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PROSPECTUS
DARUMA MID-CAP VALUE FUND
60 East 42nd Street
Suite 1112
New York, NY 10165
(800) 435-5076
October 28, 1999
The Daruma Mid-Cap Value Fund is (the "Fund") is a series of
The Daruma Funds, Inc. (the "Company"), a no-load diversified,
open-end management investment company. The Fund's objective is to
seek long-term capital appreciation by investing primarily in
the common stocks of medium capitalization companies.
AS WITH ALL MUTUAL FUNDS, THE U.S. SECURITIES AND
EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES AND DOES NOT GUARANTEE THE ACCURACY OR
COMPLETENESS OF THIS PROSPECTUS. IT IS A CRIMINAL OFFENSE
TO SUGGEST OTHERWISE.
TABLE OF CONTENTS
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Risk/Return Summary
Fund Performance
Fund Expenses
Financial Highlights
Investment Objective
Principal Investment Strategies
Additional Investment Policies
Investment Risks
Management of the Fund
How to Purchase Shares
How to Redeem Shares
Net Asset Value
Dividends and Distributions
Taxes
Shareholder Information
RISK/RETURN SUMMARY
Investment Objective
The Fund's investment objective is to provide long-term capital appreciation
by investing, under normal circumstances, at least 65% of its total assets
in medium capitalization (mid-cap) companies. Although the Fund will
strive to achieve its goal, there is no assurance that it will.
Investment Strategy
The Fund invests in mid-cap companies that Daruma Asset Management, Inc.,
(the "Adviser"), believes are undervalued and whose anticipated earnings
growth will accelerate. Companies with equity market capitalization from
$500 million to $7 billion at the time of investment are considered mid-cap
companies. The Fund believes that buying the common stock of companies that
are undervalued and changing provides the best combination of risk and
reward. The Fund will invest in a portfolio normally composed of
approximately 35 common stocks diversified among a broad range of
industries.
Why focus on Mid-Cap Stocks?
There are three reasons why the Fund focuses on mid-cap stocks.
First, mid-cap stocks are generally less volatile than small-cap stocks.
By focusing on the mid-cap sector, the Fund hopes to capture most of the
long-term outperformance smaller companies generate versus larger companies,
while experiencing less volatility and risk.
Second, the mid-cap universe is not well followed on Wall Street, allowing
the Adviser's emphasis on primary research to add value.
Third, medium-sized companies historically undergo evolutionary changes in
their businesses at a faster rate than large companies do, allowing for more
frequent investment opportunities.
Who Should Invest in the Fund?
Investors who have a long-term time horizon and can accept stock market risk
as well as the more volatile returns of mid-cap stocks versus "blue chip"
stocks. This Fund is an appropriate investment for individuals, educational
funding accounts, trusts, foundations, endowments, as well as IRAs and other
tax-deferred accounts.
Risks of Investing in the Fund
Investing in any mutual fund involves risk, including the risk that you may
lose part or all of the money you invest. The price of Fund shares will
increase and decrease according to changes in the value of the Fund's
investments. This Fund will be affected primarily by changes in stock
prices. Because the Fund seeks long-term capital appreciation by investing
primarily in mid-cap companies, its investments are likely to involve a
higher degree of liquidity risk and price volatility than investments in
larger capitalization securities.
Although the Fund is diversified within the meaning of the Investment
Company Act of 1940, as amended, it will normally invest in a limited
number of securities. Therefore, the Fund may contain more risk than other
funds with a similar objective invested in a broader range of securities.
To the extent that the Fund invests in a limited number of securities, it
may be more susceptible to any single, corporate, economic, political or
regulatory occurrence than a more widely diversified fund.
An investment in the Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any
other government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your investment
consultant to determine whether it is an appropriate investment for you.
FUND PERFORMANCE
This bar chart and table can help you evaluate the potential risks of
investing in the Fund. They show changes in the Fund's yearly performance
over the life of the Fund and compare the Fund's average annual returns for
the past one year and the life of the Fund to those of the S&P MidCap Index1 and the
Russell 2000 Stock Index2 during each period. You should keep in mind that
the Fund's past performance is not necessarily an indication of how it will
perform in the future.
