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Registration Nos. 33-25716
811-5697
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
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X Post Effective Amendment No. 11
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT TO COMPANY ACT OF 1940
X Amendment No. 13
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THE CHAPMAN FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (800) 752-1013
Nathan A. Chapman, Jr., President
The Chapman Funds, Inc.
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on [date] pursuant to paragraph (a) (1)
[x] 75 days after filing pursuant to paragraph (a) (2)
[ ] on [date] pursuant to paragraph (a) (2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Registrant has previously registered an indefinite number of securities under
the Securities Act of 1933, as amended, pursuant to Section (a) (1) of Rule
24f-2 under the Investment Company Act of 1940, as amended. Registrant's Rule
24f-2 Notice for the fiscal year ended October 31, 1996 was filed with
Securities and Exchange Commission on December 30, 1996.
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THE CHAPMAN FUNDS, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
N-1A Item Location
No.
Part A Prospectus Caption
Chapman U.S. Domestic Domestic
Treasury Money Emerging Markets Emerging Markets
Fund; Chapman Equity Fund, Equity Fund,
Institutional Institutional Investor Shares
Cash Management Shares
Fund
Item 1. Cover Page Cover Page Cover Page Cover Page
Item 2. Synopsis Fund Expenses Fund Expenses Fund Expenses
Item 3. Condensed Financial Financial Financial
Financial Highlights Highlights Highlights
Information
Item 4. General Investment Investment Investment
Description of Program; Other Program; Other Program; Other
Registrant Information- Information- Information-
Capital Stock Capital Stock Capital Stock
Item 5. Management of Management; Management; Management;
the Fund Other Other Other
Information - Information - Information -
Transfer Agent; Transfer Agent; Transfer Agent;
Dividends and Dividends; Taxes Dividends; Taxes
Taxes
Item 6. Capital Stock Other Other Other
and Other Information - Information - Information -
Securities Capital Stock Capital Stock Capital Stock
Item 7. Purchase of Management; Net Management; Net Management; Net
Securities Asset Value; Asset Value; Asset Value;
Being Offered Purchase of Purchase of Purchase of
Shares; Shares; Shares;
Exchanges; Redemption of Redemption of
Redemption of Shares Shares
Shares
Item 8. Redemption or Purchase of Purchase of Purchase of
Repurchase Shares; Shares; Shares;
Exchanges; Redemption of Redemption of
Redemption of Shares Shares
Shares
Item 9. Pending Legal Not Applicable Not Applicable Not Applicable
Proceedings
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N-1A Item Location
No.
Part B Statement of Additional Information Caption
Chapman U.S. Domestic Emerging Markets Equity
Treasury Money Fund
Fund; Chapman
Institutional
Cash Management
Fund
Item 10. Cover Page Cover Page Cover Page
Item 11. Table of Contents Table of Contents Table of Contents
Item 12. General Information Not Applicable Not Applicable
and History
Item 13. Investment Investment Program Investment Program
Objectives and
Policies
Item 14. Management of the Management Management
Registrant
Item 15. Control Persons Capital Stock; Capital Stock; Control Persons
and Principal Principal Holders and Principal Holders of
Holders of of Securities Securities
Securities
Item 16. Investment Management; Management; Experts
Advisory and Experts
Other Services
Item 17. Brokerage Portfolio Portfolio Transactions
Allocation Transactions
Item 18. Capital Stock Capital Stock Capital Stock
and Other
Securities
Item 19. Purchase, Purchase of Purchase of Shares; Exchanges;
Redemption and Shares; Redemption of Shares; Net Asset
Pricing of Exchanges; Value
Securities Redemption of
Being Offered Shares; Net
Asset Value
Item 20. Tax Status Dividends and Taxes
Taxes
Item 21. Underwriters Management Management
Item 22. Calculation of Yield Yield
Performance
Data
Item 23. Financial Financial Financial Statements
Statements Statements
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of this Registration Statement.
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SUBJECT TO COMPLETION
Preliminary Prospectus dated: [ ], 1997
[ ], 1997
DOMESTIC EMERGING MARKETS EQUITY FUND
INVESTOR SHARES
The Domestic Emerging Markets Equity Fund (the "Fund"), is a series of The
Chapman Funds, Inc. (the "Company"), an open-end, management investment company,
known as a series fund (the Fund and each other series of the Company are herein
referred to as a "Series"). The Fund is a non-diversified portfolio that seeks
aggressive long-term growth through capital appreciation through investment in
Domestic Emerging Markets-TM- that it believes are positioned for growth.
"Domestic Emerging Markets-TM-" are companies that are controlled by African
Americans, Asian Americans, Hispanic/Latino Americans or women that are located
in the United States and its territories ("DEM-TM- Companies"). Both capital
appreciation and income will be considered in the selection of investments, but
primary emphasis will be on capital appreciation. BECAUSE OF THE NATURE OF THE
FUND'S INVESTMENTS AND CERTAIN STRATEGIES IT MAY USE, AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS AND MAY NOT BE APPROPRIATE FOR ALL INVESTORS.
The Fund offers two classes of shares, Investor Shares and Institutional
Shares. Investor Shares are offered by this Prospectus directly from the Fund's
distributor, The Chapman Co. (herein sometimes referred to as the "Distributor")
Investor Shares are subject to a 12b-1 fee of up to .75% of average daily net
assets, currently set at .50% of average daily net assets, and a front-end load
of up to 4 3/4% of the offering price. The minimum initial investment in
Investor Shares is $500 and the minimum subsequent investment is $100.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and should be retained for
future reference. A Statement of Additional Information dated [ ], 1997,
containing additional information about the Fund, has been filed with the
Securities and Exchange Commission (the "SEC") and is hereby incorporated by
reference in its entirety into this Prospectus. A copy of the Statement of
Additional Information may be obtained without charge by calling The Chapman Co.
at (800) 752-1013.
TABLE OF CONTENTS
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Fund Expenses. . . . . . . . . . . . . . . . . 2
Investment Objectives. . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . 8
Management . . . . . . . . . . . . . . . . . . 12
Redemption of Shares . . . . . . . . . . . . . 19
Net Asset Value. . . . . . . . . . . . . . . . 22
Dividends. . . . . . . . . . . . . . . . . . . 23
Taxes. . . . . . . . . . . . . . . . . . . . . 23
Other Information. . . . . . . . . . . . . . . 25
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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THIS REGISTRATION STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. UNDER NO CIRCUMSTANCES SHALL THIS
REGISTRATION STATEMENT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
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FUND EXPENSES
The following table lists the costs and expenses an investor will
incur either directly or indirectly as a stockholder of the Fund based on an
estimate of the Fund's operating expenses for the current fiscal year:
STOCKHOLDER TRANSACTION EXPENSES DOMESTIC EMERGING
MARKETS EQUITY FUND
Investor
Shares
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . . . .4 3/4%
Maximum Deferred Sales Load. . . . . . . . . . . . . .-0-%
Maximum Sales Load Imposed on Reinvested
Dividends and other Distributions . . . . . . . . . .-0-%
Redemption Fee
(as a percentage of amount redeemed) . . . . . . . . .-0-%
ANNUAL EXPENSES (as a percentage of net assets) (1)
Management Fees. . . . . . . . . . . . . . . . . . . 0.90%
12b-1 Fees (2) . . . . . . . . . . . . . . . . . . . 0.50%
Other Expenses (3) . . . . . . . . . . . . . . . . . 0.89%
Total Fund Operating Expenses (estimated). . . . . . 2.29%
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(1) See "MANAGEMENT."
(2) The Distributor receives a fee for stockholder servicing and distribution
services at an annual rate of up to a total of .75% (up to .25% service fee
and .50% distribution fee) of the average daily net assets of the Fund
attributable to Investor Shares. The Distributor has voluntarily limited
such fee during the first fiscal year of the Fund to an aggregate of .50%
(.25% service fee and .25% distribution fee) of average daily net assets;
however, there can be no assurance that the Distributor will continue to
voluntarily limit the amount of such fee in the future.
(3) Based upon estimated amounts of expenses for the Fund's current fiscal
year.
The following example demonstrates the projected dollar amount of
total cumulative expenses that would be incurred over various periods with
respect to a hypothetical investment in the Fund. These amounts are based upon
payment by the
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Fund of operating expenses (excluding offering expenses) at the levels set forth
in the table above.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment
assuming a 5% annual return, reinvestment of all dividends and distributions at
net asset value and redemption at the end of the period:
Investor Shares
1 Year $69.61
3 Years $115.64
The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. "Other Expenses" are based on estimated amounts
for the current fiscal year. Long-term investors in the Fund could pay more in
12b-1 fees than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc. (the "NASD")
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OF THE
FUND AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover,
while the examples assume a 5% annual return, the Fund's performance will vary
and may result in a return greater or less than 5%. For a further description
of the various costs and expenses incurred in the Fund's operation, see
"MANAGEMENT."
INVESTMENT OBJECTIVES
The Fund seeks aggressive long-term growth through capital
appreciation through investment in Domestic Emerging Markets-TM- that it
believes are positioned for growth. "Domestic Emerging Markets-TM-" are
companies that are controlled by African Americans, Asian Americans,
Hispanic/Latino Americans or women that are located in the United States and
its territories. Both capital appreciation and income are considered in
choosing specific investments, but the primary emphasis is on capital
appreciation. The Fund retains maximum flexibility as to the types of
investments it may make and is permitted to invest in portfolio companies
with large and small market capitalizations. Some of these investments may
involve the purchase of securities directly from portfolio companies in
initial or other public offerings of their securities. See "RISK
FACTORS--Investment in Small Companies." The Fund's principal investment
objective of long-term growth through capital appreciation through investment
in Domestic Emerging Markets-TM- is not a "fundamental policy" of the Fund and
can therefore be changed by the Company's Board of Directors without
stockholder approval.
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In determining whether a specific portfolio company is "controlled" by
African Americans, Asian Americans, Hispanic/Latino Americans or women, the Fund
will apply the following criteria: at least 10% of the company's outstanding
voting securities must be beneficially owned by members of one or more of the
listed groups or at least one of the company's top five executive officers must
be a member of one or more of the listed groups.
The Fund will seek to identify businesses that are DEM-TM- Companies
through research by Chapman Capital Management, Inc. (the "Investment Advisor").
Such research will include: requests to specific companies for details of their
ownership and management; independent research for the details of specific
companies' ownership and management including company visits and checks with
government agencies for companies that have registered as minority or
women-owned business enterprises or are recognized as such by government
agencies; the review of business lists compiled by magazines and other
publications which list DEM-TM- Companies; the examination of companies that
generally market themselves as DEM-TM- Companies; and the review of annual
reports and other regulatory filings.
To achieve the Fund's investment objectives, the Fund invests in a
wide variety of types of portfolio companies and seeks to identify those
companies that are positioned for growth. Among other factors, the Investment
Advisor considers a company's above average earnings growth, high potential
profit margins, innovative products, high quality management, and competitive
advantage in making investment decisions. The Fund believes that Domestic
Emerging Markets-TM- represent one of America's fastest growing market segments
and include well-diversified, high-growth segments of the economy including but
not limited to communications, media/entertainment, environmental services,
applied/advanced technology, financial services and value-oriented consuming.
While the Fund invests in portfolio companies with large and small
market capitalizations, the Fund believes that investing in small companies may
offer the potential for significant long-term capital appreciation. Most of the
Fund's investments are in marketable common stocks or marketable securities
convertible into common stock traded on an exchange or in the over-the-counter
markets. To the extent the Fund invests in companies with smaller market
capitalizations, the securities of such companies may be traded in such
over-the-counter markets as the OTC Bulletin Board-SM- and the Pink Sheets-SM-.
See "RISK FACTORS--Investment in Small Companies."
While the Fund intends to concentrate on publicly traded securities,
it may also invest in non-publicly traded securities of DEM-TM- Companies, such
as those of privately-held companies or private placements of public companies.
The portion of the Fund's assets invested in these non-publicly traded
securities will vary over time depending on investment opportunities and other
factors; however, an investment in such securities will be considered illiquid
and therefore be subject to the Fund's limitation on the purchase of illiquid
securities. The Fund may not invest more than 15% of its net
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assets in illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market and securities that are restricted
securities as defined in Rule 144 under the Securities Act ("Illiquid
Securities"). Illiquid Securities include securities which have not been
registered under the Securities Act, sometimes referred to as private
placements, and are purchased directly from the issuer or in the secondary
market. The Fund will seek to invest in the securities of private companies
that the Investment Advisor believes have the potential for above average
capital appreciation in anticipation of their initial public offering. To the
extent that the Fund is permitted to invest in Illiquid Securities, the Fund may
be deemed to act as an underwriter to portfolio companies. See "RISK
FACTORS--Non-Publicly Traded Securities" and "INVESTMENT PROGRAM--Non-Publicly
Traded and Illiquid Securities" in the Statement of Additional Information.
As an alternative to direct investments in Illiquid Securities, the
Fund may invest up to 10% of its assets in private venture capital funds
including United States private limited partnerships or other investment funds
("Private Funds") that themselves invest in Illiquid Securities. In selecting
Private Funds for investment, the Fund's Investment Advisor seeks to invest in a
mix of Private Funds that will provide an above average internal rate of return
(i.e., the discount rate at which the present value of an investment's future
cash inflows (dividend income and capital gains) are equal to the cost of the
investment). The Investment Advisor believes that the Fund's investments in
Private Funds offers individual investors a unique opportunity to participate in
investment opportunities typically available only to large institutions and
accredited investors. Although the Fund's investments in Private Funds are
limited to a maximum of 10% of the Fund's assets, these investments are highly
speculative and volatile and may produce gains or losses in this portion of the
Fund that exceed those of the Fund's other holdings and of more mature companies
generally.
Because Private Funds generally are investment companies for purposes
of the 1940 Act, the Fund's ability to invest in them will be limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of total assets with respect to any one investment
company and, (iii) 10% of the Fund's total assets in the aggregate. In
addition, Fund stockholders will remain subject to the Fund's expenses while
also bearing their pro rata share of the operating expenses of the Private
Funds. The ability of the Fund to dispose of interests in Private Funds is very
limited and will involve the risks described under "RISK FACTORS--Non-Publicly
Traded Securities" and "INVESTMENT PROGRAM--Non-Publicly Traded and Illiquid
Securities" in the Statement of Additional Information. In valuing the Fund's
holdings of interests in Private Funds, the Fund will be relying on the most
recent reports provided by the Private Funds themselves prior to calculation of
the Fund's net asset value. These reports, which are provided on an infrequent
basis, often depend on the subjective valuations of the managers of the Private
Funds and, in addition, would not generally reflect positive or negative
subsequent developments affecting companies held by the Private Fund. See "NET
ASSET VALUE." The securities of Private Funds will typically themselves be
classified as Illiquid Securities by the Board of Directors.
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Accordingly, the Fund's total investment in Illiquid Securities, including
Private Funds, is limited to 15% of the Fund's assets with no more than 10% of
the Fund's assets invested in Private Funds.
The Fund does not invest in foreign securities (including American
Depository Receipts).
The Fund's investment objectives and policies, other than those
specified in the Statement of Additional Information under "INVESTMENT
PROGRAM -- Fundamental Policies," may be changed by the Board of Directors
without the approval of stockholders.
The Fund may not issue senior securities, borrow money or pledge its
assets, except that it may borrow from banks in amounts aggregating not more
than 33 1/3% of the value of the Fund's total assets (calculated when the loan
is made) to take advantage of investment opportunities and may pledge up to 33
1/3% of the value of its total assets to secure such borrowings. The Fund may
purchase securities on margin pursuant to margin arrangements with banks up to
the limits set forth above for bank borrowings. The Fund is also authorized to
borrow an additional 5% of its total assets without regard to the foregoing
limitations for temporary purposes such as clearance of portfolio transactions
and share redemptions.
The use of borrowings by the Fund may involve leverage that creates an
opportunity for increased net income, but also creates special risks. In
particular, if the Fund borrows or otherwise uses leverage to invest in
securities, any investment gains made on the securities in excess of interest or
other amounts paid by the Fund will cause the net asset value of the Fund's
shares to rise faster than would otherwise be the case. On the other hand, if
the investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on borrowed money) to the Fund, the net
asset value of the Fund's shares will decrease faster than would otherwise be
the case.
To reduce these risks, the Fund will limit its borrowings to 33 1/3%
of the value of its total assets. If the Fund's asset coverage for borrowings
falls below 300%, the Fund will take prompt action to reduce its borrowings.
The Fund retains the flexibility to respond promptly to changes in
market conditions and no minimum percentage of the Fund's assets must be
invested in DEM-TM- Companies at any time. Accordingly, during periods when
the Investment Advisor believes a temporary defensive posture in the market is
warranted, the Fund has reserved the right to invest a significant proportion or
all of its assets in the securities of non-DEM-TM- Companies that otherwise
meet the Fund's investment objectives, or alternatively, the Fund may hold cash
(U.S. dollars) and/or invest any portion or all of its assets in high quality
short-term debt securities and money market instruments. The securities of
non-DEM-TM- Companies that otherwise meet the Fund's investment objectives may
or may not involve less risk than DEM-TM- Companies. Accordingly, to the
extent that the Fund
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adopts a temporary defensive posture in which it invests in
non-DEM-TM- Companies, the Fund's investments will continue to present
significant risks. See "RISK FACTORS--Investment in Small Companies,
- --Non-Publicly Traded Securities," --Non-Diversified Status." The decision
to adopt a temporary defensive posture may be affected by such factors as
market conditions generally, the Investment Advisor's views on the direction
of movement of the stock prices of specific targeted portfolio companies and
other related factors It is impossible to predict when or for how long the
Fund will employ defensive strategies, and to the extent it is so invested,
the Fund may not achieve its investment objectives. The Fund will also
invest in the instruments described above pending investment of the net
proceeds of this offering.
The Fund may invest up to 15% of its total assets, represented by the
premium paid, in the purchase of call and put options in respect of specific
securities in which the Fund may invest. The Funds may write covered call and
put option contracts to the extent of 15% of the value of its net assets at the
time such option contracts are written. A call option gives the purchaser of
the option the right to buy, and obligates the writer to sell, the underlying
security at the exercise price at any time during the option period.
Conversely, a put option gives the purchaser of the option the right to sell,
and obligates the writer to buy, the underlying security at the exercise price
at any time during the option period. A covered call option sold by the Fund,
which is a call option with respect to which the Fund owns the underlying
security, exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or to possible continued holding of a security which might otherwise
have been sold to protect against depreciation in the market price of the
security. A covered put option sold by the Fund exposes the Fund during the
term of the option to a decline in price of the underlying security. A put
option sold by the Fund is covered when, among other things, cash or liquid
securities are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken.
To close out a position when writing covered options, the Fund may
make a "closing purchase transaction," which involves purchasing an option on
the same security with the same exercise price and expiration date as the option
which it has previously written on the security. To close out a position as a
purchaser of an option, the Fund may make a "closing sale transaction," which
involves liquidating its position by selling the option previously purchased.
The Fund will realize a profit or loss from a closing purchase or sale
transaction depending upon the difference between the amount paid to purchase an
option and the amount received from the same thereof. The Fund intends to treat
options in respect of specific securities that are not traded on a national
securities exchange or the Nasdaq National Market and the securities underlying
covered call options written by the Fund as Illiquid Securities subject to the
Fund's investment limitation on Illiquid Securities set forth above.
The Fund may, but is not required to, utilize various investment
techniques for hedging, risk management and other investment purposes. These
investment techniques may include, but are not limited to, lending of portfolio
securities
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and entering into "repurchase agreements." Up to 20% of the Fund's assets may
be invested pursuant to such techniques for hedging and risk management purposes
or when, in the opinion of the Investment Advisor, such techniques can be
expected to yield a higher investment return than other investment options.
To the extent that the Fund seeks to increase its income by lending
portfolio securities, such securities loans will be secured by collateral in
cash, cash equivalents, U.S. government securities, or such other collateral as
may be permitted under the Fund's investment program and by regulatory agencies.
The Fund may enter into repurchase agreements pertaining to the securities in
which it may invest with securities dealers or member banks of the Federal
Reserve System. Repurchase agreements facilitate portfolio management and allow
the Fund to earn additional revenue. If the Fund enters into repurchase
agreements, it will do so in order to increase liquidity or as a temporary
investment while the Fund is evaluating the acquisition of suitable investments.
See "INVESTMENT PROGRAM" in the Statement of Additional Information.
The Fund's investment policy of not investing in foreign securities
(including American Depository Receipts) is a fundamental policy which it may
not change without the approval of the holders of a majority of its outstanding
voting securities. For more information about the Fund and its investment
objectives and policies, including fundamental policies, see "INVESTMENT
PROGRAM" in the Statement of Additional Information.
RISK FACTORS
INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS ASSOCIATED WITH
AN INVESTMENT IN THE FUND.
An investment in the Fund's shares does not constitute a complete
investment program since it involves the greater market risks inherent in
seeking higher returns and is not recommended for short-term or risk averse
investors. No assurance can be given that securities of small emerging
companies will appreciate, that a sufficient number of appropriate investments
will be available or that the Fund's particular investment choices will be
successful. The prices of securities in which the Fund may invest may also be
more volatile than securities of issuers with larger market capitalizations and
the Fund's net asset value may therefore be subject to greater fluctuation than
other investment companies that invest in equity securities.
INVESTMENT IN SMALL COMPANIES
Because the Fund intends to invest substantially all of its assets in
securities of emerging companies with small market capitalizations, an investor
should be aware of certain special considerations and risk factors relating to
investments in such
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companies. No assurance can be given that securities of small emerging
companies will appreciate, that a sufficient number of appropriate investments
will be available or that the Fund's particular investment choices will be
successful. Investors should also be aware of considerations and risks relating
to the Fund's investment practices. An investment in the Fund should not itself
be considered a balanced investment program and is intended to provide
diversification as part of a more complete investment program. The Fund is
intended for long-term investors not seeking current income, who have the
financial ability to accept greater investment risk in exchange for the
potential of higher than average, long-term capital appreciation.
Investing in small capitalization stocks can involve greater risk than
is customarily associated with investing in securities of larger, more
established companies. Small emerging companies may be subject to greater
earnings fluctuation, lack of established markets for products or services, more
limited financial resources and less depth of experienced management.
Securities of small emerging companies generally have more limited marketability
and may be subject to greater price volatility than securities of larger
companies. They may be dependent for management on one or a few key persons,
and can be more susceptible to losses and risks of bankruptcy. Transaction and
trading costs in smaller capitalization stocks may be higher than those of
larger capitalization companies, primarily because of more limited volumes and
fewer active market makers. These risks are in addition to the risks normally
associated with any strategy seeking capital appreciation by investing in a
portfolio of equity securities. Furthermore, such companies are often traded on
markets such as the OTC Bulletin Board-SM- and the Pink Sheets-SM- where the
trading market is thinner and the spread between bid and offer prices is often
larger than on the major exchanges or Nasdaq system. The nature of these
trading markets subjects the Fund to the risk that should the need arise to
rapidly liquidate its position in such securities, for example to cover net
redemptions, the Fund's activities could aversely affect the market price of
such securities, resulting in a requirement that the Fund sell its position
below the price that is deemed to be representative of their value and,
accordingly, the value of the Fund's net assets could be adversely affected.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in Illiquid
Securities, which term includes securities that are illiquid by virtue of the
absence of a readily available market and securities that are restricted
securities as defined in Rule 144 under the Securities Act. Illiquid Securities
include securities which have not been registered under the Securities Act,
sometimes referred to as private placements, and are purchased directly from the
issuer or in the secondary market. Illiquid Securities may involve a high
degree of business and financial risk and may result in substantial losses.
These securities are less liquid than publicly traded securities, and the Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies
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whose securities are not publicly traded may not be subject to the disclosure
and other investor protection requirements applicable to companies whose
securities are publicly traded. The Fund's investment in Illiquid Securities is
subject to the risk that should the Fund desire to sell any of these securities
when a ready buyer is not available at a price that is deemed to be
representative of their value, for example to cover net redemptions, the value
of the Fund's net assets could be adversely affected. See "INVESTMENT
PROGRAM--Non-Publicly Traded and Illiquid Securities" in the Statement of
Additional Information.
LIMITED EXPERIENCE OF THE INVESTMENT ADVISOR
The Investment Advisor has acted as investment manager for various
balanced and equity portfolios and currently advises a money market fund that is
a Series of the Company. Further, the Investment Advisor has acted and is
currently acting as an investment advisor and manager for DEM, Inc., a
closed-end, non-diversified management investment company which concentrates on
DEM-TM- Company securities. However, prior to advising the Fund, the
Investment Advisor had not acted as an advisor to an open-end management
investment company investing in an equity portfolio.
NON-DIVERSIFIED STATUS
The Fund is classified as non-diversified under the 1940 Act, which
means that the Fund is not limited by that Act in the proportion of its assets
that may be invested in the securities of a single issuer. However, the Fund
intends to comply with the diversification requirements imposed by the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a
regulated investment company. See "TAXATION" in the Fund's Statement of
Additional Information. As a non-diversified investment company, the Fund may
invest a greater proportion of its assets in the obligations of a smaller number
of issuers and, as a result, may be subject to greater risk with respect to its
portfolio securities.
POTENTIAL CONFLICT OF INTEREST
The Fund may utilize the Distributor, The Chapman Co., a broker-dealer
registered under the Securities Exchange Act of 1934, as amended, and a member
of the NASD, in connection with the purchase or sale of portfolio securities in
certain circumstances. The Investment Advisor is a wholly-owned subsidiary of
the Distributor Mr. Nathan A. Chapman, Jr., the President and Chairman of the
Board of Directors of the Company, is also the President and Chairman of the
Board of Directors of the Investment Advisor and the Distributor See
"MANAGEMENT--Investment Advisor" below and "MANAGEMENT" in the Fund's Statement
of Additional Information. Mr. Chapman owns approximately 92% of the equity and
has the right to cast approximately 99% of the votes entitled to be cast by
stockholders of the Distributor Accordingly, these relationships represent a
potential conflict of interest with respect to commissions and other fees on
brokerage transactions conducted on the Fund's behalf by the Distributor.
10
<PAGE>
A majority of the Company's Board of Directors are independent directors and
such Directors have adopted procedures in compliance with the 1940 Act to
address such conflict. See "MANAGEMENT" and "PORTFOLIO TRANSACTIONS" in the
Fund's Statement of Additional Information.
USE OF LEVERAGE
The use of borrowings by the Fund to carry out its investment
objectives may involve leverage that creates an opportunity for increased net
income, but also creates special risks. In particular, if the Fund borrows or
otherwise uses leverage to invest in securities, any investment gains made on
the securities in excess of interest or other amounts paid by the Fund will
cause the net asset value of the Fund's shares to rise faster than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased fails to cover their cost (including any
interest paid on borrowed money) to the Fund, the net asset value of the Fund's
shares will decrease faster than would otherwise be the case.
11
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
The Fund is managed by the Company's Board of Directors. All of the
Directors are members of minority groups. The Board of Directors approves all
significant agreements between the Fund and other Series of the Company and
between the Fund and persons who furnish services to the Fund, including the
Fund's agreements with the Investment Advisor and the Distributor. The Board of
Directors delegates to the Company's officers and the Investment Advisor
responsibility for day-to-day operations of the Fund. All of the officers of
the Company are directors, officers or employees of the Investment Advisor
and/or the Distributor.
THE INVESTMENT ADVISOR
The Investment Advisor, Chapman Capital Management, Inc., has been
retained under an investment advisory and administrative services agreement (the
"Advisory Agreement") to provide investment advice and, in general, to conduct
the management and investment program of the Fund in accordance with the Fund's
investment objectives, policies, and restrictions and under the supervision and
control of the Company's Board of Directors. The Investment Advisor was
established in 1988 and is located at The World Trade Center - Baltimore, 401
East Pratt Street, 28th Floor, Baltimore, Maryland 21202. The Investment
Advisor is a wholly-owned subsidiary of the Distributor, The Chapman Co. Nathan
A. Chapman, Jr., who is the controlling stockholder, President and Chairman of
the Board of Directors of the Distributor, is President and Chairman of the
Board of Directors of the Company and President and Chairman of the Board of
Directors of the Investment Advisor.
The Investment Advisor has sole investment discretion for the Fund and
makes all decisions affecting assets in the Fund's portfolio under the
supervision of the Company's Board of Directors and in accordance with the
Fund's stated policies. The Investment Advisor selects investments for the Fund
and places purchase and sale orders on behalf of the Fund. The Investment
Advisor receives from the Fund an advisory fee at an annual rate of .9 of 1% of
the value of the Fund's average weekly net assets during the preceding month
payable monthly in arrears and an administration fee of .15 of 1% of the Fund's
average weekly net assets during the preceding month payable monthly in arrears.
The Investment Advisor has been in the investment advisory business
since 1988 and has served as the investment advisor to a money market Series of
the Company since 1988 and a closed-end non-diversified investment company
investing in DEM-TM- Companies since 1995. In addition, the Investment Advisor
serves as portfolio manager to private accounts. As of March 31, 1997, the
Investment Advisor had approximately $375 million in assets under management.
12
<PAGE>
PORTFOLIO MANAGEMENT
Nathan A. Chapman, Jr. who has been the President and Chief Executive
Officer of the Investment Advisor since 1988, is primarily responsible for
management of the Fund's assets. Mr. Chapman is and has been the President and
Chairman of the Board of Directors of the Company since its organization in
1988. Mr. Chapman also is and has been President and Chairman of the Board of
Directors of DEM, Inc. since its inception in 1995. Mr. Chapman founded the
Distributor, which owns the Investment Advisor, in 1987 and has been its
President and Chairman of the Board since its inception. The Distributor is a
full-service brokerage and investment banking firm. As Mr. Chapman is the chief
executive officer of a brokerage and investment banking firm, he does not devote
his full time to the management of the Fund's portfolio.
THE DISTRIBUTOR
The Distributor, The Chapman Co., is a registered broker-dealer and a
member of the NASD. The Distributor is located at The World Trade
Center--Baltimore, 401 E. Pratt Street, 28th Floor, Baltimore, Maryland 21202.
The Distributor receives a fee for stockholder servicing and distribution
services at an annual rate of up to a total of .75% (up to .25% service fee and
.50% distribution fee) of the average daily net assets of the Fund attributable
to the Investor Shares pursuant to a distribution plan (the "Distribution Plan")
adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act. The Distributor
has voluntarily limited such fee during the first fiscal year of the Fund to an
aggregate of .50% (.25% service fee and .25% distribution fee) of average daily
net assets; however, there can be no assurance that the Distributor will
continue to voluntarily limit the amount of such fee in the future. Amounts
paid to the Distributor under the Distribution Plan may be used by the
Distributor to cover expenses that are primarily intended to result in, or that
are primarily attributable to, (i) the sale of the shares of the Fund, (ii)
ongoing servicing and/or maintenance of the accounts of the Fund's stockholders,
and (iii) sub-transfer agency services, sub-accounting services or
administrative services related to the sale of the shares of the Fund, all as
set forth in the Distribution Plan. Payments under the Distribution Plan are
not tied exclusively to the distribution expenses actually incurred by the
Distributor and the payments may exceed distribution expenses actually incurred.
The Board of Directors of the Company evaluates the appropriateness of the
Distribution Plan on a continuing basis and in doing so considers all relevant
factors, including expenses borne by the Distributor and amounts received under
the Distribution Plan.
The Distributor or its affiliates may, at their own expense, provide
promotional incentives to parties who support the sale of shares of the Fund,
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
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Listed below are persons affiliated with both the Company and the
Distributor.
- --------------------------------------------------------------------------------
Name and With With
Principal Business Address Distributor Company
- --------------------------------------------------------------------------------
Nathan A. Chapman, Jr. Director, Director,
The Chapman Co. President, President
401 East Pratt Street Chief Executive Officer,
28th Floor Treasurer
Baltimore, MD 21202
- --------------------------------------------------------------------------------
Bonnie Shay Gillette Secretary Secretary
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
EXPENSES
The Investment Advisor bears all expenses in connection with the
performance of its advisory and administrative services. The Company bears all
expenses incurred in its operations. Expenses attributable to the Company, but
not to a particular Series, will be allocated to each Series on the basis of
relative net assets. Similarly, expenses attributable to a particular Series,
but not to a particular class, will be allocated to each class thereof on the
basis of relative net assets. General Company expenses may include but are not
limited to: insurance premiums; Director fees; expenses of maintaining the
Company's legal existence; and fees of industry organizations. General Series
expenses may include but are not limited to: audit fees; brokerage commissions;
registration of the shares of a Series with the SEC and notification fees to the
various state securities commissions; fees of the Series' Administrator,
Custodian and Transfer Agent or other "service providers," costs of obtaining
quotations of portfolio securities; and pricing of Series shares.
Class-specific expenses relating to distribution fee payments
associated with a Rule 12b-1 plan for a particular class of shares and any other
costs relating to implementing or amending such plan (including obtaining
stockholder approval of such plan or any amendment thereto), will be borne
solely by stockholders of such class or classes. Other expense allocations
which may differ among classes, or which are determined by the Board of
Directors to be class-specific, may include but are not limited to: printing
and postage expenses related to preparing and distributing required documents
such as stockholder reports, prospectuses, and proxy statements to current
stockholders of a specific class; SEC registration fees and state "blue sky"
fees incurred by a specific class; litigation or other legal expenses relating
to a specific class; Director fees or expenses incurred as a result of issues
relating to a specific class; and different transfer agency fees attributable to
a specific class.
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<PAGE>
Notwithstanding the foregoing, the Investment Advisor or other service
provider may waive or reimburse the expenses of a specific class or classes to
the extent permitted under Rule 18f-3 under the 1904 Act.
BROKERAGE
The Distributor may effect brokerage transactions for the Fund in
compliance with the requirements of the 1940 Act.
CUSTODIAN
UMB Bank, NA, 928 Grand Avenue, Kansas City, Missouri 64141-6226,
serves as custodian for the Fund's portfolio securities.
TRANSFER AND DIVIDEND PAYING AGENT AND ACCOUNTING AGENT
FPS Services, Inc., 3200 Horizon Drive, PO Box 61503, King of Prussia,
Pennsylvania 19406, (800) 992-8151, serves as transfer and dividend paying agent
and accounting agent (the "Transfer Agent") for the Fund's shares pursuant to an
Investment Company Services Agreement. FPS Services, Inc. performs the
following duties in its capacity as Transfer Agent to the Fund: maintains the
records of stockholder's accounts; answers stockholder inquiries concerning
accounts; processes purchases and redemptions of Fund shares; acts as dividend
and distribution disbursing agent; and performs other stockholder service
functions. Stockholder inquiries should be addressed to the Transfer Agent at
(800) 992-8151. As accounting agent, FPS Services, Inc. performs certain
accounting and pricing services for the Fund, including the daily calculation of
the Fund's net asset value. For its transfer and dividend paying agency
services under the Investment Company Services Agreement, the Transfer Agent is
compensated by a monthly fee calculated according to a fee schedule approved by
the Board of Directors of the Company.
PURCHASE OF SHARES
Investor Shares of the Fund may be purchased directly from the Fund at
the net asset value per share, plus the applicable sales load, next determined
after receipt of the order in proper form by the Transfer Agent. There is a
sales load in connection with the purchase of shares which is reduced on
purchases involving large amounts and which may be eliminated in certain
circumstances described under PURCHASE OF SHARES--Purchase Price." The Fund
reserves the right to reject any purchase order and to suspend the offering of
shares of the Fund. The Fund will not accept a check endorsed over by a
third-party. The minimum initial investment is $500, and the minimum subsequent
is $100. The Fund reserves the right to vary the initial investment minimum and
minimums for additional investments at any time.
15
<PAGE>
Purchase orders for Investment Shares of the Fund which are received
by the Transfer Agent in proper form prior to the close of regular trading hours
on the New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m. Eastern
time) on any day that the Fund calculates its net asset value, are priced
according to the net asset value determined on that day. Purchase orders for
shares of the Fund received after the close of the NYSE on a particular day are
priced as of the time the net asset value per share is next determined.
Purchases may be made in one of the following ways:
PURCHASES BY MAIL
Investor Shares may be purchased initially by completing the
Investment Application included in this Prospectus and mailing it to the
Transfer Agent, together with a check payable to Domestic Emerging Markets
Equity Fund Investor Shares, c/o FPS Services, Inc., 3200 Horizon Drive, PO Box
61503, King of Prussia, PA 19406-0903. All checks for purchase or shares must
be drawn on U.S. banks and payable in U.S. dollars.
Subsequent investments in an existing account in the Fund may be made
at any time by sending a check payable to Domestic Emerging Markets Equity Fund
Investor Shares, c/o United Missouri Bank KC, NA, PO Box 412797, Kansas City, MO
64141-2797. Please enclose the stub of your account statement along with the
amount of the investment and the name of the account for which the investment is
to be made and the account number. Please note: A $20 fee will be charged to
your account for any payment check returned to the Custodian.
PURCHASES THROUGH BROKER/DEALERS
The Fund may accept telephone orders from broker-dealers or service
organizations which have been previously approved by the Fund. It is the
responsibility of such broker-dealers or service organizations to promptly
forward purchase orders and payments for the same to the Fund. Shares of the
Fund may be purchased through broker-dealers, banks and bank trust departments
who may charge the investor a transaction fee or other fee for their services at
the time of purchase.
Wire orders for shares of the Fund received by the Transfer Agent
prior to 4:00 p.m., Eastern Time, are confirmed to that day's public offering
price. Orders received by the Transfer Agent after 4:00 p.m., Eastern Time, are
confirmed at the public offering price on the following business day.
PURCHASE PRICE
Shares of the Fund are offered at the public offering price which is
the net asset value per share, plus any applicable sales charge. The sales
charge is a variable
16
<PAGE>
percentage of the offering price depending upon the amount of the sale. No
sales charge will be assessed on the reinvestment of distributions. The sales
charge will be assessed as follows:
- --------------------------------------------------------------------------------
TOTAL SALES LOAD
- --------------------------------------------------------------------------------
AMOUNT OF TRANSACTION AS A % OF AS A % OF NET DEALER'S
OFFERING PRICE AMOUNT REALLOWANCE
INVESTED AS A % OF
OFFERING PRICE
- --------------------------------------------------------------------------------
$50,000 and less 4.75% 4.55% 4.25%
- --------------------------------------------------------------------------------
$50,000.01 to $100,000.00 4.25% 4.07% 3.75%
- --------------------------------------------------------------------------------
$100,000.01 to $250,000.00 3.75% 3.61% 3.25%
- --------------------------------------------------------------------------------
$250,000.01 to $500,000.00 3.25% 3.14% 3.00%
- --------------------------------------------------------------------------------
$500,000.01 to $750,000.00 2.75% 2.67% 2.50%
- --------------------------------------------------------------------------------
$750,000.01 to $1,000,000.00 2.25% 2.20% 2.00%
- --------------------------------------------------------------------------------
$1,000,000.01 and above 1.25% 1.23% 1.00%
- --------------------------------------------------------------------------------
The Distributor will pay the appropriate dealer concession to those
selected dealers who have entered into an agreement with the Distributor. The
dealer's concession may be changed from time to time. The Distributor may from
time to time offer incentive compensation to dealers (which sell shares of the
Fund subject to sales charges) allowing such dealers to retain an additional
portion of the sales load. A dealer who receives all of the sales load may be
considered an "underwriter" under the Securities Act of 1933, as amended. All
such sales charges are paid to the securities dealer involved in the trade. The
foregoing schedule of sales charges applies to single purchases and to purchase
made under a Letter of Intent and pursuant to the Rights of Accumulation, both
of which are described below.
