CHAPMAN FUNDS INC, 485APOS, 1998-09-30

CHAPMAN FUNDS INC
485APOS, 1998-09-30

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<PAGE>

As filed with the Securities and Exchange Commission on September 30, 1998
Registration Nos. 33-25716
811-5697
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
---

X Post Effective Amendment No. 16
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT TO COMPANY ACT OF 1940

X Amendment No. 18
THE CHAPMAN FUNDS, INC.
-----------------------
(Exact Name of Registrant as Specified in Charter)

401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
--------------------------
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (800) 752-1013

copy to:
Nathan A. Chapman, Jr., President Elizabeth R. Hughes, Esq.
The Chapman Funds, Inc. Venable, Baetjer and Howard, LLP
401 East Pratt Street, 28th Floor Two Hopkins Plaza, Suite 1800
Baltimore, Maryland 21202 Baltimore, Maryland 21201
-------------------------- -------------------------
(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, 1997 was filed with Securities and
Exchange Commission on January 27, 1998.

<PAGE>

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
<S> <C> <C> <C> <C>
Chapman US Treasury Money Institutional Shares; DEM Investor Shares;
Fund; Chapman Institutional Equity Fund, DEM Equity Fund,
Cash Management Fund DEM Index Fund, DEM Fixed DEM Index Fund, DEM Fixed
Income Fund, DEM Multi- Income Fund, DEM Multi-
Manager Equity Fund Manager Equity 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 Highlights Financial Highlights Financial Highlights
Information

Item 4. General Description of Investment Program; Other Investment Program; Other Investment Program; Other
Registrant Information- Capital Stock Information- Capital Stock Information- Capital Stock

Item 5. Management of the Fund Management; Other Management; Other Management; Other
Information - Transfer Information - Transfer Information - Transfer
Agent; Dividends and Taxes Agent; Dividends; Taxes Agent; Dividends; Taxes

Item 6. Capital Stock and Other Other Information - Capital Other Information - Other Information -
Securities Stock Capital Stock Capital Stock

Item 7. Purchase of Securities Management; Net Asset Value; Management; Net Asset Value; Management; Net Asset Value;
Being Offered Purchase of Shares; Purchase of Shares; Purchase of Shares;
Exchanges; Redemption of Redemption of Shares Redemption of Shares
Shares

Item 8. Redemption or Repurchase Purchase of Shares; Purchase of Shares; Purchase of Shares;
Exchanges; Redemption of Redemption of Shares Redemption of Shares
Shares

Item 9. Pending Legal Not Applicable Not Applicable Not Applicable
Proceedings
</TABLE>

<PAGE>

N-1A Item Location
No.

Part B Statement of Additional Information Caption
<S> <C> <C> <C>

Chapman US Treasury Money DEM Equity Fund;
Fund; Chapman Institutional
Cash Management Fund DEM Index Fund; DEM Fixed Income Fund, DEM Multi-Manager
Equity Fund

Item 10. Cover Page Cover Page Cover Page

Item 11. Table of Contents Table of Contents Table of Contents

Item 12. General Information and Not Applicable Not Applicable
History

Item 13. Investment Objectives Investment Program Investment Program
and Policies

Item 14. Management of the Management Management
Registrant

Item 15. Control Persons and Capital Stock; Principal Capital Stock; Control Persons and Principal Holders of
Principal Holders of Holders of Securities Securities
Securities

Item 16. Investment Advisory and Management; Experts Management; Experts
Other Services

Item 17. Brokerage Allocation Portfolio Transactions Portfolio Transactions

Item 18. Capital Stock and Other Capital Stock Capital Stock
Securities

Item 19. Purchase, Redemption and Purchase of Shares; Purchase of Shares; Exchanges; Redemption of Shares; Net
Pricing of Securities Exchanges; Redemption of Asset Value
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 Statements Financial Statements Financial Statements
</TABLE>

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.

<PAGE>

SUBJECT TO COMPLETION
Preliminary Prospectus dated: September 30, 1998
, 1998

DEM MULTI-MANAGER EQUITY FUND
INVESTOR SHARES

The DEM Multi-Manager 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
by investment in companies deemed to possess strong growth characteristics.
Such companies are identified through the Company's domestic emerging markets
multi-manager ("DEM Multi-Manager") strategy. Under the DEM Multi-Manager
strategy, the assets of the Fund are managed by multiple sub-advisors
selected by the Fund's investment advisor, Chapman Capital Management, Inc.
(the "Investment Advisor"). Such sub-advisors must meet the domestic
emerging markets profile which includes only those companies that are
controlled by African Americans, Asian Americans, Hispanic Americans or women
that are located in the United States and its territories (the "DEM
Profile"). 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 $25 and
the minimum subsequent investment is $25.

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
the same date as this Prospectus and 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 . . . . . . . .18
Redemption of Shares . . . . . . .22
Net Asset Value. . . . . . . . . .25
Dividends. . . . . . . . . . . . .26
Taxes. . . . . . . . . . . . . . .26
Other Information. . . . . . . . .28

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.

Domestic Emerging Markets-Registered Trademark- is a registered trademark and
DEM-TM-, DEM Profile-TM-, DEM Universe-TM-, DEM Company-TM- and DEM
Index-TM- are trademarks of Nathan A. Chapman, Jr.

<PAGE>

A DOMESTIC EMERGING MARKETS INVESTMENT OPPORTUNITY

<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 ANY 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:

DEM MULTI-MANAGER
STOCKHOLDER TRANSACTION EXPENSES EQUITY FUND
INVESTOR SHARES
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.75%

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 1.25%
12b-1 Fees (after Investor Share fee 0.50%
waiver) (2)
Other Expenses (3) 1.14%
Total Fund Operating Expenses (4) 2.89%
(estimated)
</TABLE>
______________________

(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.

(4) Estimated Total Fund Operating Expenses allocated to the Investor Shares
are currently $28,862 net of the fee amount expected to be waived
pursuant to the Distributor's voluntary fee limitation.

<PAGE>

In the absence of the Distributor's voluntary fee limitation, estimated
Total Fund Operating Expenses allocated to the Investor Shares would
currently be $31,362 or 3.14% of net assets.

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:

<TABLE>
<CAPTION>
Investor Shares
<S> <C>
1 Year $75

3 Years $133
</TABLE>

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

GENERAL

<PAGE>

domestic emerging markets profile which includes only those companies that
are controlled by African Americans, Asian Americans, Hispanic Americans or
women that are located in the United States and its territories (the "DEM
Profile"). Although the Fund's sub-advisors must meet the DEM Profile, the
sub-advisors will not consider the DEM Profile in making investment decisions
for the Fund's portfolio. Accordingly, the Investment Advisor does not
expect companies that meet the DEM Profile to constitute a large percentage
of the Fund's portfolio. 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 Investment Advisor will track the performance of each of the Fund's
sub-advisors and will have the discretion to allocate assets among the Fund's
sub-advisors, identify and recommend new sub-advisors to the Board of
Directors and terminate existing sub-advisory relationships. Each
sub-advisor uses its own investment strategies to achieve the Fund's
investment objectives in accordance with the Fund's investment restrictions.

The primary objective of the DEM Multi-Manager strategy is to reduce
portfolio volatility through multiple investment approaches, a strategy used
by many institutional investors. For example, a particular investment
approach may be successful in a bear (falling) market, while a different
approach may be more successful in a bull (rising) market. The use of
multiple investment approaches consistent with the Fund's investment
objective and policies is designed to mitigate the impact of a single
sub-advisor's performance in the market cycle during which such sub-advisor's
approach is less successful. Although there may be some overlap of investment
styles, each sub-advisor will pursue its approach independently of the other
sub-advisors. Because the Fund's sub-advisors will act independently, the
performance of one or more other sub-advisors is expected to dampen the
impact of any other sub-advisor's relatively adverse results. Conversely, the
successful results of a sub-advisor will be dampened by less successful
results of the other sub-advisors. There can be no assurance that the
expected advantages of the DEM Multi-Manager strategy will be realized.

To achieve the Fund's investment objectives, the sub-advisors invest in
a wide variety of types of portfolio companies and seek to identify those
companies that are positioned for growth. Among other factors, the
sub-advisors consider a company's above average earnings growth, high
potential profit margins, innovative products, high quality management, and
competitive advantage in making investment decisions.

<PAGE>

advisors believe 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 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 decision to adopt a temporary defensive posture may be
affected by such factors as market conditions generally, the sub-advisors'
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 sales of its shares.

The Fund invests in portfolio companies with large, mid, small and micro
market capitalizations. 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."

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.

OPTIONS ON SECURITIES AND SECURITIES INDEXES

The Fund may purchase call options on securities that a sub-advisor
intends to include in the Fund in order to fix the cost of a future purchase
or attempt to enhance return by, for example, participating in an anticipated
increase in the value of a security. The Fund may purchase put options to
hedge against a decline in the market value of securities held in the Fund or
in an attempt to enhance return. The Fund may write (sell) put and covered
call options on securities in which it is authorized to invest. The Fund may
also purchase put and call options, and write put and covered call options,
on U.S. securities or indexes. Stock index options serve to hedge against
overall fluctuations in the securities markets rather than anticipated
increases or decreases in the value of a particular security.