BAR GRAPH
Total Returns for the Daruma Mid-Cap Value fund at 12/31*
1996: +8%
1997: +36%
1998: -6%
For the six months ended September 30, 1999, the Fund's performance
was (13.97)%.
Best Quarter 6/30/97 +21.70%
Worst Quarter 9/30/98 (23.93)%
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Average Annual Total Returns for the period ended December 31, 1998
Daruma S&P Russell
Mid-Cap Mid-Cap 20002
Fund Index1
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For the period ended December 31, 1998
One Year (6.14)% +19.36 % (2.56)%
Average Annual Total Return Since
Inception +14.31% +26.30% +11.11%
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* Inception date of the Daruma Mid-Cap Value Fund was August 16, 1996.
1 The S&P MidCap Index is the Standard & Poor's MidCap Index, which is an
unmanaged index of 400 domestic companies frequently used as a general
measure of stock market performance. The index is unmanaged and does
not include the actual costs of buying, selling and holding securities.
2 The Russell 2000 Stock Index is measures the performance of the 2000
smallest companies out of the 3000 largest publicly traded U.S.-domiciled
companies by market capitalization. The index is unmanaged and does not
include the actual costs of buying, selling and holding securities.
FUND EXPENSES
The following table describes the fees and expenses that you would pay in
connection with an investment in the Fund.
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Shareholder Transaction Fees
(fees paid directly from your investment)
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Maximum Sales Load Imposed on Purchases
None
Maximum Sales Load on Reinvested Dividends
None
Redemption Fee
None
Exchange Fee
None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Year ended June 30, 1999:
Management Fees*
1.00%
Distribution and Service (12b-1) Fees
0.00%
Other Expenses*
2.43%
Total Operating Expenses*
3.43%
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* Daruma Asset Management, Inc. has voluntarily undertaken to waive fees and
pay expenses in order to prevent total operating expenses (exclusive of
taxes, interest, brokerage commissions and extraordinary expenses) from
exceeding 1.50% of average daily net assets.
Example
This example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same** Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
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1 Year
3 Years
5 Years
10 Years
Daruma Mid-Cap Value
fund
$346
$1,053
$1,784
$3,712
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** The Fund's actual rate of return may be greater or less than the
hypothetical 5% return we use here. This example does not assume the
voluntary expense cap described above. With such expense cap, the
amounts paid over the 1, 3, 5 and 10 years would equal $153, $474, $818
and $1,791, respectively.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since the Fund's inception on August 16, 1996.
Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that an investor would
have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
Ernst & Young LLP, independent auditors, whose report, along with the Fund's
financial statements, are included in the Fund's annual report, which is
available upon request. The information presented is historical and is
not intended to indicate future performance of the Fund.
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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
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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
Total from Investment Operations (1.42) 1.98 2.91
Less Distributions:
Distributions from net realized gains (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 $2,659,408 $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) (0.6%) (0.5%) (0.6%)(d)
Portfolio Turnover Rate 89% 73% 46%
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(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, 1998 and 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, 1998 and 1997,
respectively.
(c) Calculated using average shares outstanding during the period.
(d) Not annualized
(e) Commencement of operations.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing primarily in equity
securities of medium capitalizations companies (companies with market
capitalization ranging from $500 million to $7 billion), including stocks
of companies listed on the S&P MidCap Index. The Company's Board of
Directors, however, may change this definition of medium capitalization
companies based on current market conditions without shareholder approval.
The Adviser believes that original research drives performance. The Adviser
invests in companies that it believes are about to undergo significant
positive changes in earnings growth, and whose valuations do not yet
reflect such changes. The Adviser attempts to identify those mid-cap
companies that meet these investment criteria by conducting its own
thorough and original research.
The Fund will normally invest in a portfolio of approximately 35 equity
securities considered by the Adviser to have the potential for providing
long-term capital appreciation. The Adviser believes that by investing in
a portfolio of approximately 35 companies, the Fund will be able to
diversify its holdings and will attempt to avoid certain of the risks
associated with an investment in mid-cap companies.
