May 17, 2000
Dear Shareholder:
On May 15, 2000, the Board of Directors made the difficult decision to
liquidate and dissolve the Daruma Mid-Cap Value Fund (the "Fund"),
subject to approval by the shareholders. After reviewing several
options with management, the Board of Directors has concluded that
the growth in assets of the Fund was not sufficient to continue to
offer competitive performance and high
quality service to shareholders over the long term.
After almost four years, it has become clear to us that as a no-load fund with
limited resources, the Fund cannot reach the necessary critical mass. It is
much harder to grow a no-load fund today than it was a few years ago. Fund
growth makes economies of scale possible and decreases expense ratios to the
benefit of fund shareholders.
As you know, we at Daruma Asset Management are strong proponents of "pure"
no-load mutual funds. Imposing a sales charge or a 12-b1 distribution fee
on the Fund in order to grow assets is anathema to us. Participating in
the fund supermarkets, which is another distribution channel for mutual
funds, is extremely expensive. As the investment advisor to the Fund, we
have been subsidizing the Fund's expenses and waiving our management fee to
keep the expense ratio at a competitive level.
As investors, we gauge the probabilities of future success in a given business
based on the information we have available at a given time. We have to be
realists, and make hard decisions based on reason, not wishful thinking.
As much as we wish we could grow the fund to critical mass, we have to
accept that we cannot.
Soon you will be receiving a notice of a Special Meeting of Shareholders of
the Daruma Mid-Cap Value Fund, along with a proxy statement and proxy card.
You will be asked to consider and approve a Plan of Liquidation and
Dissolution which would result in the proceeds from your shares of the
Fund being distributed to you. The adviser, Daruma Asset Management,
will pay all the costs associated with the Fund's liquidation.
In light of the proposed liquidation and dissolution of the Fund, no additional
investments will be accepted after May 16, 2000, with certain very limited
exceptions. A supplement, dated May 16, 2000 to the Fund's prospectus, dated
October 28, 1999, is enclosed.
Thank you for the confidence you have demonstrated in the Daruma Mid-Cap Value
Fund. All of us at Daruma Asset Management wish to thank you for being fellow
shareholders in the Fund. It has been both our pleasure and our privilege to
have you as clients. It has been our constant endeavor to reward your
confidence by serving your best interest at all times. We believe that our
action is consistent with that objective.
Sincerely,
Mariko O. Gordon
President
