THE DARUMA FUNDS, ICN.
237 Park Avenue
Suite 801
New York, NY 10017
Tel(212) 808-2424
September 4, 1997
VIA EDGAR TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, NW
Washington DC
"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,
/s/Mary B. O'Byrne
Secretary
/mo'b
Enclosures
cc: Thomas R. Westle, Battle Fowler LLP
<PAGE>
PORTFOLIO SUMMARY
Portfolio Composition Value % of Net Assets
Common Stocks "1,404,164" 96.2 %
Cash & Other Net Assets "54,997" 3.8
Total Net Assets "1,459,161" 100.0 %
Portfolio Characteristics
Average Market Capitalization $2.0 billion
Median Market Capitalization $1.1 billion
Average P/E Ratio 18.3 x
Average Portfolio Yield 0.8 %
Common Stock Sectors % of Net Assets
Basic Industries 18.1%
Consumer Non-Durable 14.3
Business Services 13.1
Healthcare 10.0
Transportation 9.1
Capital Goods 8.0
Consumer Staples 7.9
Media 7.7
Financial Services 5.5
Technology 2.5
Top Ten Positions Value % of Net Assets
1Corning Incorporated "55,625" 3.8%
2Airborne Freight Corporation "53,600" 3.7
3"Wet Seal, Inc. Cl. A" "53,550" 3.7
4Pittson Burlington Group "51,469" 3.5
5"Owens & Minor, Inc." "50,190" 3.4
6Newell Co. "47,946" 3.3
7"Dime Bancorp, Inc." "46,375" 3.2
8"A. Schulman, Inc." "45,672" 3.1
9CUNO Incorporated "45,500" 3.1
10Federal-Mogul Corporation "45,500" 3.1
<PAGE>
DARUMA MID-CAP VALUE FUND
"Schedule of Investments at June 30, 1997"
Common Stocks - 96.2%
Shares Value
BASIC INDUSTRIES - 18.13%
"1,000" Corning Incorporated "55,625"
"2,800" *CUNO Incorporated "45,500"
750 Fastenal Company "36,563"
755 W.R. Grace & Co. "41,619"
"1,055" Minerals Technologies Inc. "39,562"
"1,850" "A. Schulman, Inc." "45,672"
"264,541"
BUSINESS SERVICES - 13.12%
800 *Interim Services Inc. "35,600"
"3,360" "Owens & Minor, Inc." "50,190"
"1,010" Pittston Co. Brink's Group "30,300"
"2,000" Reynolds & Reynolds Company Cl. A"31,500"
"2,740" "Unisource Worldwide, Inc." "43,840"
"191,430"
CAPITAL GOODS - 8.03%
"3,360" *ANTEC Corporation "39,270"
900 "Echlin, Inc." "32,400"
"1,300" Federal-Mogul Corporation "45,500"
"117,170"
CONSUMER NON-DURABLE - 14.28%
"1,200" "Casey's General Stores, Inc." "25,800"
"1,470" *General Instruments Corporation "36,750"
"1,200" *"Linens n' Things, Inc." "35,550"
880 *MacFrugal's Bargains Close-Outs Inc. "23,980"
600 *"Payless Shoesource, Inc." "32,812"
"1,700" *"Wet Seal, Inc. Cl. A" "53,550"
"208,442"
The accompanying notes are an integral
part of the financial statements.
DARUMA MID-CAP VALUE FUND
"SCHEDULE OF INVESTMENTS at June 30, 1997 (continued) "
Shares Value
CONSUMER STAPLES - 7.94%
"1,430" Hormel Foods Corporation "38,431"
"1,270" "IBP, Inc." "29,527"
"1,210" Newell Co. "47,946"
"115,904"
FINANCIAL SERVICES - 5.45%
"2,650" "Dime Bancorp, Inc." "46,375"
920 Signet Banking Corporation "33,120"
"79,495"
HEALTHCARE - 9.96%
"1,520" "Arrow International, Inc." "44,270"
400 Raychem Corp. "29,750"
700 *R.P. Scherer Corporation "36,138"
947 *STERIS Corporation "35,158"
"145,316"
MEDIA - 7.71%
"2,715" "ADVO, Inc." "44,119"
960 A.H. Belo Corporation "39,960"
"1,400" *"U.S. WEST Media Group, Inc." "28,350"
"112,429"
TECHNOLOGY - 2.47%
"1,690" *"Wang Laboratories, Inc." "36,018"
TRANSPORTATION - 9.14%
"1,280" Airborne Freight Corporation "53,600"
"1,080" "Circle International, Inc." "28,350"
"1,830" Pittston Co. Burlington Group "51,469"
"133,419"
Total Common Stocks
" (Cost $1,180,799)" "1,404,164"
The accompanying notes are an integral part of
the financial statements.