Under normal circumstances, the Fund invests at least 65% of its total assets
in the equity securities of medium capitalization companies. The Fund will
not sell a stock just because the company has grown to a market
capitalization which exceeds the definition of medium capitalization
companies that may, on occasion, purchase companies with market
capitalizations greater than that standard.The Fund may also invest in
other types of equity and debt securities such as nonconvertible and
convertible preferred stocks, bonds and warrants, foreign securities
(such as American Depositary Receipts), U.S. government and agency
securities, short-term fixed income securities, and may retain assets
in cash or cash equivalents. The Fund will only invest in investment
grade bonds and short-term fixed income securities having a rating at
the time of investment of at least, or equivalent to BBB (which
may have speculative characteristics) by Standard & Poor's Rating
Groups ("S&P") or, if unrated, determined by the Adviser to be of
comparable quality. The values of debt and fixed income securities
are likely to decline in times of rising interest rates and to rise in
times of falling interest rates. Generally, the longer the maturity
of a fixed income security, the more pronounced is the effect of a change
in interest rates on the value of the security. Securities in the lowest
investment grade debt category generally have higher yields, may have
speculative characteristics and, as a result, changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with
higher investment grade securities.
Although the Fund currently does not do so, it may, from time to time invest
more than 25% of the value of its total assets in the securities of other
investment companies (open or closed-end) and up to 5% of its total assets
in the securities of any one investment company. These investments would
result in the layering of fees since the Fund would pay the fees and
expenses applicable to investing in such other investment companies.
When the Adviser believes that market conditions warrant a temporary defensive
position, the Fund may invest up to 100% of its assets in short-term
instruments such as U.S. Treasury bills, high quality commercial paper,
bank certificates of deposit, bankers' acceptances, or repurchase agreements
collateralized by U.S. Government securities. To the extent that the Fund
is investing in these temporary defensive instruments, it will not be
pursuing its investment objective.
ADDITIONAL INVESTMENT POLICIES
The following is a list of other investment policies that may be used by the
Fund from time to time.
Borrowing
The Fund may borrow money from banks for temporary, and/or
extraordinary purposes. Such borrowing will not exceed an amount
equal to one-third of the value of the Fund's total assets less its
liabilities. The Fund will not purchase additional securities when
borrowings exceed 5% of total assets. The Fund does not intend to
engage in reverse repurchase agreements.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities.
Illiquid securities are securities that, because of the absence of a
readily available market or due to legal or contractual restrictions on
resale, cannot be sold within seven days in the ordinary course of
business at approximately the amount at which the Fund has valued
the investment. Illiquid securities include restricted securities and
repurchase agreements maturing in more than seven days. The Fund
may invest in certain securities that would otherwise be considered
illiquid because of resale restrictions to the general public but may be
offered and sold only to "qualified institutional buyers" under Rule
144A of the Securities Act of 1933, if the Fund's Board of Directors
determines that the securities are liquid and not subject to the 15%
limitation on illiquid securities. Should the Board of Directors make
this determination, it will carefully monitor the security (focusing on
such factors, among others, as trading activity and availability of
information) to determine that the Rule 144A security continues to be
liquid. Because the institutional trading market is relatively new, it is
not possible to predict with assurance exactly how the market for Rule
144A securities will further evolve. This investment practice could
have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become for a time
uninterested in purchasing Rule 144A securities. Generally, foreign
securities freely tradeable in their principal markets are not considered
restricted or illiquid securities. Illiquid securities may be difficult for
the Fund to value or dispose of and the Fund may incur expenses that
would not be incurred in the sale of securities that are freely
marketable.
Repurchase Agreements
A repurchase agreement is an agreement between a buyer and seller of
securities in which the seller agrees to buy the securities back within a
specified time at the same price the buyer paid for them, plus an
amount equal to an agreed-upon interest rate. Not more than 15% of
the Fund's assets may be invested in repurchase agreements having a
maturity in excess of seven days. Repurchase agreements may be
entered into with a Federal Reserve System bank or "primary dealers"
in U.S. Government securities.
Foreign Securities
The Fund will not invest more than 15% of its total assets in foreign
debt and/or equity securities, or American Depositary Receipts
("ADRs"). Foreign securities investments involve certain risks, such
as political or economic instability of the issuer or of the country of
issue, and the possibility of imposition of exchange controls. These
securities may also be subject to greater fluctuations in price than the
securities of U.S. corporations, and there may be less publicly
available information about their operations. Foreign companies may
not be subject to accounting standards or governmental supervision
comparable to U.S. companies, and foreign markets may be less liquid
or more volatile than U.S. markets and may offer less protection to
investors such as the Fund. In addition, dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes,
and transaction costs such as brokerage commissions are generally
higher than in the United States.