RIGHT OF ACCUMULATION
Reduced sales loads apply to any purchase of Investor Shares by an
investor where the aggregate investment in Investor Shares including such
purchase, is $100,000 or more. If, for example, an investor previously
purchased and still holds Investor Shares, with an aggregate current market
value of $40,000 and subsequently purchases Investor Shares having a current
value of $20,000, the sales load applicable to the subsequent purchase would be
reduced to 4.25% of the offering price. All present holdings of Investor Shares
may be combined to determine the current offering price of the aggregate
investment in ascertaining the sales load applicable to each subsequent
purchase. To qualify for reduced sales loads, at the time of a purchase an
investor must notify the Transfer Agent. The reduced sales load is subject to
confirmation of an investor's holdings through a check of appropriate records.
17
<PAGE>
LETTER OF INTENT
By signing a Letter of Intent form, available from the Distributor or
the Transfer Agent, an investor becomes eligible for the reduced sales load
applicable to the total number of Investor Shares purchased in a 13-month period
(beginning up to 90 days prior to the date of execution of the Letter of Intent)
pursuant to the terms and conditions set forth in the Letter of Intent less any
redemptions by such investor during such period. A minimum initial purchase of
$5,000 is required. To compute the applicable sales load, the offering price of
Investor Shares you hold (on the date of submission of the Letter of Intent)
that may be used toward "Right of Accumulation" benefits described above may be
used as a credit toward completion of the Letter of Intent.
The Transfer Agent will hold in escrow 5% of the amount indicated in
the Letter of Intent for payment of a higher sales load if the investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when the investor fulfills the terms of the Letter of Intent by
purchasing the specified amount. Assuming completion of the total minimum
investment specified under a Letter of Intent, an adjustment will be made to
reflect any reduced sales load applicable to shares purchased during the 90-day
period prior to the submission of the Letter of Intent. In addition, if the
investor's purchases qualify for a further sales load reduction, the sales load
will be adjusted to reflect the investor's total purchase at the end of 13
months.
If the total purchases are less than the amount specified, the investor
will be requested to remit an amount equal to the difference between the sales
load actually paid and the sales load applicable to the aggregate purchases
actually made. If such remittance is not received within 20 days, the Transfer
Agent, as attorney-in-fact pursuant to the terms of the Letter of Intent, will
redeem an appropriate number of Investor Shares held in escrow to realize the
difference. Signing a Letter of Intent does not bind the investor to purchase,
or the Fund to sell, the full amount indicated at the sales load in effect at
the time of signing, but the investor must complete the intended purchase to
obtain the reduced sales load. At the time an investor purchases Investor
Shares, he or she must indicate his or her intention to do so under a Letter of
Intent.
PURCHASES BY WIRE
To order Investor Shares by wiring federal funds, the Transfer Agent
must first be notified by calling (800) 662-0201 to request an account number
and furnish the Fund with your tax identification number. Following
notification to the Transfer Agent, federal funds and registration instructions
should be wired through the Federal Reserve System to:
18
<PAGE>
UNITED MISSOURI BANK KC NA
ABA #10-10-00695
FOR: FPS SERVICES, INC.
A/C 98-7037-071-9
FBO "Domestic Emerging Markets Equity Fund Investor Shares"
ACCOUNT OF (EXACT NAME(S) OF ACCOUNT REGISTRATION)
STOCKHOLDER ACCOUNT #______
A completed application with signature(s) of registrant(s) must be filed with
the Transfer Agent immediately subsequent to the initial wire. Investors should
be aware that some banks may impose a wire service fee. Stockholders may be
subject to 31% withholding if original application is not received.
REDEMPTION OF SHARES
Stockholders may redeem their Investor Shares without charge on any
business day that the NYSE is open. See "NET ASSET VALUE." Redemptions will be
effective at the net asset value per share next determined after the receipt by
the Transfer Agent of a redemption request meeting the requirements described
below. The Fund normally sends redemption proceeds on the next business day,
but in any event redemption proceeds are sent within seven calendar days of
receipt of a redemption request in proper form. Payment may also be made by
wire directly to any bank previously designated by the stockholder in a
stockholder account application. There is a $9.00 charge for redemptions by
wire. Please note that the stockholder's bank also may impose a fee for wire
service. The Fund will honor redemption requests of stockholders who recently
purchased shares by check, but will not mail the proceeds until it is reasonably
satisfied that the purchase check has cleared, which may take up to fifteen days
from the purchase date, at which time the redemption proceeds will be mailed to
the stockholder. To avoid delays of this kind, you may wish to purchase by wire
if you are planning on redeeming your shares in the near future.
Except as noted below, redemption requests received in proper form by
the Transfer Agent prior to the close of regular trading hours on the NYSE on
any business day that the Fund calculates its per share net value are effective
that day.
Redemption requests received after the close of the NYSE are effective
as of the time the net asset value per share is next determined.
Investor Shares of the Fund may be redeemed through certain brokers,
financial institutions or service organizations, banks and bank trust
departments who may charge the investor a transaction fee or other fee for their
services at the time of redemption. Such fees would not otherwise be charged if
the shares were directly redeemed from the Fund.
19
<PAGE>
The Fund will satisfy redemption requests in cash to the fullest
extent feasible, so long as such payments would not, in the opinion of the
Investment Advisor or the Board of Directors, result in the necessity of the
Fund selling assets under disadvantageous conditions and to the detriment of the
remaining stockholders of the Fund.
Pursuant to the Company's Charter, payment for shares redeemed may be
made either in cash or in-kind, or partly in cash and partly in-kind. However,
the Fund has elected, pursuant to Rule 18f-1 under the 1940 Act, to redeem its
shares solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund, during any 90 day period for any one stockholder. Payments in
excess of this limit will also be made wholly in cash unless the Board of
Directors believes that economic conditions exist which would make such a
practice detrimental to the best interests of the Fund. Any portfolio
securities paid or distributed in-kind would be valued as described under "NET
ASSET VALUE." In the event that an in-kind distribution is made, a stockholder
may incur additional expenses, such as the payment of brokerage omissions, on
the sale or other disposition of the securities received from the Fund. In-kind
payments need not constitute a cross-section of the Fund's portfolio. Where a
stockholder has requested redemption of all or a part of the stockholder's
investment, and where the Fund completes such redemption in-kind, the Fund will
not recognize gain or loss for federal tax purposes, on the securities used to
complete the redemption but the stockholder will recognize gain or loss equal to
the difference between the fair market value of the securities received and the
stockholder's basis in the Fund shares redeemed. Investor Shares may be
redeemed in one of the following ways:
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request for redemption
to the Transfer Agent at 3200 Horizon Drive, PO Box 61503, King of Prussia, PA
19406-0903.
A written redemption request to the Transfer Agent must: (i) identify
the stockholder's account number, (ii) state the number of shares or dollars to
be redeemed and (iii) be signed by each registered owner exactly as the shares
are registered. A redemption request for amounts above $25,000 or redemption
requests for which proceeds are to be mailed somewhere other than the address of
record, must be accompanied by signature guarantees. Signatures must be
guaranteed by an "eligible guarantor institution" as defined in Rule 14Ad-15
under the Securities Exchange Act of 1934. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
Broker-dealers guaranteeing signatures must be members of a clearing corporation
or maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees. Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature guarantee
program. The
20
<PAGE>
Transfer Agent may require additional supporting documents for redemptions made
by corporations, executors, administrators, trustees and guardians.
A redemption request will not be deemed to be properly received until
the Transfer Agent receives all required documents in proper form. Questions
with respect to the proper form for redemption requests should be directed to
the Transfer Agent at (800) 662-0201.
REDEMPTION BY TELEPHONE
Stockholders who have so indicated on the application, or have
subsequently arranged in writing to do so, may redeem shares by instructing the
Transfer Agent by telephone. In order to arrange for redemption by wire or
telephone after an account has been opened, or to change the bank or account
designated to receive redemption proceeds, a written request must be sent to the
Transfer Agent at the address listed above.
Neither the Fund nor any of its service contractors will be liable for
any loss or expense in acting upon any telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Fund will use such procedures as are considered
reasonable, including requesting a stockholder to correctly state his or her
Fund account number, the name in which his or her account is registered, his or
her banking institution, bank account number and the name in which his or her
bank account is registered. To the extent that the Fund fails to use reasonable
procedures to verify the genuineness of telephone instructions, it and/or it
service contractors may be liable for any such instructions that prove to be
fraudulent or unauthorized.
The Fund reserves the right to refuse a wire or telephone redemption
if it is believed advisable to do so. Procedures for redeeming Fund shares by
wire or telephone may be modified or terminated at any time by the Fund.
ADDITIONAL INFORMATION
The Fund also reserves the right to involuntarily redeem an investor's
account where the account is worth less than the minimum initial investment
required when the account is established, presently $500. (Any redemption of
shares from an inactive account established with a minimum investment may reduce
the amount below the minimum initial investment, and could subject the account
to redemption initiated by the Fund.) The Fund will advise the stockholder of
such intention in writing at least sixty (60) days prior to effecting such
redemption, during which time the stockholder may purchase additional shares in
any amount necessary to bring the account back to $1,000. The Fund currently
does not intend to exercise this right; however, no assurance can be made that
the Fund will not determine to exercise this right in the future.
21
<PAGE>
If the Board of Directors determines that it would be detrimental to
the best interest of the remaining stockholders of the Fund to make payment in
cash, the Fund may pay the redemption price in whole or in part by distribution
in kind of readily marketable securities, from the Fund, within certain limits
prescribed by the U.S. Securities and Exchange Commission. Such securities will
be valued on the basis of the procedures used to determine the net asset value
at the time of the redemption. If shares are redeemed in kind, the redeeming
stockholder will incur brokerage costs in converting the assets into cash.
Securities are valued through valuations obtained from a commercial
pricing service or at the most recent mean of the bid and asked prices provided
by investment dealers in accordance with procedures established by the Board of
Directors.
NET ASSET VALUE
The net asset value of shares of the Fund is determined each business
day as of the close of trading on NYSE (currently 4:00 p.m. Eastern Time). For
purposes of determining net asset value, any options and futures contracts will
be valued 15 minutes after the close of trading on the floor of the NYSE. The
NYSE is scheduled to be open Monday through Friday throughout the year except
for certain Federal and other holidays. The net asset value per Investor Share
of the Fund is calculated by adding the Investor Shares' pro rata share of the
value of the Fund's assets, deducting the Investor Shares' pro rata share of the
Fund's liabilities and the liabilities specifically allocated to Investor Shares
and then dividing the result by the total number of outstanding Investor Shares.
All securities for which market quotations are readily available are valued at
the closing price quoted for the securities prior to the time of determination
(but if bid and asked quotations are available, at the mean between the last
current bid and asked prices, rather than the quoted closing price). Although
the Fund seeks to take into account material changes in value occurring after
the close of a market and before the time the Fund's net asset value is
determined, there can be no assurance that it will always be able to do so.
Securities that are traded over-the-counter are valued, if bid and asked
quotations are available, at the mean between the current bid and asked prices.
If bid and asked quotations are not available, then over-the-counter securities
are valued through valuations obtained from a commercial pricing service or as
determined in good faith by the Board of Directors. In making this
determination the Board considers, among other things, publicly available
information regarding the issuer, market conditions and values ascribed to
comparable companies. In instances where the price determined above is deemed
not to represent fair market value, the price is determined in such manner as
the Board may prescribe. Investments in short-term debt securities having a
maturity of 60 days or less are valued at amortized cost if their term of
maturity from the date of purchase was less than 60 days, or by amortizing their
value on the 61st day prior to maturity if their term to maturity from the date
of purchase when acquired by the Fund was more than 60 days, unless this is
determined by the Board of Directors not to represent fair value. All other
securities and assets are taken at fair value as determined in good faith by the
Board of Directors, although the actual calculation may be done by
22
<PAGE>
others. Income and expenses (including advisory and administration fees) are
accrued daily and taken into account in computing net asset value.
DIVIDENDS
The Fund calculates its dividends, if any, from net investment income.
Net investment income includes interest accrued and dividends earned on the
Fund's portfolio securities for the applicable period less applicable expenses.
The Fund declares dividends, if any, from its net investment income quarterly
and net realized short-term and long-term capital gains annually unless such
capital gains are used to offset losses carried forward from prior years, in
which case no such capital gains will be distributed.
Dividends paid by the Fund with respect to Investor Shares and
Institutional Shares are calculated in the same manner and at the same time.
Both classes will share proportionately in the investment income and expenses of
the Fund, except that the per share dividends of Investor Shares will differ
from the per share dividends of Institutional Shares as a result of additional
distribution expenses applicable to Investor Shares.
Unless an investor instructs the Fund to pay dividends or
distributions in cash, dividends and distributions will automatically be
reinvested in additional Investor Shares of the Fund at net asset value. The
election to receive dividends in cash may be made on the account Application or
subsequently, by writing to the Transfer Agent at FPS Services, Inc., 3200
Horizon Drive, PO Box 61503, King of Prussia, Pennsylvania 19406, or by calling
the Transfer Agent at (800) 992-8151. Any check in payment of dividends or
other distributions which cannot be delivered by the Post Office or which
remains uncashed for a period of more than one year may be reinvested in the
stockholder's account at the then current net asset value and the dividend
option may be changed from cash to reinvest. Dividends are reinvested on the
ex-dividend date at the net asset value determined at the close of business on
that date. Please note that shares purchased shortly before the record date for
a dividend or distribution may have the effect of returning capital although
such dividends and distributions are subject to taxes.
TAXES
The following discussion reflects applicable tax laws as of the date
of this Prospectus.
TAXATION OF THE COMPANY
The Company has elected and intends to qualify each year to be treated
as a regulated investment company (a "RIC") for federal income tax purposes in
accordance with Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order to so qualify, the Company as a whole (see "OTHER
INFORMATION--Capital Stock"), must satisfy certain tests regarding the source of
its income, diversification of its
23
<PAGE>
assets and distribution of its income. If the Company otherwise qualifies as a
regulated investment company and the Company distributes to its stockholders at
least 90% of its investment company taxable income, then the Company will not be
subject to federal income tax on the income so distributed. However, the
Company would be subject to corporate income tax on any undistributed income.
If the Company is a personal holding company (a "PHC"), then the federal
corporate income tax will be applied at the highest rate of tax specified in
Section 11(b) of the Code, currently 35%, with respect to any such undistributed
income (in addition to the possible imposition of the personal holding company
tax, described in Section 541 of the Code equal to 39.6% of undistributed
personal holding company income (generally for this purpose the full amount of
any undistributed income.)) The Company would be a PHC, generally, if at any
time during the last half of its taxable year more than 50% in value of its
outstanding stock is owned, directly or indirectly, by or for not more than 5
individuals. In addition, the Company will be subject to a nondeductible 4%
excise tax on the amount by which the amount it distributes in any calendar year
is less than a statutorily designated, required amount of its regulated
investment company income and its capital gain net income (generally 98%).
If in any year the Company should fail to qualify under Subchapter M
as a regulated investment company, the Company would incur a regular corporate
income tax upon its taxable income for the year, and the entire amount of each
Series' distribution would generally be characterized as ordinary income.
TAXATION OF STOCKHOLDERS
DISTRIBUTIONS
In general, all distributions to stockholders attributable to the
Company's investment company taxable income will be taxable as ordinary income
whether paid in cash or reinvested in additional shares of such Series.
Although no Series of the Company expects to realize significant net
capital gains, to the extent the Company does realize net capital gains, it
intends to distribute such gains annually and designate them as capital gain
dividends. Long-term capital gains dividends are taxable to stockholders as
long-term capital gains, whether paid in cash or reinvested in additional shares
of a Series, regardless of how long a stockholder has held such shares.
Stockholders receiving distributions in the form of additional shares
of a Series will be treated for federal income tax purposes as having received
the amount of cash used to purchase such shares. In general, the basis of such
shares will equal the price paid for such shares.
24
<PAGE>
SALES OF SHARES
In general, if a share of a Series is redeemed, the stockholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and the stockholder's adjusted basis in the share. Any gain or loss
realized upon a sale of shares by a stockholder who is not a dealer in
securities will generally be treated as capital gain or loss and capital gain or
loss will be long-term capital gain or loss if the shares that were sold had
been held for more than one year. However, any loss recognized by a stockholder
on shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gain distributions received by the
stockholder and the stockholder's share of undistributed net capital gain. In
addition, any loss realized on a sale of shares will be disallowed to the extent
the shares disposed of are replaced within a period beginning 30 days before and
ending 30 days after the disposition of the shares. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
BACKUP WITHHOLDING
The Company may be required to withhold federal income tax at the rate
of 31% of any dividend or redemption payments made to certain stockholders if
such stockholders have not provided a correct taxpayer identification number and
certain required certifications to the Company, or if the Secretary of the
Treasury notifies the Company that the taxpayer identification number provided
by a stockholder is not correct or that the stockholder has previously
underreported its interest and dividend income. Stockholders can credit such
withheld income taxes against their income tax liabilities.
The foregoing discussion is a summary of certain of the current
federal income tax laws regarding the Company and investors in the shares of a
Series and does not deal with all of the federal income tax consequences
applicable to the Company, or to all categories of investors, some of which may
be subject to special rules. Prospective investors should consult their own tax
advisers regarding the federal, state, local, foreign and other tax consequences
to them of investments in a Series of the Company. For additional tax
information, see "TAXATION" in the Fund's Statement of Additional Information.
OTHER INFORMATION
CAPITAL STOCK
The Company was incorporated on November 22, 1988 under the laws of
the State of Maryland under the name The Chapman Funds, Inc. It is a registered
open-end, management investment company under the 1940 Act set up as a "series
fund" which is a mutual fund divided into separate portfolios, each of which is
treated as a separate entity for certain matters under the 1940 Act and for
other purposes. A stockholder of one Series is not deemed to be a stockholder
of any other Series. The
25
<PAGE>
Fund is non-diversified under the 1940 Act. See "RISK FACTORS--Non-Diversified
Status." The Company's charter authorizes the Board to issue 10 billion full
and fractional shares of common stock, par value $.001 per share, of which 1
billion shares are designated Domestic Emerging Markets Equity Fund Investor
Shares. Under the Company's charter documents and Maryland law, the board has
the power to classify or reclassify any unissued shares of the Company into one
or more additional classes by setting or changing in any one or more respects
their relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of its shares into one or more series and,
without stockholder approval, may increase the number of authorized shares of
the Company. All shares of the Fund, when issued, will be fully paid and
nonassessable.
The Fund offers a separate class of shares, the Institutional Shares,
to institutions through a separate prospectus. Shares of each class represent
equal pro rata interests in the Fund and accrue dividends and calculate net
asset value and performance quotations in the same manner.
All shares of the Company have equal voting rights and will be voted
in the aggregate, and not by class, except where class voting is required by law
or the matter affects only one class. There is no provision for cumulative
voting.
The Company is not required under Maryland law to hold annual meetings
of stockholders for the election of Directors and currently does not intend to
do so. Stockholders have the right to call for a meeting to consider the
removal of one or more of the Company's Directors if the request is made in
writing by the holders of at least 10% of the Company's outstanding voting
securities. The Company will assist in calling the meeting as required under
the 1940 Act.
Stockholders of record will receive unaudited semi-annual reports and
an annual report containing financial statements audited by independent
auditors.
STOCKHOLDER INQUIRIES
Investors may write or call the Distributor or the Transfer Agent at
the addresses and telephone numbers on the back cover of this Prospectus with
any questions relating to their investment.
CONTROLLING STOCKHOLDER
As of August 5, 1997, the Investment Advisor owns one Investor Share
and one Institutional Share of the Fund which comprises 100% of the Fund's
outstanding Common Stock. Because one stockholder owns in excess of 25% of the
issued and outstanding Common Stock of the Fund as of August 5, 1997, such
stockholder is deemed to control the Fund. Accordingly, such stockholder has
significant power to
26
<PAGE>
affect the affairs of the Fund or to determine or influence the outcome of
matters submitted to a vote of the stockholders of the Fund.
The Investment Adviser is a wholly-owned subsidiary of the
Distributor, The Chapman Co. Nathan A. Chapman, Jr., who is the controlling
stockholder of The Chapman Co. is a controlling person (as that term is defined
under the 1940 Act) of The Chapman Co. and, therefore, a controlling person of
the Investment Adviser.
27
<PAGE>
DOMESTIC EMERGING MARKETS EQUITY FUND
INVESTOR SHARES
PROSPECTUS
[ ], 1997
Investment Advisor
CHAPMAN CAPITAL MANAGEMENT, INC.
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
(410) 625-9656
Transfer and Dividend Paying Agent and Accounting Agent
FPS SERVICES, INC.
3200 Horizon Drive
PO Box 61503
King of Prussia, Pennsylvania 19406
(800) 992-8151
Custodian
UMB BANK, KC
928 Grand Avenue
Kansas City, Missouri 64141-6226
Distributor
THE CHAPMAN CO.
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
(410) 625-9656
No person is authorized to make any representations in connection with
this offering other than those included in this Prospectus or in supplemental
sales literature issued by the Fund or its Distributor.
28
<PAGE>
SUBJECT TO COMPLETION
Preliminary Prospectus dated: [ ], 1997
[ ], 1997
DOMESTIC EMERGING MARKETS EQUITY FUND
INSTITUTIONAL SHARES
The Domestic Emerging Markets Equity Fund (the "Fund"), is a series of The
Chapman Funds, Inc. (the "Company"), an open-end, management investment company,
known as a series fund (the Fund and each other series of the Company are herein
referred to as a "Series"). The Fund is a non-diversified portfolio that seeks
aggressive long-term growth through capital appreciation through investment in
Domestic Emerging Markets -TM- that it believes are positioned for growth.
"Domestic Emerging Markets -TM-" are companies that are controlled by African
Americans, Asian Americans, Hispanic/Latino Americans or women that are located
in the United States and its territories ("DEM-TM- Companies"). Both capital
appreciation and income will be considered in the selection of investments, but
primary emphasis will be on capital appreciation. BECAUSE OF THE NATURE OF THE
FUND'S INVESTMENTS AND CERTAIN STRATEGIES IT MAY USE, AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS AND MAY NOT BE APPROPRIATE FOR ALL INVESTORS.
The Fund offers two classes of shares, Investor Shares and Institutional
Shares. Institutional Shares are offered by this Prospectus. Institutional
Shares have no load; however, individual investors may purchase Institutional
Shares only through institutional stockholders of record, broker-dealers,
financial institutions, depository institutions, retirement plans and other
financial intermediaries ("Institutions"). The Institutional Shares impose a
12b-1 fee of up to .25% per annum, which is the economic equivalent of a sales
charge and the minimum initial investment in Institutional Shares is currently
$25,000 with no minimum subsequent investment. The Fund's Investor Shares are
available for purchase by individuals directly and are offered by a separate
prospectus.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and should be retained for
future reference. A Statement of Additional Information dated [ ], 1997,
containing additional information about the Fund, has been filed with the
Securities and Exchange Commission (the "SEC") and is hereby incorporated by
reference in its entirety into this Prospectus. A copy of the Statement of
Additional Information may be obtained without charge by calling The Chapman Co.
at (800) 752-1013.
TABLE OF CONTENTS
Fund Expenses. . . . . . . . . . . . 2
Investment Objectives. . . . . . . . 3
Risk Factors . . . . . . . . . . . . 8
Management . . . . . . . . . . . . . 11
Purchase of Shares . . . . . . . . . 15
Redemption of Shares . . . . . . . . 16
Net Asset Value. . . . . . . . . . . 19
Dividends. . . . . . . . . . . . . . 20
Taxes. . . . . . . . . . . . . . . . 21
Other Information. . . . . . . . . . 23
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
THIS REGISTRATION STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. UNDER NO CIRCUMSTANCES SHALL THIS
REGISTRATION STATEMENT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
<PAGE>
FUND EXPENSES
The following table lists the costs and expenses an investor will
incur either directly or indirectly as a stockholder of the Fund based on an
estimate of the Fund's operating expenses for the current fiscal year:
STOCKHOLDER TRANSACTION EXPENSES DOMESTIC EMERGING
MARKETS EQUITY FUND
INSTITUTIONAL
SHARES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) . . . . . . . . . -0-%
Maximum Deferred Sales Load . . . . . . . . . . . . . -0-%
Maximum Sales Load Imposed on Reinvested
Dividends and other Distributions . . . . . . . . . . -0-%
Redemption Fee
(as a percentage of amount redeemed). . . . . . . . . -0-%
ANNUAL EXPENSES (as a percentage of net assets) (1)
Management Fees . . . . . . . . . . . . . . . . . . .0.90%
12b-1 Fees. . . . . . . . . . . . . . . . . . . . . .0.25%
Other Expenses (2). . . . . . . . . . . . . . . . . .0.89%
Total Fund Operating Expenses (estimated) . . . . . .2.04%
______________________
(1) See "MANAGEMENT."
(2) Based upon estimated amounts of expenses for the Fund's current fiscal
year.
The following example demonstrates the projected dollar amount of
total cumulative expenses that would be incurred over various periods with
respect to a hypothetical investment in the Fund. These amounts are based upon
payment by the Fund of operating expenses (excluding offering expenses) at the
levels set forth in the table above.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment
assuming a 5% annual return, reinvestment of all dividends and distributions at
net asset value and redemption at the end of the period:
2
<PAGE>
Institutional Shares
1 Year $20.70
3 Years $63.96
The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. "Other Expenses" are based on estimated amounts
for the current fiscal year. Long-term investors in the Fund could pay more in
12b-1 fees than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers, Inc. (the "NASD")
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OF THE
FUND AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover,
while the examples assume a 5% annual return, the Fund's performance will vary
and may result in a return greater or less than 5%. For a further description
of the various costs and expenses incurred in the Fund's operation, see
"MANAGEMENT."
INVESTMENT OBJECTIVES
The Fund seeks aggressive long-term growth through capital
appreciation through investment in Domestic Emerging Markets -TM- that it
believes are positioned for growth. "Domestic Emerging Markets -TM-" are
companies that are controlled by African Americans, Asian Americans,
Hispanic/Latino Americans or women that are located in the United States and its
territories. Both capital appreciation and income are considered in choosing
specific investments, but the primary emphasis is on capital appreciation. The
Fund retains maximum flexibility as to the types of investments it may make and
is permitted to invest in portfolio companies with large and small market
capitalizations. Some of these investments may involve the purchase of
securities directly from portfolio companies in initial or other public
offerings of their securities. See "RISK FACTORS--Investment in Small
Companies." The Fund's principal investment objective of long-term growth
through capital appreciation through investment in Domestic Emerging Markets -
TM- is not a "fundamental policy" of the Fund and can therefore be changed by
the Company's Board of Directors without stockholder approval.
In determining whether a specific portfolio company is "controlled" by
African Americans, Asian Americans, Hispanic/Latino Americans or women, the Fund
will apply the following criteria: at least 10% of the company's outstanding
voting securities must be beneficially owned by members of one or more of the
listed groups or at least one of the company's top five executive officers must
be a member of one or more of the listed groups.
The Fund will seek to identify businesses that are DEM-TM- Companies
through research by Chapman Capital Management, Inc. (the "Investment Advisor").
3
<PAGE>
Such research will include: requests to specific companies for details of their
ownership and management; independent research for the details of specific
companies' ownership and management including company visits and checks with
government agencies for companies that have registered as minority or women-
owned business enterprises or are recognized as such by government agencies; the
review of business lists compiled by magazines and other publications which list
DEM-TM- Companies; the examination of companies that generally market
themselves as DEM-TM- Companies; and the review of annual reports and other
regulatory filings.
To achieve the Fund's investment objectives, the Fund invests in a
wide variety of types of portfolio companies and seeks to identify those
companies that are positioned for growth. Among other factors, the Investment
Advisor considers a company's above average earnings growth, high potential
profit margins, innovative products, high quality management, and competitive
advantage in making investment decisions. The Fund believes that Domestic
Emerging Markets -TM- represent one of America's fastest growing market segments
and include well-diversified, high-growth segments of the economy including but
not limited to communications, media/entertainment, environmental services,
applied/advanced technology, financial services and value-oriented consuming.
While the Fund invests in portfolio companies with large and small
market capitalizations, the Fund believes that investing in small companies may
offer the potential for significant long-term capital appreciation. Most of the
Fund's investments are in marketable common stocks or marketable securities
convertible into common stock traded on an exchange or in the over-the-counter
markets. To the extent the Fund invests in companies with smaller market
capitalizations, the securities of such companies may be traded in such over-
the-counter markets as the OTC Bulletin Board-SM- and the Pink Sheets-SM-. See
"RISK FACTORS--Investment in Small Companies."
While the Fund intends to concentrate on publicly traded securities,
it may also invest in non-publicly traded securities of DEM-TM- Companies, such
as those of privately-held companies or private placements of public companies.
The portion of the Fund's assets invested in these non-publicly traded
securities will vary over time depending on investment opportunities and other
factors; however, an investment in such securities will be considered illiquid
and therefore be subject to the Fund's limitation on the purchase of illiquid
securities. The Fund may not invest more than 15% of its net assets in illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market and securities that are restricted securities as
defined in Rule 144 under the Securities Act ("Illiquid Securities"). Illiquid
Securities include securities which have not been registered under the
Securities Act, sometimes referred to as private placements, and are purchased
directly from the issuer or in the secondary market. The Fund will seek to
invest in the securities of private companies that the Investment Advisor
believes have the potential for above average capital appreciation in
anticipation of their initial public offering. To the extent that the Fund is
permitted to invest in Illiquid Securities, the Fund may be deemed to act as an
underwriter to portfolio
4
<PAGE>
companies. See "RISK FACTORS--Non-Publicly Traded Securities" and "INVESTMENT
PROGRAM--Non-Publicly Traded and Illiquid Securities" in the Statement of
Additional Information.
As an alternative to direct investments in Illiquid Securities, the
Fund may invest up to 10% of its assets in private venture capital funds
including United States private limited partnerships or other investment funds
("Private Funds") that themselves invest in Illiquid Securities. In selecting
Private Funds for investment, the Fund's Investment Advisor seeks to invest in a
mix of Private Funds that will provide an above average internal rate of return
(I.E., the discount rate at which the present value of an investment's future
cash inflows (dividend income and capital gains) are equal to the cost of the
investment). The Investment Advisor believes that the Fund's investments in
Private Funds offers individual investors a unique opportunity to participate in
investment opportunities typically available only to large institutions and
accredited investors. Although the Fund's investments in Private Funds are
limited to a maximum of 10% of the Fund's assets, these investments are highly
speculative and volatile and may produce gains or losses in this portion of the
Fund that exceed those of the Fund's other holdings and of more mature companies
generally.
Because Private Funds generally are investment companies for purposes
of the 1940 Act, the Fund's ability to invest in them will be limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of total assets with respect to any one investment
company and, (iii) 10% of the Fund's total assets in the aggregate. In
addition, Fund stockholders will remain subject to the Fund's expenses while
also bearing their pro rata share of the operating expenses of the Private
Funds. The ability of the Fund to dispose of interests in Private Funds is very
limited and will involve the risks described under "RISK FACTORS--Non-Publicly
Traded Securities" and "INVESTMENT PROGRAM--Non-Publicly Traded and Illiquid
Securities" in the Statement of Additional Information. In valuing the Fund's
holdings of interests in Private Funds, the Fund will be relying on the most
recent reports provided by the Private Funds themselves prior to calculation of
the Fund's net asset value. These reports, which are provided on an infrequent
basis, often depend on the subjective valuations of the managers of the Private
Funds and, in addition, would not generally reflect positive or negative
subsequent developments affecting companies held by the Private Fund. See "NET
ASSET VALUE." The securities of Private Funds will typically themselves be
classified as Illiquid Securities by the Board of Directors. Accordingly, the
Fund's total investment in Illiquid Securities, including Private Funds, is
limited to 15% of the Fund's assets with no more than 10% of the Fund's assets
invested in Private Funds.
The Fund does not invest in foreign securities (including American
Depository Receipts).
The Fund's investment objectives and policies, other than those
specified in the Statement of Additional Information under "INVESTMENT PROGARM -
5
<PAGE>
Fundamental Policies," may be changed by the Board of Directors without the
approval of stockholders.
The Fund may not issue senior securities, borrow money or pledge its
assets, except that it may borrow from banks in amounts aggregating not more
than 33 1/3% of the value of the Fund's total assets (calculated when the loan
is made) to take advantage of investment opportunities and may pledge up to 33
1/3% of the value of its total assets to secure such borrowings. The Fund may
purchase securities on margin pursuant to margin arrangements with banks up to
the limits set forth above for bank borrowings. The Fund is also authorized to
borrow an additional 5% of its total assets without regard to the foregoing
limitations for temporary purposes such as clearance of portfolio transactions
and share redemptions.
The use of borrowings by the Fund may involve leverage that creates an
opportunity for increased net income, but also creates special risks. In
particular, if the Fund borrows or otherwise uses leverage to invest in
securities, any investment gains made on the securities in excess of interest or
other amounts paid by the Fund will cause the net asset value of the Fund's
shares to rise faster than would otherwise be the case. On the other hand, if
the investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on borrowed money) to the Fund, the net
asset value of the Fund's shares will decrease faster than would otherwise be
the case.
To reduce these risks, the Fund will limit its borrowings to 33 1/3%
of the value of its total assets. If the Fund's asset coverage for borrowings
falls below 300%, the Fund will take prompt action to reduce its borrowings.
The Fund retains the flexibility to respond promptly to changes in
market conditions and no minimum percentage of the Fund's assets must be
invested in DEM-TM- Companies at any time. Accordingly, during periods when
the Investment Advisor believes a temporary defensive posture in the market
is warranted, the Fund has reserved the right to invest a significant
proportion or all of its assets in the securities of non-DEM-TM- Companies
that otherwise meet the Fund's investment objectives, or alternatively, the
Fund may hold cash (U.S. dollars) and/or invest any portion or all of its
assets in high quality short-term debt securities and money market
instruments. The securities of non-DEM-TM- Companies that otherwise meet
the Fund's investment objectives may or may not involve less risk than DEM
- -TM- Companies. Accordingly, to the extent that the Fund adopts a temporary
defensive posture in which it invests in non-DEM-TM- Companies, the Fund's
investments will continue to present significant risks. See "RISK
FACTORS--Investment in Small Companies, --Non-Publicly Traded Securities,"
- --Non-Diversified Status." The decision to adopt a temporary defensive
posture may be affected by such factors as market conditions generally, the
Investment Advisor's views on the direction of movement of the stock prices
of specific targeted portfolio companies and other related factors. It is
impossible to predict when or for how long the Fund will employ defensive
strategies, and to the extent it is so invested, the Fund may not achieve its
investment
6
<PAGE>
objectives. The Fund will also invest in the instruments described above
pending investment of the net proceeds of this offering.
The Fund may invest up to 15% of its total assets, represented by the
premium paid, in the purchase of call and put options in respect of specific
securities in which the Fund may invest. The Funds may write covered call and
put option contracts to the extent of 15% of the value of its net assets at the
time such option contracts are written. A call option gives the purchaser of
the option the right to buy, and obligates the writer to sell, the underlying
security at the exercise price at any time during the option period.
Conversely, a put option gives the purchaser of the option the right to sell,
and obligates the writer to buy, the underlying security at the exercise price
at any time during the option period. A covered call option sold by the Fund,
which is a call option with respect to which the Fund owns the underlying
security, exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or to possible continued holding of a security which might otherwise
have been sold to protect against depreciation in the market price of the
security. A covered put option sold by the Fund exposes the Fund during the
term of the option to a decline in price of the underlying security. A put
option sold by the Fund is covered when, among other things, cash or liquid
securities are placed in a segregated account with the Fund's custodian to
fulfill the obligation undertaken.
To close out a position when writing covered options, the Fund may
make a "closing purchase transaction," which involves purchasing an option on
the same security with the same exercise price and expiration date as the option
which it has previously written on the security. To close out a position as a
purchaser of an option, the Fund may make a "closing sale transaction," which
involves liquidating its position by selling the option previously purchased.
The Fund will realize a profit or loss from a closing purchase or sale
transaction depending upon the difference between the amount paid to purchase an
option and the amount received from the same thereof. The Fund intends to treat
options in respect of specific securities that are not traded on a national
securities exchange or the Nasdaq National Market and the securities underlying
covered call options written by the Fund as Illiquid Securities subject to the
Fund's investment limitation on Illiquid Securities set forth above.
The Fund may, but is not required to, utilize various investment
techniques for hedging, risk management and other investment purposes. These
investment techniques may include, but are not limited to, lending of portfolio
securities and entering into "repurchase agreements." Up to 20% of the Fund's
assets may be invested pursuant to such techniques for hedging and risk
management purposes or when, in the opinion of the Investment Advisor, such
techniques can be expected to yield a higher investment return than other
investment options.
To the extent that the Fund seeks to increase its income by lending
portfolio securities, such securities loans will be secured by collateral in
cash, cash equivalents, U.S. government securities, or such other collateral as
may be permitted
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under the Fund's investment program and by regulatory agencies. The Fund may
enter into repurchase agreements pertaining to the securities in which it may
invest with securities dealers or member banks of the Federal Reserve System.
Repurchase agreements facilitate portfolio management and allow the Fund to earn
additional revenue. If the Fund enters into repurchase agreements, it will do
so in order to increase liquidity or as a temporary investment while the Fund is
evaluating the acquisition of suitable investments. See "INVESTMENT PROGRAM" in
the Statement of Additional Information.
The Fund's investment policy of not investing in foreign securities
(including American Depository Receipts) is a fundamental policy which it may
not change without the approval of the holders of a majority of its outstanding
voting securities. For more information about the Fund and its investment
objectives and policies, including fundamental policies, see "INVESTMENT
PROGRAM" in the Statement of Additional Information.
RISK FACTORS
INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS ASSOCIATED WITH
AN INVESTMENT IN THE FUND.
An investment in the Fund's shares does not constitute a complete
investment program since it involves the greater market risks inherent in
seeking higher returns and is not recommended for short-term or risk averse
investors. No assurance can be given that securities of small emerging
companies will appreciate, that a sufficient number of appropriate investments
will be available or that the Fund's particular investment choices will be
successful. The prices of securities in which the Fund may invest may also be
more volatile than securities of issuers with larger market capitalizations and
the Fund's net asset value may therefore be subject to greater fluctuation than
other investment companies that invest in equity securities.