ILLIQUID SECURITIES/PRIVATE FUNDS

<PAGE>

Fund will seek to invest in the securities of private companies that a
sub-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. Investments
in Private Funds may offer the Fund's 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. 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.

The Fund's investment in Private Funds will be limited to, subject to
certain exceptions, (i) 3% of the total voting stock of any one Private Fund,
(ii) 5% of the Fund's total assets with respect to any one Private Fund and,
(iii) 10% of the Fund's total assets in the aggregate. In valuing the Fund's
holdings of interests in Private Funds, the Fund may rely 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.

SECURITIES LENDING/REPURCHASE AGREEMENTS

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 a sub-

<PAGE>

advisor, such techniques can be expected to yield a higher return than other
investment options.

A repurchase agreement is a transaction in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously
commits to resell that security to that bank or dealer at an agreed upon
price, date and market rate of interest. While it does not presently appear
possible to eliminate all risks from these transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delay and costs to the Fund in connection with bankruptcy
proceedings), it is the Fund's policy to limit repurchase transactions to
primary dealers in U.S. Government obligations and to banks whose
creditworthiness has been reviewed and found satisfactory by the Investment
Advisor.

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.

BORROWING

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 its 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 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.

PORTFOLIO TURNOVER

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 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. See "TAXES" and "PORTFOLIO TRANSACTIONS," "TAXATION" and "INVESTMENT
PROGRAM--Portfolio Turnover" in the Statement of Additional Information.

OTHER INFORMATION

<PAGE>

Other than with respect to those investment objectives and policies
specified in the Statement of Additional Information under "INVESTMENT
PROGRAM -- Fundamental Policies," the Board of Directors may change the
Fund's investment objectives and policies without the approval of the Fund's
stockholders.

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.

GROWTH-ORIENTED INVESTING

Because the Fund will be invested in growth-oriented companies, the
volatility of the Fund may be higher than that of the U.S. equity market as a
whole. Generally, companies with high relative rates of growth tend to
reinvest more of their profits in the company and pay out less to
stockholders in the form of current dividends. As a result, growth investors
tend to receive most of their return in the form of capital appreciation.
This tends to make growth company securities more volatile than the market as
a whole. In addition, there can be no assurance that growth within a
particular company will continue to occur.

INVESTMENT IN SMALL COMPANIES

At times, the Fund may invest in securities of small capitalization
companies. Small capitalization companies may be more vulnerable than larger
companies to adverse business or economic developments. Small capitalization
companies may also have limited product lines, markets or financial
resources, and may be dependent on relatively small management groups.
Securities of such companies may be less liquid and more volatile than
securities of larger companies and therefore may involve greater risk than
investing in larger companies. In addition, small capitalization companies
may not be well known to the investing public, may not have institutional
ownership and may have only cyclical, static or moderate growth prospects.

NON-PUBLICLY TRADED AND ILLIQUID SECURITIES

<PAGE>

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.

OPTIONS

The use of options involves certain investment risks and transaction
costs. These risks include: dependence on the sub-advisors' ability to
predict movements in the prices of individual securities, fluctuations in the
securities markets in general and movements in interest rates; imperfect
correlation between movements in the price of options and movements in the
price of the security or securities hedged or used for cover; the fact that
skills and techniques needed to trade options are different from those needed
to select securities in which the Fund invests; and lack of assurance that a
liquid secondary market will exist for any particular option at any
particular time.

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 portfolio,
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

<PAGE>

owned subsidiary of Chapman Holdings, Inc. Mr. Nathan A. Chapman, Jr. is
also the President and Chairman of the Board of Directors of the Distributor
and Chapman Holdings, Inc. See "MANAGEMENT--Investment Advisor" below and
"MANAGEMENT" in the Fund's Statement of Additional Information. Mr. Chapman
owns approximately 92% of the outstanding voting securities of Chapman
Capital Management Holdings, Inc. and approximately 62% of the outstanding
voting securities of Chapman Holdings, Inc. 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. Similar potential conflicts of interest may arise with respect
to the use of affiliates of sub-advisors for the purchase or sale of
portfolio securities. The Board of Directors has adopted procedures in
compliance with the 1940 Act to address such potential conflicts.
Furthermore, at least 40% of the members of the Company's Board of Directors
must be disinterested under the 1940 Act. 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. 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 YEAR 2000 PROBLEM

Like other investment companies, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by its Investment Advisor and other service providers
do not properly process and calculate date-related information from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The
Company is taking steps that it believes are reasonably designed to address
the Year 2000 Problem with respect to the computer systems that it uses and
to obtain satisfactory assurances that comparable steps are being taken by
the Fund's major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on
the Fund.

<PAGE>

MANAGEMENT

BOARD OF DIRECTORS

The Fund is managed under the supervision of 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, the
sub-advisors and the Distributor. The Board of Directors delegates to the
Company's officers and the Investment Advisor responsibility for day-to-day
operation 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 Chapman Capital Management
Holdings, Inc. Nathan A. Chapman, Jr., who is the controlling stockholder,
President and Chairman of the Board of Directors of Chapman Capital
Management Holdings, Inc., is President and Chairman of the Board of
Directors of the Company and the Investment Advisor.

The Investment Advisor has overall responsibility for assets under
management, provides overall investment strategies and programs for the Fund,
recommends new sub-advisors to the Board of Directors, allocates assets among
existing sub-advisors, monitors and evaluates the performance of existing
sub-advisors and manages short-term investments for the Fund. The Investment
Advisor receives from the Fund an advisory fee at an annual rate of 1.25% 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 served as the investment advisor to a money
market Series of the Company since 1988, an equity Series of the Company
since 1997 and a closed-end non-diversified investment company that invests
in corporate equity and debt securities since 1995. In addition, the
Investment Advisor serves as portfolio manager to private accounts. As of
August 31, 1998, the Investment Advisor had approximately $452 million in
assets under management.

<PAGE>

Nathan A. Chapman, Jr. who has been the President and Chief Executive
Officer of the Investment Advisor since 1988, is primarily responsible for
supervision of the performance of the sub-advisors and 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 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 SUB-ADVISORS

Under the DEM Multi-Manager strategy, the assets of the Fund are managed
by multiple sub-advisors selected by the Investment Advisor. These
sub-advisors enter into individual sub-advisory agreements with the Fund.
Each sub-advisor makes specific portfolio investments for that segment of the
assets of the Fund under its management in accordance with the Fund's
investment objectives and policies and the sub-advisor's investment approach
and strategies. A sub-advisor may direct Fund transactions to the Company's
Distributor, The Chapman Co. or a broker that is an affiliate of such
sub-advisor.

All sub-advisors recommended by the Investment Advisor and approved by
the Board of Directors must meet the DEM Profile. In determining whether a
specific investment advisor is "controlled" by African Americans, Asian
Americans, Hispanic Americans or women and therefore meets that DEM Profile,
the Investment Advisor will apply the following criteria: at least 10% of
the investment advisor's outstanding voting securities must be beneficially
owned by members of one or more of the listed groups and at least one of the
investment advisor's top three executive officers (Chairman, Chief Executive
Officer or President) must be a member of one or more of the listed groups.

The Fund will seek to identify DEM Profile investment advisors through
research by the Investment Advisor. Such research will include: requests to
specific companies for details of their ownership and management; independent
research for the details of ownership and management including personal
visits and checks with government agencies for investment advisors that have
registered as minority or women-owned business enterprises or are recognized
as such by government agencies; review of business lists compiled by
magazines and other publications which list DEM Profile companies;
examination of investment advisors that generally market themselves as DEM
Profile companies; and review of annual reports and other regulatory filings.

<PAGE>

consistent performance in the context of the markets and preservation of
capital in declining markets; (4) organizational stability and reputation;
(5) the quality and depth of investment personnel; and (6) the ability of the
sub-advisor to apply its approach consistently. The Fund's sub-advisors may
not necessarily exhibit all of these criteria to the same degree.

The Investment Advisor from its own management fee pays each sub-advisor
a monthly management fee of .35 of 1% of the value of the Fund's average
weekly net assets allocated to the sub-advisor during the preceding month
payable monthly in arrears.

The Board of Directors of the Company and the initial stockholder of the
Fund have approved sub-advisory agreements between the Fund, the Investment
Advisor and each of the investment advisors listed below to serve as
sub-advisors of the Fund. The Investment Advisor will allocate the Fund's
assets among these sub-advisors. In its discretion, the Investment Adviser
may allocate as much as 100 percent or as little as 0 percent of the Fund's
assets to any one sub-advisor.