Short Sales
The Fund will only make short sales (up to a maximum of 10%) that
are short sales of securities "against the box." A short sale "against
the box" is a sale of a security that the Fund at all times during which
the short position is open either owns an equal amount of or has the
immediate and unconditional right to acquire at no additional cost.
The Fund will make short sales "against the box" as a form of hedging
to offset potential declines in long positions in the same or similar
securities.
Portfolio Turnover
Portfolio turnover rates reflect the amount of securities that are
replaced from the beginning of the year to the end of the year by a
Fund. The Fund's portfolio turnover rate will be influenced by the
Fund's investment objectives, other investment policies, market
conditions and the need to meet redemptions. While the rate of
portfolio turnover will not be a limiting factor when the Adviser deems
changes appropriate, it is anticipated that the Fund's annual portfolio
turnover rate should not generally exceed 100%. The degree of
portfolio activity may affect brokerage costs and other transaction
costs of the Fund, as well as taxes payable by the Fund's shareholders
that are subject to federal income tax.
INVESTMENT RISKS
The Fund is designed for long-term investors who are willing to invest without
concern for current income and to accept the risks associated with investing
in a mutual fund seeking long-term capital appreciation. Investors should
consider their investments goals, their time horizon for achieving them and
their tolerance for risk before investing in the Fund. The following
highlights some of the principal risks of investing in this Fund.
Market Risk
Market risk is the risk that all or a majority of the securities in a certain
market, like the stock or bond market, will decline in value over a short or
extended period of time because of factors such as economic conditions,
future expectations or investor confidence. As the U.S. economy has expanded,
corporate profits have grown and share prices have risen. Economic growth has
been punctuated by periodic declines where share prices of even the best
managed and most profitable companies decline. Stocks of mid-cap companies
may not be well know to the public, have lower trading volume and may
be more volatile in price than larger capitalized stocks included in the
S&P 500 Stock Index. Thus, the Fund should only be used as an investment
vehicle for those with longer time horizons, and should not be used to
capture short-term swings in the market.
Interest Rate Risk
Interest rate risk is the risk that securities, particularly bonds with longer
maturities, will decrease in value if interest rates rise, and increase in
value when interest rates fall. Investments in equity securities issued by
small and medium sized companies which often borrow money to finance
operations, may be adversely affected by rising interest rates.
Foreign Risk
Foreign risk is the risk that foreign securities may be adversely affected by
political instability, changes in currency exchange rates, foreign economic
conditions or inadequate regulatory and accounting standards. In addition,
there is the possibility of expropriation, nationalization or confiscatory
taxation, taxation of income earned in foreign nations or other taxes imposed
with respect to investments in foreign nations, foreign exchange controls,
which may include suspension of the ability to transfer currency from
a given country, and default in foreign government securities. The Fund,
however, limits foreign risk by only allowing up to 15% of its total assets
to be invested in foreign securities.
Currency Fluctuations
Investments in foreign securities may be denominated in foreign currencies.
The value of Fund investments denominated in foreign currencies may be
affected, favorably or unfavorably, by the relative strength of the U.S.
dollar, changes in foreign currency and U.S. dollar exchange rates and
exchange control regulation. The Fund's net asset value per share may,
therefore, be affected by changes in currency exchange rates. Changes in
foreign currency exchange rates may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders of
the Fund. Foreign currency exchange rates generally are determined by the
forces of supply and demand in foreign exchange markets and the relative
merits of investment in different countries, actual or perceived changes in
interest rates or other complex factors, as seen from an international
perspective. In addition, the Fund may incur costs in connection with
conversions between various currencies.
"Euro" Risk
While the introduction of the Euro for the participating countries generally
occurred without significant market or operational disruption, the Euro
still presents certain political and economic uncertainties. These
uncertainties may include political reaction against the Euro in
participating countries and operational difficulties as a result of the
fact that some securities still pay dividends and interest in the old
currencies. These uncertainties could cause market disruptions and could
adversely affect the value of securities held by the Fund.