<PAGE>
DARUMA MID-CAP VALUE FUND
"SCHEDULE OF INVESTMENTS at June 30, 1997 (continued) "
TOTAL INVESTMENTS - 96.23% "1,404,164"
" (Cost $1,180,799)"
CASH AND OTHER ASSETS LESS
LIABILITIES - 3.77% "54,997"
NET ASSETS - 100% "1,459,161"
*Non income producing.
Income Tax Information:
"The cost of total investments for federal income tax purposes
was $1,180,799. At"
"June 30, 1997, net unrealized appreciation on investments was
$223,365,"
"consisting of aggregate gross unrealized appreciation of
$237,614 and aggregate"
"gross unrealized depreciation of $14,249."
The accompanying notes are an integral part of
the financial statements.
<PAGE>
DARUMA MID-CAP VALUE FUND
"Statement of Assets and Liabilities at June 30, 1997"
ASSETS:
Cash "69,455"
"Investments at value
(identified cost $1,180,799) (Note 1)" "1,404,164"
Deferred organization costs "9,758"
Receivable for dividends and interest 230
Prepaid expenses and other assets "7,152"
TOTAL ASSETS "1,490,759"
LIABILITIES:
Investment advisory fee payable (Note 2)"8,090"
Accrued expenses "23,508"
TOTAL LIABILITIES "31,598"
NET ASSETS "1,459,161"
ANALYSIS OF NET ASSETS:
Accumulated net realized gain on investments "51,036"
Net unrealized appreciation on investments "223,365"
Paid-in capital "1,184,760"
NET ASSETS "1,459,161"
PRICING OF SHARES:
"Net asset value, offering and redemption price per share"
"($1,459,161"\ 113,127 shares outstanding)" $12.90
<PAGE>
Statement of Changes in Net Assets
For the period
"August 16, 1996 through"
"June 30, 1997 (Note 1)"
From Investment Operations:
Net investment loss "(5,673)"
Net realized gain on investments "57,855"
Net unrealized appreciation on investments "223,365"
Net increase in net assets resulting from
operations "275,547"
Dividends to shareholders:
Distributions paid from net realized gains "(1,146)"
From Capital Share Transactions:
Net increase in net assets from capital
share transactions (Note 3) "1,184,760"
Increase in net assets "1,459,161"
Net Assets:
Beginning of period ---
End of period "1,459,161"
The accompanying notes are an integral part of the
financial statements
<PAGE>
DARUMA MID-CAP VALUE FUND
"Statement of Operations for the period August 16, 1996
(commencement of operations) "
"through June 30, 1997"
INVESTMENT INCOME:
Income:
Interest "1,641"
Dividends "6,686"
Total Income "8,327"
Expenses:
Custodian and transfer agent fees "12,800"
Fund accounting fees "9,500"
Auditing and legal fees "9,253"
Investment advisory fee (Note 2) "8,090"
Federal and state registration fees "4,220"
Other expenses "2,034"
Amortization of deferred organization costs "1,952"
Total Expenses "47,849"
Less: Fees waived and expenses reimbursed by Advisor
(Note 2) "33,849"
Net Expenses "14,000"
Net Investment Loss "(5,673)"
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 1)
Net realized gain on investments "57,855"
Net unrealized appreciation on investments "223,365"
Net realized and unrealized gain on investments "281,220"
NET INCREASE IN NET ASSETS RESULTING from operations"275,547"
The accompanying notes are an integral part
of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS
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
8/16/96
through
6/30/97
(Note 1)
"Net Asset Value, Beginning of Period" $10.00
Income From Investment Operations:
Net investment loss (0.07)
Net realized and unrealized gains on investments 2.98
Total From Investment Operations 2.91
Less Distributions:
Distributions from net realized gains (0.01)
Total Distributions (0.01)
"Net Asset Value, End of Period" $12.90
Total Investment Return 29% (c)
Ratios/Supplemental Data:
"Net Assets, End of Period " "$1,459,161 "
Ratio of Expenses to Average Net Assets (a) 1.49% (c)
Ratio of Net Investment Loss to Average Net Assets (b) (0.60%) (c)
Portfolio Turnover Rate 46%
Average Commission Rate Paid (d) $0.04
(a)The ratio of expenses to average net assets before waiver
of fees and
reimbursement of expenses by the investment adviser would have
been
"5.10 % for the period ended June 30, 1997."
(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 (4.21)% for the period ended June 30, 1997."
(c)Not annualized.
(d)The Fund is required to disclose its average commission rate paid per share
for purchases and sales of investment securities.
The accompanying notes are an integral
part of the financial statements.