INVESTMENT IN SMALL COMPANIES
Because the Fund intends to invest substantially all of its assets in
securities of emerging companies with small market capitalizations, an investor
should be aware of certain special considerations and risk factors relating to
investments in such companies. No assurance can be given that securities of
small emerging companies will appreciate, that a sufficient number of
appropriate investments will be available or that the Fund's particular
investment choices will be successful. Investors should also be aware of
considerations and risks relating to the Fund's investment practices. An
investment in the Fund should not itself be considered a balanced investment
program and is intended to provide diversification as part of a more complete
investment program. The Fund is intended for long-term investors not seeking
current income, who have the financial ability to accept greater investment risk
in exchange for the potential of higher than average, long-term capital
appreciation.
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Investing in small capitalization stocks can involve greater risk than
is customarily associated with investing in securities of larger, more
established companies. Small emerging companies may be subject to greater
earnings fluctuation, lack of established markets for products or services, more
limited financial resources and less depth of experienced management.
Securities of small emerging companies generally have more limited marketability
and may be subject to greater price volatility than securities of larger
companies. They may be dependent for management on one or a few key persons,
and can be more susceptible to losses and risks of bankruptcy. Transaction and
trading costs in smaller capitalization stocks may be higher than those of
larger capitalization companies, primarily because of more limited volumes and
fewer active market makers. These risks are in addition to the risks normally
associated with any strategy seeking capital appreciation by investing in a
portfolio of equity securities. Furthermore, such companies are often traded on
markets such as the OTC Bulletin Board-SM- and the Pink Sheets-SM- where the
trading market is thinner and the spread between bid and offer prices is often
larger than on the major exchanges or Nasdaq system. The nature of these
trading markets subjects the Fund to the risk that should the need arise to
rapidly liquidate its position in such securities, for example to cover net
redemptions, the Fund's activities could aversely affect the market price of
such securities, resulting in a requirement that the Fund sell its position
below the price that is deemed to be representative of their value and,
accordingly, the value of the Fund's net assets could be adversely affected.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in Illiquid
Securities, which term includes securities that are illiquid by virtue of the
absence of a readily available market and securities that are restricted
securities as defined in Rule 144 under the Securities Act. Illiquid Securities
include securities which have not been registered under the Securities Act,
sometimes referred to as private placements, and are purchased directly from the
issuer or in the secondary market. Illiquid Securities may involve a high
degree of business and financial risk and may result in substantial losses.
These securities are less liquid than publicly traded securities, and the Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. The Fund's investment in Illiquid Securities is subject to the risk
that should the Fund desire to sell any of these securities when a ready buyer
is not available at a price that is deemed to be representative of their value,
for example to cover net redemptions, the value of the Fund's net assets could
be adversely affected. See "INVESTMENT PROGRAM--Non-Publicly Traded and
Illiquid Securities" in the Statement of Additional Information.
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<PAGE>
LIMITED EXPERIENCE OF THE INVESTMENT ADVISOR
The Investment Advisor has acted as investment manager for various
balanced and equity portfolios and currently advises a money market fund that
is a Series of the Company. Further, the Investment Advisor has acted and is
currently acting as an investment advisor and manager for DEM, Inc., a
closed-end, non-diversified management investment company which concentrates
on DEM-TM- Company securities. However, prior to advising the Fund, the
Investment Advisor had not acted as an advisor to an open-end management
investment company investing in an equity portfolio.
NON-DIVERSIFIED STATUS
The Fund is classified as non-diversified under the 1940 Act, which
means that the Fund is not limited by that Act in the proportion of its assets
that may be invested in the securities of a single issuer. However, the Fund
intends to comply with the diversification requirements imposed by the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a
regulated investment company. See "TAXATION" in the Fund's Statement of
Additional Information. As a non-diversified investment company, the Fund may
invest a greater proportion of its assets in the obligations of a smaller number
of issuers and, as a result, may be subject to greater risk with respect to its
portfolio securities.
POTENTIAL CONFLICT OF INTEREST
The Fund may utilize the Distributor, The Chapman Co., a broker-dealer
registered under the Securities Exchange Act of 1934, as amended, and a member
of the NASD, in connection with the purchase or sale of portfolio securities in
certain circumstances. The Investment Advisor is a wholly-owned subsidiary of
the Distributor Mr. Nathan A. Chapman, Jr., the President and Chairman of the
Board of Directors of the Company, is also the President and Chairman of the
Board of Directors of the Investment Advisor and the Distributor See
"MANAGEMENT--Investment Advisor" below and "MANAGEMENT" in the Fund's Statement
of Additional Information. Mr. Chapman owns approximately 92% of the equity and
has the right to cast approximately 99% of the votes entitled to be cast by
stockholders of the Distributor Accordingly, these relationships represent a
potential conflict of interest with respect to commissions and other fees on
brokerage transactions conducted on the Fund's behalf by the Distributor. A
majority of the Company's Board of Directors are independent directors and such
Directors have adopted procedures in compliance with the 1940 Act to address
such conflict. See "MANAGEMENT" and "PORTFOLIO TRANSACTIONS" in the Fund's
Statement of Additional Information.
USE OF LEVERAGE
The use of borrowings by the Fund to carry out its investment
objectives may involve leverage that creates an opportunity for increased net
income, but also
10
<PAGE>
creates special risks. In particular, if the Fund borrows or otherwise uses
leverage to invest in securities, any investment gains made on the securities in
excess of interest or other amounts paid by the Fund will cause the net asset
value of the Fund's shares to rise faster than would otherwise be the case. On
the other hand, if the investment performance of the additional securities
purchased fails to cover their cost (including any interest paid on borrowed
money) to the Fund, the net asset value of the Fund's shares will decrease
faster than would otherwise be the case.
MANAGEMENT
BOARD OF DIRECTORS
The Fund is managed by the Company's Board of Directors. All of the
Directors are members of minority groups. The Board of Directors approves all
significant agreements between the Fund and other Series of the Company and
between the Fund and persons who furnish services to the Fund, including the
Fund's agreements with the Investment Advisor and the Distributor. The Board of
Directors delegates to the Company's officers and the Investment Advisor
responsibility for day-to-day operations of the Fund. All of the officers of
the Company are directors, officers or employees of the Investment Advisor
and/or the Distributor.
THE INVESTMENT ADVISOR
The Investment Advisor, Chapman Capital Management, Inc., has been
retained under an investment advisory and administrative services agreement (the
"Advisory Agreement") to provide investment advice and, in general, to conduct
the management and investment program of the Fund in accordance with the Fund's
investment objectives, policies, and restrictions and under the supervision and
control of the Company's Board of Directors. The Investment Advisor was
established in 1988 and is located at The World Trade Center - Baltimore, 401
East Pratt Street, 28th Floor, Baltimore, Maryland 21202. The Investment
Advisor is a wholly-owned subsidiary of the Distributor, The Chapman Co. Nathan
A. Chapman, Jr., who is the controlling stockholder, President and Chairman of
the Board of Directors of the Distributor, is President and Chairman of the
Board of Directors of the Company and President and Chairman of the Board of
Directors of the Investment Advisor.
The Investment Advisor has sole investment discretion for the Fund
and makes all decisions affecting assets in the Fund's portfolio under the
supervision of the Company's Board of Directors and in accordance with the
Fund's stated policies. The Investment Advisor selects investments for the
Fund and places purchase and sale orders on behalf of the Fund. The
Investment Advisor receives from the Fund an advisory fee at an annual rate
of .9 of 1% of the value of the Fund's average weekly net assets during the
preceding month payable monthly in arrears and an administration fee of .15
of 1% of the Fund's average weekly net assets during the preceding month
payable monthly in arrears.
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<PAGE>
The Investment Advisor has been in the investment advisory business
since 1988 and has served as the investment advisor to a money market Series of
the Company since 1988 and a closed-end non-diversified investment company
investing in DEM-TM- Companies since 1995. In addition, the Investment Advisor
serves as portfolio manager to private accounts. As of March 31, 1997, the
Investment Advisor had approximately $375 million in assets under management.
PORTFOLIO MANAGEMENT
Nathan A. Chapman, Jr. who has been the President and Chief Executive
Officer of the Investment Advisor since 1988, is primarily responsible for
management of the Fund's assets. Mr. Chapman is and has been the President and
Chairman of the Board of Directors of the Company since its organization in
1988. Mr. Chapman also is and has been President and Chairman of the Board of
Directors of DEM, Inc. since its inception in 1995. Mr. Chapman founded the
Distributor, which owns the Investment Advisor, in 1987 and has been its
President and Chairman of the Board since its inception. The Distributor is a
full-service brokerage and investment banking firm. As Mr. Chapman is the chief
executive officer of a brokerage and investment banking firm, he does not devote
his full time to the management of the Fund's portfolio.
THE DISTRIBUTOR
The Distributor, The Chapman Co., is a registered broker-dealer and a
member of the NASD. The Distributor is located at The World Trade Center--
Baltimore, 401 E. Pratt Street, 28th Floor, Baltimore, Maryland 21202. The
Distributor receives a fee for stockholder servicing and distribution services
at an annual rate of up to a total of .25% of the average daily net assets of
the Fund attributable to the Institutional Shares pursuant to a distribution
plan (the "Distribution Plan") adopted by the Fund pursuant to Rule 12b-1 under
the 1940 Act. Amounts paid to the Distributor under the Distribution Plan will
compensate the Distributor or enable the Distributor to compensate other
persons, including any other distributor of the Institutional Shares or
institutional stockholders of record of the Institutional Shares, including but
not limited to retirement plans, broker-dealers, depository institutions, and
other financial intermediaries, who own Institutional Shares on behalf of
investors, including their customers, clients or (in the case of retirement
plans) participants, and companies providing certain services to such investors,
for providing (a) services primarily intended to result in the sale of the
Institutional Shares and (b) stockholder servicing, administrative and
accounting services to such investors, all as set forth in the Distribution
Plan. Payments under the Distribution Plan are not tied exclusively to the
distribution expenses actually incurred by the Distributor and the payments may
exceed distribution expenses actually incurred. The Board of Directors of the
Company evaluates the appropriateness of the Distribution Plan on a continuing
basis and in doing so considers all relevant factors, including expenses borne
by the Distributor and amounts received under the Distribution Plan.
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<PAGE>
The Distributor or its affiliates may, at their own expense, provide
promotional incentives to parties who support the sale of shares of the Fund,
consisting of securities dealers who have sold Fund shares or others, including
banks and other financial institutions, under special arrangements. In some
instances, these incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or expected sale of
significant amounts of Fund shares.
Listed below are persons affiliated with both the Company and the
Distributor.
Name and With With
Principal Business Distributor Company
Address
- --------------------------------------------------------------------------------
Nathan A. Chapman, Jr. Director, Director,
The Chapman Co. President, President
401 East Pratt Street Chief Executive Officer,
28th Floor Treasurer
Baltimore, MD 21202
- --------------------------------------------------------------------------------
Bonnie Shay Gillette Secretary Secretary
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
EXPENSES
The Investment Advisor bears all expenses in connection with the
performance of its advisory and administrative services. The Company bears all
expenses incurred in its operations. Expenses attributable to the Company, but
not to a particular Series, will be allocated to each Series on the basis of
relative net assets. Similarly, expenses attributable to a particular Series,
but not to a particular class, will be allocated to each class thereof on the
basis of relative net assets. General Company expenses may include but are not
limited to: insurance premiums; Director fees; expenses of maintaining the
Company's legal existence; and fees of industry organizations. General Series
expenses may include but are not limited to: audit fees; brokerage commissions;
registration of the shares of a Series with the SEC and notification fees to the
various state securities commissions; fees of the Series' Administrator,
Custodian and Transfer Agent or other "service providers," costs of obtaining
quotations of portfolio securities; and pricing of Series shares.
Class-specific expenses relating to distribution fee payments
associated with a Rule 12b-1 plan for a particular class of shares and any other
costs relating to implementing or amending such plan (including obtaining
stockholder approval of such plan or any amendment thereto), will be borne
solely by stockholders of such class or classes. Other expense allocations
which may differ among classes, or which are determined by the Board of
Directors to be class-specific, may include but are not limited
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<PAGE>
to: printing and postage expenses related to preparing and distributing
required documents such as stockholder reports, prospectuses, and proxy
statements to current stockholders of a specific class; SEC registration fees
and state "blue sky" fees incurred by a specific class; litigation or other
legal expenses relating to a specific class; Director fees or expenses incurred
as a result of issues relating to a specific class; and different transfer
agency fees attributable to a specific class.
Notwithstanding the foregoing, the Investment Advisor or other service
provider may waive or reimburse the expenses of a specific class or classes to
the extent permitted under Rule 18f-3 under the 1904 Act.
BROKERAGE
The Distributor may effect brokerage transactions for the Fund in
compliance with the requirements of the 1940 Act.
CUSTODIAN
UMB Bank, NA, 928 Grand Avenue, Kansas City, Missouri 64141-6226,
serves as custodian for the Fund's portfolio securities.
TRANSFER AND DIVIDEND PAYING AGENT AND ACCOUNTING AGENT
FPS Services, Inc., 3200 Horizon Drive, PO Box 61503, King of Prussia,
Pennsylvania 19406, (800) 992-8151, serves as transfer and dividend paying agent
and accounting agent (the "Transfer Agent") for the Fund's shares pursuant to an
Investment Company Services Agreement. FPS Services, Inc. performs the
following duties in its capacity as Transfer Agent to the Fund: maintains the
records of stockholder's accounts; answers stockholder inquiries concerning
accounts; processes purchases and redemptions of Fund shares; acts as dividend
and distribution disbursing agent; and performs other stockholder service
functions. Stockholder inquiries should be addressed to the Transfer Agent at
(800) 992-8151. As accounting agent, FPS Services, Inc. performs certain
accounting and pricing services for the Fund, including the daily calculation of
the Fund's net asset value. For its transfer and dividend paying agency
services under the Investment Company Services Agreement, the Transfer Agent is
compensated by a monthly fee calculated according to a fee schedule approved by
the Board of Directors of the Company.
PURCHASE OF SHARES
Individual investors may purchase Institutional Shares only through
Institutions (institutional stockholders of record, broker-dealers, financial
institutions, depository institutions, retirement plans and other financial
intermediaries). The Fund reserves the right to make Institutional Shares
available to other investors in the future.
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<PAGE>
References in this Prospectus to stockholders or investors are generally to
Institutions as the record holders of the Institutional Shares.
Each Institution separately determines the rules applicable to its
customers investing in the Fund, including minimum initial and subsequent
investment requirements and the procedures to be followed to effect purchases,
redemptions and exchanges of Institutional Shares.
Orders for the purchase of Institutional Shares are placed with an
Institution by its customers. The Institution is responsible for the prompt
transmission of the order to the Transfer Agent.
Shares of the Fund may be purchased by Institutions directly from the
Fund at the net asset value next determined after receipt of the order in proper
form by the Transfer Agent. There is no sales load in connection with the
purchase of shares. The Fund reserves the right to reject any purchase order
and to suspend the offering of shares of the Fund. The Fund will not accept a
check endorsed over by a third-party. The minimum initial investment is
$25,000, with no minimum subsequent investment. The Fund reserves the right to
vary the initial investment minimum and minimums for additional investments at
any time. There is no minimum investment requirement for qualified retirement
plans.
Purchase orders for shares of the Fund which are received by the
Transfer Agent in proper form prior to the close of regular trading hours on the
New York Stock Exchange, Inc. (the "NYSE") (currently 4:00 p.m. Eastern time) on
any day that the fund calculates its net asset value, are priced according to
the net asset value determined on that day. Purchase orders for the shares of
the Fund received after the close of the NYSE on a particular day are priced as
of the time the net asset value per share is next determined.
Purchases may be made in one of the following ways:
PURCHASE BY MAIL
An Institution can make an initial purchase of Institutional Shares by
completing the Investment Application included with this Prospectus and mailing
it to the Transfer Agent, together with a check payable to Domestic Emerging
Markets Equity Fund Institutional Shares, c/o FPS Services, Inc., 3200 Horizon
Drive, PO Box 61503, King of Prussia, PA 19406-0903. All checks for purchase of
shares must be drawn on U.S. banks and payable in U.S. dollars.
Subsequent investments in an existing account in the Fund may be made
at any time by sending a check payable to Domestic Emerging Markets Equity Fund
Institutional Shares, c/o United Missouri Bank KC, NA, PO Box 412797, Kansas
City, MO 64141-2797. Please enclose the stub of your account statement along
with the
15
<PAGE>
amount of he investment and the name of the account for which the investment is
to be made and the account number. Please note: A $20 fee will be charged to
your account for any payment check returned to the Custodian.
The Fund may accept telephone orders from Institutions which have been
previously approved by the Fund. It is the responsibility of such Institutions
to promptly forward purchase orders and payments for the same to the Fund.
Institutional Shares may be purchased through broker-dealers, banks and bank
trust departments who may charge the investor a transaction fee or other fee for
the services at the time of purchase. Such fees would not otherwise be charged
if the shares were purchased directly from the Fund.
PURCHASE BY WIRE
To order shares for purchase by wiring federal funds, the Transfer
Agent must first be notified by calling (800) 662-0201 to request an account
number and furnish the Fund with your tax identification number. Following
notification to the Transfer Agent, federal funds and registration instructions
should be wired through the Federal Reserve System to:
UNITED MISSOURI BANK KC NA
ABA #10-10-00695
FOR: FPS SERVICES, INC.
A/C 98-7037-071-9
FBO "Domestic Emerging Markets Equity Fund Institutional Shares"
ACCOUNT OF (exact name(s) of account registration)
SHAREHOLDER ACCOUNT #_______
A completed application with signature(s) of registrant(s) must be
filed with the Transfer Agent immediately subsequent to the initial wire.
Investors should be aware that some banks may impose a wire service fee.
Stockholders may be subject to 31% withholding if an original application is not
received.
REDEMPTION OF SHARES
An investor of the Fund may redeem (sell) shares on any day that the
Fund's net asset value is calculated (see "NET ASSET VALUE" below). Requests
for the redemption of Institutional Shares are placed with an Institution by its
customers, which is then responsible for the prompt transmission of this request
to the Transfer Agent.
Institutions may redeem Institutional Shares without charge on any
business day that the NYSE is open (see "NET ASSET VALUE"). Redemptions will be
effective at the net asset value per share next determined after the receipt by
the Transfer Agent of a redemption request meeting the requirements described
below. The Fund normally sends redemption proceeds on the next business day,
but in any event
16
<PAGE>
redemption proceeds are sent within seven calendar days of receipt of a
redemption request in proper form. Payment may also be made by wire directly to
any bank previously designated by the Institution in an account application.
There is a $9.00 charge for redemption by wire. Please note that the
Institution's bank also may impose a fee for wire service. The Fund will honor
redemption requests of Institutions who recently purchased shares by check, but
will not mail the proceeds until it is reasonably satisfied that the purchase
check has cleared, which may take up to fifteen days from the purchase date, at
which time the redemption proceeds will be mailed to the Institution. To avoid
delays of this kind, an Institution may wish to purchase by wire if it is
planning on redeeming its shares in the near future.
Except as noted below, redemption requests received in proper form by
the Transfer Agent prior to the close of regular trading hours on the NYSE on
any business day that the Fund calculates its per share net asset value are
effective that day.
Redemption requests received after the close of the NYSE are effective
as of the time the net asset value per share is next determined.
The Fund will satisfy redemption requests in cash to the fullest
extent feasible, so long as such payments would not, in the opinion of the
Investment Advisor or the Board of Directors, result in the necessity of the
Fund selling assets under disadvantageous conditions and to the detriment of the
remaining stockholders of the Fund.
Pursuant to the Company's Charter, payment for shares redeemed may be
made either in cash or in-kind, or partly in cash and partly in-kind. However,
the Fund has elected, pursuant to Rule 18f-1 under the act, to redeem its shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during any 90 day period for any one Institution holding Institutional
Shares. Payments in excess of this limit will also be made wholly in cash
unless the Board of Directors believes that economic conditions exist which
would make such a practice detrimental to the best interests of the Fund. Any
portfolio securities paid or distributed in-kind would be valued as described
under "NET ASSET VALUE." In the event that an in-kind distribution is made, an
Institution may incur additional expenses, such as the payment of brokerage
commissions, on the sale or other disposition of the securities received from
the Fund. In-kind payments need not constitute a cross-section of the Fund's
portfolio. Where an Institution has requested redemption of all or a part of
the Institution's investment, and where the Fund completes such redemption in-
kind, the Fund will not recognize gain or loss for federal tax purposes, on the
securities used to complete the redemption but the stockholder will recognize
gain or loss equal to the difference between the fair market value of the
securities received and the stockholder's basis in the Fund shares redeemed.
Shares may be redeemed in one of the following ways:
17
<PAGE>
REDEMPTION BY MAIL
Shares may be redeemed by submitting a written request for redemption
to the Transfer Agent at 3200 Horizon Drive, PO Box 61503, King of Prussia, PA
19406-0903.
A written redemption request to the Transfer Agent must: (i) identify
the stockholder's account number, (ii) state the number of shares or dollars to
be redeemed and, (iii) be signed by each registered owner exactly as the shares
are registered. A redemption request for amounts above $25,000, or redemption
requests for which proceeds are to be mailed somewhere other than the address of
record, must be accompanied by signature guarantees. Signatures must be
guaranteed by an "eligible guarantor institution" as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
Broker-dealer guaranteeing signatures must be members of a clearing corporation
or maintain net capital of at least $100,000. Credit unions must be authorized
to issue signature guarantees. Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature guarantee
program. The Transfer Agent may require additional supporting documents for
redemptions made by corporations, executors, administrators, trustees and
guardians.
A redemption request will not be deemed to be properly received until
the Transfer Agent receives all required documents in proper form. Questions
with respect to the proper form for redemption requests should be directed to
the Transfer Agent at (800) 662-0201.
REDEMPTION BY TELEPHONE
Institutions who have so indicated on the application, or have
subsequently arranged in writing to do so, may redeem shares by instructing the
Transfer Agent by telephone. In order to arrange for redemption by wire or
telephone after an account has been opened, or to change the bank or account
designated to receive redemption proceeds, a written request must be sent to the
Transfer Agent at the address listed above.
Neither the Fund nor any of its service contractors will be liable for
any loss or expense in acting upon any telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Fund will use such procedures as are considered
reasonable, including requesting an Institution to correctly state its Fund
account number, the name in which its account is registered, its banking
institution, bank account number and the name in which its bank account is
registered. To the extent that the Fund fails to use reasonable procedures to
verify the genuineness of telephone instructions, it and/or its service
contractors may be liable for any such instructions that prove to be fraudulent
or unauthorized.
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<PAGE>
The Fund reserves the right to refuse a wire or telephone redemption
if it is believed advisable to do so. Procedures for redeeming Fund shares by
wire or telephone may be modified or terminated at any time by the Fund.
ADDITIONAL INFORMATION
The Fund reserves the right to involuntarily redeem an investor's
account where the account is worth less than the minimum initial investment
required when the account is established, presently $25,000. (Any redemption of
shares from an inactive account established with a minimum investment may reduce
the account below the minimum initial investment, and could subject the account
to redemption initiated by the Fund.) The Fund will advise the Institutional
stockholder of such intention in writing at least sixty (60) days prior to
effecting such redemption, during which time the Institution may purchase
additional shares in any amount necessary to bring the account back to $25,000.
The Fund currently has no intention of exercising its right to involuntarily
redeem accounts but reserves the right to initiate involuntary redemptions in
the future.
NET ASSET VALUE
The net asset value of shares of the Fund is determined each business
day as of the close of trading on NYSE (currently 4:00 p.m. Eastern Time). For
purposes of determining net asset value, any options and futures contracts will
be valued 15 minutes after the close of trading on the floor of the NYSE. The
NYSE is scheduled to be open Monday through Friday throughout the year except
for certain Federal and other holidays. The net asset value per Institutional
Share of the Fund is calculated by adding the Institutional Shares' pro rata
share of the value of the Fund's assets, deducting the Institutional Shares' pro
rata share of the Fund's liabilities and the liabilities specifically allocated
to Institutional Shares and then dividing the result by the total number of
outstanding Institutional Shares. All securities for which market quotations
are readily available are valued at the closing price quoted for the securities
prior to the time of determination (but if bid and asked quotations are
available, at the mean between the last current bid and asked prices, rather
than the quoted closing price). Although the Fund seeks to take into account
material changes in value occurring after the close of a market and before the
time the Fund's net asset value is determined, there can be no assurance that it
will always be able to do so. Securities that are traded over-the-counter are
valued, if bid and asked quotations are available, at the mean between the
current bid and asked prices. If bid and asked quotations are not available,
then over-the-counter securities are valued through valuations obtained from a
commercial pricing service or as determined in good faith by the Board of
Directors. In making this determination the Board considers, among other
things, publicly available information regarding the issuer, market conditions
and values ascribed to comparable companies. In instances where the price
determined above is deemed not to represent fair market value, the price is
determined in such manner as the Board may prescribe. Investments in short-term
debt securities having a maturity of 60 days or less are valued at amortized
cost if their term of maturity from the date of purchase was less than 60 days,
or by amortizing their value on the 61st
19
<PAGE>
day prior to maturity if their term to maturity from the date of purchase when
acquired by the Fund was more than 60 days, unless this is determined by the
Board of Directors not to represent fair value. All other securities and assets
are taken at fair value as determined in good faith by the Board of Directors,
although the actual calculation may be done by others. Income and expenses
(including advisory and administration fees) are accrued daily and taken into
account in computing net asset value.
DIVIDENDS
The Fund calculates its dividends, if any, from net investment
income. Net investment income includes interest accrued and dividends earned
on the Fund's portfolio securities for the applicable period less applicable
expenses. The Fund declares dividends, if any, from its net investment income
quarterly and net realized short-term and long-term capital gains annually
unless such capital gains are used to offset losses carried forward from
prior years, in which case no such capital gains will be distributed.
Dividends paid by the Fund with respect to Investor Shares and
Institutional Shares are calculated in the same manner and at the same time.
Both classes will share proportionately in the investment income and expenses of
the Fund, except that the per share dividends of Investor Shares will differ
from the per share dividends of Institutional Shares as a result of additional
distribution expenses applicable to Investor Shares.
Unless an investor instructs the Fund to pay dividends or
distributions in cash, dividends and distributions will automatically be
reinvested in additional Institutional Shares of the Fund at net asset value.
The election to receive dividends in cash may be made on the account Application
or subsequently, by writing to the Transfer Agent at FPS Services, Inc., 3200
Horizon Drive, PO Box 61503, King of Prussia, Pennsylvania 19406, or by calling
the Transfer Agent at (800) 992-8151. Any check in payment of dividends or
other distributions which cannot be delivered by the Post Office or which
remains uncashed for a period of more than one year may be reinvested in the
stockholder's account at the then current net asset value and the dividend
option may be changed from cash to reinvest. Dividends are reinvested on the
ex-dividend date at the net asset value determined at the close of business on
that date. Please note that shares purchased shortly before the record date for
a dividend or distribution may have the effect of returning capital although
such dividends and distributions are subject to taxes.
TAXES
The following discussion reflects applicable tax laws as of the date
of this Prospectus.
20
<PAGE>
TAXATION OF THE COMPANY
The Company has elected and intends to qualify each year to be treated
as a regulated investment company (a "RIC") for federal income tax purposes in
accordance with Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order to so qualify, the Company as a whole (see "OTHER
INFORMATION--Capital Stock"), must satisfy certain tests regarding the source of
its income, diversification of its assets and distribution of its income. If
the Company otherwise qualifies as a regulated investment company and the
Company distributes to its stockholders at least 90% of its investment company
taxable income, then the Company will not be subject to federal income tax on
the income so distributed. However, the Company would be subject to corporate
income tax on any undistributed income. If the Company is a personal holding
company (a "PHC"), then the federal corporate income tax will be applied at the
highest rate of tax specified in Section 11(b) of the Code, currently 35%, with
respect to any such undistributed income (in addition to the possible imposition
of the personal holding company tax, described in Section 541 of the Code equal
to 39.6% of undistributed personal holding company income (generally for this
purpose the full amount of any undistributed income.)). The Company would be a
PHC, generally, if at any time during the last half of its taxable year more
than 50% in value of its outstanding stock is owned, directly or indirectly, by
or for not more than 5 individuals. In addition, the Company will be subject to
a nondeductible 4% excise tax on the amount by which the amount it distributes
in any calendar year is less than a statutorily designated, required amount of
its regulated investment company income and its capital gain net income
(generally 98%).
If in any year the Company should fail to qualify under Subchapter M
as a regulated investment company, the Company would incur a regular corporate
income tax upon its taxable income for the year, and the entire amount of each
Series' distribution would generally be characterized as ordinary income.
TAXATION OF STOCKHOLDERS
DISTRIBUTIONS
In general, all distributions to stockholders attributable to the
Company's investment company taxable income will be taxable as ordinary income
whether paid in cash or reinvested in additional shares of such Series.
Although no Series of the Company expects to realize significant net
capital gains, to the extent the Company does realize net capital gains, it
intends to distribute such gains annually and designate them as capital gain
dividends. Long-term capital gains dividends are taxable to stockholders as
long-term capital gains, whether paid in cash or reinvested in additional shares
of a Series, regardless of how long a stockholder has held such shares.
21
<PAGE>
Stockholders receiving distributions in the form of additional shares
of a Series will be treated for federal income tax purposes as having received
the amount of cash used to purchase such shares. In general, the basis of such
shares will equal the price paid for such shares.
SALES OF SHARES
In general, if a share of a Series is redeemed, the stockholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and the stockholder's adjusted basis in the share. Any gain or loss
realized upon a sale of shares by a stockholder who is not a dealer in
securities will generally be treated as capital gain or loss and capital gain or
loss will be long-term capital gain or loss if the shares that were sold had
been held for more than one year. However, any loss recognized by a stockholder
on shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gain distributions received by the
stockholder and the stockholder's share of undistributed net capital gain. In
addition, any loss realized on a sale of shares will be disallowed to the extent
the shares disposed of are replaced within a period beginning 30 days before and
ending 30 days after the disposition of the shares. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
BACKUP WITHHOLDING
The Company may be required to withhold federal income tax at the rate
of 31% of any dividend or redemption payments made to certain stockholders if
such stockholders have not provided a correct taxpayer identification number and
certain required certifications to the Company, or if the Secretary of the
Treasury notifies the Company that the taxpayer identification number provided
by a stockholder is not correct or that the stockholder has previously
underreported its interest and dividend income. Stockholders can credit such
withheld income taxes against their income tax liabilities.
The foregoing discussion is a summary of certain of the current
federal income tax laws regarding the Company and investors in the shares of a
Series and does not deal with all of the federal income tax consequences
applicable to the Company, or to all categories of investors, some of which may
be subject to special rules. Prospective investors should consult their own tax
advisers regarding the federal, state, local, foreign and other tax consequences
to them of investments in a Series of the Company. For additional tax
information, see "TAXATION" in the Fund's Statement of Additional Information.
22
<PAGE>
OTHER INFORMATION
CAPITAL STOCK
The Company was incorporated on November 22, 1988 under the laws of
the State of Maryland under the name The Chapman Funds, Inc. It is a registered
open-end, management investment company under the 1940 Act set up as a "series
fund" which is a mutual fund divided into separate portfolios, each of which is
treated as a separate entity for certain matters under the 1940 Act and for
other purposes. A stockholder of one Series is not deemed to be a stockholder
of any other Series. The Fund is non-diversified under the 1940 Act. See "RISK
FACTORS--Non-Diversified Status." The Company's charter authorizes the Board to
issue 10 billion full and fractional shares of common stock, par value $.001 per
share, of which 1 billion shares are designated Domestic Emerging Markets Equity
Fund Institutional Shares. Under the Company's charter documents and Maryland
law, the board has the power to classify or reclassify any unissued shares of
the Company into one or more additional classes by setting or changing in any
one or more respects their relative rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. The Board may similarly classify or reclassify any class of its
shares into one or more series and, without stockholder approval, may increase
the number of authorized shares of the Company. All shares of the Fund, when
issued, will be fully paid and nonassessable.
The Fund offers a separate class of shares, the Investor Shares, to
individual investors through a separate prospectus. Shares of each class
represent equal pro rata interests in the Fund and accrue dividends and
calculate net asset value and performance quotations in the same manner.
All shares of the Company have equal voting rights and will be voted
in the aggregate, and not by class, except where class voting is required by law
or the matter affects only one class. There is no provision for cumulative
voting.
The Company is not required under Maryland law to hold annual meetings
of stockholders for the election of Directors and currently does not intend to
do so. Stockholders have the right to call for a meeting to consider the
removal of one or more of the Company's Directors if the request is made in
writing by the holders of at least 10% of the Company's outstanding voting
securities. The Company will assist in calling the meeting as required under
the 1940 Act.
Stockholders of record will receive unaudited semi-annual reports and
an annual report containing financial statements audited by independent
auditors.
23
<PAGE>
STOCKHOLDER INQUIRIES
Investors may write or call the Distributor or the Transfer Agent at
the addresses and telephone numbers on the back cover of this Prospectus with
any questions relating to their investment.
CONTROLLING STOCKHOLDER
As of August 5, 1997, the Investment Advisor owns one Investor Share
and one Institutional Share of the Fund which comprises 100% of the Fund's
outstanding Common Stock. Because one stockholder owns in excess of 25% of the
issued and outstanding Common Stock of the Fund as of August 5, 1997, such
stockholder is deemed to control the Fund. Accordingly, such stockholder has
significant power to affect the affairs of the Fund or to determine or influence
the outcome of matters submitted to a vote of the stockholders of the Fund.
The Investment Adviser is a wholly-owned subsidiary of the
Distributor, The Chapman Co. Nathan A. Chapman, Jr., who is the controlling
stockholder of The Chapman Co. is a controlling person (as that term is defined
under the 1940 Act) of The Chapman Co. and, therefore, a controlling person of
the Investment Adviser.
24
<PAGE>
DOMESTIC EMERGING MARKETS EQUITY FUND
INSTITUTIONAL SHARES
PROSPECTUS
[ ], 1997
Investment Advisor
CHAPMAN CAPITAL MANAGEMENT, INC.
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
(410) 625-9656
Transfer and Dividend Paying Agent and Accounting Agent
FPS SERVICES, INC.
3200 Horizon Drive
PO Box 61503
King of Prussia, Pennsylvania 19406
(800) 992-8151
Custodian
UMB BANK, KC
928 Grand Avenue
Kansas City, Missouri 64141-6226
Distributor
THE CHAPMAN CO.
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
(410) 625-9656
No person is authorized to make any representations in connection with
this offering other than those included in this Prospectus or in supplemental
sales literature issued by the Fund or its Distributor.
25
<PAGE>
SUBJECT TO COMPLETION
Preliminary Statement of Additional Information Dated [ ], 1997
DOMESTIC EMERGING MARKETS EQUITY FUND
INVESTOR SHARES
INSTITUTIONAL SHARES
WORLD TRADE CENTER - BALTIMORE
401 EAST PRATT STREET, 28TH FLOOR
BALTIMORE, MARYLAND 21202
TELEPHONE: (410) 625-9656, (800) 752-1013
STATEMENT OF ADDITIONAL INFORMATION, [ ], 1997
This Statement of Additional Information of the Domestic Emerging
Markets Equity Fund (the "Fund") is not a prospectus and is only authorized for
distribution when preceded or accompanied by the Fund's Investor Shares
prospectus or Institutional Shares Prospectus dated [ ], 1997 (each, the
"Prospectus"). This Statement of Additional Information contains additional
information to that set forth in the Prospectus and should be read in
conjunction with the Prospectus. A copy of the Prospectus may be obtained
without charge by writing The Chapman Co., World Trade Center - Baltimore, 401
East Pratt Street, 28th Floor, Baltimore, Maryland 21202, or calling at (410)
625-9656, (800) 752-1013.
TABLE OF CONTENTS
Investment Program B-2 Taxation B-20
Management B-9 Capital Stock B-22
Control Persons and Principal B-13 Performance Information B-23
Holders of Securities Counsel to the Company B-24
Purchase of Shares B-17 Experts B-25
Redemption of Shares B-18 Financial Statements F-1
Portfolio Transactions B-18
<PAGE>
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE INFORMATION CONTAINED HEREIN
ARE SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO
THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. UNDER NO CIRCUMSTANCES
SHALL THIS STATEMENT OF ADDITIONAL INFORMATION CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
INVESTMENT PROGRAM
The following information supplements the discussion of the investment
policies of the Fund found under "INVESTMENT OBJECTIVES" in the Prospectus.
The Fund is a series of The Chapman Funds, Inc. (the "Company"), an
open-end, management investment company, known as a series fund. The Fund is a
non-diversified portfolio that seeks aggressive long-term growth through capital
appreciation through investment in Domestic Emerging Markets-TM- that it
believes are positioned for growth. "Domestic Emerging Markets-TM-" are public
companies that are controlled by African Americans, Asian Americans,
Hispanic/Latino Americans or women that are located in the United States and its
territories ("DEM-TM- Companies"). Both capital appreciation and income will
be considered in the selection of investments, but primary emphasis will be on
capital appreciation. The Fund's objective of long-term growth through
investment in Domestic Emerging Markets-TM- is not a "fundamental policy" of
the Fund (as described below) and can, therefore, be changed by the Company's
Board of Directors without stockholder approval. See "INVESTMENT OBJECTIVES" in
the Prospectus.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES
The Fund may not invest more than 15% of its net assets in illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market and securities that are restricted securities as
defined in Rule 144 under the Securities Act ("Illiquid Securities"). Illiquid
Securities include securities which have not been registered under the
Securities Act, sometimes referred to as private placements, and are purchased
directly from the issuer or in the secondary market. The Fund will seek to
invest in the securities of private companies that the Investment Advisor
believes have the potential for above average capital appreciation, in
anticipation of their initial public offering. Investment companies do not
typically hold a significant amount of restricted securities or other Illiquid
Securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and an investment company might be unable
to dispose of restricted or other Illiquid Securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. An investment company might also be required to register Illiquid
Securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede a public offering of such
securities.
Although the Fund's management believes that investments in Illiquid
Securities offer the opportunity for significant capital gains, these
investments involve a high degree of business and financial risk that can result
in substantial losses in the portion of the Fund's portfolio invested in these
investments. Among these are the risks associated with companies in an early
stage of development or with little or no operating history, companies operating
at a loss or with substantial variation in operating results
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from period to period, companies with the need for substantial additional
capital to support expansion or to maintain their competitive positions, or
companies with significant financial leverage. Such companies may also face
intense competition from others including those with greater financial resources
or more extensive development, manufacturing, distribution or other attributes,
over which the Fund will have no control.
