25215
83298
The accompanying notes are an integral part of the
financial statements.
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SCHEDULE OF INVESTMENTS (continued) (unaudited)
Shares Value
HEALTHCARE - 12.4%
1420 "Arrow International, Inc." 39760
640 R.P. Scherer Corporation 32160
610 "St. Jude Medical, Inc." 26001
577 STERIS Corporation 25100
123021
MEDIA - 6.3%
2545 "ADVO, Inc." 35630
760 A.H. Belo Corporation 26505
62135
TECHNOLOGY - 7.5%
2700 Unisys Corporation 18225
1190 "Wang Laboratories, Inc." 24098
42323
TRANSPORTATION - 7.3%
1190 Airborne Freight Corporation 27816
680 "The Harper Group, Inc." 15980
1430 Pittston Burlington Group 28600
72396
Total Common Stocks 958421
" (Cost $920,657)"
PREFERRED STOCK - 0%
185 "Fresenius National Medical Care, "
Inc. $.10 Cl. D (Cost $13) 24
MUTUAL FUNDS - 5.3%
Star Treasury Fund (Note 1)
"(Cost $52,366)" 52366
Total Investments - 102.0%
" (Cost $973,036)" 1010811
LIABILITIES LESS CASH AND
OTHER ASSETS - (2.0%) -19494
NET ASSETS - 100% 991317
+Non-income producing.
Income Tax Information:
The cost of total investments for federal income tax
"purposes was $973,036. At December 31, 1996, net "
"unrealized appreciation for all securities was $37,775,"
consisting of aggregate gross unrealized appreciation
"of $62,874 and aggregate gross unrealized depreciation "
"of $25,099."
The accompanying notes are an integral part of the
financial statements.
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DARUMA MID-CAP VALUE FUND
Statement of Assets and Liabilities at
" December 31, 1996 (unaudited)"
ASSETS:
"Investments at value (identified cost $973,036) "
(Note 1) 1010811
Deferred organization costs 10802
Receivable for dividends and interest 628
Prepaid expenses and other assets 6572
TOTAL ASSETS 1028813
LIABILITIES:
Payable for securities purchased 18550
Investment advisory fee payable(Note 2) 2040
Accrued expenses 16906
TOTAL LIABILITIES 37496
NET ASSETS 991317
ANALYSIS OF NET ASSETS:
Accumulated net investment loss -577
Overdistributed net realized gains on
investments -1146
Accumulated net realized loss on
investments -159
Unrealized appreciation on investments 37775
Additional paid-in capital 955424
NET ASSETS 991317
PRICING OF SHARES:
"Net asset value, offering and redemption "
price per share 10.76
"($991,317\92,127 shares outstanding) (Note 3)"
Statement of Changes in Net Assets (unaudited)
For the period
" August 16, 1996"
through
" December 31, "
1996 (Note 1)
From Investment Activities:
Net investment loss -577
Net realized loss on investments -159
Net unrealized appreciation on 37775
investments
Net Increase in net assets resulting
from operations 37039
Dividends to shareholders:
Distributions paid from net realized
gains -1146
From Capital Share Transactions:
Net Increase in net assets from capital
share transactions (Note 3) 853500
Increase in net assets 889393
Net Assets:
Beginning of period (Note 1) 101924
End of period 991317
The accompanying notes are an integral part
of the financial statements.
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DARUMA MID-CAP VALUE FUND
Statement of Operations for the period ended
" December 31, 1996 (unaudited)"
INVESTMENT INCOME:
Income:
Dividends 1560
Interest 923
Total Income 2483
Expenses:
Investment advisory fee (Note 2) 2040
Custodian and transfer agent fees 4230
Fund accounting fees 4120
Auditing and legal fees 4042
Federal and state registration fees 2185
Amortization of deferred organization
costs 908
Other expenses 1691
Total Expenses 19216
Less: Fees waived and expenses reimbursed by
advisor (Note 2) -16156
Net Expenses 3060
Net Investment Loss -577
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 1):
Net realized loss on investments -159
Net unrealized appreciation on investments
on investments 37775
Net realized and unrealized gain
on investments 37616
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 37039
The accompanying notes are an integral part of the
financial statements.
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FINANCIAL HIGHLIGHTS (unaudited)
This table is presented to show selected data
"for a share outstanding throughout the period, "
and to assist shareholders in evaluating the
Fund's performance.
For the period
" August 16, 1996"
through
" December 31, "
1996 (Note 1)
"Net Asset Value, Beginning of Period" 10
Income From Investment Operations:
Net investment loss -0.01
Net realized and unrealized gains
on investments 0.78
Total From Investment Operations 0.77
Less Distributions:
Distributions from net realized gains -0.01
Total Distributions -0.01
"Net Asset Value, End of Period" 10.76
Total Return 7.7%
Ratios/Supplemental Data
"Net Assets, End of Period " 991317
Ratio of Expenses to Average
Net Assets (a) 1.48%*
Ratio of Net Investment Loss
to Average Net Assets (b) -0.28%*
Portfolio Turnover Rate 33%*
Average Commission Rate 0.03
* Annualized.
(a) The ratio of expenses to average net assets before
waiver of fees andreimbursement of expenses by the
investment adviser would have been 9.30 % for the
"period ended December 31, 1996."
(b) The ratio of net investment loss to average net
assets before the waiver of fees and reimbursement
of expenses by the investment adviser would have been
"(8.1)% for the period ended December 31, 1996."
The accompanying notes are an integral part of the
financial statements.
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