The Fund and the Investment Adviser are seeking an exemption from the
SEC that will permit the Investment Adviser to retain additional
sub-advisors, terminate existing sub-advisors, and materially amend the
sub-advisory agreements without stockholder approval. Such exemption request
has been approved by the Board of Directors of the Company and the Fund's
sole stockholder. To the extent that the SEC grants the requested exemption,
the Fund will send its stockholders a notice to this effect and will
supplement its Prospectus and Statement of Additional Information with
information about new sub-advisors and changes in sub-advisory agreements.
To the extent that the Fund receives the requested exemption, the Fund also
anticipates that within ninety days of retaining a new sub-advisor or
materially amending a sub-advisory agreement, it will give its stockholders
written notice of such addition or material change.

The current sub-advisors of the Fund are as follows:

BAY ISLE FINANCIAL CORPORATION ASIAN AMERICAN
160 SANSOME STREET
SUITE 1700
SAN FRANCISCO, CA 94104

Bay Isle has approximately $378 million in assets under management and its
overall objective is the identification of undervalued securities that will
yield a superior total return. Bay Isle was founded in 1986 by its two
principals, William Schaff (51% owner), Chief Investment Officer, and Gary
Pollock (49% owner), President.

BOND, PROCOPE CAPITAL MANAGEMENT AFRICAN AMERICAN
55 EAST 59TH STREET
19TH FLOOR

<PAGE>

NEW YORK, NY 10022

Bond, Procope has approximately $531 million in assets under management and
its overall objective is long-term capital appreciation with low current
income and moderate volatility. The firm was founded in 1991 and is operated
and majority owned by President and Chief Investment Officer Alan B. Bond.

CHARTER FINANCIAL GROUP, INC. WOMAN
1401 I STREET, NW
WASHINGTON, DC 20005

Charter Financial has approximately $63 million in assets under management
and focuses on earnings growth at a reasonable price. Prior to joining
Charter Financial, its President, Susan Stewart, spent three years as a
stockbroker and six years as a banking executive at Nationsbank and First
Union National Bank.

CIC ASSET MANAGEMENT, INC. HISPANIC AMERICAN
633 W. 5TH STREET SUITE 1180
LOS ANGELES, CA 90017

CIC Asset Management has approximately $342 million in assets under
management and focuses on large capitalization value companies. CIC was
founded in 1989 and its three principals, Elario Monteiro, Principal,
Fernando Inzunza, Secretary, and Jorge Castro, President, have been with the
firm since 1991, 1990 and 1989, respectively.

DIAZ-VERSON CAPITAL INVESTMENTS, INC. HISPANIC AMERICAN
1200 BROOKSTONE CENTRE PARKWAY
SUITE 105
COLUMBUS, GA 31904

Diaz-Verson has approximately $188 million in assets under management and
focuses on value companies. Diaz-Version was founded in 1991. Salvador
Diaz-Version, Jr. is Chairman, President and 100% owner.

EVERGREEN CAPITAL MANAGEMENT, INC. AFRICAN AMERICAN
10707 PACIFIC STREET, SUITE 201
OMAHA, NE 68114

EverGreen has approximately $100 million in assets under management and
focuses on out-of-favor value companies. EverGreen was founded in 1989 by
Michael L. Green, its President and 98% owner.

GLOBALT, INC. WOMEN
ONE BUCKHEAD PLAZA, SUITE 225
3060 PEACHTREE ROAD, NW

<PAGE>

ATLANTA, GA 30305

Globalt has approximately $1.5 billion in assets under management and focuses
on large capitalization growth stocks of U.S. companies which derive 20% to
100% of revenues or earnings from non-U.S. sources. Globalt is controlled by
Angela Z. Allen, its President and largest stockholder.

THE KENWOOD GROUP, INC. AFRICAN AMERICAN
10 SOUTH LASALLE, SUITE 3610 WOMAN
CHICAGO, IL 60603

Kenwood has approximately $398 million in assets under management and focuses
on mid-cap value companies. Kenwood was founded in 1989 and is 100% owned
and controlled by Barbara L. Bowles its President and Chief Investment
Officer.

UNION HERITAGE CAPITAL MANAGEMENT, INC. AFRICAN AMERICAN
1642 FIRST NATIONAL BUILDING
DETROIT, MI 48226

Union Heritage has approximately $100 million in assets under management and
focuses on large-cap value companies. Union Heritage was founded in 1992 and
is 100% owned and controlled by Derek T. Batts, Derek B. Kenner and Eric L.
Small.

VALENZUELA CAPITAL PARTNERS, LLC. HISPANIC AMERICAN
1270 AVENUE OF THE AMERICAS
NEW YORK, NY 10020

Valenzuela has approximately $1.7 billion in assets under management and
focuses on mid and small capitalization growth stocks. Valenzuela was
founded in 1989 and its investment advisory operations are run by Thomas M.
Valenzuela, President, Lisa L. Parisi, Senior Vice President and Donald M.
Krueger, Managing Director.

WOODFORD GAYED MANAGEMENT, INC. AFRICAN AMERICAN
400 MADISON AVENUE, SUITE 1401 WOMAN
NEW YORK, NY 10017

Woodford Gayed has approximately $818 million in assets under management and
focuses on large cap growth companies. Woodford Gayed was founded in 1990 by
Peggy Woodford Forbes (51% owner), its Chairman and Chief Investment Officer
and Michael E.S. Gayed (49% owner), its President.

ZEVENBERGEN CAPITAL, INC. WOMAN
601 UNION STREET, SUITE 2434
SEATTLE, WA 98101

<PAGE>

Zevenbergen has approximately $750 million in assets under management and
focuses on large cap growth companies. Zevenbergen was founded in 1987 by
Nancy Zevenbergen, its President.

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 is a wholly-owned subsidiary of Chapman Holdings,
Inc. Nathan A. Chapman, Jr., who is the controlling stockholder, President
and Chairman of the Board of Directors of Chapman Capital Management
Holdings, Inc., is President and Chairman of the Board of Directors of the
Company and the Distributor.

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.

Listed below are persons affiliated with both the Company and the
Distributor.

<PAGE>

- -------------------------------------------------------------------------------
Name and
Principal Business With With
Address Distributor Company
- -------------------------------------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. Chairman of the Board, Chairman of the Board,
The Chapman Co. Director and President Director
401 East Pratt Street and President
28th Floor
Baltimore, MD 21202
- -------------------------------------------------------------------------------
Earl U. Bravo, Sr. Senior Vice President, Secretary and Assistant
The Chapman Co. Secretary and Assistant Treasurer
401 East Pratt Street Treasurer
28th Floor
Baltimore, Maryland 21202
- -------------------------------------------------------------------------------
M. Lynn Ballard Controller, Treasurer Treasurer and Assistant
The Chapman Co. and Assistant Secretary Secretary
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202
- -------------------------------------------------------------------------------
</TABLE>

EXPENSES

The Investment Advisor pays all expenses in connection with the
performance of its advisory and administrative services and in connection
with the advisory agreements with the sub-advisors. 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

<PAGE>

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 1940 Act.

BROKERAGE

The Distributor and affiliates of the Fund's sub-advisors may effect
brokerage transactions for the Fund in compliance with the requirements of
the 1940 Act.

CUSTODIAN

UMB Bank, N.A., 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

First Data Investor Services Group, Inc., 3200 Horizon Drive, PO Box
61503, King of Prussia, Pennsylvania 19406, (800) 441-6580, 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. First Data 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) 441-6580. As
accounting agent, First Data 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 $25, and the
minimum subsequent

<PAGE>

investment is $25. The Fund reserves the right to vary the initial investment
minimum and the subsequent investment minimum at any time.

Purchase orders for Investor 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 DEM Multi-Manager Equity Fund Investor
Shares, c/o First Data Investor Services Group, 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 DEM Multi-Manager Equity Fund Investor
Shares, c/o UMB Bank, N.A., 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.

<PAGE>

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 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:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TOTAL SALES LOAD
- -------------------------------------------------------------------------------
AMOUNT OF TRANSACTION AS A % OF AS A % OF NET DEALER'S
OFFERING PRICE AMOUNT INVESTED REALLOWANCE
AS A % OF
OFFERING PRICE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.97% 4.25%
- -------------------------------------------------------------------------------
$50,000 to $99,999.99 4.25% 4.46% 3.75%
- -------------------------------------------------------------------------------
$100,000 to $249,999.99 3.75% 3.88% 3.25%
- -------------------------------------------------------------------------------
$250,000 to $499,999.99 3.25% 3.38% 3.00%
- -------------------------------------------------------------------------------
$500,000 to $749,999.99 2.75% 2.81% 2.50%
- -------------------------------------------------------------------------------
$750,000 to $999,999.99 2.25% 2.32% 2.00%
- -------------------------------------------------------------------------------
$1,000,000 and above 1.25% 1.28% 1.00%
- -------------------------------------------------------------------------------
</TABLE>

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 purchases 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 $50,000 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

<PAGE>

Transfer Agent. The reduced sales load is subject to confirmation of an
investor's holdings through a check of appropriate records.