PRIVATE FUNDS
As an alternative to direct investments in Illiquid Securities, the
Fund may invest up to 10% of its assets in private venture capital funds
including United States private limited partnerships or other investment funds
("Private Funds") that themselves invest in Illiquid Securities. Although
investments in Private Funds offer the opportunity for significant capital
gains, these investments involve a high degree of business and financial risk
that can result in substantial losses in the portion of the Fund's portfolio
invested in these investments. Among these are the risks associated with
investment in companies in an early stage of development or with little or no
operating history, companies operating at a loss or with substantial variation
in operation results from period to period, companies with the need for
substantial additional capital to support expansion or to maintain a competitive
position, or companies with significant financial leverage. Such companies may
also face intense competition from others including those with greater financial
resources or more extensive development, manufacturing, distribution or other
attributes, over which the Fund will have no control.
Interests in the Private Funds in which the Fund may invest will be
subject to substantial restrictions on transfer and, in some instances, may be
non-transferable for a period of years. Private Funds may participate in only a
limited number of investments and, as a consequence, the return of a particular
Private Fund may be substantially adversely affected by the unfavorable
performance of even a single investment. Certain of the Private Funds in which
the Fund may invest may pay their investment managers a fee based on the
performance of the Fund, which may create an incentive for the manager to make
investments that are riskier or more speculative than would be the case if the
manager was paid a fixed fee. Private Funds are not registered under the 1940
Act and, consequently, are not subject to the restrictions on affiliated
transactions and other protections applicable to regulated investment companies.
The valuation of companies held by Private Funds, the securities of which are
generally unlisted and illiquid, may be very difficult and will often depend on
the subjective valuation of the managers of the Private Funds, which may prove
to be inaccurate. Inaccurate valuations of a Private Fund's portfolio holdings
may affect the Fund's net asset value calculations.
Because Private Funds generally are investment companies for purposes
of the 1940 Act, the Fund's ability to invest in them will be limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of total assets with respect to any one investment
company and, (iii) 10% of the Fund's total assets in the aggregate. The
securities of Private Funds will typically themselves be classified as Illiquid
Securities by the Board of Directors. Accordingly, the Fund's total
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<PAGE>
investment in Illiquid Securities, including Private Funds, is limited to 15% of
the Fund's assets with no more than 10% of the Fund's assets invested in Private
Funds.
OPTIONS TRANSACTIONS
The Fund may invest up to 15% of its total assets, represented by the
premium paid, in the purchase of call and put options in respect of specific
securities in which the Fund may invest. The Funds may write covered call and
put option contracts to the extent of 15% of the value of its net assets at the
time such option contracts are written. The principal reason for the Fund
writing covered call options is to realize, through the receipt of premiums, a
greater return than would be realized on its portfolio securities alone. In
return for a premium, the writer of a covered call option forfeits the right to
any appreciation in the value of the underlying security above the strike price
for the life of the option (or until a closing purchase transaction can be
effected). Nevertheless, the call writer retains the risk of a decline in the
price of the underlying security. Similarly, the principal reason for writing
covered put options is to realize income in the form of premiums. The writer of
a covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that the Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
time the options are written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. The Fund may write (a) in-the-money call options when the
Investment Advisor expects that the price of the underlying security will remain
stable or decline moderately during the option period, (b) at-the-money call
options when the Advisor expects that the price of the underlying security will
remain stable or advance moderately during the option period and (c)
out-of-the-money call options when the Investment Advisor expects that the
premiums received from writing the call option plus the appreciation in market
price of the underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone. In these
circumstances, if the market price of the underlying security declines and the
security is sold at this lower price, the amount of any realized loss will be
offset wholly or in part by the premium received. Out-of-the-money,
at-the-money and in-the-money put options (the reverse of call options as to the
relation of exercise price to market price) may be utilized in the same market
environments that such call options are used in equivalent transactions.
So long as the Fund's obligation as the writer of an option continues,
it may be assigned an exercise notice by the broker-dealer through which the
option was sold, requiring it to deliver, in the case of a call, or take
delivery of, in the case of a put, the underlying security against payment of
the exercise price. This obligation terminates when the option expires or the
Fund effects a closing purchase transaction. The Fund can
B-4
<PAGE>
no longer effect a closing purchase transaction with respect to an option once
it has been assigned an exercise notice.
While it may choose to do otherwise, the Fund generally will purchase
or write only those options for which the Investment Advisor believes there is
an active secondary market so as to facilitate closing transactions. There is
no assurance that sufficient trading interest to create a liquid secondary
market on a securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may exist. A
liquid secondary market in an option may cease to exist for a variety of
reasons. In the past, for example, higher than anticipated trading activity or
order flow, or other unforeseen events, at times have rendered certain clearing
facilities inadequate and resulted in the institution of special procedures,
such as trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance that
similar events, or events that otherwise may interfere with the timely execution
of customers' orders, will not recur. In such event, it might not be possible
to effect closing transactions in particular options. If, as a covered call
option writer, the Fund is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise or it
otherwise covers its position.
The Fund intends to treat options in respect of specific securities
that are not traded on a national securities exchange or the Nasdaq National
Market and the securities underlying covered call options written by the Fund as
Illiquid Securities subject to the Fund's investment limitation on Illiquid
Securities. See "INVESTMENT OBJECTIVES" in the Prospectus.
REPURCHASE AGREEMENTS AND LOANS OF SECURITIES
The Fund is authorized to lend securities it holds to brokers, dealers
and other financial organizations, but it will not lend securities to any
affiliate of the Chapman Capital Management, Inc. (the "Investment Advisor")
unless the Fund applies for and receives specific authority to do so from the
Securities and Exchange Commission (the "SEC"). The Fund's loans of securities
are collateralized by cash, letters of credit or U.S. Government securities that
are maintained at all times in a segregated account in an amount equal to the
current market value of the loaned securities. From time to time, the Fund may
pay a part of the interest earned from the investment of collateral received for
securities loaned to the borrower and/or a third party that is unaffiliated with
the Fund and that is acting as a "finder."
By lending its securities, the Fund can increase its income by
continuing to receive interest on the loaned securities, by investing the cash
collateral in short-term instruments or by obtaining yield in the form of
interest paid by the borrower when U.S. Government securities are used as
collateral. The portfolio adheres to the following conditions whenever it lends
its securities: (1) the Fund must receive at least 100% cash
B-5
<PAGE>
collateral or equivalent securities from the borrower, which amount of
collateral is maintained by daily marking to market; (2) the borrower must
increase the collateral whenever the market value of the securities loaned rises
above the level of the collateral; (3) the Fund must be able to terminate the
loan at any time; (4) the Fund must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the loaned securities,
and any increase in market value; (5) the Fund may pay only reasonable custodian
fees in connection with the loan; and (6) voting rights on the loaned securities
may pass to the borrower, except that, if a material event adversely affecting
the investment in the loaned securities occurs, the Board of Directors must
terminate the loan and regain the Fund's right to vote the securities. Up to
20% of the Fund's assets may be invested pursuant to such techniques for hedging
and risk management purposes or when, in the opinion of the Investment Advisor,
such techniques can be expected to yield a higher investment return than other
investment options.
The Fund may enter into "repurchase agreements" pertaining to the
securities in which it may invest with securities dealers or member banks of the
Federal Reserve System. A repurchase agreement arises when a buyer such as the
Fund purchases a security and simultaneously agrees to resell it to the vendor
at an agreed-upon future date, normally one day or a few days later. The resale
price is greater than the purchase price, reflecting an agreed-upon interest
rate which is effective for the period of time the buyer's money is invested in
the security and which is related to the current market rate rather than the
coupon rate on the purchased security. Such agreements permit the Fund to keep
all of its assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. The Fund requires continual maintenance by
its custodian for its account in the Federal Reserve/Treasury Book Entry System
of collateral in an amount equal to, or in excess of, the resale price. In the
event a vendor defaulted on its repurchase obligation, the Fund might suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. In the event of a vendor's bankruptcy, the Fund
might be delayed in, or prevented from, selling the collateral for the Fund's
benefit. The Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Investment Advisor
monitors the creditworthiness of the dealers and banks with which the Fund
enters into repurchase agreement transactions.
FUNDAMENTAL POLICIES
The following investment restrictions are fundamental and cannot be
changed without the approval of holders of a majority of the Fund's outstanding
voting shares, which, as used here, means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
present in person or represented by proxy or (ii) more than 50% of the
outstanding shares. The Fund's investment policies that are not designated
fundamental policies may be changed by the Board of Directors without
stockholder approval. The percentage limitations set forth below, as well as
those described in the Prospectus, are measured and applied only at the
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<PAGE>
time an investment is made or other relevant action is taken by the Fund. The
investment policies adopted by the Fund prohibit the Fund from:
(1) Concentrating investments in particular industries. The Fund's
policy is not to concentrate investments, i.e., to limit its investments in any
one industry, so that it will make no additional investment in any industry if
such investment would result in its having over 25% of the value of its assets
at the time in such industry (Domestic Emerging Markets-TM- is not considered
an industry for this purpose).
(2) Engaging in the purchase and sale of real estate or real estate
or mortgage-backed securities.
(3) Purchasing or selling commodities or commodities contracts.
(4) Making loans to others, except through the purchase of qualified
(publicly distributed bonds, debentures or other securities) debt obligations,
the entry into repurchase agreements and loans of portfolio securities
consistent with the Fund's investment objectives and policies.
(5) Investing in foreign securities (including American Depository
Receipts).
OTHER INVESTMENT POLICIES
The policy of the Fund is not to invest its funds for the purpose of
purchasing working control in companies except when and if, in the judgment of
the Investment Advisor, such investment is deemed advisable. This policy of the
Fund, which is established by the Board of Directors, is subject to change
without stockholder approval.
PORTFOLIO TURNOVER
The Fund does not intend to seek profits through short-term trading,
but the rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. The Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of its portfolio
securities for the year by the monthly average value of the portfolio
securities. Securities with remaining maturities of one year or less at the
date of acquisition are excluded from the calculation.
As a result of the Fund's investment policies, under certain market
conditions its portfolio turnover rate may be higher than that of other mutual
funds. For example, options on securities may be sold in anticipation of a
decline in the price of the underlying security (market decline) or purchased in
anticipation of a rise in the price of the underlying security (market rise) and
later sold. To the extent that its portfolio is traded for the short-term, the
Fund will be engaged essentially in trading activities based
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<PAGE>
on short-term considerations affecting the value of an issuer's stock instead of
long-term investments. Portfolio turnover generally involves some expense,
including brokerage commissions or dealer markups and other transaction costs on
the sale of securities and reinvestment in other securities. These transactions
may result in realization of taxable capital gains. The Fund cannot accurately
predict its turnover rate, but anticipates that its quarterly portfolio turnover
will not exceed 50%.
B-8
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The Directors and executive officers of the Company are listed below.
Directors deemed to be "interested persons" of the Company for purposes of the
Investment Company Act of 1940, as amended (the "1940 Act") are indicated by an
asterisk.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Principal
Positions(s) Occupations (s)
Held with During
Name and Address Registrant Age Past 5 Years
---------------- ---------- --- ------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
* Nathan A. Chapman, Jr. Director 39 President, Chief Executive Officer and Treasurer since
401 E. Pratt St., 28th Fl and 1986 of The Chapman Co. and President and Chief
Baltimore, Maryland 21202 President Executive Officer of Chapman Capital Management, Inc.,
since 1988. President, Chairman of the Board of
Directors and Director of DEM, Inc. (a closed-end
investment company managed by the Investment Advisor)
since 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
James B. Lewis Director 49 City Administrator, City of Rio Rancho since March
401 E. Pratt St., 28th Fl 1996. Chief Clerk-State Corporation Commission of New
Baltimore, Maryland 21202 Mexico from April 1995 until March 1996, Chief of
Staff, Office of the Governor of New Mexico from Jan.
1991 to April 1995. Director of DEM, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Wilfred Marshall Director 61 Principal, Marshall Enterprises since 1994.
401 E. Pratt St., 28th Fl Director, Mayor's Office of Small Business Assistance
Baltimore, Maryland 21202 - City of Los Angeles 1981 until 1994.
- ----------------------------------------------------------------------------------------------------------------------------------
Lottie H. Shackelford Director 55 Executive Vice President of Global USA since 1994.
401 E. Pratt St., 28th Fl Independent Consultant, City Director of the City of
Baltimore, Maryland 21202 Little Rock, Arkansas, 1978 to 1995, Director of DEM,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
* Levi Watkins, Jr., MD Director 53 Professor of Cardiac Surgery and Associate Dean of the
401 E. Pratt St., 28th Fl Johns Hopkins University, School of Medicine since
Baltimore, Maryland 21202 July, 1984.
- ----------------------------------------------------------------------------------------------------------------------------------
Ronald A. White Director 47 Senior Partner, Ronald A. White, P.C., since 1982,
401 E. Pratt St., 28th Fl Director of DEM, Inc.
Baltimore, Maryland 21202
- ----------------------------------------------------------------------------------------------------------------------------------
Dr. Benjamin Hooks Director 72 Senior Vice President of The Chapman Co. since May
401 E. Pratt St., 28th Fl 1993. Executive Director of the NAACP from 1977 to
Baltimore, Maryland 21202 April 1993.
- ----------------------------------------------------------------------------------------------------------------------------------
B-9
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
David Rivers Director 53 Director of Community Development Medical University
401 E. Pratt St., 28th Fl of South Carolina Environmental Hazards Assessment
Baltimore, Maryland 21202 Program since 1994; President, Research Planning and
Management from 1991 to 1994.
- ----------------------------------------------------------------------------------------------------------------------------------
* Valerie A. Chapman Vice-President 35 Administrator of The Chapman Co. since March 1988.
401 E. Pratt St., 28th Fl She is married to Nathan A. Chapman, Jr.
Baltimore, Maryland 21202
- ----------------------------------------------------------------------------------------------------------------------------------
Bonnie Shay Gillette Secretary 44 Assistant Secretary of DEM, Inc. since November 1995,
401 E. Pratt St., 28th Fl Secretary of Chapman Capital Management, Inc. since
Baltimore, Maryland 21202 1988 and Secretary of The Chapman Co. since February
1987.
- ----------------------------------------------------------------------------------------------------------------------------------
Lynn Ballard Treasurer 54 Controller of The Chapman Co. since February, 1988.
401 E. Pratt St., 28th Fl. Controller of Chapman Capital Management, Inc. since
Baltimore, Maryland 21202 December 1995. Treasurer of DEM, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The address of each director and officer is World Trade Center -
Baltimore, 401 E. Pratt Street, 28th Floor, Baltimore, Maryland 21202.
Directors of the Company who are not officers receive from the Company
a fee of $1,000 for each Board of Directors meeting attended and are reimbursed
for all out-of-pocket expenses relating to attendance at meetings. Officers of
the Company do not receive compensation from the Company.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Aggregate Retirement or Pension Estimated Annual Total Compensation from
Name of Person/ Compensation from Benefits Accrued as Part Benefits upon Company and Fund Complex
Position Company of Company Expenses Retirement Paid to Directors
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, Jr. None None None None
Director, Chairman,
President
- ----------------------------------------------------------------------------------------------------------------------------------
James Lewis $4,181 None None $7,181
Director
- ----------------------------------------------------------------------------------------------------------------------------------
Lottie Shackelford $2,000 None None $4,000
Director
- ----------------------------------------------------------------------------------------------------------------------------------
Levi Watkins, MD None None None None
Director
- ----------------------------------------------------------------------------------------------------------------------------------
Ronald A. White None None None $2,000
Director
- ----------------------------------------------------------------------------------------------------------------------------------
Dr. Benjamin Hooks $1,000 None None $1,000
Director
- ----------------------------------------------------------------------------------------------------------------------------------
B-10
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------------
Wilfred Marshall $2,000 None None $2,000
Director
- ----------------------------------------------------------------------------------------------------------------------------------
David Rivers $1,000 None None $1,000
Director
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the Company's charter and Maryland law, Directors and officers
of the Company are not liable to the Company or its stockholders except for
receipt of an improper personal benefit or active and deliberate dishonesty. The
Company's charter requires that it indemnify its Directors and officers against
liabilities unless it is proven that a director or officer acted in bad faith or
with active and deliberate dishonesty or received an improper personal benefit.
These provisions are subject to the limitation under the 1940 Act that no
director or officer may be protected against liability to the Company for
willful misfeasance, bad faith, gross negligence or reckless disregard for the
duties of his office.
Levi Watkins, Jr., MD is an interested director of the Company, as
defined under the 1940 Act, because his brother, Donald Watkins, Esquire, is a
member of the Board of Directors of The Chapman Co.
For so long as the Distribution Plan described in the Prospectus
section captioned MANAGEMENT--The Distributor" remains in effect, the Directors
of the Company who are not "interested persons" of the Company, as defined in
the 1940 Act, will be selected and nominated by the Directors who are not
"interested persons" of the Company.
THE INVESTMENT ADVISOR
The Investment Advisor, Chapman Capital Management, Inc., has been
retained under an investment advisory and administrative services agreement
("Advisory and Administrative Services Agreement") to provide investment advice
and, in general, to conduct the management and investment program of the Fund in
accordance with the Fund's investment objectives, policies, and restrictions and
under the supervision and control of the Company's Board of Directors. The
Investment Advisor was established in 1988 and is located at The World Trade
Center - Baltimore, 401 East Pratt Street, 28th Floor, Baltimore, Maryland
21202.
The Investment Advisor is a wholly-owned subsidiary of the
Distributor, The Chapman Co. Nathan A. Chapman, Jr., who is the controlling
stockholder of the Distributor is a controlling person (as that term is defined
under the 1940 Act) of the Distributor and, therefore, a controlling person of
the Investment Advisor. The Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and a member of the National
Association of Securities Dealers, Inc. The Distributor is the only
minority-controlled full service securities firm headquartered in
B-11
<PAGE>
Maryland and has qualified as a minority business enterprise under various
state and municipal regulations.
The table below sets forth the names of affiliated persons of the
Company who are also affiliated persons of the Investment Advisor:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Name and
Principal Business Address Position With Investment Advisor Position With Company
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. President, Chairman of the Board, President, Chairman of the Board and
401 E. Pratt St. Director and Controlling Stockholder Director
28th Floor
Baltimore, MD 21202
- ---------------------------------------------------------------------------------------------------------------
Bonnie Shay Gillette Secretary Secretary
401 E. Pratt St.
28th Floor
Baltimore, MD 21202
- ---------------------------------------------------------------------------------------------------------------
M. Lynn Ballard Treasurer Treasurer
401 E. Pratt Street
28th Floor
Baltimore, MD 21202
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The Investment Advisor has sole investment discretion for the Fund and
makes all decisions affecting assets in the Fund's portfolio under the
supervision of the Company's Board of Directors and in accordance with the
Fund's stated policies. The Investment Advisor selects investments for the Fund
and places purchase and sale orders on behalf of the Fund. The Investment
Advisor receives from the Fund an advisory fee at an annual rate of .9 of 1% of
the value of the Fund's average weekly net assets during the preceding month
payable monthly in arrears and an administration fee of .15 of 1% of the Fund's
average weekly net assets during the preceding month payable monthly in arrears
and is allocated to the Investment Shares and Institutional Shares on the basis
of the net asset value of the Fund attributable to each such class.
In connection with the provision of advisory services, the Investment
Advisor will obtain and provide investment research and will supervise the
Fund's investments and conduct a continuous program of investment, evaluation
and, if appropriate, sale and reinvestment of the Fund's assets. The
Investment Advisor will place orders for the purchase and sale of portfolio
securities and will solicit brokers to execute transactions, including The
Chapman Co., in accordance with the Company's policies and restrictions
regarding brokerage allocations. The Investment Advisor will furnish to the
Company such statistical information with respect to the investments which the
Fund may hold or contemplate purchasing as the Company may reasonably request.
Further, the Investment Advisor will supply office facilities, data processing
services, clerical, accounting and bookkeeping services, internal auditing
services, executive and other administrative services; provide stationery and
office supplies; prepare reports to the Fund's stockholders, tax returns and
reports to and filings with the SEC and state Blue Sky authorities; calculate
the net asset value of the Fund's shares; provide persons
B-12
<PAGE>
to serve as the Company's officers and generally assist in all aspects of the
Company's operations. The Investment Advisor will pay for its own costs in
providing the above listed services.
If in any fiscal year the aggregate expenses of the Fund (including
fees paid to the Investment Advisor, but excluding interest on borrowings,
taxes, brokerage and, with the prior written consent of the necessary state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over the Fund, the Fund may deduct from the
payment to be made to the Investment Advisor or the Investment Advisor will
bear, such excess expense to the extent required by state law. The Investment
Advisor's obligation will be limited to the amount of its fees hereunder.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth, to the Company's knowledge, the name,
the number of shares and the percentage of the outstanding shares of the Fund
owned beneficially by each person who owned beneficially 5% or more of the
outstanding shares of Common Stock as of August 5, 1997, the latest practicable
date, and the ownership of all Directors and executive officers of the Company
as a group.
- --------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER TOTAL TOTAL %
INVESTOR INSTITUTIONAL
SHARES SHARES
- --------------------------------------------------------------------------------
CHAPMAN CAPITAL MANAGEMENT, INC. 1 1 100%
(a Washington, DC corporation)
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
THE CHAPMAN CO. 1 1 100%
(a Maryland corporation)
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
NATHAN A. CHAPMAN, JR. 1 1 100%
The Chapman Co.
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
All current Directors and executive 1 1 100%
officers as a group
- --------------------------------------------------------------------------------
___________________
(1) The shares of Common Stock are owned beneficially and of record.
(2) The shares of Common Stock are owned beneficially but not of record.
B-13
<PAGE>
Because the Investment Advisor, Chapman Capital Management, Inc., owns
in excess of 25% of the issued and outstanding Common Stock of the Fund as of
August 5, 1997, such stockholder is deemed to control the Fund. Accordingly,
such stockholder has significant power to affect the affairs of the Fund or to
determine or influence the outcome of matters submitted to a vote of the
stockholders of the Fund.
The Investment Adviser is a wholly-owned subsidiary of the
Distributor, The Chapman Co. Nathan A. Chapman, Jr., who is the controlling
stockholder of The Chapman Co. is a controlling person (as that term is defined
under the 1940 Act) of The Chapman Co. and, therefore, a controlling person of
the Investment Adviser.
DISTRIBUTOR
The Distributor, The Chapman Co., has been retained under a
distribution agreement (the "Distribution Agreement") to undertake the sale, on
a continuous basis as agent, of the Fund's shares. The Distributor is not
obliged to sell any particular amount of shares.
INVESTOR SHARES
The Distributor is compensated through the payment of a front-end load
of up to 4 3/4% of the offering price on the sale of Investor Shares and
pursuant to the terms of a distribution plan adopted by the Fund pursuant to
Rule 12b-1 under the 1940 Act that is applicable to the Investor Shares (the
"Investor Shares Distribution Plan"). See "PURCHASE OF SHARES--Purchase Price"
in the Investor Shares Prospectus. The Distributor receives a fee under the
Investor Shares Distribution Plan for stockholder administrative and
distribution services at an annual rate of up to a total of .75% (up to .25%
administrative fee and .50% distribution fee) of the average daily net assets of
the Fund attributable to the Investor Shares. The Distributor has voluntarily
limited such fee during the first fiscal year of the Fund to an aggregate of 50%
of average daily net assets; however, there can be no assurance that the
Distributor will continue to voluntarily limit the amount of such fee in the
future.
The Distributor will be paid fees under the Investor Shares
Distribution Plan to compensate the Distributor or enable the Distributor to
compensate other persons, ("Service Providers"), including any other distributor
of the Investor Shares, for providing: (i) services primarily intended to
result in the sale of the Investor Shares ("Distribution Services") and (ii)
stockholder servicing, administrative and accounting services ("Administrative
Services" and collectively with Distribution Services, "Services").
Distribution Services may include, but are not limited to: the printing and
distribution to prospective investors in the Investor Shares of prospectuses and
statements of additional information describing the Fund; the preparation,
including printing, and distribution of sales literature, reports and media
advertisements relating to the Investor Shares; providing telephone services
relating to the Fund; distributing the Investor
B-14
<PAGE>
Shares; costs relating to the formulation and implementation of marketing and
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising, and
related travel and entertainment expenses; and costs involved in obtaining
whatever information, analyses and reports with respect to marketing and
promotional activities that the Fund may, from time to time, deem advisable. In
providing compensation for Distribution Services in accordance with the Plan,
the Distributor is expressly authorized (i) to make, or cause to be made,
payments reflecting an allocation of overhead and other office expenses related
to providing Services; (ii) to make, or cause to be made, payments, or to
provide for the reimbursement of expenses of, persons who provide support
services in connection with the distribution of the Investor Shares including,
but not limited to, office space and equipment, telephone facilities, answering
routine inquiries regarding the Fund, and providing any other Service; and (iii)
to make, or cause to be made, payments to compensate selected dealers or other
authorized persons for providing any Services. Administrative Services may
include, but are not limited to, (i) responding to inquiries of prospective
investors regarding the Fund; (ii) services to holders of Investor Shares not
otherwise required to be provided by the Fund's custodian or any
co-administrator; (iii) establishing and maintaining accounts and records on
behalf of holders of Investor Shares; (iv) processing purchase, redemption and
exchange transactions in Investor Shares; and (v) other similar services not
otherwise required to be provided by the Fund's transfer agent or any
co-administrator. Payments under the Plan are not tied exclusively to the
distribution and administrative expenses actually incurred by the Distributor or
any Service Provider, and the payments may exceed expenses actually incurred by
the Distributor and/or a Service Provider. Furthermore, any portion of any fee
paid to the Distributor or to any of its affiliates by the Fund or any of their
past profits or other revenue may be used in their sole discretion to provide
services to holders of Investor Shares or to foster distribution of the Investor
Shares.
INSTITUTIONAL SHARES
The Distributor is compensated for the sale of Institutional Shares
pursuant to the terms of a distribution plan adopted by the Fund pursuant to
Rule 12b-1 under the 1940 Act that is applicable to the Institutional Shares
(the "Institutional Shares Distribution Plan" and collectively with the Investor
Distribution Plan, the "Distribution Plans"). The Distributor receives a fee
under the Institutional Shares Distribution Plan for stockholder administrative
and distribution services at an annual rate of up to a total of .25% of the
average daily net assets of the Fund attributable to the Institutional Shares.
The Distributor will be paid fees under the Institutional Shares
Distribution Plan to compensate the Distributor or enable the Distributor to
compensate other persons, including any other distributor of the Institutional
Shares or institutional stockholders of record of the Institutional Shares,
including but not limited to retirement plans, broker-dealers, depository
institutions, and other financial intermediaries ("Institutions"), who own
Institutional Shares on behalf of their customers, clients or (in the case of
retirement plans) participants ("Customers") and companies providing certain
B-15
<PAGE>
services to Customers (collectively with Institutions, "Service Organizations"),
for providing (a) services primarily intended to result in the sale of the
Institutional Shares ("Selling Services") and (b) stockholder servicing,
administrative and accounting services to Customers ("Stockholder Services").
The annual fee paid to the Distributor with respect to Selling
Services will compensate the Distributor, or allow the Distributor to compensate
Service Organizations, to cover certain expenses primarily intended to result in
the sale of the Institutional Shares, including, but not limited to: (i) costs
of payments made to employees that engage in the distribution of the
Institutional Shares; (ii) payments made to, and expenses of, persons who
provide support services in connection with the distribution of the
Institutional Shares, including, but not limited to, office space and equipment,
telephone facilities, processing stockholder transactions and providing any
other stockholder services not otherwise provided by the Fund's transfer agent;
(iii) costs relating to the formulation and implementation of marketing and
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising;
(iv) costs of printing and distributing prospectuses, statements of additional
information and reports of the Fund to prospective holders of the Institutional
Shares; (v) costs involved in preparing, printing and distributing sales
literature pertaining to the Fund and (vi) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities that the Fund may, from time to time, deem advisable.
The annual fee paid to the Distributor with respect to Stockholder
Services will compensate the Distributor, or allow the Distributor to compensate
Service Organizations, for personal service and/or the maintenance of Customer
accounts, including but not limited to (i) responding to Customer inquiries,
(ii) providing information on Customer investments and (iii) providing other
stockholder liaison services and for administrative and accounting services to
Customers, including, but not limited to: (a) aggregating and processing
purchase and redemption requests from Customers and placing net purchase and
redemption orders with the Fund's distributor or transfer agent; (b) providing
Customers with a service that invests the assets of their accounts in the
Institutional Shares; (c) processing dividend payments from the Fund on behalf
of Customers; (d) providing information periodically to Customers showing their
positions in the Institutional Shares; (e) arranging for bank wires; (f)
providing sub-accounting with respect to the Institutional Shares beneficially
owned by Customers or the information to the Fund necessary for sub-accounting;
(g) forwarding stockholder communications from the Fund (for example, proxies,
stockholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers, if required by law and (h) providing
other similar services to the extent permitted under applicable statutes, rules
and regulations. Payments under this Institutional Shares Distribution Plan are
not tied exclusively to the selling and stockholder expenses actually incurred
by the Distributor or any Service Organization, and the payments may exceed
expenses actually incurred by the Distributor or any Service Organization.
Furthermore, any portion of any fee paid to the Distributor or to
B-16
<PAGE>
any of its affiliates by the Fund or any of their past profits or other revenue
may be used in their sole discretion to provide services to stockholders of the
Fund or to foster distribution of the Institutional Shares.
GENERAL INFORMATION
Pursuant to the Distribution Plans, the Distributor provides the Board
of Directors with periodic reports of amounts expended under the Distribution
Plans and the purpose for which the expenditures were made.
The Distribution Plans will continue in effect for so long as their
continuance is specifically approved at least annually by the Board of
Directors, including a majority of the Directors who are not interested persons
of the Company and who have no direct or indirect financial interest in the
operation of the Distribution Plans as the case may be (the "Independent
Directors"). Any material amendment of the Distribution Plans would require the
approval of the Board in the manner described above. A Distribution Plan may
not be amended to increase materially the amount to be spent thereunder without
the approval of the holders of a majority of the relevant class of Shares. A
Distribution Plan may be terminated at any time, without penalty, by the vote of
a majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities of the relevant class.
CUSTODIAN
UMB Bank, KC, 928 Grand Avenue, Kansas City, Missouri 64141-6226,
serves as custodian of the Fund. Under the Custody Agreement, the Bank has
agreed to: (i) maintain a separate account or accounts in the name of the Fund;
(ii) receive, hold and deliver portfolio securities for the account of the Fund;
(iii) collect and receive all income and other payments and distributions on
account of the Fund's portfolio securities; (iv) disburse funds to purchase
portfolio securities, pay dividends and expenses and for other corporate
purposes; and (v) make periodic reports to the Board of Directors concerning the
Fund's operations.
TRANSFER AND DIVIDEND PAYING AGENT/ACCOUNTING AGENT
FPS Services, Inc., 3200 Horizon Drive, PO Box 61503, King of Prussia,
Pennsylvania 19406, (800) 992-8151, serves as transfer and dividend paying agent
and accounting agent for the Fund pursuant to a Investment Company Services
Agreement.
PURCHASE OF SHARES
(Applicable to Investor Shares only)
The following information supplements and should be read in
conjunction with the sections in the Fund's Prospectus entitled "PURCHASE OF
SHARES." The
B-17
<PAGE>
scale of sales loads applies to the purchases of Investor Shares made by any
"purchaser," which term includes an individual and/or spouse purchase securities
for his, her or their own account or for the account of any minor children, or a
trustee or other fiduciary purchasing securities for a single trust estate or a
single fiduciary account trust estate or single fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Internal Revenue Code or 1986, as
amended (the "Code")) although more than one beneficiary is involved; or a group
of accounts established by or on behalf of the employees of an employer or
affiliated employers pursuant to an employee benefit plan or other program
(including accounts established pursuant to Sections 403(b), 408(k) and 457 of
the Code); or an organized group which has been in existence for more than six
months, provided that it its not organized for the purpose of buying redeemable
securities of a registered investment company and provided that the purchases
are made through a central administration or a single dealer, or by other means
with result in economy of sales effort or expense.
Set forth below is an example of the method of computing the offering
price of the Investor Shares. The example assumes a purchase of Investor Shares
aggregating less than $50,000 subject to the current schedule of sales charges
set forth in the Fund's prospectus at a price based upon the initial net asset
value of the Fund's Investor Shares:
--------------------------------------------------------
Net Asset Value per Share $14.29
--------------------------------------------------------
Per Share Sales Charge--4 3/4% of offering
price $.71
--------------------------------------------------------
Per Share Offering Price to the Public $15.00
--------------------------------------------------------
REDEMPTION OF SHARES
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed, other than customary weekend and holiday closings, or during
which trading on the NYSE is restricted, or during which (as determined by the
SEC) an emergency exists as a result of which disposal or fair valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit.
PORTFOLIO TRANSACTIONS
The Investment Advisor is responsible for decisions to buy or sell
securities and the selection of broker-dealers for the Fund subject to policies
adopted by the Company's Board of Directors. Portfolio securities may be
purchased directly from the issuer or from a dealer serving as market maker or
may be purchased in broker's transactions. If securities are sold prior to
maturity, they may be sold directly to an issuer or dealer or in broker's
transactions. When securities are purchased or sold directly from
B-18
<PAGE>
or to an issuer, no commissions or discounts are paid. The price paid to or
received from a dealer for a security may include a spread between bid and asked
prices. When securities are purchased or sold in a broker's transaction, a
commission will be paid.
The Company's policy for placing orders for purchases and sales of
securities for the Fund is to give primary consideration to obtaining the most
favorable price and efficient execution of transactions. Sales of Fund shares
is not a factor in allocating portfolio transactions.
The Distributor may effect brokerage transactions for the Fund when it
is able to provide a net price and execution at least as favorable to the Fund
as those determined to be available from unaffiliated brokers or dealers. The
commissions paid to the Distributor on transactions for the Fund may not exceed
those charged by the Distributor to comparable unaffiliated clients in similar
transactions or the limits set forth in rules adopted by the SEC. The Board of
Directors of the Company has adopted procedures intended to ensure compliance
with these limitations. The procedures require that the Distributor report each
transaction to the Fund and that the Board of Directors determine at least
quarterly that all transactions effected by the Distributor have been effected
in accordance with the procedures.
When comparable price and execution can be obtained from more than one
broker or dealer, consideration may be given to placing portfolio transactions
with those brokers or dealers who also furnish research and other services to
the Fund or the Investment Advisor. These services may include information as
to the availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to investments, evaluations of portfolio
securities, and research related computer software or hardware. These services
may benefit the Investment Advisor in the management of accounts of other
clients and may not benefit the Fund directly. While such services are useful
and important in supplementing its own research, the Investment Advisor believes
the value of such services is not determinable and does not significantly reduce
its expenses. The fees payable to the Investment Advisor will not be reduced by
the value of such services.
The Investment Advisor and its affiliates deal, trade and invest for
their own accounts in the types of securities in which the Fund may invest and
may have relationships with the issuers of securities purchased by the Fund.
Investment decisions for the Fund are made independently from those
for other accounts advised by the Investment Advisor.
The Investment Advisor's other accounts may also invest in the same
securities as the Fund. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Fund and another account, the
transaction will be averaged as to price, and available instruments allocated as
to amount, in a manner believed to be equitable to the Fund and the other
account. In some instances,
B-19
<PAGE>
this procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or sold by the Fund. To the extent permitted
by law, the securities to be sold or purchased for the Fund may be aggregated
with those to be sold or purchased for the other accounts in order to obtain
best execution.
TAXATION
The following discussion reflects certain applicable tax laws as of
the date of this Statement of Additional Information. For additional tax
information see "TAXATION" in the Fund's Prospectus.
TAXATION OF THE COMPANY
The Company has elected and intends to qualify each year to be treated
as a regulated investment company for federal income tax purposes in accordance
with Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
In order to so qualify, the Company (see "OTHER INFORMATION--Capital Stock" in
the Prospectus) must, among other things: (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of securities
and gains from the sale or other disposition of securities or certain other
related income; (b) derive less than 30% of its gross income from the sale or
other disposition of securities and certain other investments held for less than
three months (the "short-short rule"); and (c) diversify its holdings so that at
the end of each fiscal quarter (i) at least 50% of the value of the Company's
assets is represented by cash or cash items, U.S. government securities,
securities of other regulated investment companies, and other securities which,
with respect to any one issuer, do not represent more than 5% of the value of
the Company's assets nor more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of the Company's assets is
invested in the securities of any one issuer (other than U.S. government
securities or the securities of other regulated investment companies), or two or
more issuers which the Company controls and which are determined to be engaged
in the same or similar trades or businesses or related trades or businesses.
If the Company qualifies as a regulated investment company and each
Series distributes to its stockholders at least 90% of its investment company
taxable income, then the Company will not be subject to federal income tax on
the income so distributed. However, the Company would be subject to corporate
income tax on any undistributed income. See "TAXATION--Taxation of the Company"
in the Prospectus. In addition, the Company will be subject to a nondeductible
4% excise tax on the amount by which the income the Company distributes in any
calendar year is less than a statutorily designated, required amount. For
purposes of the excise tax, the required distribution for any calendar year
equals the sum of: (a) 98% of such Company's ordinary income for such calendar
year; (b) 98% of such Company's capital gain net income for the one-year period
ending on October 31 of that year; and (c) 100% of such Company's undistributed
ordinary income and capital gain net income from prior years.
B-20
<PAGE>
The Company may retain its net capital gain and pay corporate income tax
thereon. The Company also may elect to include all or a portion of its
undistributed net capital gain in the income of its stockholder of record on the
last day of the taxable year. In such event, each stockholder of record on the
last day of the Company's taxable year would be required to include in income
for tax purposes his or her proportionate share of the Company's undistributed
net capital gain. Each stockholder would be entitled to credit his or her
proportionate share of the tax paid by the Company against his or her federal
income tax liabilities and to claim refunds to the extent that the credit
exceeds such liabilities. In addition, the stockholder would be entitled to
increase the basis of his or her shares for federal income tax purposes by an
amount equal to 65% of his proportionate share of the undistributed net capital
gain.
Any capital losses resulting from the disposition of securities can
only be used to offset capital gains and cannot be used to reduce the Company's
ordinary income. Such capital losses may be carried forward by the Company for
eight years.
The Company's taxable income will in part be determined on the basis
of reports made to the Company by the issuers of the securities in which a
Series invests. The tax treatment of certain securities in which a Series may
invest is not free from doubt and it is possible that an Internal Revenue
Service examination of the issuers of such securities or of the Company could
result in adjustments to the income of the Company.
TAXATION OF STOCKHOLDERS
Dividends (other than capital gain dividends) distributed by a Series
may be eligible for the dividends received deduction in the hands of corporate
stockholders, to the extent that the Company's taxable income consists of
dividends received from domestic corporations and certain other requirements as
generally described in Section 854 of the Code are met.