Year 2000
Many services provided to the Company and the Fund by the Adviser and the
Company's other service providers (collectively, the "Service Providers")
rely on the functioning of their respective computer systems. Many
computer systems cannot distinguish the year 2000 from the year 1900, with
the resulting potential difficulty in performing various systems functions.
This problem has typically been called the Year 2000 Issue (the "Year 2000
Issue"). The Year 2000 Issue could potentially have an adverse impact on
the handling of security trades, the payment of interest and dividends,
pricing, account services and other Company operations.
The Service Providers recognize the importance of the Year 2000 Issue and have
advised the Company that their systems are Year 2000 compliant. At this time,
there can be no assurance that this will be sufficient to avoid any adverse
impact on the Fund, the Fund's investments or on global markets or economies
generally. In addition, it has been reported that foreign institutions have
made less progress in addressing the Year 2000 Issue than major U.S.
entities, which could adversely affect any foreign investments made by
the Fund.
MANAGEMENT OF THE FUND
Adviser
Daruma Asset Management, Inc., a registered investment adviser, serves as the
Fund's investment adviser pursuant to an Investment Advisory Agreement entered
into with the Fund. The Adviser is a New York corporation, with its principal
office located at 60 East 42nd Street, Suite 1112, New York, New York 10165.
The Adviser has assets under management of approximately $332,000,000 as of
July 31, 1999. According to the terms of the Investment Advisory Agreement,
the Fund will pay a monthly advisory fee at an annual rate equal to 1% of
the first $100 million of the Fund's average daily net assets; 0.75% of the
next $100 million of such net assets; and 0.50% of the Fund's average daily
net assets of more than $200 million. Any portion of the advisory fee
received by the Adviser may be used by the Adviser to provide investor and
administrative services. The Adviser may voluntarily waive a portion of
its fee or assume certain expenses of the Fund, including distribution
expenses. This would have the effect of lowering the overall expense
ratio of the Fund and of increasing total return to investors in the Fund.
Portfolio Manager
Mariko O. Gordon, President and Chief Investment Officer of the Adviser since
its founding, is primarily responsible for supervising the Fund's daily
investment management activities. Ms. Gordon has over thirteen years of
investment management experience. Prior to founding the Adviser in 1995, Ms.
Gordon was an equity owner in and Director of Research at Valenzuela Capital
Management, Inc. ("VCM") from 1990 to 1995, a firm specializing in small-
to mid-cap stocks with over $1 billion under management. Ms. Gordon's sole
responsibility at VCM was portfolio management. Prior to joining VCM, from
1987 to 1990, she was the Director of Systematic Research at Royce &
Associates, Inc., an investment firm specializing in small-cap value
stocks and adviser to several mutual funds. Ms. Gordon began her investment
career as a research analyst at Manning & Napier Advisors, Inc., a firm
managing $2 billion for ERISA and Taft-Hartley clients. Ms. Gordon is a
Chartered Financial Analyst and a graduate of Princeton University.
HOW TO PURCHASE SHARES
Initial Investments by U.S. or Overnight Mail
You may open an account by completing and signing an Account Application
Form and mailing it together with a check payable to "Daruma Mid-Cap Value
Fund" to the following address:
Daruma Mid-Cap Value Fund
c/o American Data Services, Inc.
150 Motor Parkway
Suite 109
Hauppauge, NY 11788
The minimum initial investment in the Fund is $1,000. Retirement and UGMA
(Uniform Gifts to Minors Act) accounts, as well as accounts established
with automatic investment plans, however, may initially invest a minimum
of $500. Your shares are bought, sold or exchanged at the net asset value
determined after your request has been received in proper form. Any request
received before the valuation time (currently 4:00 p.m. Eastern Time) will
be processed the same business day. Any request received in proper form
after the valuation time will be processed the next business day.
Initial Investments by Wire
You may also purchase shares of the Fund by wiring immediately available
federal funds to the Fund's custodian, Firstar Bank (the "Custodian").
The minimum initial investment in the Fund is $1,000. Retirement and UGMA
(Uniform Gifts to Minors Act) accounts, as well as accounts established with
automatic investment plans, however, may initially invest a minimum of $500.