<PAGE>
DARUMA MID-CAP VALUE FUND
Notes to Financial Statements
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
the reported amounts and disclosures in the financial statement
s. 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
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 securitiess 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 as 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. Federal Income 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 investments
includes information regarding income taxes under the caption "Income
Tax Information"."
d. Distributions to Shareholders:
"Dividends and distributions are recorded on the ex-dividend date
and usually paid annually, but the Fund may make distributions
on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that
net realized gain can be offset by capital loss carryovers, if any,
it is the policy of the Fund not to distribute such gain. At June
30, 1997, the Fund reclassified $5,673 from accumulated net investment
loss to accumulated net realized gain."
<PAGE>
Notes to Financial Statements (continued)
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."
2. Investment Adviser:
"Under the Fund's investment advisory agreement with CastleRock
Capital Management, Inc. (""CCM""), the Fund incurred $8,090 in
fees which were voluntarily waived by CCM for the period August 16,
1996 through June 30, 1997. 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 $25,759 for the
period August 16, 1996 through June 30, 1997."
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"
" June 30, 1997"
Shares Amount
Balance (beginning of period) --- ---
Shares Sold "116,932" "$1,226,062 "
Shares Issued as reinvested dividends and distributions 108 "1,146"
Shares Redeemed "-3,913" "-42,448"
Balance (end of period) "113,127" "$1,184,760 "
4. Purchases and Sales of Securities:
"For the period ended June 30, 1997, the cost of purchases and
the proceeds from sales of investment securities, other than
short-term securities, amounted to $1,535,647 and $410,808
respectively. "
<PAGE>
<Audit Report>
Daruma Mid-Cap Value Fund
"Report of Ernst & Young LLP, Independent Auditors"
Shareholders and Board of Directors
Daruma Mid-Cap Value Fund
"We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Daruma Mid-Cap Value Fund
as of June 30, 1997, and the related statements of operations and changes
in net assets and financial highlights for the period from August 16,1997
commencement of operations) to June 30, 1997. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit."
"We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement.
An audit inclused examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned
as of June 30, 1997 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion."
"In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Daruma Mid-Cap Value Fund at June 30, 1997,
the results of its operations, the changes in its net assets and the
financial highlights for the period from August 16, 1997 to June 30,
1977, in conformity with generally accepted accounting principles."
"New York, New York"
13-Aug-97
</Audit Report>
"August 26, 1997"
"Dear Shareholder:"
"The Daruma Mid-Cap Value Fund celebrated its first full year of
operations on August 16th. The Fund started with $100,000 in seed
money, with shares valued at $10.00. On June 30, 1997, its first fiscal
year-end, the Fund closed at $12.90 a share with total net assets of
$1,459,161. This represents a total return of 29% since inception
versus +25% for the S&P MidCap Index, the appropriate benchmark. For
the six months ended June 30th, the Fund was +19.9% versus +13.0% for
the Index."
Market & Economic Overview:
"The stock market continued its bullish pace for large companies during
the first six months of the year with the S&P 500 (a large-cap index
comprised of 500 stocks) +20.6% and the Dow Jones Industrial Average
(also a large-cap index composed of 30 stocks) +2-0.1%. Currently, the
market seems to be cooling off and becoming more volatile on the
downside. We have days when the DJIA drops 247 points only to turn
around the next day with a 100 point gain. By almost all measures the
market is expensive, especially for large-cap stocks. Small- and mid-cap
companies as a whole are much cheaper, and we are finding some
interesting investment opportunities."
"With strong corporate earnings, economic growth now runnign at a more
moderate rate (close to 2% for the second quarter versus 5.9% for the
first), and with practically nonexistent inflation, the economic
environment continues to bode well for the stock market. From a
market point of view, we are certainly living in interesting times!"
Portfolio Strategy
"Regardless of what the overall market does, we will continue to
work hard to seek out mid-cap stocks that present the most favorable
risk/reward prospects. With our long-term view, we see periods of market
declines as opportunities for bargin hunting. It is precisely during
those times that we can buy high quality companies in growing industries
at rock-bottom prices. We hope you'll feel the same way about investing
with us in the Fund during those periods."
"We've enclosed your Fund's Annual Report, which includes the audited
financial statements at June 30, 1997. The financial statements detail
the Fund's portfolio of investments, portfolio characteristics, performance
data and expenses."
"Please call us at (800) 435-5076 after 5:30 pm to get the daily Net
Asset Value per share. We will let you know when the Fund's NAV becomes
available daily in newspapers. The Fund closed last night at $13.57 per
share."
Sincerely,
/s/Mariko O. Gordon
Mariko O. Gordon, CFA
President
<PAGE>