LETTER OF INTENT

By signing a Letter of Intent form, available from the Distributor, 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 of shares
indicated in the Letter of Intent for payment of a higher sales load if the
investor does not purchase the full amount of shares 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) 441-6580 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:

<PAGE>

UMB BANK, N.A.
ABA #10-10-00695
FOR: FIRST DATA INVESTOR SERVICES GROUP, INC.
A/C 98-7037-071-9
FBO "DEM Multi-Manager 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% federal income tax 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 which will be deducted from redemption
proceeds. Please note that the stockholder's bank also may impose a fee for
wire service. The Fund will not honor redemption requests of stockholders
who recently purchased shares by check until it is reasonably satisfied that
the purchase check has cleared, which may take up to fifteen days from the
purchase date. 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.

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

<PAGE>

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 First Data Investor Services Group, Inc., 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 Transfer Agent may
require additional supporting documents for redemptions made by corporations,
executors, administrators, trustees and guardians.

<PAGE>

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) 441-6580.

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. The request must be
signed by each stockholder of the account with signature guarantees as
described previously.

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 its 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 $25. (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 $25.
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.

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

<PAGE>

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 the NYSE (currently 4:00 p.m. Eastern
Time). Options and futures contracts are valued at their daily quoted
settlement price on the exchange on which they are traded and are included in
such net asset value determination. 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. Fund
securities listed or traded on a securities exchange for which representative
market quotations are available will be valued at the last quoted sales price
on the security's principal exchange on that day. 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 others. Income and expenses (including advisory
and administration fees) are accrued daily and taken into account in
computing net asset value.

<PAGE>

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 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 First Data Investor
Services Group, Inc., 3200 Horizon Drive, PO Box 61503, King of Prussia,
Pennsylvania 19406, or by calling the Transfer Agent at (800) 441-6580. 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 FUND

The Fund intends to elect 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 Fund (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 Fund otherwise qualifies as a regulated investment company and the
Fund distributes to its stockholders at least 90% of its investment company
taxable income, then the Fund will not be subject to federal income tax on
the income so distributed. However, the Fund would be subject to corporate
income tax on

<PAGE>

any undistributed income. In addition, the Fund will be subject to a
nondeductible 4% excise tax on the amount by which the distributed amount in
any calendar year is less than a sum of (i) 98% of its ordinary income; (ii)
98% of its capital gain net income; and (iii) any prior year
underdistributions.

If in any year the Fund fails to qualify under Subchapter M as a
regulated investment company, the Fund would incur a corporate income tax on
its taxable income for the year, and the entire amount of the Fund's
distribution would generally be characterized as ordinary income.

TAXATION OF STOCKHOLDERS

DISTRIBUTIONS

In general, all distributions to stockholders attributable to the Fund's
investment company taxable income will be taxable as ordinary income whether
paid in cash or reinvested in additional shares of the Fund.

The Fund intends to distribute any net capital gain annually and intends
to designate the appropriate type of those capital gain distributions for tax
purposes. In general, if the Fund designates a dividend as a capital gain
dividend, the dividend will be taxed to individual stockholders at no more
than 20%. Capital gains dividends are taxable to stockholders regardless of
whether the dividends are paid in cash or reinvested in additional shares of
the Fund and regardless of how long a stockholder has held shares in the
Fund. Distributions of short-term capital gain dividends result in ordinary
income

Stockholders receiving distributions in the form of additional shares of
the Fund 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 the Fund 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. Long-term capital gains on shares held
more than one year by individuals will be taxed at no higher than a 20% rate.
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

<PAGE>

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 Fund 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 Fund and investors in the shares of the Fund
and does not deal with all of the federal income tax consequences applicable
to the Fund, 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 the Fund. 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 tax and 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 DEM Multi-Manager 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
institutional investors through a separate prospectus. Shares of each class
represent equal pro rata

<PAGE>

interests in the Fund's common investment portfolio and accrue dividends and
calculate net asset value and performance quotations in the same manner.
However, Institutional Shares are sold without a load and may have different
sales charges and other expenses, which may affect performance.

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. Investors may obtain information about the Institutional Shares or
the other classes of the Company by contacting the Distributor at the
telephone number listed on the back of this Prospectus.

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 September 30, 1998, 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 September 30, 1998,
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 Chapman Capital
Management Holdings, Inc. Nathan A. Chapman, Jr., who is the controlling
stockholder of Chapman Capital Management Holdings, Inc., is a controlling
person (as that term is defined under the 1940 Act) of Chapman Capital
Management Holdings, Inc. and, therefore, a controlling person of the
Investment Adviser.

<PAGE>

[LOGO] -TM-

DEM MULTI-MANAGER EQUITY FUND
INVESTOR SHARES

A DOMESTIC EMERGING
MARKETS INVESTMENT
OPPORTUNITY
--------------------------

PROSPECTUS

, 1998

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.

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:

FIRST DATA INVESTOR SERVICES GROUP
3200 Horizon Drive
PO Box 61503
King of Prussia, Pennsylvania 19406
(800) 441-6580

CUSTODIAN:

UMB BANK, N.A.
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
(800) 752-1013

<PAGE>

SUBJECT TO COMPLETION
Preliminary Prospectus dated: September 30, 1998
, 1998

DEM MULTI-MANAGER EQUITY FUND
INSTITUTIONAL SHARES

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 the same
date as this Prospectus and 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. . . . . . . . . . . . . . . 7
Management. . . . . . . . . . . . . . . .10
Purchase of Shares. . . . . . . . . . . .18
Redemption of Shares. . . . . . . . . . .20
Net Asset Value . . . . . . . . . . . . .23
Dividends . . . . . . . . . . . . . . . .23
Taxes . . . . . . . . . . . . . . . . . .24
Other Information . . . . . . . . . . . .26

Domestic Emerging Markets-Registered Trademark- is a registered trademark and
DEM-TM-, DEM Profile-TM-, DEM Universe-TM-, DEM Company-TM- and DEM
Index-TM- are trademarks of Nathan A. Chapman, Jr.

A DOMESTIC EMERGING MARKETS INVESTMENT OPPORTUNITY

<PAGE>

FUND EXPENSES

DEM MULTI-MANAGER
STOCKHOLDER TRANSACTION EXPENSES EQUITY FUND
INSTITUTIONAL SHARES
<S> <C>
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 1.25%
12b-1 Fees 0.25%
Other Expenses (2) 1.14%
Total Fund Operating Expenses (estimated) 2.64%
</TABLE>

______________________

(1) See "MANAGEMENT."

(2) Based upon estimated amounts of expenses for the Fund's current fiscal
year.

EXAMPLE
-------

<PAGE>

<TABLE>
<CAPTION>
Institutional Shares
--------------------
<S> <C>
1 Year $27

3 Years $82
</TABLE>

INVESTMENT OBJECTIVES

GENERAL

The Fund seeks aggressive long-term growth through capital appreciation
by investment in companies deemed to possess strong growth characteristics.
Such companies are identified through the Company's domestic emerging markets
multi-manager ("DEM Multi-Manager") strategy. Under the DEM Multi-Manager
strategy, the assets of the Fund are managed by multiple sub-advisors
recommended by the Investment Advisor and approved by the Board of Directors.
Such sub-advisors must meet the domestic emerging markets profile which
includes only those companies that are controlled by African Americans, Asian
Americans, Hispanic Americans or women that are located in the United States
and its territories (the "DEM Profile"). Although the Fund's sub-advisors
must meet the DEM Profile, the sub-advisors will not consider the DEM Profile
in making investment decisions for the Fund's portfolio. Accordingly, the
Investment Advisor does not expect companies that meet the DEM Profile to
constitute a large percentage of the Fund's portfolio. 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 Investment Advisor will track the performance of each of the Fund's
sub-advisors and will have the discretion to allocate assets among the Fund's
sub-advisors,

<PAGE>

identify and recommend new sub-advisors to the Board of Directors and
terminate existing sub-advisory relationships. Each sub-advisor uses its own
investment strategies to achieve the Fund's investment objectives in
accordance with the Fund's investment restrictions.

Under normal circumstances, at least 65% of the value of the Fund's
total assets will be invested in equity securities; however, the Fund retains
the flexibility to respond promptly to changes in market conditions.
Accordingly, during periods when the sub-advisors believe 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 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 decision to
adopt a temporary defensive posture may be affected by such factors as market
conditions generally, the sub-advisors' 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 sales
of its shares.

<PAGE>

counter markets as the OTC Bulletin Board -SM-and the Pink Sheets -SM-. See
"RISK FACTORS--Investment in Small Companies."

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.

OPTIONS ON SECURITIES AND SECURITIES INDEXES

ILLIQUID SECURITIES/PRIVATE FUNDS

The Fund may not invest more than 15% of its net assets in securities
that are considered illiquid, 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 a sub-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.

<PAGE>

mature companies generally. 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.

SECURITIES LENDING/REPURCHASE AGREEMENTS

<PAGE>

BORROWING

PORTFOLIO TURNOVER

OTHER INFORMATION

RISK FACTORS

GROWTH-ORIENTED INVESTING

Because the Fund will be invested in growth-oriented companies, the
volatility of the Fund may be higher than that of the U.S. equity market as a
whole. Generally,

<PAGE>

companies with high relative rates of growth tend to reinvest more of their
profits in the company and pay out less to stockholders in the form of
current dividends. As a result, growth investors tend to receive most of
their return in the form of capital appreciation. This tends to make growth
company securities more volatile than the market as a whole. In addition,
there can be no assurance that growth within a particular company will
continue to occur.