In order to wire funds, you must first call the Fund's transfer agent,
American Data Services, Inc. (the "Transfer Agent"), at (888) 532-7862 to
set up your account and obtain an account number by providing the
information on the application to the Transfer Agent. Then, you should
provide your bank with the following information for purposes of wiring
your investment:
Firstar Bank Cinti/Trust
ABA #0420-0001-3
Ref: Daruma Mid-Cap Value Fund
DDA #485776538
Shareholder Account Number:
Account Name:
In order to complete your initial wire purchase, you must mail a signed
application to the Transfer
Agent at the following address:
American Data Services, Inc.
150 Motor Parkway
Suite 109
Hauppauge, NY 11788
Wire orders will be accepted only on a day that the Fund, the Custodian and the
Transfer Agent are open for business. A wire purchase will not be considered
made until the wired money is received and the purchase is accepted by the Fund.
Any delays that may occur in wiring money, including delays which may occur in
processing by the banks, are not the responsibility of the Fund or the Transfer
Agent.
Presently, there is no fee for the receipt of wired funds, but the right to
charge shareholders for this service is reserved by the Fund.
Additional Investments
You may make additional investments at any time by mail or wire. The Fund's
minimum subsequent investment is $100. Your check must be made payable to
"Daruma Mid-Cap Value Fund."
Automatic Investment Plan
Additional investments may also be made though the Automatic Investment Plan.
This option allows you to make regular, automatic transfers from your bank
account to purchase additional shares on a monthly or quarterly schedule.
The minimum additional investment amount is $50. For more information
regarding this option, please call the Fund at (800) 435-5076.
Additional Investment Information
The Fund will not cancel any trade (purchase or redemption) believed to be
authentic once the trade as been received. If your check or wire does not
clear, your transaction will be canceled and you will be responsible for
any loss the Fund incurs. If you are already a shareholder, the Fund can
redeem shares from any identically registered account in the Fund as
reimbursement for any loss incurred.
Shares of the Fund may also be sold to corporations or other institutions such
a trusts, foundations or broker-dealers purchasing for the accounts of others
("Shareholder Organizations"). Investors purchasing and redeeming shares of
the Fund through a Shareholder Organization may be charged a transaction-
based fee or other fee for the services of such organization. Each
Shareholder Organization is responsible for transmitting to its customers
a schedule of any such fees and information regarding any additional or
different conditions regarding purchases and redemptions. Customers of
Shareholder Organizations should read this prospectus in light of the terms
governing accounts with their organization. The Fund does not pay to or
receive compensation from Shareholder Organizations for the sale of
the Fund's shares.
Retirement Plans
The Fund offers a wide range of plans for individuals and institutions,
including large and small businesses, IRAs, SEP-IRAs and Keoghs (profit
sharing, money purchase pension). For information on IRAs and all other
retirement plans, please call the Fund at (800) 435-5076.
HOW TO REDEEM SHARES
The Fund allows you to redeem shares without redemption fees. You may redeem
any portion of your account at any time. Shares of the Fund may be redeemed
by mail, or, if authorized, by telephone. The value of shares redeemed may be
more or less than the purchase price, depending on the market value of the
investment securities held by the Fund.
Redemptions By Mail
The Fund will redeem its shares at the net asset value next determined after
the request is received if all the required documentation is received in
"good order." Requests should be addressed to:
Daruma Mid-Cap Value Fund
c/o American Data Services
150 Motor Parkway
Suite 109
Hauppauge, NY 11788
Requests in "good order" must include the following information and
documentation:
1. The account number and fund name;
2. The amount of the transaction (specified in dollars or shares);
3. Signatures of all owners EXACTLY as they are registered on the account;
4. Any certificates that you hold for the account; any required signature
guarantees (see "Signature Guarantees" below); and
5. Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and profit
sharing plans and other organizations. If you are not certain of the
requirements for a redemption, please call Shareholder Services at
(888) 532-7862. Redemptions specifying a certain date or share price
cannot be accepted and will be returned.
