<PAGE>
DARUMA MID-CAP VALUE FUND
ANNUAL REPORT
JUNE 30, 1999
</page>
<PAGE>
PORTFOLIO SUMMARY
<TABLE>
<CAPTION>
Portfolio Composition Value % of Net Assets
<S> <C> <C>
Common Stocks "2,483,296 " 93.4%
Cash & Other Net Assets "175,521" 6.6
Total Net Assets "2,658,817 " 100%
</TABLE>
Portfolio Characteristics (Unaudited)
Weighted Average Market Capitalization $1.90 billion
Median Market Capitalization $1.30 billlion
Average P/E Ratio 15 x
Average Portfolio Yield 0.8 %
Common Stock Sectors % of Net Assets
Capital Goods 22.8%
Healthcare 18.2
Consumer Cyclicals 16.7
Consumer Staples 10.5
Technology 10
Energy 6.9
Financial Services 6.3
Basic Materials 2
<TABLE>
<CAPTION>
Top Ten Positions Value % of Net Assets
<S> <C> <C>
1"Cyberonics, Inc." "$113,750 " 4.3%
2Dentsply International Inc. "98,175" 3.7
3Newell Rubbermaid Inc. "98,115" 3.7
4"Payless Shoesource, Inc." "96,300" 3.6
5Consolidated Stores Corporation "94,500" 3.6
6Tosco Corporation "93,375" 3.5
7"Informix Software, Inc." "92,812" 3.5
8International Multifoods Corporation "92,506" 3.5
9Santa Fe Resources Inc. "90,737" 3.4
10York International Corporation "89,906" 3.4
</TABLE>
</page>
<PAGE>
DARUMA MID-CAP VALUE FUND
<TABLE>
<CAPTION>
"Schedule of Investments at June 30, 1999"
<S>
Common Stocks - 93.4%
Shares Value
<S> <C> <C>
BASIC MATERIALS - 2.0%
"2,400" AK Steel Holding Corp "$54,003"
"54,003"
CAPITAL GOODS - 22.8%
"3,500" + Cuno Inc. "66,938"
"1,500" Harman International
Industries Incorporated "66,000"
"3,370" "IBP, Inc." "80,037"
"1,600" Millipore Corporation "64,900"
"5,500" + "Petsmart, Inc." "56,031"
"2,800" Pittston Brinks Group "74,900"
"3,800" Sensormatic Electronics
Corporation "52,962"
"3,600" "Stewart & Stevenson
Services, Inc." "54,225"
"2,100" York International
Corporation "89,906"
"605,899"
CONSUMER CYCLICALS- 16.7%
"3,500" Consolidated Stores
Corporation "94,500"
"1,000" Federal-Mogul
Corporation "52,000"
"1,100" "Harcourt General,
Inc." "56,719"
"2,900" "Hayes Lemmerz
International, Inc." "85,187"
"1,800" + "Payless Shoesource,
Inc." "96,300"
"5,700" The Stride Rite
Corporation "58,781"
"443,487"
CONSUMER STAPLES - 10.5%
"4,100" International
Multifoods Corporation "92,506"
"2,110" Newell Rubbermaid Inc. "98,115"
"8,000" + "PSS World Medical,
Inc" "89,000"
"279,621"
ENERGY - 6.9%
"11,900"+ Santa Fe Resources Inc. "90,737"
"3,600" Tosco Corporation "93,375"
"184,112"
The accompanying notes are an integral part
of the financial statements.
</page>
<PAGE>
DARUMA MID-CAP VALUE FUND
"Schedule of Investments
at June 30, 1999 (continued)"
Shares Value
FINANCIAL SERVICES - 6.3%
"1,300" Associated Banc-Corp "$53,950"
"2,950" "Dime Bancorp, Inc." "59,369"
"1,900" FirstMerit Corporation "53,200"
"166,519"
HEALTHCARE - 18.2%
"1,600" "Beckman Coulter, Inc." "77,800"
"9,100" + "Cyberonics, Inc." "113,750"
"3,400" Dentsply International
Inc. "98,175"
"2,000" "HCR Manor Care, Inc." "48,375"
"6,600" + "Quorum Health Group,
Inc." "82,912"
"2,000" + "Wesley Jessen
VisionCare, Inc." "63,875"
"484,887"
TECHNOLOGY - 10.0%
"6,200" + "Auspex Systems, Inc." "67,425"
"17,500"+ "Datatec Systems, Inc." "52,500"
"2,500" + "Genrad, Inc" "52,031"
"11,000"+ "Informix Software,
Inc." "92,812"
"264,768"
Total Common Stocks
" (Cost $2,465,072)" "2,483,296"
The accompanying notes are an integral part of
the financial statements.