INVESTMENT IN SMALL COMPANIES

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.

OPTIONS

<PAGE>

in interest rates; imperfect correlation between movements in the price of
options and movements in the price of the security or securities hedged or
used for cover; the fact that skills and techniques needed to trade options
are different from those needed to select securities in which the Fund
invests; and lack of assurance that a liquid secondary market will exist for
any particular option at any particular time.

NON-DIVERSIFIED STATUS

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, and broker-dealer affiliates of sub-advisors of the Fund
in connection with the purchase or sale of portfolio securities in certain
circumstances. The Investment Advisor is a wholly-owned subsidiary of Chapman
Capital Management Holdings, Inc. 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 Chapman
Capital Management Holdings, Inc. The Distributor is a wholly-owned
subsidiary of Chapman Holdings, Inc. Mr. Nathan A. Chapman, Jr. is also the
President and Chairman of the Board of Directors of the Distributor and
Chapman Holdings, Inc. See "MANAGEMENT--Investment Advisor" below and
"MANAGEMENT" in the Fund's Statement of Additional Information. Mr. Chapman
owns approximately 92% of the outstanding voting securities of Chapman
Capital Management Holdings, Inc. and approximately 62% of the outstanding
voting securities of Chapman Holdings, Inc. 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. Similar potential conflicts of interest may arise with respect
to the use of affiliates of sub-advisors for the purchase or sale of
portfolio securities. The Board of Directors has adopted procedures in
compliance with the 1940 Act to address such potential conflicts.
Furthermore, at least 40% of the members of the Company's Board of Directors
must be disinterested under the 1940 Act. See "MANAGEMENT" and "PORTFOLIO
TRANSACTIONS" in the Fund's Statement of Additional Information.

<PAGE>

USE OF LEVERAGE

THE YEAR 2000 PROBLEM

MANAGEMENT

BOARD OF DIRECTORS

THE INVESTMENT ADVISOR

<PAGE>

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 Chapman Capital Management Holdings, Inc. Nathan
A. Chapman, Jr., who is the controlling stockholder, President and Chairman
of the Board of Directors of Chapman Capital Management Holdings, Inc., is
President and Chairman of the Board of Directors of the Company and the
Investment Advisor.

THE SUB-ADVISORS

<PAGE>

investment approach and strategies. A sub-advisor may direct Fund
transactions to the Company's Distributor, The Chapman Co. or a broker that
is an affiliate of such sub-advisor.

After identifying investment advisors that fit the DEM Profile, the
Investment Advisor applies additional criteria in the selection and retention
of sub-advisors, including: (1) their historical performance records; (2)
an investment approach that is distinct in relation to the approaches of each
of the Fund's other sub-advisors; (3) consistent performance in the context
of the markets and preservation of capital in declining markets; (4)
organizational stability and reputation; (5) the quality and depth of
investment personnel; and (6) the ability of the sub-advisor to apply its
approach consistently. The Fund's sub-advisors may not necessarily exhibit
all of these criteria to the same degree.

<PAGE>

The Fund and the Investment Adviser are seeking an exemption from the
SEC that will permit the Investment Adviser to retain additional
sub-advisors, terminate existing sub-advisors, and materially amend the
sub-advisory agreements without stockholder approval. Such exemption request
has been approved by the Board of Directors of the Company and the Fund's
sole stockholder. To the extent that the SEC grants the requested exemption,
the Fund will send its stockholders a notice to this effect and will
supplement its Prospectus and Statement of Additional Information with
information about new sub-advisors and changes in sub-advisory agreements. To
the extent that the Fund receives the requested exemption, the Fund also
anticipates that within ninety days of retaining a new sub-advisor or
materially amending a sub-advisory agreement, it will give its stockholders
written notice of such addition or material change.

The current sub-advisors of the Fund are as follows:

BAY ISLE FINANCIAL CORPORATION ASIAN AMERICAN
160 SANSOME STREET
SUITE 1700
SAN FRANCISCO, CA 94104

BOND, PROCOPE CAPITAL MANAGEMENT AFRICAN AMERICAN
55 EAST 59TH STREET
19TH FLOOR
NEW YORK, NY 10022

CHARTER FINANCIAL GROUP, INC. WOMAN
1401 I STREET, NW
WASHINGTON, DC 20005

CIC ASSET MANAGEMENT, INC. HISPANIC AMERICAN
633 W. 5TH STREET SUITE 1180

<PAGE>

LOS ANGELES, CA 90017

DIAZ-VERSON CAPITAL INVESTMENTS, INC. HISPANIC AMERICAN
1200 BROOKSTONE CENTRE PARKWAY
SUITE 105
COLUMBUS, GA 31904

EVERGREEN CAPITAL MANAGEMENT, INC. AFRICAN AMERICAN
10707 PACIFIC STREET, SUITE 201
OMAHA, NE 68114

EverGreen has approximately $100 million in assets under management and
focuses on out-of-favor value companies. EverGreen was founded in 1989 by
Michael L. Green, its President and 98% owner.

GLOBALT, INC. WOMEN
ONE BUCKHEAD PLAZA, SUITE 225
3060 PEACHTREE ROAD, NW
ATLANTA, GA 30305

THE KENWOOD GROUP, INC. AFRICAN AMERICAN
10 SOUTH LASALLE, SUITE 3610 WOMAN
CHICAGO, IL 60603

UNION HERITAGE CAPITAL MANAGEMENT, INC. AFRICAN AMERICAN
1642 FIRST NATIONAL BUILDING
DETROIT, MI 48226

<PAGE>

VALENZUELA CAPITAL PARTNERS, INC. HISPANIC AMERICAN
1270 AVENUE OF THE AMERICAS
NEW YORK, NY 10020

WOODFORD GAYED MANAGEMENT, INC. AFRICAN AMERICAN
400 MADISON AVENUE, SUITE 1401 WOMAN
NEW YORK, NY 10017

ZEVENBERGEN CAPITAL, INC. WOMAN
601 UNION STREET, SUITE 2434
SEATTLE, WA 98101

Zevenbergen has approximately $750 million in assets under management and
focuses on large cap growth companies. Zevenbergen was founded in 1987 by
Nancy Zevenbergen, its President.

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 is a wholly-owned subsidiary of Chapman Holdings, Inc.
Nathan A. Chapman, Jr., who is the controlling stockholder, President and
Chairman of the Board of Directors of Chapman Capital Management Holdings,
Inc., is President and Chairman of the Board of Directors of the Company and
the Distributor.

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

<PAGE>

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.

Listed below are persons affiliated with both the Company and the
Distributor.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Name and With With
Principal Business Address Distributor Company
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. Chairman of the Board, Chairman of the Board,
The Chapman Co. Director and President Director and President
401 East Pratt Street
28th Floor
Baltimore, MD 21202
- -----------------------------------------------------------------------------------------
Earl U. Bravo, Sr. Senior Vice President, Secretary and Assistant
The Chapman Co. Secretary and Assistant Treasurer
401 East Pratt Street Treasurer
28th Floor
Baltimore, Maryland 21202
- -----------------------------------------------------------------------------------------
M. Lynn Ballard Controller, Treasurer and Treasurer and Assistant
The Chapman Co. Assistant Secretary Secretary
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202
- -----------------------------------------------------------------------------------------
</TABLE>

<PAGE>

EXPENSES

BROKERAGE

The Distributor and affiliates of the Fund's sub-advisors may effect
brokerage transactions for the Fund in compliance with the requirements of
the 1940 Act.

CUSTODIAN

UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri 64141-6226,
serves as custodian for the Fund's portfolio securities.

<PAGE>

TRANSFER AND DIVIDEND PAYING AGENT AND ACCOUNTING AGENT

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. 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.

<PAGE>

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 DEM
Multi-Manager Equity Fund Institutional Shares, c/o First Data Investor
Services Group, 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 DEM Multi-Manager Equity Fund
Institutional Shares, c/o UMB Bank, N.A., 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.

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) 441-6580 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:

UMB BANK, N.A.
ABA #10-10-00695

<PAGE>

FOR: FIRST DATA INVESTOR SERVICES GROUP, INC.

A/C 98-7037-071-9
FBO "DEM Multi-Manager 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 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 not honor redemption requests of
Institutions who recently purchased shares by check until it is reasonably
satisfied that the purchase check has cleared, which may take up to fifteen
days from the purchase date. 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.

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.

<PAGE>

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:

REDEMPTION BY MAIL

Shares may be redeemed by submitting a written request for redemption to
the Transfer Agent at FPS Services, Inc., 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.

<PAGE>

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. The request must be
signed by each stockholder of the account or by the account's authorized
representative with a signature guarantee, as described previously.

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.

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 $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.