Signature Guarantees
To protect shareholder accounts, the Fund and its transfer agent from fraud,
signature guarantees are required to enable the Fund to verify the identity
of the person who has authorized a redemption from an account. Signature
guarantees are required for (1) redemptions where the proceeds are to be
sent to someone other than the registered shareholder(s) and the registered
address, and (2) share transfer requests. Signature guarantees may be
obtained from certain eligible financial institutions, including but
not limited to, the following: banks, trust companies, credit unions,
securities brokers and dealers, savings and loan associations and
participants in the Securities Transfer Association Medallion Program
(`STAMP"), the Stock Exchange Medallion Program ("SEMP") or the New York
Stock Exchange Medallion Signature Program ("MSP"). Shareholders may
contact Shareholder Services at (888) 532-7862 for further details.
Redemptions By Telephone
Shareholders, who have elected on their application form telephone redemption
privileges, may redeem by telephone provided the proceeds are mailed to their
address of record. To redeem shares by telephone, you or your preauthorized
representative may call shareholder services at (888) 532-7862. Redemption
requests received by telephone by 4:00 p.m. eastern time are processed on
the day of receipt; redemption requests received by telephone after 4:00 p.m.
eastern time are processed on the business day following receipt.
TELEPHONE REDEMPTIONS WILL NOT BE PERMITTED FOR A PERIOD OF
SIXTY DAYS AFTER A CHANGE IN THE ADDRESS OF RECORD.
The Fund has authorized the Transfer Agent to act on telephone
instructions from any person representing himself or herself to be a
shareholder and reasonably believed by the Transfer Agent to be genuine.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated are genuine and, if such procedures
are followed neither the Fund or the Transfer Agent will be liable for any
losses incurred. The procedures employed by the Fund in connection with
transactions initiated by telephone include tape recording of telephone
instructions and requiring some form of personal identification prior to
acting upon instructions received by telephone. The Fund reserves the right
to revise or terminate the telephone redemption privilege at any time. If
you have trouble making a telephone redemption during periods of drastic
economic or market changes, your redemption request may be made by regular
or express mail.
Further Redemption Information
Redemption proceeds for shares of the Fund recently purchased by check may not
be distributed until payment for the purchase has been collected, which may
take up to fifteen business days from the purchase date. Shareholders can
avoid this delay by utilizing the wire purchase option. Other than as
described above, payment of the redemption proceeds will be made within
five days after receipt of an order for a redemption. The Fund may suspend
the right of redemption or postpone the date at times when the NYSE or the
bond market is closed or under any emergency circumstances as determined by
the United States Securities and Exchange Commission (the "SEC"). If the
Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make a payment
wholly or partly in cash, the Fund may pay the redemption proceeds in
whole or in part by a distribution in-kind of readily marketable securities
held by the Fund in lieu of cash in conformity with applicable rules of the
SEC. Investors generally will incur brokerage charges on the sale of
portfolio securities so received in payment of redemptions.
NET ASSET VALUE
Purchases and redemptions are made at net asset value ("NAV"). NAV is
determined by dividing the total assets of the Fund, less all liabilities,
by the total number of shares outstanding. The Transfer Agent determines
the NAV per share as of the close of regular trading on the New York Stock
Exchange (the "NYSE"), normally 4:00 p.m. Eastern Time, on each day the NYSE
is open for trading (the "valuation date"). Currently, the NYSE observes
the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Market values for securities listed on an
exchange are based upon the latest quoted sales price 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 as the Board of Directors deems in good faith to
reflect fair value.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to pay dividends from net investment income annually in
December although more frequent distributions may be made if necessary.
The Fund also intends to distribute its net realized capital gains, if any,
in December. Dividends and distributions will be automatically reinvested in
additional shares of the Fund unless the shareholder chooses otherwise.
Choosing A Distribution Option
Distribution of dividends from the Fund may be made in accordance with several
options. A shareholder may select one of two distribution options:
1. Automatic Reinvestment Option. Both dividends and capital gains
distributions will be automatically reinvested in additional shares of
the Fund unless the investor has elected the all cash option.
2. All Cash Option. Both dividend and capital gains distributions will be paid
in cash.
TAXES
The Fund intends to qualify under the Internal Revenue Code of 1986, as
amended, as a regulated investment company. As a regulated investment
company, the Fund generally will not be subject to federal income taxes
on the income and gains that it distributes to its shareholders.