Dividends and other distributions by a Series are generally taxable to
the stockholders at the time the dividend or distribution is made. However, any
dividends declared by a Series in October, November or December and made payable
to stockholders of record in such months will be taxable to stockholders as of
December 31, even though the dividend is actually paid in the following January.
If a stockholder purchases shares of a Series at a cost that reflects
an anticipated dividend, such dividend will be taxable even though it represents
economically in whole or in part a return of the purchase price. Investors
should consider the tax implications of buying shares shortly prior to a
dividend distribution.
The Company will, within 60 days after the close of its taxable year,
send written notices to stockholders regarding the tax status of all
distributions made during the year. The foregoing discussion is a summary of
some of the current federal income tax laws regarding the Company and investors
in the shares of a Series, and does not deal
B-21
<PAGE>
with all of the federal income tax consequences applicable to the Company or to
all categories of investors, some of which may be subject to special rules.
Prospective investors should consult their own tax advisers regarding the
federal, state, local, foreign and other tax consequences to them of investments
in a Series of the Company.
For additional information on taxation, see "TAXATION" in the Fund's
Prospectus.
CAPITAL STOCK
For additional information as to the organization and capital stock of
the Company, see "OTHER INFORMATION" in the Prospectus.
As used in the Prospectus and this Statement of Additional
Information, the term "majority," when referring to the approvals to be obtained
from stockholders in connection with matters affecting the Company as a whole
means the vote of the lesser of (i) 67% of the Company's shares represented at a
meeting if the holders of more than 50% of the outstanding shares are present in
person or by proxy or (ii) more than 50% of the Company's outstanding shares.
The term "majority," when referring to the approvals to be obtained from
stockholders in connection with matters affecting only the Fund (for example,
approval of an investment advisory contract), means the vote of the lesser of
(i) 67% of the shares of the Fund represented at a meeting if the holders of
more than 50% of the outstanding shares of the Fund are present in person or by
proxy or (ii) more than 50% of the outstanding shares of the Fund. Stockholders
are entitled to one vote for each full share held and a fractional vote for
fractional shares held.
Each share of the Fund is entitled to such dividends and distributions
out of the assets belonging to the Fund as are declared in the discretion of the
Company's Board of Directors. In determining the Fund's net asset value, the
Fund is charged with the direct expenses of the Fund and with a share of the
general expenses and liabilities of the Company, which are normally allocated in
proportion to the relative asset values of the respective Series at the time of
allocation.
In the event of the liquidation or dissolution of the Company, shares
of the Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a proportionate distribution, based upon the
relative net assets of the various Series, of any general assets not
attributable to a particular series that are available for distribution.
Subject to the provisions of the Company's charter, determinations by
the Board of Directors as to the direct and allocable liabilities, and the
allocable portion of any general assets of the Company, with respect to a Series
are conclusive.
Stockholders of the Company are not entitled to any preemptive or
conversion rights.
B-22
<PAGE>
PERFORMANCE INFORMATION
The performance of the Fund may be compared to the record of the
Standard & Poor's Corporation 500 Stock Index ("S&P 500 Stock Index"), the
Nasdaq Composite Index, the Russell 2000 Index, the Wilshire 5000 Equity
Index, the DEM-TM- Index, the DEM-TM- Universe of companies and returns quoted
by Ibbotson Associates. The S&P 500 Stock Index is a well known measure of
the price performance of 500 leading larger domestic stocks which represents
approximately 80% of the market capitalization of the United States equity
market. In comparison, the Nasdaq National Market System is comprised of all
stocks on Nasdaq's National Market System. The Nasdaq Composite Index has
typically included smaller, less mature companies representing 10% to 15% of
the capitalization of the entire domestic equity market. Both indices are
unmanaged and capitalization weighted. In general, the securities comprising
the Nasdaq Composite Index are more growth oriented and have a somewhat
higher "beta" and P/E ratio than those in the S&P 500 Stock Index. The
Russell 2000 Index is a capitalization weighted index which measures total
return (and includes in such calculation dividend income and price
appreciation). The Russell 2000 is generally regarded as a measure of small
capitalization performance. It is a subset of the Russell 3000 Index. The
Russell 3000 is comprised of the 3000 largest U.S. companies. The Russell
2000 is comprised of the smallest 2000 companies in the Russell 3000 Index.
The Wilshire 5000 Index is a broad measure of market performance and
represents the total dollar value of all common stocks in the United States
for which daily pricing information is available. This index is also
capitalization weighted and captures total return. The DEM-TM- Universe is a
growing list of companies identified by the Investment Advisor that are
controlled by African Americans, Asian Americans, Hispanic/Latino Americans
or women. The DEM-TM- Index was created by the Investment Advisor and is
comprised of 30 companies from the DEM-TM- Universe that reflect the market
capitalization and industry classification characteristics of the
DEM-TM- Universe. The DEM-TM- Index is weighted by market capitalization and
is intended as a performance measure of the DEM-TM- Universe. The small
company stock returns quoted by Ibbotson Associates are based upon the
smallest quintile of the New York Stock Exchange, as well as similar
capitalization stocks on the American Stock Exchange and Nasdaq. This data
base is unmanaged and capitalization weighted.
The total returns for all indices used show the changes in prices for
the stocks in each index. However, only the performance data for the S&P 500
Stock Index and the Ibbotson Associates performance data assume reinvestment of
all capital gains distributions and dividends paid by the stocks in each data
base. Tax consequences are not included in such illustrations, nor are
brokerage or other fees or expenses reflected in the Nasdaq Composite or S&P 500
Stock figures. In addition, the Fund's total return or performance may be
compared to the performance of other funds or other groups of funds that are
followed by Morningstar, Inc. a widely used independent research firm which
ranks funds by overall performance, investment objectives and asset size.
Morningstar proprietary ratings reflect risk-adjusted performance. The ratings
are subject to change
B-23
<PAGE>
every month. Morningstar's ratings are calculated from a fund's three-year and
five-year average annual returns with appropriate sales charge adjustments and a
risk factor that reflects fund performance relative to three-month Treasury bill
monthly returns. Ten percent of the funds in an asset class receive a five star
rating. The Fund's total return or performance may also be compared to the
performance of other funds or groups of funds by other financial or business
publications, such as Business Week, Investors Daily, Mutual Fund Forecaster,
Money Magazine, Wall Street Journal, New York Times, Baron's, and Lipper
Analytical Services. The Fund's performance may also be compared, from time to
time, to (a) indices of stocks comparable to those in which the Fund invests and
(b) the Consumer Price Index (measure for inflation) may be used to assess the
real rate of return from an investment in the Fund.
ADDITIONAL PERFORMANCE INFORMATION FOR THE FUND
The Fund may reflect its total return in advertisements and
stockholder reports. Total investment return is one recognized method of
measuring investment company investment performance. Quotations of average
annual total return will be shown in terms of the average annual compounded rate
or return on a hypothetical investment in the Fund over a period of 1 year, 5
years and over the life of the Fund. This method of calculating total return is
based on the assumption that, all dividends and distributions by the Fund are
reinvested in shares of the Fund at net asset value and all recurring fees are
included for applicable periods. Total return may also be expressed in terms of
the cumulative value of an investment in the Fund at the end of a defined period
of time. Any fees charged by banks or their institutional investors directly to
their customer accounts in connection with investments in Investor Shares will
not be included in the Fund's calculations of total returns.
All data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which may vary, is based on
many factors, including market conditions, the composition of the investments in
the Fund, and the Fund's operating expenses. Investment performance also often
reflects the risk associated with the Fund's investment objectives and policies.
These factors should be considered when comparing the Fund to other mutual funds
and other investment vehicles.
The performance of the Institutional Shares will normally be higher
than the Investor Shares because of the sales charge (when applicable) and
additional expenses charged to the Investor Shares.
COUNSEL TO THE COMPANY
The validity of the Fund's shares will be passed upon for the Company
by Venable, Baetjer and Howard, LLP, Baltimore, Maryland. Venable, Baetjer and
Howard, LLP also acts as counsel to the Investment Advisor and the Distributor.
B-24
<PAGE>
EXPERTS
Ernst & Young LLP, One North Charles Street, Baltimore, Maryland
21201, serves as the Company's independent auditors. Ernst & Young LLP will
provide audit services, tax advice and assistance in connection with filings
with the SEC.
B-25
<PAGE>
FINANCIAL STATEMENTS
DOMESTIC EMERGING MARKETS EQUITY FUND
COMPOSITE STATEMENT OF ASSETS AND LIABILITIES - AUGUST 5, 1997
- --------------------------------------------------------------------------------
ASSETS:
Cash $29
-----
Total assets $29
-----
LIABILITIES:
$0
-----
Total liabilities $0
-----
NET ASSETS - equivalent to $14.28 per share on
2 shares of Common Stock outstanding $ 29
-----
-----
SUMMARY OF STOCKHOLDERS' EQUITY
Common Stock, par value $.001 per share; authorized
10,000,000,000 shares; issued and outstanding
2 shares $0
Capital paid-in $29
-----
Net assets applicable to outstanding common stock $ 29
-----
-----
F-1
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statement and Exhibits.
(a) Financial Statements
Part A: None
Part B: Composite Statement Of Assets And Liabilities - August 5, 1997
Part C: None
(b) Exhibits:
Exhibit
Number Description
1(A) Articles of Incorporation of the Registrant(1)
1(B) Articles Supplementary of the Registrant dated July 28, 1997(2)
2 Amended and Restated Bylaws of the Registrant dated July 18,
1997(2)
4 Form of Stock Certificate(3)
5(A) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (The Chapman U.S.
Treasury Money Fund and The Chapman Institutional Cash Management
Fund)(2)
5(B) Form of Advisory and Administrative Services Agreement between
the Registrant and Chapman Capital Management, Inc. (Domestic
Emerging Markets Equity Fund)(2)
6(A) Distribution Agreement between the Registrant and The Chapman Co.
(The Chapman U.S. Treasury Money Fund and The Chapman
Institutional Cash Management Fund)(2)
6(B) Form of Distribution Agreement between the Registrant and The
Chapman Co. (Domestic Emerging Markets Equity Fund)(2)
8(A) Custody Agreement between the Registrant and UMB Bank NA(4)
8(B) Investment Company Services Agreement between the Registrant and
FPS Services, Inc.(2)
C-1
<PAGE>
9(A) Stockholder Services Agreement between the Registrant and Chapman
Capital Management, Inc. (The Chapman U.S. Treasury Money Fund
and The Chapman Institutional Cash Management Fund)(4)
10 Opinion and consent of Venable, Baetjer and Howard, LLP(2)
15(A) Form of Distribution Plan (Domestic Emerging Markets Equity Fund
Investor Shares)(2)
15(B) Form of Distribution Plan (Domestic Emerging Markets Equity Fund
Institutional Shares)(2)
18 Multiple Class Plan (Domestic Emerging Markets Equity Fund)(2)
27.17 Financial Data Schedule (Not Applicable)
99 Power of Attorney(5)
(1) Incorporated by reference from the Company's Registration Statement on Form
N-1A (File Nos.: 33-25716; 811-5697) as filed with the Securities and Exchange
Commission on November 23, 1988.
(2) Filed herewith.
(3) Incorporated by reference from Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form N-1A (File Nos.: 33-25716; 811-5697) as
filed with the Securities and Exchange Commission on May 31, 1989.
(4) Incorporated by reference from Post-Effective Amendment No. 10 to the
Company's Registration Statement on Form N-1A (File Nos.: 33-25716; 811-5697) as
filed with the Securities and Exchange Commission on February 28, 1995.
(5) Incorporated by reference from Post-Effective Amendment 12 to the Company's
Registration Statement on Form N-1A (File Nos. 33-25716; 811-5697) as filed with
the Securities and Exchange Commission on February 28, 1997.
Item 25. Persons Controlled by or under Common Control with the Registrant.
On May 31, 1997 the City of Philadelphia owned 24%, the State of
Maryland owned 13%, the State of Mississippi owned 12%, Bank of New York as
Trustee for Prince George's County owned 10%, Prince George's County owned 8%,
Union Planters National Bank owned 8%, The Birmingham Fund owned 6%, the School
District of Philadelphia owned 5% and Maryland State Treasurer, Invesco MIM, the
C-2
<PAGE>
Birmingham Retirement & Relief System, Howard County, the Mayor and City Council
of Maryland, Alabama State University, the Wisconsin Housing Economic
Development Authority, and Alpha Phi Alpha Fraternity, Inc. owned the remaining
shares of the Chapman U.S. Treasury Money Fund. There were no shares of the
Chapman Institutional Cash Management Fund outstanding on that date or during
the period November 1, 1996 through May 31, 1997. As of August 5, 1997, Chapman
Capital Management, Inc. owned 100% of the outstanding shares of the Domestic
Emerging Markets Equity Fund.
Item 26. Number of Holders of Securities.
Number of Record
On May 31, 1997 Title of Class Holders
The Chapman US
Treasury Money Fund 16
Common Stock
The Chapman
Institutional Cash
Management Fund 0
Common Stock
On August 5, 1997 DEM Equity Fund 1
Institutional Shares
DEM Equity Fund 1
Investor Shares
Item 27. Indemnification.
Reference is made to Article VII of the Registrant's Articles of
Incorporation, Article IV of the Registrant's By-laws, Section 7 of the Advisory
and Administrative Services Agreement between the Registrant and Chapman Capital
Management, Inc. and Section 4 of the Distribution Agreement between the
Registrant and the Distributor, which provide for indemnification or limitation
of the liability of Directors and officers, the Investment Advisor, the
principal underwriter and affiliates of the Registrant.
The Registrant has obtained director's and officer's liability
insurance which will insure Directors and officers of the Registrant against
liability to the Registrant and its stockholders.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
Directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant understands that in the
opinion of the Securities and Exchange
C-3
<PAGE>
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor.
Name and
Principal Business Address Position Other Business
- --------------------------------------------------------------------------------
Nathan A. Chapman, Jr. Director and President, Chief Executive
401 E. Pratt St. Chairman of the Board Officer and Treasurer
28th Floor since 1986 of The Chapman
Baltimore, MD 21202 Co. and President and
Chief Executive Officer of
Chapman Capital
Management, Inc., since
1988. President, Chairman
of the Board of Directors
and Director of DEM, Inc.
(a closed-end investment
company managed by the
Investment Advisor) since
1995.
- --------------------------------------------------------------------------------
Bonnie Shay Gillette Secretary Assistant Secretary of
401 E. Pratt St. DEM, Inc. since November
28th Floor 1995, Secretary of
Baltimore, Maryland Chapman Capital
21202 Management, Inc. since
1988 and Secretary of The
Chapman Co. since February
1987.
- --------------------------------------------------------------------------------
M. Lynn Ballard Treasurer Controller of The Chapman
401 E. Pratt Street Co. since February 1988.
28th Floor Controller of Chapman
Baltimore, Maryland Capital Management, Inc.
21202 since December 1995.
Treasurer of DEM, Inc.
- --------------------------------------------------------------------------------
Theron Stokes Director Attorney for the Alabama
401 E. Pratt Street Education Association.
28th Floor
Baltimore, MD 21202
- --------------------------------------------------------------------------------
Earl U. Bravo Director Chief Operating Officer of
401 E. Pratt Street The Chapman Co. since
28th Floor 1992. President of
Baltimore, MD 21202 Chapman Capital
Management, Inc. from 1990
until 1992. Since
November 1995, Vice
President and Secretary of
DEM, Inc.
- --------------------------------------------------------------------------------
C-4
<PAGE>
Item 29. Principal Underwriter.
(a) The Chapman Co. currently acts as principal underwriter and exclusive
distributor for DEM, Inc.
(b) Directors and Officers
POSITIONS AND OFFICES
Name and With With
Principal Business Address Underwriter Registrant
- --------------------------------------------------------------------------------
Nathan A. Chapman, Jr. Director, Director,
The Chapman Co. President, President
401 East Pratt Street Chief Executive Officer,
28th Floor Treasurer
Baltimore, MD 21202
- --------------------------------------------------------------------------------
Donald V. Watkins, Director None
Esquire
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
Bonnie Shay Gillette Secretary Secretary
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
Earl U. Bravo, Sr. Director, None
The Chapman Co. Senior Vice President
401 East Pratt Street
28th Floor
Baltimore, Maryland
21202
- --------------------------------------------------------------------------------
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder
will be maintained at the offices of Chapman Capital Management, Inc., 401 East
Pratt Street, 28th Floor, Baltimore, Maryland 21202 or at the offices of FPS
Services, Inc., 3200 Horizon Drive, PO Box 61503, King of Prussia, Pennsylvania
19406.
Item 31. Management Services.
Not applicable.
C-5
<PAGE>
Item 32. Undertakings.
The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of post-effective Amendment 10 to the Registrant's 1933 Act
registration statement.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
post-effective amendment No. 11 and amendment No. 13 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore, State of Maryland.
THE CHAPMAN FUNDS, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
---------------------------
Nathan A. Chapman, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment No. 11 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signature Title Date
/S/ NATHAN A. CHAPMAN, JR Director and President August 5, 1997
------------------------- (principal executive
Nathan A. Chapman, Jr. officer)
/S/ LYNN BALLARD Treasurer (principal August 5, 1997
------------------------- financial and accounting
Lynn Ballard officer)
Each of the Directors:
Nathan A. Chapman, Jr., James B. Lewis David Rivers
Lottie H. Shackelford Ronald A. White Wilfred Marshall
Dr. Levi Watkins, Jr. Dr. Benjamin Hooks
By:
/S/ NATHAN A. CHAPMAN, JR August 5, 1997
-------------------------
Nathan A. Chapman, Jr.
as Attorney-in-Fact
C-7
<PAGE>
EXHIBITS
Exhibit Page
1(B) Articles Supplementary of the Registrant dated July 28, 1997
2 Amended and Restated Bylaws of the Registrant dated July 18, 1997
5(A) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (The Chapman U.S.
Treasury Money Fund and The Chapman Institutional Cash
Management Fund)
5(B) Form of Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (Domestic Emerging
Markets Equity Fund)
6(A) Distribution Agreement between the Registrant and The Chapman Co.
(The Chapman U.S. Treasury Money Fund and The Chapman Institutional
Cash Management Fund)
6(B) Form of Distribution Agreement between the Registrant and The
Chapman Co. (Domestic Emerging Markets Equity Fund)
8(B) Investment Company Services Agreement between the Registrant and
FPS Services, Inc.
10 Opinion and consent of Venable, Baetjer and Howard, LLP
15(A) Distribution Plan (Domestic Emerging Markets Equity Fund
Investor Shares)
15(B) Distribution Plan (Domestic Emerging Markets Equity Fund
Institutional Shares)
18 Multiple Class Plan (Domestic Emerging Markets Equity Fund)
C-8
<PAGE>
ARTICLES SUPPLEMENTARY
THE CHAPMAN FUNDS, INC.
THE CHAPMAN FUNDS, INC., a Maryland corporation having its principal
office in the State of Maryland in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Board of Directors has reclassified (i) One Billion (1,000,000,000)
of the authorized but unissued shares of Common Stock of The Chapman US Treasury
Money Fund as One Billion (1,000,000,000) shares of Domestic Emerging Markets
Equity Fund, Investor Class Common Stock and (ii) One Billion (1,000,000,000) of
the authorized but unissued shares of Common Stock of The Chapman Institutional
Cash Management Fund as One Billion (1,000,000,000) shares of Domestic Emerging
Markets Equity Fund, Institutional Class Common Stock with the result that the
authorized shares of Common Stock of the Corporation are now classified as
follows:
CLASS NUMBER OF SHARES
----- ----------------
The Chapman US Treasury Money Fund 4,000,000,000
The Chapman Institutional Cash Management Fund 4,000,000,000
Domestic Emerging Markets Equity Fund, Investor Class 1,000,000,000
Domestic Emerging Markets Equity Fund, Institutional Class 1,000,000,000
--------------
Total 10,000,000,000
SECOND: The Domestic Emerging Markets Equity Fund, Investor Class shares and
the Domestic Emerging Markets Equity Fund, Institutional Class shares shall be
subject to all of the provisions of the Corporation's Charter relating to stock
of the Corporation generally, and shall have the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as set forth in Article
IV of the Corporation's Charter, subject to the following:
(a) The assets attributable to the Domestic Emerging Markets Equity
Fund, Investor Class (the "Investor Class") shares and the assets attributable
to the Domestic Emerging Markets Equity Fund, Institutional Class (the
"Institutional Class") shares will be invested in a common investment portfolio
(the "Fund").
(b) The investment income, realized and unrealized capital gains and
losses, expenses and liabilities of the Fund that are not attributable to the
Investor Class
<PAGE>
or the Institutional Class, respectively, in accordance with law and the
relevant Corporation plan adopted pursuant to Rule 18f-3 of the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended
(the "Act"), as the plan may be amended form time to time, or any successor or
substitute plan (the " Rule 18f-3 Plan"), shall be allocated to the Investor
Class and the Institutional Class, respectively, on the basis of the net asset
value of that class in relation to the net asset value of the Fund, or as
otherwise determined by the Board of Directors in accordance with law and the
Rule 18f-3 Plan. Accordingly, the net asset values, the dividends and
distributions payable to stockholders, and the amounts distributable to
stockholders in the event of the liquidation of the Corporation or the
termination of the Fund may vary between the Investor Class and the
Institutional Class in such manner as may be determined by the Board of
Directors in accordance with law and the Rule 18f-3 Plan.
(c) Except as otherwise required by the Act, by the rules and
regulations of the SEC with respect thereto, or otherwise by law, the
stockholders of each of the Investor Class and the Institutional Class,
respectively, shall have (i) exclusive voting rights with respect to any matter
that only affects that class, including, without limitation, the provisions of
any distribution plan, as amended from time to time (a "Distribution Plan"),
adopted by the Corporation with respect to that class pursuant to SEC Rule 12b-1
under the Act, and (ii) no voting rights with respect to any Distribution Plan
that affects one or more other classes of Common Stock of the Corporation but
not that class, or with respect to any other matter that does not affect that
class.
(d) The proceeds of the redemption of shares of the Investor Class
and the Institutional Class may be reduced by the amount of any contingent
deferred sales charge, liquidation charge, or other charge (which charges may
vary among stockholders within and between the classes) payable on such
redemption pursuant to the terms of issuance of such shares, all in accordance
with the Act, applicable SEC rules and regulations thereunder, and applicable
rules and regulations of the National Association of Securities Dealers, Inc.
("NASD").
(e) At such times as may be determined by the Board of Directors (or
with the authorization of the Board of Directors, by the officers of the
Corporation) in accordance with the Act, applicable SEC rules and regulations
thereunder, and applicable rules and regulations of the NASD, and from time to
time reflected in the Corporation's registration statement (the "Corporation's
Registration Statement"), shares of the Investor Class and of the Institutional
Class, respectively, may be converted automatically into shares of the other
said class or into shares of another class of stock of the Corporation, or
certain shares of the particular class may be converted automatically into
shares of the other said class or into shares of another class of stock of the
Corporation, based on the relative net asset values of such classes at the time
of conversion, subject, however, to any conditions of conversion that may be
imposed by the Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) and reflected
-2-
<PAGE>
in the Corporation's Registration Statement. The times, terms, and conditions
of such conversion may vary within and among the classes to the extent
determined by the Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) and set forth in the
Corporation's Registration Statement.
THIRD: The shares classified and reclassified hereby have been classified and
reclassified by the Board of Directors under the authority contained in the
Charter of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary as of July 28, 1997.
The undersigned, Nathan A. Chapman, Jr., President of the Corporation,
hereby acknowledges in the name and on behalf of the Corporation the foregoing
Articles Supplementary to be its corporate act and further certifies to the best
of his knowledge, information and belief, that the matters and facts set forth
herein with respect to the authorization and approval hereof are true in all
material respects and that this statement is made under the penalties of
perjury.
WITNESS: THE CHAPMAN FUNDS, INC.
/S/ BONNIE SHAY GILLETTE By: /S/ NATHAN A. CHAPMAN, JR.
- ------------------------ --------------------------
Bonnie Shay Gillette Nathan A. Chapman, Jr.
Secretary President
-3-
<PAGE>
Revised as of
July 18, 1997
THE CHAPMAN FUNDS, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF MEETING. All meetings of the stockholders shall
be held at the principal office of the Corporation in the State of Maryland or
at such other place within or without the State of Maryland as may from time to
time be designated by the Board of Directors and stated in the notice of
meeting.
Section 2. ANNUAL MEETINGS. The annual meeting of the stockholders
of the Corporation shall be held at such hour as may be determined by the Board
of Directors and as shall be designated in the notice of meeting on such date
within 31 days after the second Monday in February in each year as may be fixed
by the Board of Directors for the purpose of electing directors for the ensuing
year and for the transaction of such other business as may properly be brought
before the meeting. An annual meeting of the stockholders shall not be required
to be held in any year in which an annual meeting of stockholders is not
required under Maryland law.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders
may be called by the Chairman of the Board of Directors, the President or by the
Board of Directors and shall be called by the Secretary upon the written request
of holders of shares entitled to cast not less than twenty-five (25%) percent of
all the votes entitled to be cast at such meeting. Such request shall state the
purpose or purposes of such meeting and the matters proposed to be acted on
thereat. In the case of such request for a special meeting, upon payment by
such stockholders to the Corporation of the estimated reasonable cost of
preparing and mailing a notice of such meeting, the Secretary shall give the
notice of such meeting. The Secretary shall not be required to call a special
meeting to consider any matter which is substantially the same as a matter acted
upon at any special meeting of stockholders held within the preceding 12 months
unless requested to do so by holders of shares entitled to cast not less than a
majority of all votes entitled to be cast at such meeting. Notwithstanding the
foregoing, special meetings of stockholders for the purpose of voting upon the
question of removal of any Director or Directors of the Corporation shall be
called by the Secretary upon the written request of holders of shares entitled
to cast not less than ten (10%) percent of all the votes entitled to be cast at
such meeting.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Not less than 10
days' and not more than 90 days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be
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transacted at any special or extraordinary meeting), shall be given to each
stockholder entitled to vote thereat or entitled to receive notice thereof by
leaving the same with him or at his residence or usual place of business or by
mailing it, postage prepaid, and addressed to him at his address as it appears
upon the books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. RECORD DATES. The Board of Directors may fix, in advance,
a date, not exceeding 90 days and not less than 10 days preceding the date of
any meeting of stockholders, and not exceeding 90 days preceding any dividend
payment date or any date for the allotment of rights, as a record date for the
determination of the stockholders entitled to notice of and to vote at such
meeting, or entitled to receive such dividends or rights, as the case may be;
and only stockholders of record on such date shall be entitled to notice of and
to vote at such meeting or to receive such dividends or rights, as the case may
be.
Section 6. QUORUM, ADJOURNMENT OF MEETINGS. The presence in person
or by proxy of the holders of record of one-third of the shares of the capital
stock of the Corporation issued and outstanding and entitled to vote thereat
shall constitute a quorum at all meetings of the stockholders, except with
respect to any matter which by law requires the approval of one or more classes
of stock, in which case the presence in person or by proxy of the holders of
one-third of the shares of stock of each class entitled to vote on the matter
shall constitute a quorum. If at any meeting of the stockholders there shall be
less than a quorum present with respect to any matter, the stockholders present
at such meeting and entitled to vote on the matter may, without further notice,
adjourn the same from time to time until a quorum shall attend, but no business
shall be transacted at any such adjourned meeting except such as might have been
lawfully transacted had the meeting not been adjourned.
Section 7. VOTING AND INSPECTORS. At all meetings of stockholders
every stockholder of record entitled to vote thereat shall be entitled to one
vote for each share of stock standing in his name on the books of the
Corporation (and such stockholders of record holding fractional shares, if any,
shall have proportionate voting rights as provided in the Articles of
Incorporation) on the date for the determination of stockholders entitled to
vote at such meeting either in person or by proxy appointed by instrument in
writing subscribed by such stockholder or his duly authorized attorney. No
proxy which is dated more than 11 months before the meeting at which it is
offered shall be accepted, unless such proxy shall, on its face, name a longer
period for which it is to remain in force.
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All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meeting, except as otherwise provided in
the Articles of Incorporation or in these By-Laws or by law.
At any election of Directors, the Board of Directors prior thereto
may, or, if they have not so acted, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first,
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the results of the
vote taken. No candidate for the office of Director shall be appointed such
Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken
upon any election or matter, and such vote shall be taken upon the request of
the holders of ten percent (10%) of the stock entitled to vote on such election
or matter.
Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. The meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Directors, the President nor any Vice-President is present, by a Chairman of the
meeting to be elected at the meeting. The Secretary of the Corporation, if
present, shall act as Secretary of such meetings, or if he is not present, an
Assistant Secretary shall so act; if neither the Secretary nor an Assistant
Secretary is present, then the Chairman of the meeting shall appoint its
secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every
meeting of the stockholders, all proxies shall be received and canvassed by the
secretary of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless inspectors of election shall have been appointed as
provided in Section 7, in which event such inspectors of election shall decide
all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. NUMBER AND TENURE OF OFFICE. The business of the
Corporation shall be managed by or under the direction of its Board of
Directors. The Corporation shall initially have one Director. The number of
Directors may be increased or decreased as provided in Section 2 of this
Article. Each director shall hold office until the annual
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meeting of stockholders of the Corporation next succeeding his election or until
his successor is duly elected and qualifies. Directors need not be
stockholders.
Section 2. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding 11, and may elect Directors to
fill the vacancies created by any such increase in the number of Directors to
serve until the next annual meeting or until their successors are duly elected
and qualify; the Board of Directors, by the vote of a majority of the entire
Board, may likewise decrease the number of Directors to a number not less than
three or the same number as the number of stockholders, whichever is less.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. PLACE OF MEETING. The Directors may hold their meetings,
have one or more offices, and keep the books of the Corporation outside the
State of Maryland, at any office or offices of the Corporation or at any other
place as they may from time to time by resolution determine, or, in the case of
meetings, as they may from time to time by resolution determine or as shall be
specified or fixed in the respective notices or waivers of notice thereof.
Section 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and on such notice, if any, as the
Directors may from time to time determine.
Section 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held from time to time upon call of the Chairman of the Board
of Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. QUORUM. One-third of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
By-Laws.
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Section 7. EXECUTIVE COMMITTEE. The Board of Directors may elect
from the Directors an Executive Committee to consist of such number of Directors
as the Board may from time to time determine. The Board of Directors by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
Directors. When the Board of Directors is not in session, the Executive
Committee shall have and may exercise any or all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation
(including the power to authorize the seal of the Corporation to be affixed to
all papers which may require it) except as provided by law and except the power
to increase or decrease the size of, or fill vacancies on, the Board. The
Executive Committee may fix its own rules of procedure, and may meet, when and
as provided by such rules or by resolution of the Board of Directors, but in
every case the presence of a majority shall be necessary to constitute a quorum.
In the absence of any member of the Executive Committee the members thereof
present at any meeting, whether or not they constitute a quorum, may appoint a
member of the Board of Directors to act in the place of such absent member.
Section 8. OTHER COMMITTEES. The Board of Directors may appoint
other committees which shall in each case consist of such number of members (not
less than two) and shall have and may exercise such powers as the Board may
determine in the resolution appointing them. A majority of all members of any
such committee may determine its action, and fix the time and place of its
meetings, unless the Board of Directors shall have the power at any time to
change the members and powers of such committee, to fill vacancies, and to
discharge any such committee.
Section 9. INFORMAL ACTION BY DIRECTORS AND COMMITTEES. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such committee, as the
case may be.
Section 10. TELEPHONE MEETINGS. Members of the Board of Directors or
any committee thereof may participate in a meeting by means of a conference
telephone or similar communication equipment if all persons participating in the
meeting can hear each other at the same time. Participants in a meeting by
these means shall constitute presence in person at the meeting. No member who
participates by this means shall be deemed present at the meeting with respect
to any matter which under the 1940 Act requires the presence in person of a
majority of the Board of Directors.
Section 11. COMPENSATION OF DIRECTORS. Directors shall be entitled
to receive such compensation from the Corporation for their services as may from
time to time be voted by the Board of Directors.
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ARTICLE III
OFFICERS
Section 1. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board of Directors, and shall include a President, one or more
Vice Presidents (the number thereof to be determined by the Board of Directors),
a Secretary and a Treasurer. The Chairman of the Board of Directors, if any,
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board may determine. The Board of Directors may fill any vacancy
which may occur in any office. Any two offices, except those of President and
Vice President, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these By-Laws to be executed, acknowledged or
verified by two or more officers.
Section 2. TERM OF OFFICE. All officers shall serve until their
respective successors are chosen and qualify. Any officer may be removed from
office at any time with or without cause by the vote of a majority of the entire
Board of Directors.
Section 3. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties as generally pertain to their respective offices, as
well as such powers and duties as may from time to time be conferred by the
Board of Directors.
ARTICLE IV
CAPITAL STOCK
Section 1. CERTIFICATES OF SHARES. Each stockholder of the
Corporation shall be entitled to a certificate or certificates for the full
shares of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the
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<PAGE>
signature as the Corporation or its agents may reasonably require; in the case
of shares not represented by certificates, the same or similar requirements may
be imposed by the Board of Directors.
Section 3. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors may determine the conditions upon which a new certificate of stock of
the Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors may provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Corporation shall indemnify its directors to the fullest extent that
indemnification of directors is
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<PAGE>
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its directors and to such further
extent as is consistent with law. The Corporation shall indemnify its directors
and officers who while serving as directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. The indemnification and other rights provided by this Article shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. This Article shall not protect any such person against any liability to
the Corporation or any stockholder thereof to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
Section 2. ADVANCES. Any current or former director or officer of
the Corporation seeking indemnification within the scope of this Article shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Corporation a written affirmation of his good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met: (a)
the person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have determined, based on
a review of facts readily available to the Corporation at the time the advance
is proposed to be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
Section 3. PROCEDURE. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine,
or cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have been
met. Indemnification shall be made only following: (a) a final decision on
the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of disabling
conduct or (b) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the person to be indemnified was not
liable by
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reason of disabling conduct by (i) the vote of a majority of a quorum of
disinterested non-party directors or (ii) an independent legal counsel in a
written opinion.
Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, as may be
provided by action of the Board of Directors of by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. OTHER RIGHTS. The Board of Directors may make further
provision consistent with law for indemnification and advance of expenses to
directors, officers, employees and agents by resolution, agreement or otherwise.
The indemnification provided by this Article shall not be deemed exclusive of
any other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested directors or otherwise.
Section 6. AMENDMENTS. References in this Article are to the
Maryland General Corporation Law and to the Investment Company Act of 1940 as
from time to time amended. No amendment of these By-laws shall affect any right
of any person under this Article based on any event, omission or proceeding
prior to the amendment.
ARTICLE VIII
AMENDMENT
The By-Laws of the Corporation may be altered, amended, added to or
repealed by majority vote of the entire Board of Directors.
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ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
THE CHAPMAN FUNDS, INC.
The World Trade Center-Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
April 30, 1997
Chapman Capital Management, Inc.
The World Trade Center-Baltimore
401 East Pratt street
Suite 2800
Baltimore, Maryland 21202
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Company") and you as follows:
1. GENERAL. The Company is an open-end investment company which
currently has two investment portfolios -- The Chapman US Treasury Money Fund
and The Chapman Institutional Cash Management Fund (individually, a "Fund" and
collectively, "Funds"). The Company proposes to engage in the business of
investing and reinvesting the assets of each Fund in the manner and in
accordance with the investment objectives, policies and limitations specified
with respect to each Fund in the Company's Prospectus and Statement of
Additional Information (the "Prospectus") included in the Company's Registration
Statement, as amended from time to time (the "Registration Statement"), filed
under the Investment Company Act of 1940, as amended (the "1940 Act"), and the
Securities Act of 1933, as amended. Copies of the Prospectus have been
furnished to you. Any amendments to the Prospectus shall be furnished to you
promptly.
2. ADVISORY SERVICES. Subject to the supervision and approval of
the Company's Board of Directors, you will provide investment management of each
Fund's portfolio in accordance with such Fund's investment objectives, policies
and limitations as stated in the Prospectus as from time to time in effect. In
connection therewith, you will obtain and provide investment research and will
supervise each Fund's investments and conduct a continuous program of
investment, evaluation and, if appropriate, sale and reinvestment of such Fund's
assets. You will place orders for the purchase and sale of
<PAGE>
portfolio securities and will solicit brokers to execute transactions, including
The Chapman Co., in accordance with the Funds' policies and restrictions
regarding brokerage allocations. You will furnish to each Fund such statistical
information with respect to the investments which such Fund may hold or
contemplate purchasing as the Fund may reasonably request.
3. ADMINISTRATIVE SERVICES. You will supply office facilities, data
processing services, clerical, accounting and bookkeeping services, internal
auditing services, executive and other administrative services; provide
stationery and office supplies; prepare reports to each Fund's stockholders, tax
returns and reports to and filings with the Securities and Exchange Commission
and state Blue Sky authorities; calculate the net asset value of each Fund's
shares; provide persons to serve as the Company's officers and generally assist
in all aspects of each Fund's operations.
4. ASSISTANCE. You may employ or contract with other persons to
assist you in the performance of this Agreement. Such persons may include other
investment advisory or management firms and officers or employees who are
employed by both you and the Company. The fees or other compensation of such
persons shall be paid by you and no obligation may be incurred on the Company's
behalf to any such person.
5. FEES. In consideration of the advisory services rendered
pursuant to this Agreement, each Fund will pay you on the first business day of
each month a fee at the annual rate of .5 of 1% of the value of the Fund's
average daily net assets during the preceding month. In consideration of the
administrative services rendered pursuant to this Agreement, each Fund will pay
you on the first business day of each month a fee at the annual rate of .1 of 1%
of the value of such Fund's average daily net assets during the preceding month.
Net asset value shall be computed in the manner, on such days and at such time
or times as described in the Funds' Prospectus from time to time. The fee for
the period from the effective date of the Registration Statement to the end of
the first month thereafter shall be pro-rated according to the proportion which
such period bears to the full monthly period, and upon any termination of this
Agreement before the end of any month, the fee for such part of a month shall be
pro-rated according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination of this
Agreement.
6. EXPENSES:
(a) You will bear all expenses in connection with the
performance of your services under this Agreement. All other expenses to be
incurred in the operation of the Funds will be borne by the Funds, except to the
extent specifically assumed by you. The expenses to be borne by the Funds
include, without limitation, the following: organizational costs, taxes,
interest, brokerage fees and commissions and
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<PAGE>
other expenses in any way related to the execution, recording and settlement of
portfolio security transactions, fees of Directors who are not also your
officers, Securities and Exchange Commission fees, state Blue Sky qualification
fees, charges of custodians, transfer and dividend paying agents' premiums for
directors and officers liability insurance, costs of fidelity bonds, industry
association fees, outside auditing and legal expenses, costs of maintaining
corporate existence, costs of maintaining required books and accounts, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of shareholders' reports and meetings, costs of
preparing, printing and mailing share certificates, proxy statements and
prospectuses, and any extraordinary expenses.