</page>
<PAGE>
DARUMA MID-CAP VALUE FUND
"Schedule of Investments at June 30, 1999 (continued)"
Value
TOTAL INVESTMENTS - 93.4%
" (Cost $2,465,072)" "$2,483,296"
CASH AND OTHER ASSETS LESS
LIABILITIES - 6.6% "175,521"
NET ASSETS - 100% "$2,658,817"
</TABLE>
Notes to Schedule of Investments:
+Non-income producing.
Income Tax Information:
The cost of total investments for federal income tax
purposes was "$2,465,072. At June 30, 1999, net
unrealized appreciation on""investments was $18,224
consisting of aggregate gross ""unrealized appreciation
of $193,094 and aggregate gross""unrealized depreciation
of $174,870."
The accompanying notes are an integral part
of the financial statements.
</page>
<PAGE>
DARUMA MID-CAP VALUE FUND
<TABLE>
<CAPTION>
"Statement of Assets and Liabilities at June 30, 1999"
<S> <C>
ASSETS:
"Investments at value
(identified cost $2,465,072)" "$2,483,296 "
(Note 1)
Cash "54,207"
Receivable for securities sold "163,779"
Deferred organization costs "5,555"
Receivable for dividends "1,524"
Prepaid expenses and other assets "20,159"
TOTAL ASSETS "2,728,520"
LIABILITIES:
Payable for securities purchased "53,705"
Accrued expenses "15,998"
TOTAL LIABILITIES "69,703"
NET ASSETS "$2,658,817 "
ANALYSIS OF NET ASSETS:
Accumulated net realized
loss on investments "($166,631)"
Net unrealized appreciation on
investments "18,224"
Paid-in capital "2,807,224"
NET ASSETS "$2,658,817 "
PRICING OF SHARES:
"($2,658,817 / 229,807 shares
outstanding)" $11.57
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C> <C>
For the Year For the Year
Ended June Ended June
"30, 1999" "30, 1998"
From Investment Operations:
Net investment loss "($15,508)" "($11,014)"
Net realized (loss)/gain
on investments "-166,633" "234,036"
Net unrealized (depreciation)
on investments "-182,776" "-22,365"
Net (decrease)/increase
in net assets resulting from
operations "-364,917" "200,657"
Dividends to Shareholders:
Distributions paid from net
realized gains "-82,221" "-194,028"
From Capital Share
Transactions:
Net (decrease)/increase in net
assets from capital
share transactions (Note 2) "-87,451" "1,727,616"
(Decrease)/increase in net
assets "-534,589" "1,734,245"
Net Assets:
Beginning of year "3,193,406" "1,459,161"
End of year "2,658,817 " "3,193,406 "
The accompanying notes are an integral part of
the financial statements.
</TABLE>
</page>
<PAGE>
DARUMA MID-CAP VALUE FUND
<TABLE>
<CAPTION>
"Statement of Operations for the year ended June 30, 1999"
<S> <C>
Investment Income
Income:
Dividends "$25,190 "
Total Income "25,190"
Expenses:
Investment advisory fee (Note3) "27,104"
Custodian and transfer
agent fees "24,241"
Fund accounting fee "11,601"
Auditing and legal fees "9,871"
Federal and state
registration fees "10,790"
Other expenses "7,181"
Amortization of deferred
organization costs "2,250"
"93,038"
Less:
Fee waived and expenses
reimbursed by Advisor (Note 3) "-52,340"
Net Expenses "40,698"
Net Investment Loss "-15,508"
Net Realized and Unrealized
Loss on Investments (Note 1)
Net realized loss on investments"-166,633"
Net unrealized depreciation
on investments "-182,776"
Net realized and unrealized
loss on investments "-349,409"
Net Decrease in Net Assets
Resulting from Operations "($364,917)"
The accompanying notes are an integral part
of the financial statements.
</TABLE>
</page>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
This table is presented to show selected data for
a share outstanding throughout the periods and to
assist shareholders in evaluating the Fund's performance.