Shareholders will receive information annually as to the tax status of
distributions made by the Fund for the calendar year. Generally, fund
distributions are taxable to shareholders as either ordinary income or
capital gains. This is true whether you reinvest your distributions in
additional Fund shares or receive them in cash. Distributions declared in
December, but paid in January are taxable as if they were paid in December.
Distributions paid from the Fund's net investment income and short-term
capital gains are taxable to shareholders as ordinary income dividends.
A portion of the Fund's dividend may qualify for the corporate dividends-
received deduction, subject to certain limitations. Distributions paid from
the Fund's long-term capital gains are treated as long-term capital gains
by shareholders for Federal income tax purposes, regardless of how long a
shareholder has held Fund shares. The redemption of shares is a taxable
event, and a shareholder may realize a capital gain or capital loss. The
individual tax rate on any gain from the redemption of Fund shares depends
on how long the redeeming shareholder has held the Fund shares. The Fund
will report to redeeming shareholders the proceeds of the redemptions.
However, because the tax consequences of a redemption will also depend on
the shareholder's basis in the redeemed shares for tax purposes,
shareholders should retain their account statements for use in determining
their tax liability on a redemption. At the time of the shareholder's
purchase, the Fund's net asset value may reflect undistributed income or
capital gains. A subsequent distribution of these amounts by the Fund
will be taxable to the shareholder even though the distribution economically
is a return of part of the shareholder's investment. Keep in mind that if
you purchase shares in the Fund shortly before the record date for a
dividend or capital gains distribution, regardless of whether you are
investing your distributions or receiving them in cash, you will be assessed
taxes on the amount of the capital gain and/or dividend distribution later
paid even though you owned the Fund shares for just a short period of time.
While the total value of your investment will be the same after the
distribution - the amount of the distribution will offset the drop in
the net asset value of the shares - you should be aware of the tax
implications the timing of your purchase may have. Prospective investors
should, therefore, inquire about potential distributions before investing.
Fund distributions and gains from the redemption of Fund shares generally
will be subject to state and local income tax. Non-U.S. investors may be
subject to U.S. withholding and estate tax. The Fund is required to
withhold 31% of taxable distributions and redemption proceeds if you do
not provide your correct social security number or taxpayer identification
number, or if the IRS instructs the Fund to do so. This tax discussion
provides general information only. You should consult your own tax advisor
regarding the federal, state, local or foreign tax consequences of investing
in the Fund. Additional information on tax matters is included in the
Statement of Additional Information.
SHAREHOLDER INFORMATION
General information about the Fund may be requested in writing to the
shareholder servicing department of the Fund at 60 East 42nd Street,
Suite 1112, New York, NY 10165 or by calling the Fund at (212) 687-1473
or (800) 435-5076.
APPENDIX A - RATINGS
Excerpts from Standard & Poor's Rating Group ("S&P") description of its bond
ratings: AAA--highest grade obligations. They possess the ultimate degree
of protection as to principal and interest; AA--also qualify as high grade
obligations, and in the majority of instances differ from AAA issues only in
a small degree; A--strong ability to pay interest and repay principal
although more susceptible to changes in circumstances; BBB--regarded as
having an adequate capacity to pay interest and repay principal; BB, B,
CCC, CC--regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation
and CC the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions;
C--reserved for income bonds on which no interest is being paid;
D--in default, and payment of interest and/or repayment of principal
is in arrears.
[Back Cover]
DARUMA MID-CAP VALUE FUND
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal
year. You can find more
detailed information about the Fund in the current Statement of Additional
Information (the "SAI"), which we have filed electronically with the
Securities and Exchange Commission (the "SEC") and which is legally a
part of this prospectus. If you want a free copy of the SAI, the annual
report or semi-annual report, or if you have any questions about investing
in the Fund, you can write us at 60 East 42nd Street, Suite 1112, New York,
NY 10165, or call us toll-free at (800) 435-5076.
You can find reports and other information about the Fund on the SEC Internet
site at http://www.sec.gov, or you can get copies of this information, after
payment of a duplicating fee, by writing to the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. Information about the Fund, including
the SAI, can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. You can receive information on the public reference room
by calling the SEC at 1-800-SEC-0330.
Shareholder Information
(800) 435-5076
E-mail
[email protected]
Investment Company Act
File Number 811-07621
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