(b) You will bear or will pay all expenses of each Fund
(excluding income, excise and other taxes and any extraordinary expenses) to the
extent they exceed .75% of the average daily net assets of the Fund in any year.
Such expenses may be borne through a reduction in the advisory and
administrative fees payable pursuant to this Agreement and will not exceed the
total of such fee. Reductions or payments, if any, will be estimated,
reconciled, and effected or paid monthly. If in any month such expenses do not,
on an annual basis, exceed .75% of the average daily net assets of such Fund
during such month, any prior reductions or payments shall be repaid to Advisor
to the extent such repayment shall not cause the expenses of such Fund to exceed
.75% of the average daily net assets of such Fund during such month. The
expense limitation set forth in this subparagraph 6(b) shall be in effect until
December 31, 1997 at which time it may be extended as is, increased, decreased
or eliminated solely at your option. Notwithstanding the provisions of this
subparagraph 6(b), you may, at your option at any time and from time to time,
without the agreement of either Fund, further lower the expense limitation for
such periods as you see fit.
(c) If in any fiscal year the aggregate expenses of a Fund
(including fees paid to you pursuant to this Agreement, but excluding interest
on borrowings, taxes, brokerage and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over a Fund, such Fund may
deduct from the payment to be made to you under this Agreement, or you will
bear, such excess expense to the extent required by state law. Your obligation
pursuant hereto will be limited to the amount of your fees hereunder. Such
deduction or payment, if any, will be estimated, reconciled and effected or
paid, as the case may be, on a monthly basis.
7. LIABILITY. You shall exercise your best judgment in rendering
the services to be provided to each Fund. Each Fund agrees as an inducement to
you and to others who may assist you in providing services to the Funds that you
and such other persons shall not be liable for any error of judgment or mistake
of law or for any loss suffered by such Fund or the Company and each Fund and
the Company agree to indemnify and hold harmless you and such other persons
against and from any claims,
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liabilities, actions, suits, proceedings, judgments or damages (and expenses
incurred in connection therewith, including the reasonable cost of investigating
or defending same, including, but not limited to attorneys' fees) arising out of
any such error of judgment or mistake of law or loss; provided that nothing
herein shall be deemed to protect or purport to protect you or any other such
person against any liability to the Company or to its security holders to which
you or they would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties hereunder, or by reason
of reckless disregard of the obligations and duties hereunder.
8. OTHER ACCOUNTS. The Company understands that you and other
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Company has no objection to your or
their so acting. When purchase or sale of securities of the same issuer is
suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities will be allocated in a manner believed by you and such
other persons to be equitable to each company or account. It is recognized that
in some cases this procedure may adversely affect the price paid or received by
a Fund or the size of the position obtainable for or disposed of by a Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
9. TERM. This Agreement shall continue with respect to each Fund
until December 29, 1998 and thereafter shall continue automatically for
successive annual periods ending on the anniversary of such date, provided such
continuance with respect to each Fund is specifically approved at least annually
by the Company's Board of Directors or vote of the lesser of (a) 67% of the
shares of such Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of such Fund, provided that in either event
its continuance also is approved by a majority of the Company's Directors who
are not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable with respect to either Fund or
both Funds without penalty, on 60 days' notice, by you or by the Company's Board
of Directors or by vote of the lesser of (a) 67% of the shares of such Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of such Fund. This Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).
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10. "CHAPMAN" NAME. The Company recognizes that from time to time
your directors, officers and employees may serve as directors, trustees,
partners, officers and employees of other corporations, business trusts,
partnerships or other entities (including other investment companies) and that
such other entities may include the name "Chapman" as part of their name. You
or your affiliates may enter into investment advisory or other agreements with
such other entities. If you cease to act as the Company's investment adviser,
the Company agrees that, at your request, the Company will take all necessary
action to change the name of the Company and its Funds to a name not including
"Chapman" in any form or combination of words.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE CHAPMAN FUNDS, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.,
President
Accepted:
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.
President
-5-
<PAGE>
ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND
The World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202
[ ], 1997
Chapman Capital Management, Inc.
The World Trade Center-Baltimore
401 East Pratt street
Suite 2800
Baltimore, Maryland 21202
Ladies and Gentlemen:
This will confirm the agreement between the undersigned (the
"Corporation") and you as follows:
1. GENERAL. The Corporation is an open-end management investment
company which has multiple investment portfolios including, the Domestic
Emerging Markets Equity Fund (the "Fund"). The Corporation proposes to engage
in the business of investing and reinvesting the assets of the Fund in the
manner and in accordance with the investment objectives, policies and
limitations specified in the Corporation's Prospectus and Statement of
Additional Information (the "Prospectus") included in the Corporation's
Registration Statement pertaining to the Fund, as amended and/or supplemented
from time to time (the "Registration Statement"), filed under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Securities Act of
1933, as amended. Copies of the Prospectus have been furnished to you. Any
amendments to the Prospectus shall be furnished to you promptly.
2. ADVISORY SERVICES. Subject to the supervision and approval of
the Corporation's Board of Directors, you will provide investment management of
the Fund's portfolio in accordance with the Fund's investment objectives,
policies and limitations as stated in the Prospectus as from time to time in
effect. In connection therewith, you will obtain and provide investment
research and will supervise the Fund's investments and conduct a continuous
program of investment, evaluation and, if appropriate, sale and reinvestment of
the Fund's assets. You will place orders for the purchase and sale of
<PAGE>
Chapman Capital Management, Inc.
[ ], 1997
Page 2
portfolio securities and will solicit brokers to execute transactions, including
The Chapman Co., in accordance with the policies and restrictions regarding
brokerage allocations of the Fund and the Corporation. You will furnish to the
Corporation such statistical information with respect to the investments which
the Corporation may hold or contemplate purchasing as the Corporation may
reasonably request.
3. ADMINISTRATIVE SERVICES. You will supply office facilities, data
processing services, clerical, internal auditing services, executive and other
administrative services; provide stationery and office supplies; prepare reports
to the Fund's stockholders, tax returns and reports to and filings with the
Securities and Exchange Commission and state Blue Sky authorities; calculate the
net asset value of the Fund's shares; provide persons to serve as the
Corporation's officers at the request of the Corporation's Board of Directors
and generally assist in all aspects of the Fund's operations.
4. ASSISTANCE. You may employ or contract with other persons to
assist you in the performance of this Agreement. Such persons may include other
investment advisory or management firms and officers or employees who are
employed by both you and the Corporation. The fees or other compensation of
such persons shall be paid by you and no obligation may be incurred on the
Corporation's behalf to any such person.
5. FEES. In consideration of the advisory services rendered
pursuant to this Agreement, the Corporation, on behalf of the Fund, will pay you
on the first business day of each month a fee at the annual rate of .9 of 1% of
the value of the Fund's average weekly net assets during the preceding month.
In consideration of the administrative services rendered pursuant to this
Agreement, the Fund will pay you on the first business day of each month a fee
at the annual rate of .15 of 1% of the value of the Fund's average weekly net
assets during the preceding month. Net asset value shall be computed in the
manner, on such days and at such time or times as described in the Prospectus
from time to time. The fee for the period from the effective date of the
Registration Statement to the end of the first month thereafter shall be
pro-rated according to the proportion which such period bears to the full
monthly period, and upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
6. EXPENSES:
(a) You will bear all expenses in connection with the
performance of your services under this Agreement. All other expenses to be
incurred in
<PAGE>
Chapman Capital Management, Inc.
[ ], 1997
Page 3
the operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by you. The expenses to be borne by the Fund include,
without limitation, the following: organizational costs, taxes, interest,
brokerage fees and commissions and other expenses in any way related to the
execution, recording and settlement of portfolio security transactions, fees of
Directors who are not also your officers, Securities and Exchange Commission
fees, state Blue Sky qualification fees, charges of custodians, transfer and
dividend paying agents' premiums for directors and officers liability insurance,
costs of fidelity bonds, industry association fees, outside auditing and legal
expenses, costs of maintaining corporate existence, costs of maintaining
required books and accounts, costs attributable to investor services (including,
without limitation, telephone and personnel expenses), costs of stockholders'
reports and meetings, costs of preparing, printing and mailing share
certificates, proxy statements and prospectuses, and any extraordinary expenses.
(b) If in any fiscal year the aggregate expenses of a Fund
(including fees paid to you pursuant to this Agreement, but excluding interest
on borrowings, taxes, brokerage and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, the Fund may
deduct from the payment to be made to you under this Agreement, or you will
bear, such excess expense to the extent required by state law. Your obligation
pursuant hereto will be limited to the amount of your fees hereunder. Such
deduction or payment, if any, will be estimated, reconciled and effected or
paid, as the case may be, on a monthly basis.
7. LIABILITY. You shall exercise your best judgment in rendering
the services to be provided to the Fund. The Corporation, on behalf of the
Fund, agrees as an inducement to you and to others who may assist you in
providing services to the Fund that you and such other persons shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or the Corporation and the Fund and the Corporation agree to indemnify
and hold harmless you and such other persons against and from any claims,
liabilities, actions, suits, proceedings, judgments or damages (and expenses
incurred in connection therewith, including the reasonable cost of investigating
or defending same, including, but not limited to attorneys' fees) arising out of
any such error of judgment or mistake of law or loss; provided, however, that
the Corporation's obligation with respect to such claims, liabilities, actions,
suits, proceedings, judgments or damages (and expenses incurred in connection
therewith, including the reasonable cost of investigating or defending same,
including, but not limited to attorneys' fees) arising out of any such error of
judgment or mistake of law or loss shall be limited to the "assets belonging to"
(as such expression is defined in the Corporation's charter) the Fund and
further provided that nothing herein shall be deemed to protect or purport to
protect you or any other such person against any liability to the Corporation or
to its security holders
<PAGE>
Chapman Capital Management, Inc.
[ ], 1997
Page 4
to which you or they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
hereunder, or by reason of reckless disregard of the obligations and duties
hereunder.
8. OTHER ACCOUNTS. The Corporation understands that you and other
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Corporation has no objection to
your or their so acting. When purchase or sale of securities of the same issuer
is suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities will be allocated in a manner believed by you and such
other persons to be equitable to the Fund and any other account. It is
recognized that in some cases this procedure may adversely affect the price paid
or received by the Fund or the size of the position obtainable for or disposed
of by the Fund.
In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.
9. TERM. This Agreement shall continue with respect to the Fund
until December 29, 1998 and thereafter shall continue automatically for
successive annual periods ending on the anniversary of such date, provided such
continuance with respect to the Fund is specifically approved at least annually
by the Corporation's Board of Directors or a vote of the lesser of (a) 67% of
the shares of the Fund represented at a meeting if holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund, provided that in either event
its continuance also is approved by a majority of the Corporation's Directors
who are not "interested persons" (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable with respect to the Fund
without penalty, on 60 days' notice, by you or by the Corporation's Board of
Directors or by vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Fund. This Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).
10. "CHAPMAN," "DOMESTIC EMERGING MARKETS" AND "DEM" NAMES. The
Corporation recognizes that from time to time your directors, officers and
employees may serve as directors, trustees, partners, officers and employees of
other corporations,
<PAGE>
Chapman Capital Management, Inc.
[ ], 1997
Page 5
business trusts, partnerships or other entities (including other investment
companies) and that such other entities may include the name "Chapman,"
"Domestic Emerging Markets" and/or "DEM" as part of their name. You or your
affiliates may enter into investment advisory or other agreements with such
other entities. If you cease to act as the Fund's investment adviser, the
Corporation agrees that, at your request, the Corporation will take all
necessary action to change the name of the Fund to a name not including
"Chapman," "Domestic Emerging Markets" and/or "DEM" in any form or combination
of words.
<PAGE>
Chapman Capital Management, Inc.
[ ], 1997
Page 6
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE CHAPMAN FUNDS, INC., on behalf
of DOMESTIC EMERGING MARKETS
EQUITY FUND
By:
--------------------------
Nathan A. Chapman, Jr.,
President
Accepted:
CHAPMAN CAPITAL MANAGEMENT, INC.
By:
-----------------------------------
Nathan A. Chapman, Jr.
President
<PAGE>
DISTRIBUTION AGREEMENT
THE CHAPMAN FUNDS, INC.
The World Trade Center-Baltimore
401 East Pratt Street
Suite 2800
Baltimore, Maryland 21202
WHEREAS, The Chapman Funds, Inc., a Maryland corporation (the
"Company"), desires to enter into an agreement regarding the distribution of the
shares (the "Shares") of the Company's two investment portfolios: The Chapman
US Treasury Money Fund and The Chapman Institutional Cash Management Fund
(collectively, the "Funds"); and
WHEREAS, the Company has agreed that The Chapman Co., Inc. (the
"Distributor"), a Maryland corporation, shall act as the exclusive distributor
of the Shares;
WHEREAS, the Distributor agrees to act as the exclusive distributor of
the Shares for the period of this Distribution Agreement (the "Agreement").
NOW, THEREFORE, in consideration of the agreements hereinafter
contained, it is agreed as follows:
1. SERVICES AS DISTRIBUTOR.
1.1 The Distributor shall use reasonable efforts to promote the
Company and to solicit orders for the purchase of Shares and shall undertake
such advertising and promotion as it believes reasonable in connection with such
solicitation. Distributor shall be the exclusive distributor of the Shares.
The Distributor shall sell the Shares only at the offering price at the time of
such sale (computed in the manner described in the Funds' then effective
prospectus), and the Funds shall receive not less than the full net asset value
per share for all the Shares sold. No sales charge shall be imposed on sales of
any Shares. The Company agrees, provided that the Shares may be legally issued,
to fill all orders confirmed by the Distributor in accordance with the
provisions of this Agreement.
1.2 The Distributor shall conduct the offering of Shares and
other activities pursuant hereto in strict accordance with the Registration
Statement and the applicable requirements of the Articles of Incorporation and
the By-Laws of the Company, as each may be from time to time amended, and in
strict accordance with all applicable state and federal statutes, rules and
regulations, including in particular, the Investment Company Act of 1940 as
amended (the "1940 Act"), the Securities Act of 1933 as amended (the "Securities
Act"), the Securities Exchange Act of 1934 as amended
<PAGE>
(the "Exchange Act"), the rules and regulations of the Securities Exchange
Commission promulgated under the 1940 Act, the Securities Act and the Exchange
Act, the applicable rules and regulations of any securities association
registered under the Exchange Act, and all applicable state Blue Sky laws, rules
and regulations.
1.3 The Distributor shall transmit any orders received by it for
purchase or redemption of Shares to the Company's transfer agent and custodian,
process inquiries from stockholders and communicate with the Company and
transfer agent on behalf of stockholders.
1.4 The Distributor shall bear all its expenses in connection
with the performance of this Agreement, including, but not limited to, the
printing and distribution of prospectuses included in the Registration Statement
as defined below to stockholders other than to existing stockholders and shall
receive no reimbursement or compensation in connection therewith from the
Company therefor.
2. DUTIES OF THE COMPANY.
2.1 The Company agrees to file all required reports with the
Securities and Exchange Commission in a timely manner and to maintain on file
with the Securities and Exchange Commission a current prospectus and statement
of additional information during the term of this Agreement.
2.2 The Company agrees at its own expense to execute any and all
documents and to furnish, at its own expense, any and all documents and all
information and otherwise to take all actions that may be reasonably necessary
in connection with the qualification of Shares for sale in such states as the
Company and the Distributor may designate.
2.3 The Company shall furnish from time to time, for use in
connection with the sale of Shares such information with respect to the Funds
and the Shares as the Distributor may reasonably request; and the Company
warrants that any such information shall be true and correct.
3. REPRESENTATIONS OF THE COMPANY.
3.1 The Company represents to the Distributor that any
registration statement, prospectus, and statement of additional information
filed with the Commission and any amendments and supplements thereto (the
"Registration Statement") with respect to the Shares have been prepared in
conformity with the requirements of the Securities Act, the 1940 Act and the
rules and regulations of the Commission thereunder. The Company represents and
warrants to the Distributor that any Registration Statement, when such becomes
effective, will contain all statements required to be stated therein in
conformity with the Securities Act, the 1940 Act and the rules and regulations
of Commission; that all statements of fact contained in such
<PAGE>
Registration Statement will be true and correct when such becomes effective; and
that no Registration Statement, when such becomes effective will include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading to
a purchaser of Shares.
4. INDEMNIFICATION.
4.1 The Company shall indemnify and hold harmless the
Distributor, each person, if any, who controls the Distributor within the
meaning of Section 15 of the Securities Act, and any person with whom the
Distributor enters into agreements for the sale of Shares of the Company or to
prepare sales literature for the Company against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and counsel fees incurred
in connection therewith), insofar as such loss, liability, claim, damage,
expense, actions or proceedings in respect thereof arise out of or are based
upon an untrue statement of a material fact contained in the Registration
Statement then in effect, annual or interim reports to shareholders or sales
literature used in connection with the sale of Shares or omission to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, written information furnished to the Company
specifically for use therein; provided, however, no person shall be entitled to
indemnity in the event of its willful malfeasance, bad faith or gross negligence
in the performance of its duties under this Agreement or such other agreement or
by reason of its reckless disregard of its obligations and duties under this
Agreement or such other agreement.
5. OFFERING OF SHARES.
5.1 None of the Shares shall be offered by the Distributor under
this Agreement, and no orders for the purchase or sale of Shares hereunder shall
be accepted by the Company, if and so long as the effectiveness of the
Registration Statement or any necessary amendments thereto shall be suspended
under any of the provisions of the Securities Act; provided, however, that
nothing contained in this paragraph 5.1 shall in any way restrict or have any
application to or bearing upon the Company's obligation to redeem Shares from
any shareholder in accordance with the provisions of the Company's prospectus or
Articles of Incorporation. The Company shall notify the Distributor of any
suspension of the effectiveness of the Registration Statement.
6. TERM.
6.1 Either party shall have the right to terminate this
Agreement upon sixty (60) days' written notice to the other. This agreement
shall become effective as of the date hereof and shall continue in effect,
unless sooner terminated as herein provided, until December 29, 1998, and from
year to year thereafter
<PAGE>
if such continuance is approved at least annually in the manner required by the
1940 Act. This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
7. MISCELLANEOUS
7.1 This Agreement shall be governed by the laws of the State of
Maryland.
7.2 The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their constructions or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the 30th day of April 1997.
THE CHAPMAN FUNDS, INC.
By: /S/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.
President
THE CHAPMAN CO.
By: /S/ NATHAN A. CHAPMAN, JR.
--------------------------
Nathan A. Chapman, Jr.
President
<PAGE>
DISTRIBUTION AGREEMENT
THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND
The World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202
[ ], 1997
The Chapman Co.
The World Trade Center -- Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, The Chapman Funds, Inc. an open-end,
diversified, management investment company organized as a corporation under the
laws of the State of Maryland (the "Corporation"), on behalf of Domestic
Emerging Markets Equity Fund, a series of the Corporation (the "Fund"), has
agreed that The Chapman Co. shall be, for the period of this Agreement, the
distributor of shares of Domestic Emerging Markets Equity Fund Investor Class
and Institutional Class Common Stock, par value $.001 per share ("Investor
Shares" and "Institutional Shares," respectively).
1. SERVICES AS DISTRIBUTOR
1.1 The Chapman Co. will act as agent for the distribution of the
Investor Shares and Institutional Shares covered by the post-effective amendment
to the Fund's registration statement on Form N-1A, under the Securities Act of
1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as
amended (the "1940 Act") pertaining to the Investor Shares and the Institutional
Shares of the Fund (the post-effective amendment to the registration statement,
together with the prospectuses (the "prospectus") and statement of additional
information (the "statement of additional information") included as part
thereof, any amendments or supplements thereto, or material incorporated by
reference into the prospectus or statement of additional information, being
referred to collectively in this Agreement as the "registration statement").
<PAGE>
The Chapman Co.
[ ], 1997
Page 2
1.2 The Chapman Co. agrees to use appropriate efforts to solicit
orders for the sale of the Investor Shares and Institutional Shares at such
prices and on the terms and conditions set forth in the registration statement
and will undertake such advertising and promotion as it believes is reasonable
in connection with such solicitation.
1.3 All activities by The Chapman Co. as distributor of the Investor
Shares and Institutional Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted by the Securities and Exchange Commission (the "SEC") or by any
securities association registered under the Securities Exchange Act of 1934, as
amended.
1.4 The Chapman Co. agrees to (a) provide one or more persons during
normal business hours to respond to telephone questions concerning the Fund and
its performance and (b) perform such other services as are described in the
registration statement and in the Investor Class Distribution Plan (the
"Investor Class Plan") and in the Institutional Class Distribution Plan (the
"Institutional Class Plan"), each adopted by the Fund pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1") to be performed by The Chapman Co., without
limitation, distributing and receiving subscription order forms and receiving
written redemption requests.
1.5 (a) The Chapman Co. will be paid fees under the Investor Class
Plan to compensate The Chapman Co. or enable The Chapman Co. to compensate other
persons, ("Service Providers"), including any other distributor of Investor
Shares, for providing: (i) services primarily intended to result in the sale of
Investor Shares ("Investor Selling Services"), and (ii) stockholder servicing,
administrative and accounting services ("Investor Administrative Services" and
collectively with Investor Selling Services, "Investor Services"). Investor
Selling Services may include, but are not limited to: the printing and
distribution to prospective investors in Investor Shares of prospectuses and
statements of additional information describing the Fund; the preparation,
including printing, and distribution of sales literature, reports and media
advertisements relating to the Investor Shares; providing telephone services
relating to the Fund; distributing Investor Shares; costs relating to the
formulation and implementation of marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising, and related travel and
entertainment expenses; and costs involved in obtaining whatever information,
analyses and reports with respect to marketing and promotional activities that
the Fund may, from time to time, deem advisable. In
<PAGE>
The Chapman Co.
[ ], 1997
Page 3
providing compensation for Investor Selling Services in accordance with the
Investor Class Plan, The Chapman Co. is expressly authorized (i) to make, or
cause to be made, payments reflecting an allocation of overhead and other office
expenses related to providing Investor Services; (ii) to make, or cause to be
made, payments, or to provide for the reimbursement of expenses of, persons who
provide support services in connection with the distribution of Investor Shares
including, but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, and providing any other Investor
Service; and (iii) to make, or cause to be made, payments to compensate selected
dealers or other authorized persons for providing any Investor Services.
Administrative Services may include, but are not limited to, (i) responding to
inquiries of prospective investors regarding the Fund; (ii) services to
stockholders not otherwise required to be provided by the Fund's custodian or
any co-administrator; (iii) establishing and maintaining accounts and records on
behalf of Fund stockholders; (iv) processing purchase, redemption and exchange
transactions in Investor Shares; and (v) other similar services not otherwise
required to be provided by the Fund's transfer agent or any co-administrator.
Payments under the Investor Class Plan are not tied exclusively to the selling
and administrative expenses actually incurred by The Chapman Co. or any Service
Provider, and the payments may exceed expenses actually incurred by The Chapman
Co. and/or a Service Provider. Furthermore, any portion of any fee paid to The
Chapman Co. or to any of its affiliates by the Fund or any of their past profits
or other revenue may be used in their sole discretion to provide services to
stockholders of the Fund or to foster distribution of Investor Shares.
(b) Pursuant to the Investor Class Plan, the Fund will pay The
Chapman Co. on the first business day of each quarter a fee for the previous
quarter calculated at an annual rate of up to .75% of the average daily net
assets of the Investor Shares of the Fund consisting of up to .50% as
compensation for Investor Selling Services and .25% as compensation for Investor
Administrative Services provided by The Chapman Co. to the Investor Shares
pursuant to this Agreement.
1.6 (a) The Chapman Co. will be paid fees under the
Institutional Class Plan to compensate The Chapman Co. or enable The Chapman Co.
to compensate other persons, including any other distributor of the
Institutional Shares or institutional stockholders of record of the
Institutional Shares, including but not limited to retirement plans,
broker-dealers, depository institutions, and other financial intermediaries
("Institutions"), who own Institutional Shares on behalf of their customers,
clients or (in the case of retirement plans) participants ("Customers") and
companies providing certain services to Customers (collectively with
Institutions, "Service
<PAGE>
The Chapman Co.
[ ], 1997
Page 4
Organizations"), for providing (i) services primarily intended to result in the
sale of the Institutional Shares ("Institutional Selling Services"), and (ii)
stockholder servicing, administrative and accounting services to Customers
("Institutional Administrative Services").
(b) The annual fee paid to The Chapman Co. with respect to
Institutional Selling Services will compensate The Chapman Co., or allow The
Chapman Co. to compensate Service Organizations, to cover certain expenses
primarily intended to result in the sale of the Institutional Shares, including,
but not limited to: (i) costs of payments made to employees that engage in the
distribution of the Institutional Shares; (ii) payments made to, and expenses
of, persons who provide support services in connection with the distribution of
the Institutional Shares, including, but not limited to, office space and
equipment, telephone facilities, processing stockholder transactions and
providing any other stockholder services not otherwise provided by the Fund's
transfer agent; (iii) costs relating to the formulation and implementation of
marketing and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; (iv) costs of printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective holders of the
Institutional Shares; (v) costs involved in preparing, printing and distributing
sales literature pertaining to the Fund, and (vi) costs involved in obtaining
whatever information, analyses and reports with respect to marketing and
promotional activities that the Fund may, from time to time, deem advisable.
(c) The annual fee paid to The Chapman Co. with respect to
Institutional Administrative Services will compensate The Chapman Co., or allow
The Chapman Co. to compensate Service Organizations, for personal service and/or
the maintenance of Customer accounts, including but not limited to (i)
responding to Customer inquiries, (ii) providing information on Customer
investments, and (iii) providing other stockholder liaison services and for
administrative and accounting services to Customers, including, but not limited
to: (a) aggregating and processing purchase and redemption requests from
Customers and placing net purchase and redemption orders with the Fund's
distributor or transfer agent; (b) providing Customers with a service that
invests the assets of their accounts in the Institutional Shares; (c) processing
dividend payments from the Fund on behalf of Customers; (d) providing
information periodically to Customers showing their positions in the
Institutional Shares; (e) arranging for bank wires; (f) providing sub-accounting
with respect to the Institutional Shares beneficially owned by Customers or the
information to the Fund necessary for
<PAGE>
The Chapman Co.
[ ], 1997
Page 5
sub-accounting; (g) forwarding stockholder communications from the Fund (for
example, proxies, stockholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers, if required
by law and, (h) providing other similar services to the extent permitted under
applicable statutes, rules and regulations. Payments under the Institutional
Class Plan are not tied exclusively to the selling and administrative expenses
actually incurred by The Chapman Co. or any Service Organization, and the
payments may exceed expenses actually incurred by The Chapman Co. or any Service
Organization. Furthermore, any portion of any fee paid to The Chapman Co. or to
any of its affiliates by the Fund or any of their past profits or other revenue
may be used in their sole discretion to provide services to stockholders of the
Fund or to foster distribution of the Institutional Shares.
(d) Pursuant to the Institutional Class Plan, the Fund will pay
The Chapman Co. on the first business day of each quarter a fee for the previous
quarter calculated at an annual rate of up to .25% of the average daily net
assets of the Institutional Shares of the Fund for Selling Services and
Administrative Services provided by The Chapman Co. or any Service Organizations
to the Institutional Shares pursuant to this Agreement.
1.7 The Chapman Co. acknowledges that, whenever in the judgment of
the Corporation's officers such action is warranted for any reason, including,
without limitation, market, economic or political conditions, those officers may
decline to accept any orders for, or make any sales of, the Investor Shares or
Institutional Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.8 The Chapman Co. will transmit any orders received by it for
purchase or redemption of the Investor Shares and Institutional Shares to
Fund/Plan Services, Inc. ("Fund/Plan"), the Fund's transfer and dividend
disbursing agent, or its successor of which The Chapman Co. is notified in
writing. The Fund will promptly advise The Chapman Co. of the determination to
cease accepting orders or selling Investor Shares or Institutional Shares or to
recommence accepting orders or selling Investor Shares or Institutional Shares.
The Fund (or its agent) will confirm orders for Investor Shares and
Institutional Shares placed through The Chapman Co. upon their receipt, or in
accordance with any exemptive order of the SEC, and will make appropriate book
entries pursuant to the instructions of The Chapman Co. The Chapman Co. agrees
to cause payment for Investor Shares and Institutional Shares and instructions
as to book entries to be delivered promptly to the Fund (or its agent).
<PAGE>
The Chapman Co.
[ ], 1997
Page 6
1.9 The outstanding Investor Shares and Institutional Shares are
subject to redemption as set forth in the prospectus. The price to be paid to
redeem the Investor Shares and Institutional Shares will be determined as set
forth in the prospectus.
1.10 The Chapman Co. will prepare and deliver reports to the Treasurer
of the Corporation on a regular, at least quarterly, basis, showing the
distribution expenses incurred pursuant to this Agreement, the Investor Class
Plan and the Institutional Class Plan adopted by the Fund pursuant to Rule 12b-1
and the purposes therefor, as well as any supplemental reports as the Directors
from time to time may reasonably request.
2. DUTIES OF THE FUND
2.1 The Corporation, on behalf of the Fund, agrees at its own expense
to execute any and all documents, to furnish any and all information and to take
any other actions that may be reasonably necessary in connection with the
qualification of the Investor Shares and Institutional Shares for sale in those
states that The Chapman Co. may designate.
2.2 The Corporation shall furnish from time to time, for use in
connection with the sale of the Investor Shares and Institutional Shares, such
informational reports with respect to the Fund and the Investor Shares and
Institutional Shares as The Chapman Co. may reasonably request, all of which
shall be signed by one or more of the Corporation's duly authorized officers;
and the Corporation warrants that the statements contained in any such reports,
when so signed by one or more of the Corporation's officers, shall be true and
correct. The Corporation shall also furnish The Chapman Co. upon request with:
(a) annual audits of the Fund's books and accounts made by independent public
accountants regularly retained by the Corporation, (b) semiannual unaudited
financial statements pertaining to the Fund, (c) quarterly earnings statements
prepared by the Corporation, (d) a monthly itemized list of the securities held
by the Fund, (e) monthly balance sheets as soon as practicable after the end of
each month and (f) from time to time such additional information regarding the
Fund's financial condition as The Chapman Co. may reasonably request.
3. REPRESENTATIONS AND WARRANTIES
The Corporation, on behalf of the Fund, represents to The Chapman Co.
that the registration statement has been or will be carefully prepared in
conformity with
<PAGE>
The Chapman Co.
[ ], 1997
Page 7
the requirements of the 1933 Act, the 1940 Act and the rules and regulations of
the SEC thereunder. The Fund represents and warrants to The Chapman Co. that
any registration statement pertaining to the Investor Shares and/or
Institutional Shares, or prospectus and statement of additional information
contained therein, when such registration statement becomes effective, will
include all statements required to be contained therein in conformity with the
1933 Act, the 1940 Act and the rules and regulations of the SEC; that all
statements of fact contained in any registration statement with respect to the
Investor Shares and/or Institutional Shares, prospectus or statement of
additional information will be true and correct when such registration statement
becomes effective; and that neither any registration statement nor any
prospectus or statement of additional information with respect to the Investor
Shares and/or Institutional Shares when such registration statement becomes
effective will include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of the Investor Shares and/or
Institutional Shares. The Chapman Co. may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus or statement of
additional information as, in the light of future developments, may, in the
opinion of The Chapman Co.'s counsel, be necessary or advisable. If the
Corporation shall not propose such amendment or amendments and/or supplement or
supplements within fifteen (15) days after receipt by the Corporation of a
written request from The Chapman Co. to do so, The Chapman Co. may, at its
option, terminate this Agreement. The Corporation shall not file any amendment
to any registration statement or supplement to any prospectus or statement of
additional information without giving The Chapman Co. reasonable notice thereof
in advance; provided, however, that nothing contained in this Agreement shall in
any way limit the Corporation's right to file at any time such amendments to any
registration statement and/or supplements to any prospectus or statement of
additional information with respect to the Investor Shares and/or Institutional
Shares, of whatever character, as the Corporation may deem advisable, such right
being in all respects absolute and unconditional.
4. INDEMNIFICATION
4.1 The Corporation, on behalf of the Fund, agrees to indemnify,
defend and hold The Chapman Co., its several officers and directors, and any
person who controls The Chapman Co. within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and
<PAGE>
The Chapman Co.
[ ], 1997
Page 8
any counsel fees incurred in connection therewith) which The Chapman Co., its
officers and directors, or any such controlling person, may incur under the 1933
Act, the 1940 Act or common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement, any prospectus or any statement of additional
information with respect to the Investor Shares and/or Institutional Shares, or
arising out of or based upon any omission or alleged omission to state a
material fact required to be stated in any registration statement, any
prospectus or any statement of additional information with respect to the
Investor Shares and/or Institutional Shares, or necessary to make the statements
in any of them not misleading; provided, however, that the Corporation's
agreement, on behalf of the Fund, to indemnify The Chapman Co., its officers, or
directors, and any such controlling person, and any claims, demands, liabilities
or expenses arising out of or based upon such indemnity shall be limited to the
"assets belonging to" (as such expression is defined in the Corporation's
charter) the Fund; and further provided that the Corporation's agreement, on
behalf of the Fund, to indemnify The Chapman Co., its officers or directors, and
any such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of or based upon any statements or
representations made by The Chapman Co. or its representatives or agents other
than such statements and representations as are contained in any registration
statement, prospectus or statement of additional information with respect to the
Investor Shares and/or Institutional Shares and in such financial and other
statements as are furnished to The Chapman Co. pursuant to paragraph 2.2 hereof;
and further provided that the Corporation's agreement, on behalf of the Fund, to
indemnify The Chapman Co. and the Corporation's representations and warranties,
on behalf of the Fund, hereinbefore set forth in paragraph 3 shall not be deemed
to cover any liability to the Fund or its stockholders to which The Chapman Co.
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of The Chapman Co.'s
reckless disregard of its obligations and duties under this Agreement. The
Corporation's agreement, on behalf of the Fund, to indemnify The Chapman Co.,
its officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon the Corporation's being notified of any action
brought against The Chapman Co., its officers or directors, or any such
controlling person, such notification to be given by letter or by telegram
addressed to the Corporation at its principal office in Baltimore, Maryland and
sent to the Corporation by the person against whom such action is brought,
within ten (10) days after the summons or other first legal process shall have
been served. The failure to so notify the Corporation of any such action shall
not relieve the Corporation from any liability that the Corporation may have to
the person against whom such action is brought by reason of any such untrue or
alleged untrue statement or omission or alleged omission otherwise than on
account of
<PAGE>
The Chapman Co.
[ ], 1997
Page 9
the Corporation's indemnity agreement, on behalf of the Fund, contained in this
paragraph 4.1. The Corporation's indemnification agreement, on behalf of the
Fund, contained in this paragraph 4.1 and the Corporation's representations and
warranties, on behalf of the Fund, in this Agreement shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
The Chapman Co., its officers and directors, or any controlling person, and
shall survive the delivery of any of the Corporation's shares. This agreement
of indemnity will inure exclusively to The Chapman Co.'s benefit, to the benefit
of its several officers and directors, and their respective estates, and to the
benefit of the controlling persons and their successors. The Corporation, on
behalf of the Fund, agrees to notify The Chapman Co. promptly of the
commencement of any litigation or proceedings against the Corporation or any of
its officers or directors in connection with the issuance and sale of any of the
Investor Shares and/or Institutional Shares.
4.2 The Chapman Co. agrees to indemnify, defend and hold the
Corporation, its several officers and directors, and any person who controls the
Corporation or the Fund within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) that the
Corporation, its officers or directors or any such controlling person may incur
under the 1933 Act, the 1940 Act or common law or otherwise, but only to the
extent that such liability or expense incurred by the Corporation, its officers
or directors or such controlling person resulting from such claims or demands
shall arise out of or be based upon (a) any unauthorized sales literature,
advertisements, information, statements or representations or (b) any untrue or
alleged untrue statement of a material fact contained in information furnished
in writing by The Chapman Co. to the Corporation specifically for use in the
registration statement and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the prospectus
or statement of additional information, or shall arise out of or be based upon
any omission or alleged omission to state a material fact in connection with
such information furnished in writing by The Chapman Co. to the Corporation and
required to be stated in such answers or necessary to make such information not
misleading. The Chapman Co.'s agreement to indemnify the Corporation, its
officers and directors, and any such controlling person, as aforesaid, is
expressly conditioned upon The Chapman Co.'s being notified of any action
brought against the Corporation, its officers or directors, or any such
controlling person, such notification to be given by letter or telegram
addressed to The Chapman Co. at its principal office in Baltimore, Maryland and
sent to The Chapman Co. by the person
<PAGE>
The Chapman Co.
[ ], 1997
Page 10
against whom such action is brought, within ten (10) days after the summons or
other first legal process shall have been served. The failure to so notify The
Chapman Co. of any such action shall not relieve The Chapman Co. from any
liability that The Chapman Co. may have to the Corporation, its officers or
directors, or to such controlling person by reason of any such untrue or alleged
untrue statement or omission or alleged omission otherwise than on account of
The Chapman Co.'s indemnity agreement contained in this paragraph 4.2. The
Chapman Co. agrees to notify the Corporation promptly of the commencement of any
litigation or proceedings against The Chapman Co. or any of its officers or
directors in connection with the issuance and sale of any of the Investor Shares
and/or Institutional Shares.
4.3 In case any action shall be brought against any indemnified party
under paragraph 4.1 or 4.2, and it shall timely notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel would be
inappropriate due to actual or potential differing interests between them in the
conduct of the defense of such action.
5. EFFECTIVENESS OF REGISTRATION
None of the Investor Shares or Institutional Shares shall be offered
by either The Chapman Co. or the Corporation under any of the provisions of this
Agreement and no orders for the purchase or sale of the Investor Shares or
Institutional Shares shall be accepted by the Corporation if and so long as the
effectiveness of the registration statement shall be suspended under any of the
provisions of the 1933 Act or if and so long as the prospectus is not on file
with the SEC; provided, however, that nothing contained in this paragraph 5
shall in any way restrict or have an application to or bearing upon the
Corporation's obligation to repurchase its shares from any stockholder in
accordance with the provisions of the prospectus or statement of additional
information.
<PAGE>
The Chapman Co.
[ ], 1997
Page 11
6. NOTICE TO THE CHAPMAN CO.
The Corporation, on behalf of the Fund, agrees to advise The Chapman
Co. immediately in writing:
(a) of any request by the SEC for amendments to the registration
statement, prospectus or statement of additional information then in effect
with respect to the Investor Shares and/or Institutional Shares or for
additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement, prospectus or
statement of additional information then in effect with respect to the
Investor Shares and/or Institutional Shares or the initiation of any
proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement, prospectus
or statement of additional information then in effect with respect to the
Investor Shares and/or Institutional Shares or that requires the making of
a change in such registration statement, prospectus or statement of
additional information in order to make the statements therein not
misleading; and
(d) of all actions of the SEC with respect to any amendment to
any registration statement, prospectus or statement of additional
information with respect to the Investor Shares or Institutional Shares
which may from time to time be filed with the SEC.