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

<PAGE>

are redeemed in kind, the redeeming stockholder will incur brokerage costs in
converting the assets into cash.

NET ASSET VALUE

DIVIDENDS

<PAGE>

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.

TAXES

The following discussion reflects applicable tax laws as of the date of
this Prospectus.

TAXATION OF THE FUND

<PAGE>

If in any year the Fund fails to qualify under Subchapter M as a regulated
investment company, the Fund would incur a corporate income tax on its
taxable income for the year, and the entire amount of the Fund's distribution
would generally be characterized as ordinary income.

TAXATION OF STOCKHOLDERS

DISTRIBUTIONS

SALES OF SHARES

<PAGE>

BACKUP WITHHOLDING

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 tax and 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 DEM Multi-Manager 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's common investment portfolio
and accrue dividends and calculate net asset value and performance quotations
in the same manner. However, Investor

<PAGE>

Shares are sold with a sales load and may have different sales charges and
other expenses which may affect performance.

Stockholders of record will receive unaudited semi-annual reports and an
annual report containing financial statements audited by independent
auditors. Investors may obtain information about the Investor Shares or the
other classes of the Company by contacting the Distributor at the telephone
number listed on the back of this Prospectus.

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

<PAGE>

[LOGO] -TM-

DEM MULTI-MANAGER EQUITY FUND
INSTITUTIONAL SHARES

A DOMESTIC EMERGING
MARKETS INVESTMENT
OPPORTUNITY
------------------------------

PROSPECTUS

, 1998

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:

FIRST DATA INVESTOR SERVICES GROUP
3200 Horizon Drive
PO Box 61503
King of Prussia, Pennsylvania 19406
(800) 441-6580

CUSTODIAN:

UMB BANK, N.A.
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
(800) 752-1013

<PAGE>

SUBJECT TO COMPLETION
Preliminary Statement of Additional Information dated: September 30, 1998

Statement of Additional Information Dated: , 1998

DEM MULTI-MANAGER 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

This Statement of Additional Information of the DEM Multi-Manager 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 the same date as this Statement of
Additional Information (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

<TABLE>
<S> <C> <S> <C>
Investment Program . . . . . . . B-2 Taxation . . . . . . . . . . . . . B-22
Management . . . . . . . . . . . B-9 Capital Stock. . . . . . . . . . . B-24
Control Persons and Principal. . B-15 Performance Information. . . . . . B-25
Holders of Securities Counsel to the Company . . . . . . .B-26
Purchase of Shares . . . . . . . B-19 Independent Auditors . . . . . . . B-26
Redemption of Shares . . . . . . B-20 Financial Statements . . . . . . . F-1
Portfolio Transactions . . . . . B-20
</TABLE>

Domestic Emerging Markets-Registered Trademark- is a registered trademark and
DEM-TM-, DEM Profile-TM-, DEM Universe-TM-, DEM Company-TM- and DEM
Index-TM-are trademarks of Nathan A. Chapman, Jr.

A DOMESTIC EMERGING MARKETS INVESTMENT OPPORTUNITY

<PAGE>

INVESTMENT PROGRAM

The following information supplements the discussion of the investment
policies of the Fund found under "INVESTMENT OBJECTIVES" in the Prospectus.

The DEM Multi-Manager 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 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 by
investment in companies deemed to possess strong growth characteristics. Such
companies are identified through the Fund's domestic emerging markets
multi-manager ("DEM Multi-Manager") strategy. Under the DEM Multi-Manager
strategy, the assets of the Fund are managed by multiple sub-advisors
recommended by Chapman Capital Management, Inc. (the "Investment Advisor")
and approved by the Board of Directors. Such sub-advisors must meet the
domestic emerging markets profile which includes only those companies that
are controlled by African Americans, Asian Americans, Hispanic Americans or
women that are located in the United States and its territories (the "DEM
Profile"). Although the Fund's sub-advisors must meet the DEM Profile, the
sub-advisors will not consider the DEM Profile in making investment decisions
for the Fund's portfolio. Accordingly, the Investment Advisor does not
expect companies that meet the DEM Profile to constitute a large percentage
of the Fund's portfolio. 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" in the Prospectus.

The Investment Advisor will track the performance of each of the Fund's
sub-advisors and will have discretion to identify and recommend new
sub-advisors, allocate assets among the existing sub-advisors, and terminate
existing sub-advisors. Each sub-advisor uses its own investment approach and
investment strategies to achieve the Fund's investment objectives in
accordance with the Fund's investment restrictions. See "MANAGEMENT--The
Sub-Advisors" in the Prospectus.

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 Fund 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 then 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

B-2

<PAGE>

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 release 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 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 a sub-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 a sub-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 a sub-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 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 a sub-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

B-3

<PAGE>

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
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 as set forth below. 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 a sub-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 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.

B-4

<PAGE>

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 Investment Advisor or any sub-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 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 or a sub-advisor, such techniques can be expected
to yield a higher investment return than other investment options.

REPURCHASE AGREEMENTS

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

B-5

<PAGE>

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.

AMERICAN DEPOSITORY RECEIPTS

American Depository Receipts (ADRs) are certificates evidencing
ownership of shares of a foreign issuer. These certificates are issued by
depository banks and generally trade on an established market in the United
States or elsewhere. The underlying shares are held in trust by a custodian
bank or similar financial institution in the issuer's home country. The
depository bank may not have physical custody of the underlying securities at
all times and may charge fees for various services, including forwarding
dividends and interest and corporate actions. ADRs are an alternative to
directly purchasing the underlying foreign securities in their national
markets and currencies. However, ADRs continue to be subject to many of the
risks associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks of
the underlying issuer's country.

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 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) Issuing senior securities, borrowing money or pledging its assets,
except that: (i) the Fund 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; (ii) the Fund may purchase securities on margin pursuant to
margin arrangements with banks up to the limits set forth in (i) for bank
borrowings; and (iii) the Fund may borrow an additional 5% of its total
assets without

B-6

<PAGE>

regard to the foregoing limitations for temporary purposes such as clearance
of portfolio transactions and share redemptions.

(2) Engaging in the business of underwriting securities issued by other
persons, except that to the extent the Fund is permitted to invest in
Illiquid Securities (currently, the Fund may not invest more than 15% of its
net assets in Illiquid Securities), the Fund may be deemed to act as an
underwriter to portfolio companies.

(3) 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 (The Domestic Emerging Markets
market segment is not considered an industry for this purpose).

(4) Engaging in the purchase and sale of real estate or real estate or
mortgage-backed securities.

(5) Purchasing or selling commodities or commodities contracts.

(6) 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.

(7) Investing in foreign securities (other than 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.

B-7

<PAGE>

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 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 annual portfolio turnover
will not exceed 200%.

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 40 President and Director since 1986 of The Chapman Co.
and President and Director since 1988 of Chapman Capital
President Management, Inc. President and Director of DEM,
Inc. (a closed-end investment company managed by the
Investment Advisor) since 1995. President and
Director of Chapman Holdings, Inc. since 1997.
President and Director of Chapman Capital Management
Holdings, Inc. since 1997.
- -----------------------------------------------------------------------------------------------------------------
Dr. Glenda Glover Director 45 Dean of School of Business, Jackson State University
since 1994. Chairperson of Accounting Department,
Howard University from 1990 through 1994. Director
of DEM, Inc.
- -----------------------------------------------------------------------------------------------------------------
* Dr. Benjamin Hooks Director 72 Senior Vice President of The Chapman Co. since May
1993. Executive Director of the NAACP from 1977 to
April 1993. Director of DEM, Inc.
- -----------------------------------------------------------------------------------------------------------------
James B. Lewis Director 50 City Administrator, City of Rio Rancho since March
1996. Chief Clerk-State Corporation Commission of
New 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 62 Principal, Marshall Enterprises since 1994.
Director, Mayor's Office of Small Business
Assistance - City of Los Angeles 1981 until 1994.
- -----------------------------------------------------------------------------------------------------------------
David Rivers Director 54 Director of Community Development Medical University
of South Carolina Environmental Hazards Assessment
Program since 1994; President, Research Planning
and Management from 1991 to 1994.
- -----------------------------------------------------------------------------------------------------------------
* Lottie H. Shackelford Director 56 Executive Vice President of Global USA since 1994.
City Director of the City of Little Rock, Arkansas,
1978 to 1992. Director of DEM, Inc. since 1995.
Director of Chapman Holdings, Inc. since 1997.
- -----------------------------------------------------------------------------------------------------------------
Ronald A. White Director 48 Senior Partner, Ronald A. White, P.C., since 1982,
Director of DEM, Inc.
- -----------------------------------------------------------------------------------------------------------------
Valerie A. Chapman Vice- President 36 Administrator of The Chapman Co. since March 1988.
She is married to Nathan A. Chapman, Jr.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

B-9

<PAGE>

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.