<S> <C> <C> <C>
For the period
For the year For the year 8/16/96 (e)
ended ended through
6/30/99 6/30/98 6/30/97
"Net Asset Value, Beginning
of Period" $13.33 $12.90 $10.00
Income from Investment Operations:
Net investment loss (c) -0.07 -0.07 -0.07
Net realized and unrealized
(loss)/gain on investments -1.35 2.05 2.98
-1.42 1.98 2.91
Less Distributions:
Distributions from net
realized gains -0.34 -1.55 -0.01
Total Distributions -0.34 -1.55 -0.01
"Net Asset Value, End of
Period" $11.57 $13.33 $12.90
Total Investment Return -11% 16% 29%(d)
Ratios/Supplemental Data:
"Net Assets, End of Period" "2,658,817 " "3,139,406 " "$1,459,161 "
Ratio of Expenses to
Average Net Assets (a) 1.50% 1.49% 1.49% (d)
Ratio of Net Investment Loss
to Average Net Assets (b) -0.60% -0.50% -0.60% (d)
Portfolio Turnover Rate 89% 73% 46%
</TABLE>
(a)The ratio of expenses to average net assets before waiver of fees and
reimbursement of expenses by "the investment adviser would have been 3.43%,
2.97% and 5.10% for the periods ended June 30, 1999, June 30,""1998 and June
30, 1997, respectively."
(b)The ratio of net investment loss to average net assets before waivers and
expense reimbursements by the investment "adviser would have been (2.50%),
(2.00%) and (4.21%) for the periods ended June 30, 1999, June 30, 1998 and"
"June 30, 1997, respectively."
(c)Calculated using average shares outstanding during the period.
(d) Not annualized.
(e) Commencement of operations.
The accompanying notes are an integral part of the financial statements.
</page>
<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 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 amortized 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 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 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"."
"The Fund has an unused capital loss carryover of approximately $138,510
available for Federal income tax purposes to be applied against future net
securities profits, if any, realized subsequent to June 30, 1999. The
carryover does not include net realized securities losses from November
1, 1998 through June 30, 1999 which are treated, for Federal income tax
purposes, as arising in fiscal 2000. If not applied, the carryover expires
in fiscal 2007."
</page>
<PAGE>
Daruma Mid-Cap Value Fund
Notes to Financial Statements (continued)
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
capital 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, 1999, the Fund reclassified $15,508 from accumulated
net investment loss and $2,191 from accumulated net realized
loss to paid-in-capital in accordance with generally accepted
accounting principles. This reclassification had no effect
on net assets."
e. Repurchase agreements:
"The Fund may enter into repurchase agreements with respect to
its portfolio securities solely with Firstar Bank, N.A.
(formerly 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 Firstar Bank until maturity
of the repurchase agreements. Repurchase agreements could
involve certain risks in the event of default or insolvency
of Firstar 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. Fund Shares:
<TABLE>
<CAPTION>
"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 year ended For the year ended
June 30, 1999 June 30, 1998
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Shares Sold "39,098" "$447,076""123,544" "$1,703,586 "
Shares Issued as
reinvested dividends
and distributions " 7,169 82,086 ""15,375" "194,028"
Shares Redeemed "(56,036) (616,613) ""-12,469" "-169,998"
Net (Decrease)/
Increase " (9,769) ($ 87,451)""126,450" "$1,727,616 "
</TABLE>
</page>
<PAGE>
Daruma Mid-Cap Value Fund
Notes to Financial Statements (continued)
3. Investment Adviser
"Under the Fund's investment advisory agreement with Daruma Asset
Management, Inc. (the "Adviser"), the Fund incurred $27,104 in fees
which were voluntarily waived by the Adviser for the year ended June
30, 1999. At the Fund's current net asset level, the agreement
provides for fees equal to 1% per annum of the Fund's average
daily net assets. In addition, the Adviser voluntarily reimbursed
other expenses of $25,236 for the year ended June 30, 1999."
4. Purchases and Sales of Securities
"For the year ended June 30, 1999, the cost of purchases and the
proceeds from sales of investment securities, other than short-
term securities, amounted to $2,339,517 and $2,581,803, respectively."
</page>
<PAGE>
"Report of Ernst & Young LLP, Independent Auditors"
To the Shareholders and the Board of Directors
Daruma Mid-Cap Value Fund
"We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Daruma
Mid-Cap Value Fund as of June 30, 1999, and the related
statement of operations for the year then ended, the
statement of changes in net assets for each of the two years
in the period then ended, and the financial highlights for
each of the periods indicated therein. 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 audits."
"We conducted our audits 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 includes 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, 1999 by
correspondence with the custodian and brokers. 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 audits
provide 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, 1999,
the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles."
ERNST & YOUNG LLP
"New York, New York"
6-Aug-99
Federal Income Tax Information (Unaudited)
"In order to meet certain requirements of the Internal Revenue Code,
we are advising you that the Fund made capital gain distributions of
$82,221 during the fiscal year ended June 30, 1999 which are subject
to a maximum rate of 20%. "
Shareholders should not use the above information to prepare their
tax returns. The information necessary to complete your income tax
returns will be included with your Form 1099 DIV which will be sent
to you separately in January 2000.
</page>