7. TERM OF AGREEMENT
This Agreement shall continue until [ ] with respect to each
of the Investor Shares and Institutional Shares, and thereafter shall continue
automatically for successive annual periods ending on [ ] of each year,
provided such continuance is specifically approved at least annually by (a) a
vote of a majority of the Corporation's Board of Directors or (b) a vote of a
majority (as defined in the 1940 Act) of each of the outstanding Investor Shares
and Institutional Shares, respectively, provided that the continuance is also
approved by a vote of a majority of the Corporation's Directors who are not
interested persons (as defined in the 1940 Act) of the Corporation and who have
no direct or indirect financial interest in the operation of the Investor Class
<PAGE>
The Chapman Co.
[ ], 1997
Page 12
Plan or the Institutional Class Plan, in this Agreement or in any agreement
related to the Investor Class Plan or Institutional Class Plan ("Qualified
Directors"), by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable with respect to the
Investor Shares or the Institutional Shares without penalty (a) on sixty (60)
days' written notice, by a vote of a majority of the Fund's Qualified Directors
or by vote of a majority (as defined in the 1940 Act) of the outstanding
Investor Shares or Institutional Shares, as applicable, or (b) on ninety (90)
days' written notice by The Chapman Co. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
8. AMENDMENTS
This Agreement may not be amended to increase materially the amount of
the fee with respect to the Investor Shares and/or Institutional Shares
described in Section [1.5] above without approval of at least a majority (as
defined in the 1940 Act) of the outstanding Investor Shares and/or Institutional
Shares, respectively. In addition, all material amendments to this Agreement
must be approved by a vote of the Corporation's Board of Directors, and by a
vote of a majority of the Qualified Directors, cast in person at a meeting
called for the purpose of voting on the approval.
<PAGE>
The Chapman Co.
[ ], 1997
Page 13
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Very truly yours,
THE CHAPMAN FUNDS, INC., on behalf
of Domestic Emerging Markets Equity
Fund
By:
--------------------------------
Nathan A. Chapman, Jr.
President
Accepted:
THE CHAPMAN CO.
By:
---------------------------
Nathan A. Chapman, Jr.
President
<PAGE>
INVESTMENT COMPANY SERVICES AGREEMENT
This AGREEMENT, dated as of the ___________ day of _________________________
_____ , 1997, made by and between The Chapman Funds, Inc. (the "Company"), a
Maryland corporation operating as an open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "Act"),
duly organized and existing under the laws of the State of Maryland and FPS
Services, Inc. ("FPS"), a corporation duly organized and existing under the
laws of the State of Delaware (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Company is authorized by its Articles of Incorporation to
issue separate series of shares representing interests in separate investment
portfolios which are identified on Schedule "C" attached hereto, and which
Schedule "C" may be amended from time to time by mutual agreement of the Company
and FPS; and
WHEREAS, the Parties desire to enter into an agreement whereby FPS will
provide the services to the Company as specified herein and set forth in
particular in Schedule "A" which is attached hereto and made a part hereof.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and in exchange of good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the Parties hereto,
intending to be legally bound, do hereby agree as follows:
GENERAL PROVISIONS
SECTION 1. APPOINTMENT. The Company hereby appoints FPS as its servicing
agent and FPS hereby accepts such appointment. In order that FPS may perform
its duties under the terms of this Agreement, the Board of Directors of the
Company shall direct the officers, investment adviser, legal counsel,
independent accountants and custodian of the Company to cooperate fully with FPS
and, upon request of FPS, to provide such information, documents and advice
relating to the Company which FPS requires to execute its responsibilities
hereunder. In connection with its duties, FPS shall be entitled to rely, and
will be held harmless by the Company when acting in reasonable reliance, upon
any instruction, advice or document relating to the Company as provided to FPS
by any of the aforementioned persons on behalf of the Company. All fees charged
by any such persons acting on behalf of the Company will be deemed an expense of
the Company.
<PAGE>
Any services performed by FPS under this Agreement will conform to the
requirements of:
(a) the provisions of the Act and the Securities Act of 1933, as amended,
and any rules or regulations in force thereunder;
(b) any other applicable provision of state and federal law;
(c) the provisions of the Company's Articles of Incorporation and the
By-Laws as amended from time to time and delivered to FPS;
(d) any policies and determinations of the Board of Directors of the
Company which are communicated to FPS; and
(e) the policies of the Company as reflected in the Company's registration
statement as filed with the U.S. Securities and Exchange Commission.
Nothing in this Agreement will prevent FPS or any officer thereof from
providing the same or comparable services for or with any other person, firm or
corporation. While the services supplied to the Company may be different than
those supplied to other persons, firms or corporations, FPS will provide the
Company equitable treatment in supplying services. The Company recognizes that
it will not receive preferential treatment from FPS as compared with the
treatment provided to other FPS clients.
SECTION 2. DUTIES AND OBLIGATIONS OF FPS.
Subject to the provisions of this Agreement, FPS will provide to the
Company the specific services as set forth in Schedule "A" attached hereto.
SECTION 3. DEFINITIONS. For purposes of this Agreement:
"CERTIFICATE" will mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement or the custody agreement
executed by the Company ("Custody Agreement"). To be effective, such
Certificate shall be given to and received by the custodian and shall be signed
on behalf of the Company by any two of its designated officers. The term
Certificate shall also include instructions communicated to the custodian by
FPS.
"CUSTODIAN" will refer to that agent which provides safekeeping of the
assets of the Company.
"INSTRUCTIONS" will mean communications containing instructions transmitted
by electronic or telecommunications media including, but not limited to,
Industry Standardization for Institutional Trade Communications ("I.S.I.T.C."),
computer-to-computer interface, dedicated
<PAGE>
transmission line, facsimile transmission (which may be signed by an officer or
unsigned) and tested telex.
"ORAL INSTRUCTION" will mean an authorization, instruction, approval, item
or set of data, or information of any kind transmitted to FPS in person or by
telephone, telegram, telecopy or other mechanical or documentary means LACKING
ORIGINAL SIGNATURE, by a person or persons reasonably identified to FPS to be a
person or persons so authorized by a resolution of the Board of Directors of the
Company to give Oral Instructions to FPS on behalf of the Company.
"SHAREHOLDERS" will mean the registered owners of the shares of the Company
in accordance with the share registry records maintained by FPS for the Company.
"SHARES" will mean the issued and outstanding shares of the Company.
"SIGNATURE GUARANTEE" will mean the guarantee of signatures by an "eligible
guarantor institution" as defined in Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Eligible guarantor institutions
include banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations.
Broker-dealers guaranteeing signatures must be members of a clearing corporation
or maintain net capital of at least $100,000. Signature guarantees will be
accepted from any eligible guarantor institution which participates in a
signature guarantee program.
"WRITTEN INSTRUCTION" will mean an authorization, instruction, approval,
item or set of data or information of any kind transmitted to FPS in an original
writing CONTAINING AN ORIGINAL SIGNATURE or a copy of such document transmitted
by telecopy including transmission of such signature reasonably identified to
FPS to be the signature of a person or persons so authorized by a resolution of
the Board of Directors of the Company, or so identified by the Company to give
Written Instructions to FPS on behalf of the Company.
CONCERNING ORAL AND WRITTEN INSTRUCTIONS. For all purposes under this
Agreement, FPS is authorized to act upon receipt of the first of any
Written or Oral Instruction it receives from the Company or its
agents. In cases where the first instruction is an Oral Instruction
that is not in the form of a document or written record, a
confirmatory Written Instruction or Oral Instruction in the form of a
document or written record shall be delivered. In cases where FPS
receives an Instruction, whether Written or Oral, to enter a portfolio
transaction onto the Company's records, the Company shall cause the
broker/dealer executing such transaction to send a written
confirmation to the Custodian.
FPS shall be entitled to rely on the first Instruction received. For
any act or omission undertaken by FPS in compliance therewith, it
shall be free of liability and fully indemnified and held harmless by
the Company, provided however, that
<PAGE>
in the event a Written or Oral Instruction received by FPS is countermanded
by a subsequent Written or Oral Instruction received prior to acting upon
such countermanded Instruction, FPS shall act upon such subsequent Written
or Oral Instruction. The sole obligation of FPS with respect to any
follow-up or confirmatory Written Instruction, Oral Instruction in
documentary or written form shall be to make reasonable efforts to detect
any such discrepancy between the original Instruction and such confirmation
and to report such discrepancy to the Company. The Company shall be
responsible and bear the expense of its taking any action, including any
reprocessing, necessary to correct any discrepancy or error. To the extent
such action requires FPS to act, the Company shall give FPS specific
Written Instruction as to the action required.
The Company will file with FPS a certified copy of each resolution of its
Board of Directors authorizing execution of Written Instructions or the
transmittal of Oral Instructions as provided above.
SECTION 4. INDEMNIFICATION.
(a) FPS, its directors, officers, employees, shareholders, and agents will
be liable for any loss suffered by the Company resulting from the willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
FPS in the performance of its obligations and duties under this Agreement.
(b) Any director, officer, employee, shareholder or agent of FPS, who may
be or become an officer, director, employee or agent of the Company, will be
deemed, when rendering services to the Company, or acting on any business of the
Company (other than services or business in connection with FPS' duties
hereunder), to be rendering such services to or acting solely for the Company
and not as a director, officer, employee, shareholder or agent of, or under the
control or direction of FPS even though such person may be receiving
compensation from FPS.
(c) The Company agrees to indemnify and hold FPS harmless, together with
its directors, officers, employees, shareholders and agents from and against any
and all claims, demands, expenses and liabilities (whether with or without basis
in fact or law) of any and every nature which FPS may sustain or incur or which
may be asserted against FPS by any person by reason of, or as a result of:
(i) any action taken or omitted to be taken by FPS except claims,
demands, expenses and liabilities arising from willful misfeasance, bad faith,
gross negligence or reckless disregard on the part of FPS in the performance of
its obligations and duties under this Agreement; or
<PAGE>
(ii) any action taken or omitted to be taken by FPS in reliance
upon any Certificate, instrument, order or stock certificate or other
document reasonably believed by FPS to be genuine and signed, countersigned
or executed by any duly authorized person, upon the Oral Instructions or
Written Instructions of an authorized person of the Company, or upon the
written opinion of legal counsel for the Company or FPS; or
(iii) the offer or sale of shares of the Company to any person,
natural or otherwise, which is in violation of any state or federal law.
If a claim is made against FPS as to which FPS may seek indemnity under
this Section, FPS will notify the Company promptly after receipt of any written
assertion of such claim threatening to institute an action or proceeding with
respect thereto and will notify the Company promptly of any action commenced
against FPS within ten (10) days after FPS has been served with a summons or
other legal process. Failure to notify the Company will not, however, relieve
the Company from any liability which it may have on account of the indemnity
under this Section so long as the Company has not been prejudiced in any
material respect by such failure.
The Company and FPS will cooperate in the control of the defense of any
action, suit or proceeding in which FPS is involved and for which indemnity is
being provided by the Company to FPS. The Company may negotiate the settlement
of any action, suit or proceeding subject to FPS' approval, which will not be
unreasonably withheld. FPS reserves the right, but not the obligation, to
participate in the defense or settlement of a claim, action or proceeding with
its own counsel. Costs or expenses incurred by FPS in connection with, or as a
result of, such participation will be borne solely by the Company if:
(i) FPS has received an opinion of counsel from counsel to the
Company stating that the use of counsel to the Company by FPS would present an
impermissible conflict of interest;
(ii) the defendants in, or targets of, any such action or proceeding
include both FPS and the Company, and legal counsel to FPS has reasonably
concluded that there are legal defenses available to it which are different from
or additional to those available to the Company or which may be adverse to or
inconsistent with defenses available to the Company (in which case the Company
will not have the right to direct the defense of such action on behalf of FPS);
or
(iii) the Company authorizes FPS to employ separate counsel at the
expense of the Company.
<PAGE>
(d) The terms of this Section will survive the termination of this
Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
(a) FPS represents and warrants that:
(i) it is a corporation duly organized and existing and in
good standing under the laws of Delaware;
(ii) it is empowered under applicable laws and by its
Certificate of Incorporation and By-Laws to enter into and perform this
Agreement;
(iii) all requisite corporate proceedings have been taken to
authorize FPS to enter into and perform this Agreement;
(iv) it has and will continue to have, access to the
facilities, personnel and equipment required to fully perform its duties and
obligations hereunder;
(v) no legal or administrative proceeding have been
instituted or threatened which would impair FPS's ability to perform its
duties and obligations under this Agreement;
(vi) its entrance into this Agreement shall not cause a
material breach or be in material conflict with any other agreement or
obligation of FPS or any law or regulation applicable to it;
(vii) it is registered as a transfer agent under Section
17A(c)(2) of the Exchange Act;
(viii) this Agreement has been duly authorized by FPS, and when
executed and delivered, will constitute valid, legal and binding obligation of
FPS, enforceable in accordance with its terms.
(b) The Company represents and warrants that:
(i) it is a corporation duly organized and existing and in
good standing under the laws of the State of Maryland;
(ii) it is empowered under applicable laws and by its
Articles of Incorporation and By-Laws to enter into and perform this
Agreement;
(iii) all requisite proceedings have been taken to authorize
the Company to enter into and perform this Agreement;
(iv) no legal or administrative proceedings have been
instituted or threatened which would impair the Company's ability to perform
its duties and obligations under this Agreement;
<PAGE>
(v) the Company's entrance into this Agreement shall not
cause a material breach or be in material conflict with any other agreement
or obligations of the Company, or any law or regulation applicable to either;
(vi) the Shares are properly registered or otherwise authorized
for issuance and sale;
(vii) this Agreement has been duly authorized by the Company
and, when executed and delivered, will constitute valid, legal and binding
obligation of the Company, enforceable in accordance with its terms.
(c) Delivery of Documents
The Company will furnish or cause to be furnished to FPS the following
documents;
(i) current Prospectus and Statement of Additional Information;
(ii) most recent Annual Report;
(iii) most recent Semi-Annual Report for registered investment
companies on Form N-SAR;
(iv) certified copies of resolutions of the Company's Board of
Directors authorizing the execution of Written Instructions or the transmittal
of Oral Instructions and those persons authorized to give those Instructions.
(d) Record Keeping and Other Information
FPS will create and maintain all records required of it pursuant to its
duties hereunder and as set forth in Schedule "A" in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the Act. All such records will be the property of the Company and will
be available during regular business hours for inspection, copying and use by
the Company. Where applicable, such records will be maintained by FPS for the
periods and in the places required by Rule 31a-2 under the Act. Upon termination
of this Agreement, FPS will deliver all such records to the Company or such
person as the Company may designate.
In case of any request or demand for the inspection of the Share
records of the Company, FPS shall notify the Company and secure instructions as
to permitting or refusing such inspection. FPS may, however, exhibit such
records to any person in any case where it is advised by its counsel that it may
be held liable for failure to do so.
<PAGE>
SECTION 6. COMPENSATION. The Company agrees to pay FPS compensation for
its services, and to reimburse it for expenses, at the rates, times, manner and
amounts as set forth in Schedule "B" attached hereto and incorporated herein by
reference, and as will be set forth in any amendments to such Schedule "B"
agreed upon in writing by the Parties. Upon receipt of an invoice therefor, FPS
is authorized to collect such fees by debiting the Company's custody account.
In addition, the Company agrees to reimburse FPS for any out-of-pocket expenses
paid by FPS on behalf of the Company within ten (10) calendar days of the
Company's receipt of an invoice therefor.
For the purpose of determining fees payable to FPS, the value of the
Company's net assets will be computed at the times and in the manner specified
in the Company's Prospectus and Statement of Additional Information then in
effect.
During the term of this Agreement, should the Company seek services or
functions in addition to those outlined below or in Schedule "A" attached
hereto, a written amendment to this Agreement specifying the additional services
and corresponding compensation will be executed by the Parties.
SECTION 7. DAYS OF OPERATION. Nothing contained in this Agreement is
intended to or will require FPS, in any capacity hereunder, to perform any
functions or duties on any holiday, day of special observance or any other day
on which the New York Stock Exchange ("NYSE") is closed. Functions or duties
normally scheduled to be performed on such days will be performed on, and as of,
the next succeeding business day on which the NYSE is open. Notwithstanding
the foregoing, FPS will compute the net asset value of the Company on each day
required pursuant to Rule 22c-1 promulgated under the Act.
SECTION 8. ACTS OF GOD, ETC. FPS will not be liable or responsible for
delays or errors caused by acts of God or by reason of circumstances beyond its
control, including acts of civil or military authority, national emergencies,
labor difficulties, mechanical breakdown, insurrection, war, riots, or failure
or unavailability of transportation, communication or power supply, fire, flood
or other catastrophe.
In the event of equipment failures beyond FPS' control, FPS will, at no
additional expense to the Company, take reasonable steps to minimize service
interruptions but will have no liability with respect thereto. The foregoing
obligation will not extend to computer terminals located outside of premises
maintained by FPS. FPS has entered into and maintains in effect
<PAGE>
agreements making reasonable provision for emergency use of electronic data
processing equipment to the extent appropriate equipment is available.
SECTION 9. INSPECTION AND OWNERSHIP OF RECORDS. In the event that any
request or demand for the inspection of the records of the Company, FPS will use
its best efforts to notify the Company and to secure instructions as to
permitting or refusing such inspection. FPS may, however, make such records
available for inspection to any person in any case where it is advised in
writing by its counsel that it may be held liable for failure to do so after
notice to the Company.
FPS recognizes that the records it maintains for the Company are the
property of the Company and will be surrendered to the Company upon written
notice to FPS as outlined under Section 10(c) below and the payment in advance
of any fees owed to FPS. FPS agrees to maintain the records and all other
information of the Company in a confidential manner and will not use such
information for any purpose other than the performance of FPS' duties under this
Agreement.
SECTION 10. DURATION AND TERMINATION.
(a) The initial term of this Agreement will be for the period of three (3)
years, commencing on the date hereinabove first written (the "Effective Date")
and will continue thereafter subject to termination by either Party as set forth
in subsection (c) below.
(b) The fee schedules set forth in Schedule "B" attached hereto will be
fixed for two (2) years commencing on the Effective Date of this Agreement and
will continue thereafter subject to their review and any adjustment.
(c) After the initial term of this Agreement, a Party may give written
notice to the other (the day on which the notice is received by the Party
against which the notice is made shall be the "Notice Date") of a date on which
this Agreement shall be terminated ("Termination Date"). The Termination Date
shall be set on a day not less than one hundred eighty (180) days after the
Notice Date. The period of time between the Notice Date and the Termination
Date is hereby identified as the "Notice Period". Any time up to, but not later
than fifteen (15) days prior to the Termination Date, the Company will pay to
FPS such compensation as may be due as of the Termination Date and will likewise
reimburse FPS for any out-of-pocket expenses and disbursements reasonably
incurred or expected to by incurred by FPS up to and including the Termination
Date.
<PAGE>
(d) In connection with the termination of this Agreement, if a successor
to any of FPS' duties or responsibilities under this Agreement is designated by
the Company by written notice to FPS, FPS will promptly, on the Termination Date
and upon receipt by FPS of any payments owed to it as set forth in Section
10.(c) above, shall transfer to the successor, at the Company's expense, all
records which belong to the Company and will provide appropriate, reasonable and
professional cooperation in transferring such records to the named successor.
(e) Should the Company desire to move any of the services outlined in this
Agreement to a successor service provider prior to the Termination Date, FPS
shall make a good faith effort to facilitate the conversion on such prior date,
however, there can be no guarantee that FPS will be able to facilitate a
conversion of services prior to the end of the Notice Period. Should services
be converted to a successor service provider prior to the end of the Notice
Period, or if the Company is liquidated or its assets merged or purchased or the
like with another entity, payment of fees to FPS shall be accelerated to a date
prior to the conversion or termination of services and calculated as if the
services had remained at FPS until the expiration of the Notice Period and
calculated at the asset levels on the Notice Date.
(f) Notwithstanding the foregoing, this Agreement may be terminated at any
time by either Party in the event of a material breach by the other Party
involving gross negligence, willful misfeasance, bad faith or a reckless
disregard of its obligations and duties under this Agreement provided that such
breach shall have remained unremedied for sixty (60) days or more after receipt
of written specification thereof.
SECTION 11. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by FPS under this
Agreement are the property of FPS. All records and other data except such
computer programs and procedures are the exclusive property of the Company and
all such other records and data will be furnished to the Company in appropriate
form as soon as practicable after termination of this Agreement for any reason.
SECTION 12. AMENDMENTS TO DOCUMENTS. The Company will furnish FPS written
copies of any amendments to, or changes in, the Company's Articles of
Incorporation or By-Laws, and each Prospectus or Statement of Additional
Information in a reasonable time prior to such amendments or changes becoming
effective. In addition, the Company agrees that no amendments will be made to
the Prospectus or Statement of Additional Information of the Company which might
have the effect of changing the procedures employed by FPS in
<PAGE>
providing the services agreed to hereunder or which amendment might affect the
duties of FPS hereunder unless the Company first obtains FPS' approval of such
amendments or changes.
SECTION 13. CONFIDENTIALITY. Both Parties hereto agree that any
non-public information obtained hereunder concerning the other Party is
confidential and may not be disclosed to any other person without the consent of
the other Party, except as may be required by applicable law or at the request
of the U.S. Securities and Exchange Commission or other governmental agency. FPS
agrees that it will not use any non-public information for any purpose other
than performance of its duties or obligations hereunder. The obligations of the
Parties under this Section will survive the termination of this Agreement. The
Parties further agree that a breach of this Section would irreparably damage the
other Party and accordingly agree that each of them is entitled, without bond or
other security, to an injunction or injunctions to prevent breaches of this
provision.
SECTION 14. NOTICES. Except as otherwise provided in this Agreement,
any notice or other communication required by or permitted to be given in
connection with this Agreement will be in writing, and will be delivered in
person or sent by first class mail, postage prepaid or by prepaid overnight
delivery service to the respective parties as follows:
IF TO THE CHAPMAN FUNDS, INC.: IF TO FPS:
------------------------------ -----------
The Chapman Funds, Inc. FPS Services, Inc.
401 East Pratt Street, 28th Floor 3200 Horizon Drive
Baltimore, MD 21202 King of Prussia, PA 19406
Attention: Nathan A. Chapman, Jr. Attention: Kenneth J. Kempf
President President
SECTION 15. AMENDMENT. No provision of this Agreement may be amended or
modified in any manner except by a written agreement properly authorized and
executed by FPS and the Company. This Agreement may be amended from time to time
by supplemental agreement executed by the Company and FPS and the compensation
stated in Schedule "B" attached hereto may be adjusted accordingly as mutually
agreed upon.
SECTION 16. AUTHORIZATION. The Parties represent and warrant to each
other that the execution and delivery of this Agreement by the undersigned
officer of each Party has been duly and validly authorized; and when duly
executed, this Agreement will constitute a valid and legally binding enforceable
obligation of each Party.
<PAGE>
SECTION 17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which when so executed will be deemed to be an original,
but such counterparts will together constitute but one and the same instrument.
SECTION 18. ASSIGNMENT. This Agreement will extend to and be binding upon
the Parties hereto and their respective successors and assigns; provided,
however, that this Agreement will not be assignable by the Company without the
written consent of FPS or by FPS without the written consent of the Company
which consent be authorized or approved by a resolution of the Company's Board
of Directors or FPS' Board of Directors.
SECTION 19. GOVERNING LAW. This Agreement will be governed by the laws of
the State of Pennsylvania and the exclusive venue of any action arising under
this Agreement will be Montgomery County, Commonwealth of Pennsylvania.
SECTION 20. SEVERABILITY. If any part, term or provision of this
Agreement is held by any court to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions will be considered
severable and not be affected and the rights and obligations of the Parties will
be construed and enforced as if the Agreement did not contain the particular
part, term or provision held to be illegal or invalid, provided that the basic
Agreement is not thereby materially impaired.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
consisting of twelve (12) typewritten pages, together with Schedules "A," "B"
and "C" to be signed by their duly authorized officers as of the day and year
first above written.
THE CHAPMAN FUNDS, INC. FPS SERVICES, INC.
By: /s/ NATHAN A. CHAPMAN, JR. By: /s/ KENNETH J. KEMPF
Nathan A. Chapman, Jr., President Kenneth J. Kempf, President
<PAGE>
SCHEDULE "A"
SERVICES TO BE PROVIDED BY FPS SERVICES, INC.
FPS Services, Inc. ("FPS") will (i) provide its own office space, facilities,
equipment and personnel for the performance of its duties under this Agreement;
and (ii) take all actions it deems necessary to properly execute its
responsibilities hereunder.
1. SERVICES RELATED TO SHAREHOLDERS AND SHARE TRANSACTIONS
I. Shareholder File
A. Establish new accounts and enter demographic data into shareholder
base. Includes in-house processing and NSCC - FundSERV - Networking
transmissions.
B. Create Customer Information File (CIF) to link accounts within the
Fund and across Funds within the Fund Group. Facilitates account
maintenance, lead tracking, quality control, household mailings and
combined statements.
C. 100% quality control of new account information including verification
of initial investment.
D. Maintain account and customer file records, based on shareholder
request and routine quality review.
E. Maintain tax ID certification and NRA records for each account,
including backup withholding.
F. Provide written confirmation of address changes.
G. Produce shareholder statements for daily activity, dividends,
on-request, third party and periodic mailings.
H. Establish and maintain dealer file by Fund Group, including dealer,
branch, representative number and name.
I. Automated processing of dividends and capital gains with daily,
monthly, quarterly or annual distributions. Payment options include
reinvestment, directed payment to another Fund, cash via mail, Fed
wire or ACH.
J Image all applications, account documents, data changes,
correspondence, monetary transactions, and other pertinent shareholder
documents.
II. Shareholder Services
A. Provide quality service through a staff of highly trained NASD
licensed customer service personnel, including phone, research and
correspondence representatives.
<PAGE>
B. Answer shareholder calls: provide routine account information,
transaction details including direct and wire purchases, redemptions,
exchanges systematic withdraws, pre-authorized drafts, FundSERV and
wire order trades, problem solving and process telephone transactions.
C. Silent monitoring of telephone representative calls by the phone
supervisor during live conversations to ensure exceptional customer
service.
D. Record and maintain tape recordings of all shareholder calls for a six
month period.
E. Phone Supervisor produces daily management reports of shareholder
calls which include tracking volumes, call lengths, average wait time
and abandoned call rates to ensure quality service.
F. Provide quality assurance of phone routing by the unit Assistant phone
Supervisor through verification of the Rolm in house computer terminal
linkage.
G. Phone representatives are throughly trained through in house training
programs on the techniques of providing Exceptional Customer Service.
H. Customer inquiries received by letter or telephone are researched by a
correspondence team with an average tenure of 15 years. These
inquiries include such items as, account/customer file information,
complete historical account information, stop payments on checks,
transaction details and lost certificates.
I. Provide written correspondence in response to shareholder inquiries
and request through the CORRO Letter Writer system and our in house
letter processing programs. Provide written requests for
informational purposes (e.g., received unclear shareholder
instructions). Whenever possible, unclear shareholder instructional
letters are handled by a phone call to the shareholder from our phone
representatives to avoid delay in processing of the request.
III. Investment Processing
A. Establish and maintain Rights of Accumulation and Letter of Intent
files.
B. Initial investment (checks or Fed wires).
C. Subsequent investments processed through lock box.
D. Pre-authorized investments (PAD) through ACH system.
E. Government allotments through ACH system.
F. Wire order and NSCC - Fund/SERV trades.
G. Prepare and process daily bank deposit of shareholder investments.
<PAGE>
IV. Redemption Processing
A. Process letter redemption requests.
B. Process telephone redemption transactions.
C. Establish Systematic Withdrawal file and process automated
transactions on monthly basis.
D. Provide wire order and NSCC - Fund/SERV trade processing.
E. Redemption proceeds distributed to shareholder by check, Fed wire or
ACH processing.
V. Exchange & Transfer Processing
A. Process legal transfers.
B. Process ACATS transfers.
C. Issue and cancel certificates.
D Replace certificates through surety bonds (separate charge to
shareholders).
E. Process exchange transactions (letter and telephone requests).
VI. Retirement Plan Services
A. Fund sponsored IRAs offered using Semper Trust Company as custodian.
Services include:
1. Contribution processing
2. Distribution processing
3. Apply rollover transactions
4. Process Transfer of Assets
5. Letters of Acceptance to prior custodians
6. Notify IRA holders of 70 1/2 requirements
7. Calculate Required Minimum Distributions (RMD)
8. Maintain beneficiary information file
9. Solicit birth date information
B. Fund sponsored SEP-IRA plans offered using Semper Trust Company as
custodian. Services include those listed under IRAs and:
1. Identification of employer contributions
C. Fund sponsored Qualified plans offered:
1. Plan document available
2. Omnibus/master account processing only
3. Produce annual statements
<PAGE>
4. Process contributions
5. Process distributions
6. Process rollover and Transfer of Assets transactions
VII. Commission Processing
A. Settlement and payment of dealer commissions on the 10th and 25th of
each month for front end load Funds. Dealer checks are sent to the
main branch only.
B. Settlement and payment of Distributor/Underwriter fees on the 10th and
25th of each month for front end load Funds.
C. Settlement and payment of CDSC fees on the 1st of each month for back
end load Funds.
VIII. Settlement & Control
A. Daily review of processed shareholder transactions to assure input was
processed correctly. Accurate trade activity figures passed to Funds'
Accounting Agent by 11:00 a.m. Eastern time.
B. Preparation of daily cash movement sheets to be passed to Funds'
Accounting Agent and Custodian Bank by 10:00 a.m. Eastern time for use
in determining Funds' daily cash availability.
C. Prepare a daily share reconcilement which balances the shares on the
Transfer Agent system to those on the books of the Fund.
D. Resolve any outstanding share or cash issues that are not cleared by
trade date + 2.
E. Process shareholder adjustments to include also the proper
notification of any booking entries needed, as well as any necessary
cash movement.
F. Settlement and review of Fund's declared dividends and capital gains
to include the following:
1. Review record date report for accuracy of shares.
2. Preparation of dividend settlement report after dividend is
posted. Verify the posting date shares, the rate used and the
NAV price of reinvest date to ensure dividend was posted
properly.
3. Distribute copies to the Funds' Accounting Agent.
4. Preparation of the checks prior to being mailed.
5. Sending of any dividends via wires if requested.
6. Preparation of cash movement sheets for the cash portion of the
dividend payout on payable date.
G. Placement of stop payments on dividend and liquidation checks as well
as the issuance of their replacements.
<PAGE>
H. Maintain inventory control for stock certificates and dividend check
form.
I. Aggregate tax filings for all FPS clients. Monthly deposits to the IRS
of all taxes withheld from shareholder disbursements, distributions
and foreign account distributions. Correspond with the IRS concerning
any of the above issues.
J. Timely settlement and cash movement for all NSCC/FundSERV activity.
IX. Year End Processing
A. Maintain shareholder records in accordance with IRS notices for
under-reporting and invalid Tax IDs. This includes initiating 31%
backup withholding and notifying shareholders of their tax status and
the corrective action which is needed.
B. Conduct annual W-9 solicitation of all uncertified accounts. Update
account tax status to reflect backup withholding or certified status
depending upon responses.
C. Conduct periodic W-8 solicitation of all non-resident alien
shareholder accounts. Update account tax status with updated
shareholder information and treaty rates for NRA tax.
D. Review IRS Revenue Procedures for changes in transaction and
distribution reporting and specifications for the production of forms
to ensure compliance.
E. Coordinate year-end activity with client. Activities include
producing year-end statements, scheduling record dates for year-end
dividends and capital gains, production of combined statements and
printing of inserts to be mailed with tax forms.
F. Distribute Dividend Letter to Funds for them to sign off on all
distributions paid year to date. Dates and rates must be authorized
so that they can be used for reporting to the IRS.
G. Coordinate the ordering of form stock envelopes form vendor in
preparation of tax reporting. Review against IRS requirements to
ensure accuracy. Upon receipt of forms and envelopes allocate space
for storage.
H. Prepare form flashes for the microfiche vendor. Test and oversee the
production of fiche for year-end statements and tax forms.
I. Match and settle tax reporting totals to Fund records and on-line data
from INVESTAR.
J. Produce forms 1099R, 1099B, 1099Div, 5498, 1042S and year-end
valuations. Quality assure forms before mailing to shareholders.
K. Monitor IRS deadlines and special events such as crossover dividends
and prior year IRA contributions.
<PAGE>
L. Prepare IRS magnetic tapes and appropriate forms for the filing of all
reportable activity to the IRS.
X. Client Services
A. An Account Manager is assigned to each relationship. The Account
Manager acts as the liaison between the Fund and the Transfer Agency
staff. Responsibilities include scheduling of events, system
enhancement implementation, special promotion/event implementation and
follow-up, and constant Fund interaction on daily operational issues.
Specifically:
1. Scheduling of dividends, proxies, report mailings and special
mailings.
2. Coordinate with the Fund shipment of materials for scheduled
mailings.
3. Liaison between the Fund and support services for preparation of
proofs and eventual printing of statement forms, certificates,
proxy cards, envelopes, etc.
4. Handle all notification to the client regarding proxy tabulation
through the meeting. Coordinate scheduling of materials
including voted cards, tabulation letters, and shareholder list
to be available for the meeting.
5. Order special reports, tapes, discs for special systems requests
received.
6. Implement new operational procedures, e.g., check writing
feature, load discounts, minimum waivers, sweeps, telephone
options, PAD promotions, etc.
7. Coordinate with systems, services and operations, special events,
e.g., mergers, new Fund start ups, household mailings, additional
mail files.
8. Prepare standard operating procedures and review prospectuses for
new start up Funds and our current client base. Coordinate
implementation of suggested changes with the Fund.
9. Liaison between the Fund and the Transfer Agency staff regarding
all service and operational issues.
B. Proxy Processing (Currently one free per year)
1. Coordinate printing of cards with vendor.
2. Coordinate mailing of cards with Account Manager and mailroom.
Tabulation of returned cards.
3. Provide daily report totals to Account Manager for client
notification.
4. Preparation of affidavit of mailing documents.
5. Provide one shareholder list.
6. Prepare final tabulation letter.
C. Blue Sky Processing
1. Maintain file with additions, deletions, changes and updates at
the Funds' direction.
XI. Other Related Services
A. Systematic linkage of shareholder accounts with exact matches on SSN
and address for the purpose of consolidated account history reporting.
Periodic production of laser printed combined statements.
<PAGE>
B. Production of household mailing labels which enable the Fund to do
special mailings to each address in the Fund Group rather than each
account.
C. Produce shareholder lists, labels and ad hoc reports to Fund
management as requested.
DAILY REPORTS
REPORT NUMBER REPORT DESCRIPTION
-- Daily Activity Register
024 Tax Reporting Proof
051 Cash Receipts and Disbursement Proof
053 Daily Share Proof
091 Daily Gain/Loss Report
104 Maintenance Register
044 Transfer/Certificate Register
056 Blue Sky Warning Report
MONTHLY REPORTS
REPORT DESCRIPTION
Blue Sky
Certificate Listing
State Sales and Redemption
Monthly Statistical Report
Account Demographic Analysis
MTD Sales - Demographics by Account Group
Account Analysis by Type
2. SERVICES RELATED TO PORTFOLIO VALUATION AND MUTUAL FUND ACCOUNTING
All financial data provided to, processed and reported by FPS under this
Agreement shall be in United States dollars. FPS' obligation to convert, equate
or deal in foreign currencies or values extends only to the accurate
transposition of information received from the various pricing and information
services.
I. Daily Accounting Services
A. Calculate Net Asset Value ("NAV") and Offering Price Per Share ("POP")
Fund Level
- Update the daily market value of securities held by the Fund
using FPS's standard agents for pricing U.S. equity, bond and
foreign securities. The U.S. equity pricing services are
Reuters, Inc., Muller Data Corporation, J.J. Kenny Co., Inc. and
Interactive Data Corporation (IDC). Muller Data, Dow Jones
Markets (formerly Telerate Systems, Inc.), J.J. Kenny Co., Inc.,
Municipal Market Data and IDC are also used for bond, money
market prices/yields. Bloomberg is available and used for price
research.
<PAGE>
- Enter limited number of manual prices supplied by the Fund and/or
broker.
- Review variance reporting on-line and in hard copy for price
changes in individual securities using variance levels
established by the Funds. Verify US dollar security prices
exceeding variance levels by notifying the Funds and pricing
sources of noted variances.
- Review for ex-dividend items indicated by pricing sources; trace
to Fund's general ledger for agreement.
Fund and Each Class
- Allocate daily unrealized Fund appreciation/depreciation and
unrealized gains/losses on futures to classes based upon value of
outstanding class shares.
- Prepare NAV proof sheets. Review components of change in NAV for
reasonableness. Complete Fund and class control proofs.
- Communicate pricing information (NAV/POP) to the Funds, the
Funds' transfer agent (the "Transfer Agent") and electronically
to NASDAQ.
B. Determine and Report Cash Availability to the Funds by approximately
9:30 a.m. Eastern Time:
Fund Level
- Receive daily cash and transaction statements from the agent
responsible for the safekeeping of the Funds' assets (the
"Custodian") by 8:30 a.m. Eastern time
- Receive previous day shareholder activity reports from the
Transfer Agent by 8:30 a.m. Eastern time. Class level
shareholder activity will be accumulated into the Funds'
available cash balances
- Fax hard copy Cash Availability calculations with all details to
the Funds
- Supply the Funds with 3-day cash projection report.
- Prepare daily bank cash reconciliations. Notify the Custodian
and the Funds of any reconciling items.
C. Reconcile and Record All Daily Expense Accruals
Fund Level
- Accrue expenses based on budget supplied by the Funds either as
percentage of net assets or specific dollar amounts
- If applicable, monitor expense limitations established by the
Funds
- If applicable, accrue daily amortization of Organizational
Expense
- If applicable, complete daily accrual of 12b-1 expenses
Fund and Each Class
- Class specific accruals completed such as daily accrual of 12b-1
expenses.
- Allocate Fund expenses to classes based upon value of outstanding
class shares.
D. Verify and Record All Daily Income Accruals for Debt Issues
Fund Level
- Review and verify all system generated Interest and Amortization
reports.
- Establish unique security codes for bond issues to permit
segregated trial balance income reporting.
<PAGE>
Fund and Each Class
- Allocate Fund income to classes based upon value of outstanding
class shares.
E. Monitor Securities Held for Cash Dividends, corporate actions and
capital changes such as splits, mergers, spinoffs, etc. and process
appropriately.