B-10

<PAGE>

COMPENSATION TABLE

- ---------------------------------------------------------------------------------------------------------
Retirement or Total Compensation
Aggregate Pension Benefits Estimated Annual from Company and
Name of Person/ Compensation from Accrued as Part of Benefits upon Fund Complex Paid
Position Company Company Expenses Retirement to Directors
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, Jr. None None None None
Director, Chairman,
President
- ---------------------------------------------------------------------------------------------------------
James Lewis $4,000 None None $8,000
Director
- ---------------------------------------------------------------------------------------------------------
Lottie Shackelford $4,000 None None $8,000
Director
- ---------------------------------------------------------------------------------------------------------
Levi Watkins, MD None None None None
Director
- ---------------------------------------------------------------------------------------------------------
Ronald A. White $3,000 None None $6,000
Director
- ---------------------------------------------------------------------------------------------------------
Dr. Benjamin Hooks $4,000 None None $5,000
Director
- ---------------------------------------------------------------------------------------------------------
Wilfred Marshall $4,000 None None $4,000
Director
- ---------------------------------------------------------------------------------------------------------
David Rivers $3,000 None None $3,000
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.

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

B-11

<PAGE>

supervise 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 Chapman Capital
Management Holdings, Inc. Nathan A. Chapman, Jr., who is the controlling
stockholder of Chapman Capital Management Holdings, Inc., is a controlling
person (as that term is defined under the 1940 Act) of Chapman Capital
Management Holdings, Inc. and, therefore, a controlling person of the
Investment Advisor.

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. Chairman of the Board, Director and President Chairman of the Board, Director and
401 E. Pratt St. President
28th Floor
Baltimore, MD 21202
- ------------------------------------------------------------------------------------------------------------------
Earl U. Bravo, Sr. Secretary and Assistant Treasurer Secretary and Assistant Treasurer
401 E. Pratt St.
28th Floor
Baltimore, MD 21202
- ------------------------------------------------------------------------------------------------------------------
M. Lynn Ballard Controller, Treasurer and Assistant Secretary Treasurer and Assistant Secretary
401 E. Pratt Street
28th Floor
Baltimore, MD 21202
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

The Investment Advisor has overall responsibility for assets under
management, provides overall investment strategies and programs for the Fund,
recommends sub-advisors, allocates assets among the sub-advisors, monitors
and evaluates sub-advisors' performance and manages short-term investments
for the Fund. The Fund's assets are managed by sub-advisors who enter into
sub-advisory agreements with the Fund. The Investment Advisor receives from
the Fund an advisory fee at an annual rate of 1.25% 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 that
is allocated to the Investor Shares and Institutional Shares on the basis of
the net asset value of the Fund attributable to each such class. The
Investment Advisor pays all sub-advisory fees from its advisory fee.

In connection with the provision of advisory services, the Investment
Advisor will supervise a continuous program of investment, evaluation and, if
appropriate, sale and reinvestment of the Fund's assets. Further, the
Investment Advisor will supply office

B-12

<PAGE>

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 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.

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.

THE SUB-ADVISORS

The Fund currently employs 9 sub-advisors to manage the Fund's assets on
a day-to-day basis. In connection with the provision of sub-advisory
services, each sub-advisor will conduct a continuous program of investment,
evaluation and, if appropriate, sale and reinvestment of the Fund's assets
allocated to such sub-advisor in accordance with the Fund's investment
objectives and policies and the sub-advisor's investment approach and
strategies. The sub-advisors will place orders for the purchase and sale of
portfolio securities and will solicit brokers to execute transactions,
including The Chapman Co., the Company's Distributor, and broker or dealer
affiliates of sub-advisors of the Fund, in accordance with the Company's
policies and restrictions regarding brokerage allocations. The sub-advisors
will furnish to the Investment Advisor and the Company such statistical
information with respect to the investments which the Fund may hold or
contemplate purchasing as the Investment Advisor or the Company may
reasonably request.

All sub-advisors must meet the DEM Profile which includes only those
companies that are controlled by African Americans, Asian Americans, Hispanic
Americans or women that are located in the United States and its territories.
In determining whether a specific investment advisor is "controlled" by
African Americans, Asian Americans, Hispanic Americans or women and therefore
meets that DEM Profile, the Investment Advisor will apply the following
criteria: at least 10% of the investment advisor's outstanding voting
securities must be beneficially owned by members of one or more of the listed
groups and at least one of the investment advisor's top three executive
officers (Chairman, Chief Executive Officer or President) must be a member of
one or more of the listed groups.

After identifying sub-advisors that satisfy the DEM criteria, the
Investment Advisor applies additional criteria in the selection and retention
of sub-advisors, including: (1) historical performance; (2) investment
approaches that are distinct from the approaches of the Fund's other
sub-advisors; (3) consistent performance in the

B-13

<PAGE>

context of the markets and preservation of capital in declining markets; (4)
organizational stability and reputation; (5) quality and depth of investment
personnel; and (6) ability to apply an investment approach consistently.
Each sub-advisor will not necessarily exhibit all of these criteria to the
same degree.

The Investment Advisor (not the Fund) pays each sub-advisor a monthly
management fee of .35 of 1% of the value of the Fund's average weekly net
assets under the sub-advisor's management during the preceding month payable
monthly in arrears.

The Board of Directors of the Company and the initial stockholder of the
Fund have approved sub-advisory agreements between the Fund, the Investment
Advisor and each of the investment advisors listed in the Prospectus to serve
as sub-advisors of the Fund. See "MANAGEMENT--The Sub-Advisors" in the
Prospectus. The Investment Advisor will allocate the Fund's assets among
these sub-advisors. In its discretion, the Investment Adviser may allocate as
much as 100 percent or as little as 0 percent of the Fund's assets to any one
sub-advisor.

The Fund and the Investment Adviser are seeking an exemption from the
SEC that will permit the Investment Adviser to retain additional
sub-advisors, terminate existing sub-advisors, and materially amend the
sub-advisory agreements without stockholder approval. To the extent that the
SEC grants the requested exemption, the Fund will send its stockholders a
notice to this effect and will supplement its Prospectus and Statement of
Additional Information with information about new sub-advisors and changes in
sub-advisory agreements. To the extent that the Fund receives the requested
exemption, the Fund also anticipates that within ninety days of retaining a
new sub-advisor or materially amending a sub-advisory agreement, it will give
its stockholders written notice of such addition or material change.

B-14

<PAGE>

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 September 30, 1998, the latest
practicable date, and the ownership of all Directors and executive officers
of the Company as a group.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER TOTAL TOTAL %
INVESTOR INSTITUTIONAL
SHARES SHARES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
CHAPMAN CAPITAL MANAGEMENT, INC. (1) 1 1 100%
(a Washington, DC corporation)
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
- ---------------------------------------------------------------------------------
CHAPMAN CAPITAL MANAGEMENT HOLDINGS, INC. (2) 1 1 100%
(a Maryland corporation)
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
- ---------------------------------------------------------------------------------
NATHAN A. CHAPMAN, JR. (2) 1 1 100%
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
- ---------------------------------------------------------------------------------
All current Directors and executive officers 1 1 100%
as a group
- ---------------------------------------------------------------------------------
</TABLE>

___________________
(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.

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
September 30, 1998, 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 Chapman Capital
Management Holdings, Inc. Nathan A. Chapman, Jr., is deemed a controlling
person (as that term is defined under the 1940 Act) of Chapman Capital
Management Holdings, Inc. and, therefore, a controlling person of the
Investment Adviser.

B-15

<PAGE>

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 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

B-16

<PAGE>

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 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").

B-17

<PAGE>

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 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

B-18

<PAGE>

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, N.A., 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

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 Investor Shares Prospectus entitled "PURCHASE
OF SHARES." The 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

B-19

<PAGE>

that it is 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:

<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
</TABLE>

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, with respect to short-term investments of the
Fund, and the sub-advisors, with respect to assets of the Fund allocated to
such sub-advisors, are 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. When securities are purchased or sold
directly from 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 or affiliates of sub-advisors of the Fund may effect
brokerage transactions for the Fund when they are able to provide a net price
and execution at least

B-20

<PAGE>

as favorable to the Fund as those determined to be available from
unaffiliated brokers or dealers. The commissions paid to the Distributor or
an affiliate of a sub-advisor on transactions for the Fund may not exceed
those charged by the Distributor or such sub-advisor affiliate 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 and any affiliate of a sub-advisor
report each transaction to the Fund and that the Board of Directors determine
at least quarterly that all transactions effected by the Distributor or any
such affiliate of a sub-advisor 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, the Investment Advisor or a sub-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 and the sub-advisors in the management of accounts of other clients
and may not benefit the Fund directly. While such services are useful and
important in supplementing their own research, the Investment Advisor
believes the value of such services is not determinable and does not
significantly reduce expenses. The fees payable to the Investment Advisor
will not be reduced by the value of such services.

The Investment Advisor, the sub-advisors and their 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 and the sub-advisors.

Other accounts of the Investment Advisor and the sub-advisors 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, 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.

B-21

<PAGE>

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 FUND

The Fund intends to elect 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 Fund (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, gains from the sale or other disposition
of stock or securities and certain other sources and (b) diversify its
holdings so that at the end of each fiscal quarter (i) at least 50% of the
value of its 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 its assets nor more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its
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 it controls and which are determined
to be engaged in the same or similar trades or businesses or related trades
or businesses.