Fund Level
- Monitor electronically received information from Muller Data
Corporation for all domestic securities
- Review current daily security trades for dividend activity
- Monitor collection and postings of corporate actions, dividends
and interest
Fund and Each Class
- Allocate Fund dividend income to classes based upon value of
outstanding class shares.
F. Enter All Security Trades on Investment Accounting System (IAS) based
on written instructions from the Advisor
Fund Level
- Review system verification of trade and interest calculations
- Verify settlement through statements supplied by the Custodian
- Maintain security ledger transaction reporting
- Maintain tax lot holdings
- Determine realized gains or losses on security trades
- Provide broker commission reporting
Fund and Each Class
- Allocate all Fund level realized and unrealized capital
gains/losses to classes based upon value of class outstanding
shares
G. Enter All Fund Share Transactions on IAS
Each Class
- Process activity identified on reports supplied by the Transfer
Agent.
- Verify settlement through each Fund's statements supplied by the
Custodian.
- Reconcile to the FPS Services' Transfer Agent report balances.
- Roll each classes' capital share values into Fund and determine
allocation percentages based upon the value of each classes'
outstanding shares to the Fund total.
H. Prepare and Reconcile/Prove Accuracy of the Daily Trial Balance
(listing all asset, liability, equity, income and expense accounts)
Fund Level
- Post manual entries to the general ledger
- Post Custodian activity
- Post security transactions
- Post and verify system generated activity, i.e. income and
expense accruals
<PAGE>
Fund and Each Class
- Prepare Funds' general ledger net cash proof used in NAV
calculation
- Post class specific shareholder activity and roll values into
each Fund
- Allocate all Fund level net cash accounts on the Fund's trial
balance to each specific class based upon value of class
outstanding shares
- Maintain allocated trial balance accounts on class specific
Allocation Reports
- Maintain class-specific expense accounts
- Prepare class-specific proof/control reports to ensure accuracy
of allocations.
I. Review and Reconcile with Custodian Statements
Fund Level
- Verify all posted interest, dividends, expenses, and shareholder
and security payments/receipts, etc. (Discrepancies will be
reported to and resolved by the Custodian)
- Post all cash settlement activity to the Trial Balance
- Reconcile to ending cash balance accounts
- Clear IAS subsidiary reports with settled amounts
- Track status of past due items and failed trades as reported by
the Custodian
J. Submission of Daily Accounting Reports to the Funds (additional
reports readily available)
Fund Level
- Portfolio Valuation (listing inclusive of holdings, costs, market
values, unrealized appreciation/depreciation and percentage of
portfolio comprised of each security.)
- Cash availability.
- 3-Day Cash Projection Report
Fund and Each Class
- Fund Trial Balance and Class Allocation Report
- NAV Calculation Report
II. Monthly Accounting Services
A. For each Fund, full Financial Statement Preparation (automated
Statements of Assets and Liabilities, of Operations and of Changes in
Net Assets) and submission to the Funds by 10th business day
- Class specific capital share activity and expenses will be disclosed
also.
B. Submission of Monthly Automated IAS Reports to the Funds
Fund Level
- Security Purchase/Sales Journal
- Interest and Maturity Report
- Brokers Ledger (Commission Report)
- Security Ledger Transaction Report with Realized Gains/Losses
- Security Ledger Tax Lot Holdings Report
- Additional reports available upon request
<PAGE>
C. Reconcile Accounting Asset Listing to Custodian Asset Listing
Fund Level
- Report any security balance discrepancies to the Custodian/the
Funds
D. Provide Monthly Analysis and Reconciliation of Additional Trial
Balance Accounts, such as:
Fund Level
- Security cost and realized gains/losses
- Interest/dividend receivable and income
- Payable/receivable for securities purchased and sold
Fund and Each Class
- Payable/receivable for each Fund's shares; issued and redeemed
-- Expense payments and accruals analysis
III. Annual (and Semi-Annual) Accounting Services
A. Annually assist and supply the Funds' auditors with schedules
supporting securities and shareholder transactions, income and expense
accruals, etc. for each Fund and each Class during the year in
accordance with standard audit assistance requirements
B. Provide NSAR Reporting (Accounting Questions) on a Semi-Annual Basis
If applicable for Fund and Classes, answer the following items:
2, 12B, 20, 21, 22, 23, 28, 30A, 31, 32, 35, 36, 37, 43, 53, 55, 62,
63, 64B, 71, 72, 73, 74, 75, 76
<PAGE>
ACCOUNTING SERVICES BASIC ASSUMPTIONS FOR THE FUNDS
The Accounting Fees as set forth in Schedule "B" are based on the following
assumptions. To the extent these assumptions are inaccurate or requirements
change, fee revisions may be necessary.
Basic Assumptions:
1. The Fund's portfolio asset composition will be primarily domestic equity
securities. Trading activity is expected to be 20 trades per month or
less, with an annual turnover rate not expected to exceed 100%. The Fund
will have 2 classes of shares, both with 12b-1 trail, and a distinction of
no-load and front end load.
2. Each Fund has a tax year-end which coincides with its fiscal year-end. No
additional accounting requirements are necessary to identify or maintain
book-tax differences. FPS does not provide security tax accounting which
differs from its book accounting under this fee schedule.
3. Each Fund agrees to the use of FPS' standard current pricing services for
domestic equity, debt, ADR and foreign securities.
4. To the extent a Fund requires a limited number of daily security prices
from specific brokers (as opposed to pricing information received
electronically), these manual prices will be obtained by the Funds' Advisor
and faxed to FPS by 4:00 p.m. Eastern time for inclusion in the NAV
calculations. The Advisor will supply FPS with the appropriate pricing
contacts for these manual quotes.
5. Procedural discussions between FPS and a Fund are required to clarify the
appropriate pricing and dividend rate sources if the Fund invests in
open-end regulated investment companies (RIC's). Depending on the
methodologies selected by the Funds, additional fees may apply.
6. FPS will supply daily Portfolio Valuation Reports to each Funds' Advisor
identifying current security positions, original/amortized cost, security
market values and changes in unrealized appreciation/depreciation. It will
be the responsibility of the Advisor to review these reports and to
promptly notify FPS of any possible problems, trade discrepancies,
incorrect security prices or corporate action/capital change information
that could result in a misstated NAV.
7. The Funds do not currently expect to invest in REIT's, Swaps, Hedges,
Derivatives or foreign (non-U.S. dollar) securities and currency. To the
extent these investment strategies should change, additional fees may apply
after the appropriate procedural discussions have taken place between FPS
and Fund management. (Two weeks advance notice is required should the
Funds commence trading in these investments.)
8. Each Fund will supply FPS with income information such as accrual methods,
interest payment frequency details, coupon payment dates, floating rate
reset dates, and
<PAGE>
complete security descriptions with issue types and CUSIP/Sedol numbers for
all debt issues.
9. Each Fund is responsible for the establishment and monitoring of any
segregated accounts pertaining to any line of credit for temporary
administrative purposes, and/or leveraging/hedging the portfolio. FPS will
reflect appropriate trial balance account entries and interest expense
accrual charges on the daily trial balance adjusting as necessary at
month-end.
10. If a Fund commences participation in security lending or short sales within
its portfolio securities, additional fees may apply. Should a Fund
require these additional services, procedural discussions must take place
between FPS and the Funds' Advisor to clarify responsibilities. (Two weeks
advance notice to FPS is required should a Fund desire to participate in
the above.)
11. Each Fund will supply FPS with portfolio specific expense accrual
procedures and monitor the expense accrual balances for adequacy based on
outstanding liabilities monthly.
12. The following specific deadlines will be met and complete information will
be supplied by each Fund in order to minimize any settlement problems, NAV
miscalculations or income accrual adjustments.
Each Fund will direct the Advisor to provide Trade Authorization Forms to
FPS with the appropriate officer's signature on all security trades placed
by the Fund no later than 12:30 p.m. Eastern time on settlement/value date
for short term money market securities issues (assuming that trade date
equals settlement date); and by 11:00 a.m. Eastern time on trade date plus
one for non-money market securities. Receipt by FPS of trade information
within these identified deadlines may be made via telex, fax or on-line
system access. The Advisor will supply FPS with the trade details in
accordance with the above stated deadlines.
The Advisor will provide all information required by FPS, including
CUSIP/Sedol numbers and/or ticker symbols for all trades on the Trade
Authorization, telex or on-line support. FPS will not be responsible for
NAV changes or distribution rate adjustments that result from incomplete
trade information.
13. To the extent a Fund utilizes purchases in-kind (U.S. dollar denominated
securities only) as a method for shareholder subscriptions, FPS will
provide the Fund with procedures to properly handle and process such
transactions. Should a Fund prefer procedures other than those provided by
FPS, additional fees may apply. Discussions shall take place at least two
weeks in advance between FPS and the Fund to clarify the appropriate
in-kind operational procedures to be followed.
14. The Parties will establish mutually agreed upon amortization procedures and
accretion requirements for debt issues held by the Fund prior to
commencement of operations. Adjustments for financial statements regarding
any issues with original issue discount
<PAGE>
(OID) are not included under this Agreement. Each Fund will direct its
independent auditors to complete the necessary OID adjustments for
financial statements and/or tax reporting.
15. The Accounting Fees as identified in Schedule "B" assume Transfer Agency
and Custody Administration services will be supplied by FPS.
4. SERVICES RELATED TO CUSTODY ADMINISTRATION
1. Assign a Custody Administrator to accept, control and process the Funds'
daily portfolio transactions through direct computer link with the
Custodian.
2. Match and review DTC eligible ID's and trade information with the Funds'
instructions for accuracy and coordinating with the Custodian and the
Funds' accounting agent for recording and affirmation processing with the
depository.
3. Systematically settle all depository eligible issues. Transactions
requiring physical delivery will be settled through the Custodian's New
York office.
4. Assist the Funds in placing cash management trades through the Custodian,
such as commercial paper, CDs and repurchase agreements.
5. Provide the Funds' fund accounting agent and investment advisor with daily
custodian statements reflecting all prior day cash activity on behalf of
each portfolio by 8:30 a.m. Eastern time. Complete descriptions of any
posting, inclusive of Sedol/CUSIP numbers, interest/dividend payment date,
capital stock details, expense authorizations, beginning/ending cash
balances, etc., will be provided by the Custodian's reports or system.
6. Provide monthly activity statements combining both cash changes and
security trades, and a full portfolio listing.
7. Communicate to the Funds and the Funds' fund accounting agent on any
corporate actions, capital changes and interest rate changes supported by
appropriate supplemental reports received from the Custodian. Follow-up
will be made with the Custodian to ensure all necessary actions and/or
paperwork is completed.
8. Work with fund accounting and the Custodian on monthly asset
reconciliations.
9. Coordinate and resolve unsettled dividends, interest, paydowns and capital
changes. Assist in resolution of failed transactions and any settlement
problems.
10. Arrange for securities lending, lines of credit, and/or letters of credit
through the Custodian.
11. Provide automated mortgage-backed processing through the Custodian.
<PAGE>
12. Provide broker interface ensuring trade settlement with fail trade follow
up.
13. Provide the Funds' auditors with trade documentation to help expedite the
Funds' audit.
14. Cooperation and communication between Fund Accounting, Custodian and
Transfer Agent is facilitated smoothly when Custody Administration is
performed by FPS.
<PAGE>
SCHEDULE "B"
FEE SCHEDULE
FOR
THE CHAPMAN FUNDS, INC.
I. Fees related to Shareholder Servicing
A. TRANSFER AGENT AND SHAREHOLDER SERVICES:
$20.00 per account per year per portfolio
Minimum monthly fee - $2,250 per portfolio (This fee is reduced to
$24,000/year for the first two years of a 3-year contract)
Each additional class minimum monthly fee is $1,250
B. IRA'S, 403(b) PLANS, DEFINED CONTRIBUTION/BENEFIT PLANS:
Annual Maintenance Fee - $12.00/account per year
(Normally charged to participants)
C. FUNDSERV PROCESSING: (If Applicable)
$1,000 One time start-up fee
$50.00 Per month/per fund monthly maintenance fee
D. NETWORKING PROCESSING: (If Applicable)
$1,000 One time start-up fee
$75.00 Per month/per fund monthly maintenance fee
II. Fees related to Portfolio Valuation and Mutual Fund Accounting
A. ANNUAL FEE SCHEDULE PER DOMESTIC PORTFOLIO: U.S. Dollar Denominated
Securities only (1/12th payable monthly)
$25,000 Minimum to $ 20 Million of Average Net Assets*
.0003 On Next $ 30 Million of Average Net Assets*
.0002 On Next $ 50 Million of Average Net Assets*
.0001 Over $100 Million of Average Net Assets*
Each additional class is subject to a $10,000 minimum per year.
* For multiple class portfolios, fees are based on Combined Classes'
Average Net Assets
B. PRICING SERVICES QUOTATION FEE
Specific costs will be identified based upon options selected by the
Company and will be billed monthly.
<PAGE>
FPS does not currently pass along the charges for the U.S. equity
prices supplied by Muller Data. Should the Series invest in security
types other than domestic equities supplied by Muller, the following
fees would apply.
<TABLE>
<CAPTION>
----------------------------------------
MULLER DATA INTERACTIVE J.J. KENNY
SECURITY TYPES CORP.* DATA CORP.* CO., INC.*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Government Bonds $.50 $.50 $.25 (a)
- ----------------------------------------------------------------------------------------------
Mortgage-Backed (evaluated, seasoned, closing) .50 .50 .25 (a)
- ----------------------------------------------------------------------------------------------
Corporate Bonds (short and long term) .50 .50 .25 (a)
- ----------------------------------------------------------------------------------------------
U.S. Municipal Bonds (short and long term) .55 .80 .50 (b)
- ----------------------------------------------------------------------------------------------
CMO's/ARM's/ABS 1.00 .80 1.00 (a)
- ----------------------------------------------------------------------------------------------
Convertible Bonds .50 .50 1.00 (a)
- ----------------------------------------------------------------------------------------------
High Yield Bonds .50 .50 1.00 (a)
- ----------------------------------------------------------------------------------------------
Mortgage-Backed Factors (per Issue per Month) 1.00 n/a n/a
- ----------------------------------------------------------------------------------------------
U.S. Equities (d) .15 n/a
- ----------------------------------------------------------------------------------------------
U.S. Options n/a .15 n/a
- ----------------------------------------------------------------------------------------------
Domestic Dividends & Capital Changes
(per Issue per Month) (d) 3.50 n/a
- ----------------------------------------------------------------------------------------------
Foreign Securities .50 .50 n/a
- ----------------------------------------------------------------------------------------------
Foreign Securities Dividends & Capital Changes
(per Issue per Month) 2.00 4.00 n/a
- -----------------------------------------------------------------------------------------------
Set-up Fees n/a n/a (e) .25 (c)
- -----------------------------------------------------------------------------------------------
All Added Items n/a n/a .25 (c)
- ----------------------------------------------------------------------------------------------
</TABLE>
* Based on current Vendor costs, subject to change. Costs are quoted
based on individual security CUSIP/identifiers and are per issue
per day.
(a) $35.00 per day minimum
(b) $25.00 per day minimum
(c) $ 1.00, if no CUSIP
(d) At no additional cost to FPS clients
(e) Interactive Data also charges monthly transmission costs and disk
storage charges.
1) Futures and Currency Forward Contracts $2.00 per Issue per Day
2) Dow Jones Markets (formerly Telerate Systems, Inc.)* (if
applicable)
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options selected by
the Company and will be billed monthly.
<PAGE>
3) Reuters, Inc.*
*Based on current vendor costs, subject to change.
FPS does not currently pass along the charges for the domestic
security prices supplied by Reuters, Inc.
4) Municipal Market Data* (if applicable)
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options selected
by the Company and will be billed monthly.
C. SEC Yield Calculation: (if applicable)
Provide up to 12 reports per year to reflect the yield calculation for
non-money market Funds required by the SEC, $1,000 per year per Fund.
For multiple class Funds, $1,000 per year per class. Daily SEC yield
reporting is available at $3,000 per year per Fund (US dollar
denominated securities only).
III. Fees related to Custody of Fund Assets using UMB Bank, NA
A. DOMESTIC SECURITIES AND ADRS PER PORTFOLIO: (1/12th payable monthly)
U.S. Dollar Denominated Securities only
.0002 On the First $ 30 Million of Average Net Assets
.00015 On the Next $ 70 Million of Average Net Assets
.0001 Over $100 Million of Average Net Assets
Minimum monthly fee is $400 per portfolio.
B. CUSTODY DOMESTIC SECURITIES TRANSACTIONS CHARGE: (billed monthly)
Book Entry DTC, Federal Book Entry, PTC $14.00
Physical Securities/Options/Futures $24.50
RIC's $24.50
P & I Paydowns $11.00
Wires $ 8.00
Check Request $ 8.00
A transaction includes buys, sells, maturities or free security
movements.
C. WHEN ISSUED, SECURITIES LENDING, INDEX FUTURES, ETC.:
Should any investment vehicle require a separate segregated custody
account, a fee of $250 per account per month will apply.
D. CUSTODY MISCELLANEOUS FEES:
Administrative fees incurred in certain local markets will be passed
onto the customer with a detailed description of the fees. Fees
include income collection, corporate action handling, overdraft
charges, funds transfer, special
<PAGE>
local taxes, stamp duties, registration fees, messenger and courier
services and other out-of-pocket expenses.
IV. Out-of-Pocket Expenses
The Company will reimburse FPS monthly for all reasonable out-of-pocket
expenses, including telephone, postage, Fund/SERV and Networking expenses,
incoming wire charges, telecommunications, special reports, record
retention, special transportation costs, copying and sending materials to
auditors and/or regulatory agencies as incurred and approved.
V. Additional Services
To the extent the Company commences investment techniques such as Security
Lending, Swaps, Leveraging, Short Sales, Derivatives, Precious Metals, or
foreign (non-U.S. dollar denominated) securities and currency, additional
fees will apply. Activities of a non-recurring nature such as shareholder
in-kinds, fund consolidations, mergers or reorganizations will be subject
to negotiation. Any additional/enhanced services, programming requests, or
reports will be quoted upon request.
<PAGE>
SCHEDULE "C"
IDENTIFICATION OF FUNDS
Below are listed the separate funds to which services under this Agreement are
to be performed as of the Execution Date of this Agreement:
THE CHAPMAN FUNDS, INC.
The Chapman U.S. Treasury Money Fund*
The Chapman Domestic Emerging Markets Equity Fund
"Investor Shares"
"Institutional Shares"
This Schedule "C" may be amended from time to time by agreement of the Parties.
* Services Related to Custody Administration only
<PAGE>
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are hereby
made parties to the Custody Agreement dated DECEMBER 23, 1994 with UMB Bank,
n.a. ("Custodian") and THE CHAPMAN FUNDS, INC., and agree to be bound by all the
terms and conditions contained in said Agreement:
LIST THE FUNDS
The Chapman U.S. Treasury Money Fund
The Chapman Domestic Emerging Markets Equity Fund
ATTEST:
/s/ M. LYNN BALLARD THE CHAPMAN FUNDS, INC.
- --------------------- ------------------------
TREASURER
By: /s/ NATHAN A. CHAPMAN, JR.
------------------------------
Name: Nathan A. Chapman, JR.
------------------------------
Title: President
------------------------------
Date:
------------------------------
ATTEST:
UMB BANK, N.A.
- --------------------- --------------
By: /s/ RALPH R. SANTORO
------------------------------
Name: Ralph R. Santoro
------------------------------
Title: Vice President
------------------------------
Date: 8/04/97
------------------------------
<PAGE>
VENABLE, BAETJER AND HOWARD, LLP
1800 Mercantile Bank and Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201-2978
(410) 244-7400
Fax (410) 244-7742
August 6, 1997
The Chapman Funds, Inc.
401 E. Pratt Street
Suite 2800
Baltimore, Maryland 21202
Re: THE CHAPMAN FUNDS, INC.
Ladies and Gentlemen:
We have acted as counsel for The Chapman Funds, Inc., a Maryland
corporation (the "Company"), in connection with the issuance of shares of its
common stock, par value $.001 per share, of Domestic Emerging Markets Equity
Fund, Investor Class and Domestic Emerging Markets Equity Fund, Institutional
Class (collectively the "Shares").
As counsel for the Company, we are familiar with its Charter and
Bylaws. We have examined Post-Effective Amendment No. 11 to its Registration
Statement on Form N-1A, Securities Act File No. 33-26716 and Investment Company
Act File No. 811-5697, including the prospectus and statement of additional
information contained therein, substantially in the form in which it is to
become effective (the "Registration Statement"). We have further examined and
relied upon a certificate of the Maryland State Department of Assessments and
Taxation to the effect that the Company is duly incorporated and existing under
the laws of the State of Maryland and is in good standing and duly authorized to
transact business in the State of Maryland.
<PAGE>
We have also examined and relied upon such corporate records of the
Company and other documents and certificates with respect to factual matters as
we have deemed necessary to render the opinions expressed herein. We have
assumed, without independent verification, the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that:
1. The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of
Maryland.
2. The one share of common stock of the Domestic Emerging Markets
Equity Fund, Investor Class and the one share of common stock of
the Domestic Emerging Markets Equity Fund, Institutional Class
currently issued and outstanding have been validly and legally
issued and are fully paid and nonassessable.
3. The Shares of common stock of Domestic Emerging Markets Equity
Fund, Investor Class and Domestic Emerging Markets Equity Fund,
Institutional Class to be offered for sale pursuant to the
Registration Statement are, to the extent of the number of Shares
of each portfolio authorized to be issued by the Company in its
Charter, duly authorized and, when sold, issued and paid for as
contemplated by the Registration Statement, will have been
validly and legally issued and will be fully paid and
nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and issuance of stock. It does not extend to the securities or "blue sky" laws
of Maryland, to federal securities laws or to other laws.
<PAGE>
We consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not hereby admit that we
are "experts" within the meaning of the term "expert" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Commission issued
thereunder. This opinion may not be relied upon by any other person or for any
other purpose without our prior written consent.
Very truly yours,
/S/ VENABLE, BAETJER AND HOWARD, LLP
<PAGE>
THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND INVESTOR CLASS
STOCKHOLDER SERVICING AND DISTRIBUTION PLAN
This Stockholder Servicing and Distribution Plan ("Plan") is adopted
by The Chapman Funds, Inc., a corporation organized under the laws of State of
Maryland (the "Fund"), with respect to the Domestic Emerging Markets Equity Fund
Investor Class Common Stock, par value $.001 per share, of the Fund (the
"Shares") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act
of 1940, as amended (the "1940 Act"), subject to the following terms and
conditions:
SECTION 1. SERVICES PAYABLE UNDER THE PLAN.
(a) The Chapman Co. will be paid fees under the Plan to compensate The
Chapman Co. or enable The Chapman Co. to compensate other persons, ("Service
Providers"), including any other distributor of the Shares, for providing: (i)
services primarily intended to result in the sale of the Shares ("Selling
Services") and (ii) stockholder servicing, administrative and accounting
services ("Administrative Services" and collectively with Selling Services,
"Services"). Selling Services may include, but are not limited to: the
printing and distribution to prospective investors in the Shares of prospectuses
and statements of additional information describing the Fund; the preparation,
including printing, and distribution of sales literature, reports and media
advertisements relating to the Shares; providing telephone services relating to
the Fund; distributing the Shares; costs relating to the formulation and
implementation of marketing and promotional activities, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising, and related travel and entertainment expenses;
and costs involved in obtaining whatever information, analyses and reports with
respect to marketing and promotional activities that the Fund may, from time to
time, deem advisable. In providing compensation for Selling Services in
accordance with the Plan, The Chapman Co. is expressly authorized (i) to make,
or cause to be made, payments reflecting an allocation of overhead and other
office expenses related to providing Services; (ii) to make, or cause to be
made, payments, or to provide for the reimbursement of expenses of, persons who
provide support services in connection with the distribution of the Shares
including, but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, and providing any other Service;
and (iii) to make, or cause to be made, payments to compensate selected dealers
or other authorized persons for providing any Services. Administrative Services
may include, but are not limited to, (i) responding to inquiries of prospective
investors regarding the Fund; (ii) services to stockholders not otherwise
required to be provided by the Fund's custodian or any co-administrator; (iii)
establishing and maintaining accounts and records on behalf of Fund
stockholders; (iv) processing purchase, redemption and exchange transactions in
Shares; and (v) other similar services not otherwise required to be provided by
the Fund's transfer agent or any co-administrator. Payments under the Plan are
not tied exclusively to the selling and administrative expenses actually
incurred by The Chapman Co. or any Service Provider, and the payments may exceed
expenses actually incurred by The Chapman Co. and/or a Service Provider.
Furthermore, any portion of any fee paid to The Chapman Co. or to any of its
affiliates by the Fund or any of their past profits or other revenue
<PAGE>
may be used in their sole discretion to provide services to stockholders of the
Fund or to foster distribution of the Shares.
SECTION 2. AMOUNT OF PAYMENTS.
The Fund will pay The Chapman Co. on the first business day of each
quarter a fee for the previous quarter calculated at an annual rate of up to
.75% of the average daily net assets of the Shares consisting of up to .50% as
compensation for Selling Services and .25% as compensation for Administrative
Services provided by The Chapman Co. or any Service Providers to the Shares
pursuant to this Agreement.
SECTION 3. APPROVAL OF PLAN.
Neither this Plan nor any related agreements will take effect until
approved by a majority of (a) the full Board of Directors of the Fund and
(b) those Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreements related to it (the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on this Plan and the related
agreements.
SECTION 4. CONTINUANCE OF PLAN.
This Plan will continue in effect with respect to the Shares from year
to year so long as its continuance is specifically approved annually by vote of
the Fund's Board of Directors in the manner described in Section 3(a) and 3(b)
above. The Fund's Board of Directors will evaluate the appropriateness of this
Plan and its payment terms on a continuing basis and in doing so will consider
all relevant factors, including the types and extent of Selling Services and
Administrative Services provided by The Chapman Co. and/or Service Providers and
amounts The Chapman Co. and/or Service Providers receive under this Plan.
SECTION 5. TERMINATION.
This Plan may be terminated at any time with respect to the Shares by
vote of a majority of the Independent Directors or by a vote of a majority of
the outstanding voting Shares.
SECTION 6. AMENDMENTS.
This Plan may not be amended to increase materially the amount of the
fees described in Section 1 above with respect to the Shares without approval of
at least a majority of the outstanding voting Shares. In addition, all material
amendments to this Plan must be approved in the manner described in Section 3(a)
and 3(b) above.
SECTION 7. SELECTION OF CERTAIN DIRECTORS.
While this Plan is in effect with respect to the Fund, the selection
and nomination of the Fund's Directors who are not interested persons of the
Fund will be committed to the discretion of the Directors then in office who are
not interested persons of the Fund.
<PAGE>
SECTION 8. WRITTEN REPORTS.
In each year during which this Plan remains in effect with respect to
the Fund, any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or any related agreement will prepare
and furnish to the Fund's Board of Directors, and the Board will review, at
least quarterly, written reports, complying with the requirements of the Rule,
which set out the amounts expended under this Plan and the purposes for which
those expenditures were made.
SECTION 9. PRESERVATION OF MATERIALS.
The Fund will preserve copies of this Plan, any agreement relating to
this Plan and any report made pursuant to Section 8 above, for a period of not
less than six years (the first two years in an easily accessible place) from the
date of this Plan, the agreement or the report.
SECTION 10. MEANING OF CERTAIN TERMS.
As used in this Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meanings that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Fund under the 1940 Act
by the Securities and Exchange Commission.
SECTION 11. DATE OF EFFECTIVENESS.
This Plan will become effective as of the date the Fund first
commences its investment operations.
<PAGE>
THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND INSTITUTIONAL CLASS
STOCKHOLDER SERVICING AND DISTRIBUTION PLAN
-------------------------------------------
This Stockholder Servicing and Distribution Plan (the "Plan") is
adopted by The Chapman Funds, Inc., a corporation organized under the laws of
State of Maryland (the "Fund"), with respect to the Domestic Emerging Markets
Equity Fund Institutional Class Common Stock, par value $.001 per share, of the
Fund (the "Shares") pursuant to Rule 12b-1 (the "Rule") under the Investment
Company Act of 1940, as amended (the "1940 Act"), subject to the following terms
and conditions:
SECTION 1. SERVICES UNDER THE PLAN.
(a) The Chapman Co., a corporation organized under the laws of
the State of Maryland (the "Distributor"), will be paid fees under the Plan to
compensate the Distributor or enable the Distributor to compensate other
persons, including any other distributor of the Institutional Shares or
institutional stockholders of record of the Shares, including but not limited to
retirement plans, broker-dealers, depository institutions, and other financial
intermediaries ("Institutions"), who own Shares on behalf of their customers,
clients or (in the case of retirement plans) participants ("Customers") and
companies providing certain services to Customers (collectively with
Institutions, "Service Organizations"), for providing (a) services primarily
intended to result in the sale of the Shares ("Selling Services") and (b)
stockholder servicing, administrative and accounting services to Customers
("Administrative Services").
The annual fee paid to the Distributor with respect to Selling
Services will compensate the Distributor, or allow the Distributor to compensate
Service Organizations, to cover certain expenses primarily intended to result in
the sale of the Shares, including, but not limited to: (i) costs of payments
made to employees that engage in the distribution of the Shares; (ii) payments
made to, and expenses of, persons who provide support services in connection
with the distribution of the Shares, including, but not limited to, office space
and equipment, telephone facilities, processing stockholder transactions and
providing any other stockholder services not otherwise provided by the Fund's
transfer agent; (iii) costs relating to the formulation and implementation of
marketing and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; (iv) costs of printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective holders of the
Shares; (v) costs involved in preparing, printing and distributing sales
literature pertaining to the Fund and (vi) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities that the Fund may, from time to time, deem advisable.
The annual fee paid to the Distributor with respect to
Administrative Services will compensate the Distributor, or allow the
Distributor to compensate Service Organizations, for personal service and/or the
maintenance of Customer accounts, including but not limited to (i) responding to
Customer inquiries, (ii) providing information on Customer investments and (iii)
providing other stockholder liaison services and for administrative and
accounting services to Customers, including, but not limited to: (a)
aggregating and processing purchase and
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redemption requests from Customers and placing net purchase and redemption
orders with the Fund's distributor or transfer agent; (b) providing Customers
with a service that invests the assets of their accounts in the Shares; (c)
processing dividend payments from the Fund on behalf of Customers; (d) providing
information periodically to Customers showing their positions in the Shares; (e)
arranging for bank wires; (f) providing sub-accounting with respect to the
Shares beneficially owned by Customers or the information to the Fund necessary
for sub-accounting; (g) forwarding stockholder communications from the Fund (for
example, proxies, stockholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers, if required
by law and (h) providing other similar services to the extent permitted under
applicable statutes, rules and regulations. Payments under this Plan are not
tied exclusively to the selling and administrative expenses actually incurred by
the Distributor or any Service Organization, and the payments may exceed
expenses actually incurred by the Distributor or any Service Organization.
Furthermore, any portion of any fee paid to the Distributor or to any of its
affiliates by the Fund or any of their past profits or other revenue may be used
in their sole discretion to provide services to stockholders of the Fund or to
foster distribution of the Shares.
(b) Any officer of the Fund is authorized to execute and
deliver, in the name and on behalf of the Fund, written agreements, in any form
duly approved by the Board of Directors of the Fund, with Service Organizations
providing for the payment to such Service Organizations of fees for providing
Selling Services and Administrative Services.
SECTION 2. AMOUNT OF PAYMENTS.
The Fund will pay the Distributor on the first business day of
each quarter a fee for the previous quarter calculated at an annual rate of up
to .25% of the average daily net assets of the Shares for Selling Services and
Administrative Services provided by the Distributor or any Service Organizations
to the Shares.
SECTION 3. APPROVAL OF PLAN.
Neither this Plan nor any related agreements will take effect
until approved by a majority of (a) the full Board of Directors of the Fund and
(b) those Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreements related to it (the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on this Plan and the related
agreements.
SECTION 4. CONTINUANCE OF PLAN.
This Plan will continue in effect with respect to the Shares from
year to year so long as its continuance is specifically approved annually by
vote of the Fund's Board of Directors in the manner described in Section 3(a)
and 3(b) above. The Fund's Board of Directors will evaluate the appropriateness
of this Plan and its payment terms on a continuing basis and in doing so will
consider all relevant factors, including the types and extent of Selling
Services and Administrative Services provided by the Distributor and/or Service
Organizations and amounts the Distributor and/or Service Organizations receive
under this Plan.
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SECTION 5. TERMINATION.
This Plan may be terminated at any time with respect to the
Shares by vote of a majority of the Independent Directors or by a vote of a
majority of the outstanding voting Shares.
SECTION 6. AMENDMENTS.
This Plan may not be amended to increase materially the amount of
the fees described in Section 1 above with respect to the Shares without
approval of at least a majority of the outstanding voting Shares. In addition,
all material amendments to this Plan must be approved in the manner described in
Section 3(a) and 3(b) above.
SECTION 7. SELECTION OF CERTAIN DIRECTORS.
While this Plan is in effect with respect to the Fund, the
selection and nomination of the Fund's Directors who are not interested persons
of the Fund will be committed to the discretion of the Directors then in office
who are not interested persons of the Fund.
SECTION 8. WRITTEN REPORTS.
In each year during which this Plan remains in effect with
respect to the Fund, any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to the Plan or any related agreement will
prepare and furnish to the Fund's Board of Directors, and the Board will review,
at least quarterly, written reports, complying with the requirements of the
Rule, which set out the amounts expended under this Plan and the purposes for
which those expenditures were made.
SECTION 9. PRESERVATION OF MATERIALS.
The Fund will preserve copies of this Plan, any agreement
relating to this Plan and any report made pursuant to Section 8 above, for a
period of not less than six years (the first two years in an easily accessible
place) from the date of this Plan, the agreement or the report.
SECTION 10. MEANING OF CERTAIN TERMS.
As used in this Plan, the terms "interested person" and
"majority of the outstanding voting securities" will be deemed to have the
same meanings that those terms have under the 1940 Act and the rules and
regulations under the 1940 Act, subject to any exemption that may be granted
to the Fund under the 1940 Act by the Securities and Exchange Commission.
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SECTION 11. DATE OF EFFECTIVENESS.
This Plan will become effective as of the date the Fund first
commences its investment operations.
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THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND
RULE 18f-3 PLAN
Rule 18f-3 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act"), requires that the Board of an investment company
desiring to offer multiple classes pursuant to the Rule adopt a plan setting
forth the separate arrangement and expense allocation of each class (a "Class"),
and any related conversion features or exchange privileges. The differences in
distribution arrangements and expenses among these classes of shares, and the
exchange features of each class, are set forth below in this Plan, which is
subject to change, to the extent permitted by law and by the governing documents
of the fund listed above (the "Fund"), by action of the Board of Directors.
The Board of Directors, including a majority of the non-interested
Directors, has determined that the following Plan is in the best interests of
each class individually and the Fund as a whole:
1. Class Designation: Fund shares shall be divided into Investor
Shares ("Investor Shares") and Institutional Shares ("Institutional Shares").
2. Differences in Services: Distribution and support services will
be provided by The Chapman Co. (the "Distributor"), financial institutions or
retirement plans to customers and plan participants who beneficially own
Institutional Shares. Distribution and support services will be provided by the
Distributor and /or other broker-dealers in connection with the Investor Shares.
3. Differences in Distribution Arrangements: Investor Shares are
sold to the general public and specified minimum initial and subsequent purchase
amounts are applicable. Investor Shares may be charged a stockholder service
fee (the "Stockholder Service Fee") payable at an annual rate of up to .25%, and
a distribution fee (the "Distribution Service Fee") payable at an annual rate of
up to .50% of the average daily net assets attributable to Investor Shares
pursuant to a distribution plan adopted pursuant to Rule 12b-1 under the 1940
Act ("Distribution Plan"). Payments will be made out of the assets of the Fund
attributable to Investor Shares directly to the Distributor. The Distributor
may reallow all or a portion of its Stockholder Service Fee and/or Distribution
Service Fee to other broker-dealers for providing distribution, administrative,
accounting and/or other services with respect to Investor Shares.
Institutional Shares may be sold to certain institutions including but
not limited to retirement plans, broker-dealers, depository institutions, and
other financial intermediaries ("Institutions") whose clients or customers (or
participants in the case of retirement plans) ("Customers") become owners of
Institutional Shares and specified
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minimum initial and subsequent purchase amounts may be applicable.
Institutional Shares will be charged a combined Stockholder Service and
Distribution Service Fee payable at an annual rate of up to .25% of the average
daily net assets attributable to Institutional Shares pursuant to a Distribution
Plan adopted pursuant to Rule 12b-1 under the 1940 Act. Payments will be made
out of the assets of the Fund attributable to Institutional Shares directly to
the Distributor. The Distributor may reallow all or a portion of the combined
Stockholder Service Fee and/or Distribution Service Fee to Institutions for
providing distribution, administrative, accounting and/or other services with
respect to Institutional Shares. The Distributor or an Institution may use a
portion of the fees paid pursuant to the Plan to compensate the Fund's custodian
or transfer agent or other service providers for costs related to accounts of
customers of the Institution that holds Institutional Shares.
4. Expense Allocation. The following expenses shall be allocated,
to the extent practicable, on a Class-by-Class basis: (a) fees under the
Distribution Plans, as applicable; (b) printing and postage expenses related to
preparing and distributing materials, such as stockholder reports, prospectuses
and proxies, to current stockholders of a specific Class; (c) Securities and
Exchange Commission and Blue Sky registration fees incurred by a specific Class;
(d) the expense of administrative personnel and services required to support the
stockholders of a specific Class; (e) auditors' fees, litigation or other legal
expenses relating solely to a specific Class; (f) transfer agent fees identified
by the Fund's transfer agent as being attributable to a specific Class; (g)
expenses incurred in connection with stockholders' meetings as a result of
issues relating to a specific Class; and (h) accounting expenses relating solely
to a specific Class.
The distribution, administrative and stockholder servicing fees
and other expenses listed above which are attributable to a particular Class are
charged directly to the net assets of the Fund attributable to a particular
Class and, thus, are borne on a pro rata basis by the outstanding shares of that
Class.
5. Allocation of Fund Income, Capital Gains and Expenses. Income,
realized and unrealized capital gains and losses, and expenses of the Fund not
allocated to a particular Class pursuant to paragraph 4 above, shall be
allocated to each Class on the basis of the net asset value of that Class in
relation to the net asset value of the Fund.
6. Conversion Features. No Class shall be subject to any automatic
conversion feature.
7. Exchange Privileges. Shares of a Class shall be exchangeable
into shares of certain other investment companies specified from time to time.
8. Additional Information. This Plan is qualified by and subject to
the terms of the then current prospectus for the applicable Class; PROVIDED,
HOWEVER, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of
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the Classes contained in this Plan. The prospectus for each Class contains
additional information about that Class and the applicable Fund's multiple class
structure.
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