If the Fund qualifies as a regulated investment company and distributes
to its stockholders at least 90% of its investment company taxable income,
then the Fund will not be subject to federal income tax on the income so
distributed. However, the Fund would be subject to corporate income tax on
any undistributed income. See "TAXATION--Taxation of the Fund" in the
Prospectus. In addition, the Fund will be subject to a nondeductible 4%
excise tax on the amount by which the Fund's distributed amount in any
calendar year is less than the sum of: (a) 98% of such Fund's ordinary income
for such calendar year; (b) 98% of such Fund's capital gain net income for
the one-year period ending on October 31 of that year; and (c) 100% of any
prior year underdistributions. The Fund may retain its net capital gain and
pay corporate income tax thereon and elect to include all or a portion of its
undistributed net capital gain in the income of its stockholders of record on
the last day of the taxable year. In such event, each stockholder of record
on the last day of the Fund's taxable year would be required to include in
income for tax purposes his or her proportionate share of the Fund's
undistributed net capital gain. Each stockholder would be entitled to credit
his or her proportionate share of the tax paid by the Fund 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 the difference between the amount of the includible gain and the
tax deemed paid in respect of such shares.

B-22

<PAGE>

Any capital losses resulting from the disposition of securities can only
be used to offset capital gains and cannot be used to reduce the Fund's
ordinary income. Such capital losses may be carried forward by the Fund for
eight years.

The Fund's taxable income will in part be determined on the basis of
reports made to the Fund by the issuers of the securities in which the Fund
invests. The tax treatment of certain securities in which the Fund 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 Fund could
result in adjustments to the income of the Fund.

TAXATION OF STOCKHOLDERS

Dividends (other than capital gain dividends) distributed by the Fund
may be eligible for the dividends received deduction in the hands of
corporate stockholders, to the extent that the Fund'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 the Fund are generally taxable to
the stockholders at the time the dividend or distribution is made. However,
any dividends declared by the Fund in October, November or December and made
payable to stockholders of record in such months but actually paid in the
following January will be taxable to stockholders as of December 31.

If a stockholder purchases shares of the Fund immediately prior to a
dividend, the dividend received by the stockholder 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 Fund 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 Fund and investors in the
shares of the Fund, and does not deal with all of the federal income tax
consequences applicable to the Fund 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 the Fund.

For additional information on taxation, see "TAXATION" in the Fund's
Prospectus.

B-23

<PAGE>

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-24

<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 Index, the DEM 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 Universe is a
growing list of companies identified by the Investment Advisor that are
controlled by African Americans, Asian Americans, Hispanic Americans or
women. The DEM Index was created by the Investment Advisor and is comprised
of 30 companies from the DEM Universe that reflect the market capitalization
and industry classification characteristics of the DEM Universe. The DEM
Index is weighted by market capitalization and is intended as a performance
measure of the DEM 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 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

B-25

<PAGE>

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.

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.

INDEPENDENT AUDITORS

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-26

<PAGE>

FINANCIAL STATEMENTS

DEM MULTI-MANAGER EQUITY FUND

COMPOSITE STATEMENT OF ASSETS AND LIABILITIES - September 30, 1998
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
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
-----
-----
</TABLE>

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--September 30,
1998
Part C: None
See Registrant's 1997 Annual Report to Stockholders previously filed.

(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)

1(C) Articles of Amendment of the Registrant dated February 12,
1998(3)

1(D) Articles Supplementary of the Registrant dated February 12,
1998(3)

1(E) Articles Supplementary of the Registrant dated February 12,
1998(3)

1(F) Articles Supplementary of the Registrant dated May 8, 1998(4)

1(G) Articles of Amendment of the Registrant dated May 11, 1998(4)

1(H) Articles Supplementary of the Registrant dated June 1, 1998(1)

2 Amended and Restated Bylaws of the Registrant dated July 18,
1997(2)

4(A) Form of Stock Certificate (The Chapman U.S. Treasury Money
Fund)(1)

4(B) Form of Stock Certificate (The Chapman Institutional Cash
Management Fund)(1)

4(C) Form of Stock Certificate (DEM Equity Fund, Investor Class)(1)

4(D) Form of Stock Certificate (DEM Equity Fund, Institutional
Class)(1)

4(E) Form of Stock Certificate (DEM Index Fund, Investor Class)(1)

C-1
<PAGE>

4(F) Form of Stock Certificate (DEM Index Fund, Institutional
Class)(1)

4(G) Form of Stock Certificate (DEM Fixed Income Fund, Investor
Class)(1)

4(H) Form of Stock Certificate (DEM Fixed Income Fund,
Institutional Class)(1)

4(I) Form of Stock Certificate (DEM Fixed Income Fund, Investor
Class)(5)

4(J) Form of Stock Certificate (DEM Fixed Income Fund,
Institutional Class)(5)

5(A) Advisory and Administrative Services Agreement between
the Registrant and Chapman Capital Management (The Chapman US
Treasury Money Fund and The Chapman Institutional Cash
Management Fund)(2)

5(B) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (DEM Equity
Fund)(3)

5(C) Amendment to Advisory and Administrative Services Agreement
between the Registrant and Chapman Capital Management, Inc.
(The Chapman US Treasury Money Fund and The Chapman
Institutional Cash Management Fund)(3)

5(D) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (DEM Index
Fund)(4)

5(E) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (DEM Fixed
Income Fund)(1)

5(F) Form of Advisory and Administrative Services Agreement between
the Registrant and Chapman Capital Management, Inc. (DEM
Multi-Manager Equity Fund)(5)

5(G) Form of Advisory Agreement between the Registrant and
Sub-advisors (DEM Multi-Manager Equity Fund)(5)

C-2
<PAGE>

6(A) Distribution Agreement between the Registrant and The Chapman
Co. (The Chapman US Treasury Money Fund and The Chapman
Institutional Cash Management Fund)(2)

6(B) Distribution Agreement between the Registrant and The Chapman
Co. (DEM Equity Fund)(3)

6(C) Amendment to Distribution Agreement between the Registrant and
The Chapman Co. (The Chapman US Treasury Money Fund and The
Chapman Institutional Cash Management Fund)(3)

6(D) Distribution Agreement between the Registrant and The Chapman
Co. (DEM Index Fund)(4)

6(E) Distribution Agreement between the Registrant and The Chapman
Co. (DEM Fixed Income Fund)(1)

6(E) Distribution Agreement between the Registrant and The Chapman
Co. (DEM Multi-Manager Equity Fund)(5)

8(A) Custody Agreement between the Registrant and UMB Bank, N.A.(1)

8(B) Investment Company Services Agreement between the Registrant
and First Data Investor Services Group (formerly FPS Services,
Inc.) (The Chapman US Treasury Money Fund and DEM Equity
Fund)(2)

8(C) Amendment to Investment Company Services Agreement between the
Registrant and First Data Investor Services Group (formerly
FPS Services, Inc.)(1)

9(A) Stockholder Services Agreement between the Registrant and
Chapman Capital Management, Inc. (The Chapman US Treasury
Money Fund and The Chapman Institutional Cash Management
Fund)(1)

10 Opinion and consent of Venable, Baetjer and Howard,
LLP(5)

15(A) Distribution Plan (DEM Equity Fund Investor Shares)(3)

15(B) Distribution Plan (DEM Equity Fund Institutional Shares)(3)

15(C) Distribution Plan (DEM Index Fund Investor Shares)(4)

C-3
<PAGE>

15(D) Distribution Plan (DEM Index Fund Institutional Shares)(4)

15(E) Distribution Plan (DEM Fixed Income Fund Investor Shares)(1)

15(F) Distribution Plan (DEM Fixed Income Fund Institutional
Shares)(1)

15(G) Distribution Plan (DEM Multi-Manager Equity Fund Investor
Shares)(5)

15(H) Distribution Plan (DEM Multi-Manager Equity Fund Institutional
Shares)(5)

18(A) Multiple Class Plan (DEM Equity Fund)(2)

18(B) Multiple Class Plan (DEM Index Fund)(4)

18(C) Multiple Class Plan (DEM Fixed Income Fund)(1)

18(D) Multiple Class Plan (DEM Multi-Manager Equity Fund)(5)

99.1 Power of Attorney(6)

99.2 Power of Attorney(5)

(1) Incorporated by reference from Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A (File Nos.: 33-25716; 811-5697) as
filed with the Securities and Exchange Commission on June 12, 1998.

(2) Incorporated by reference from Amendment No. 13 to the Registrant's
Registration Statement on Form N-1A (File Nos.: 33-25716; 811-5697) as
filed with the Securities and Exchange Commission on August 7, 1997.

(3) Incorporated by reference from Amendment 15 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-25716; 811-5697) as filed with the
Securities and Exchange Commission on March 2, 1998.

(4) Incorporated by reference from Amendment 16 to Registrant's Registration
Statement on Form N-1A (File Nos. 33-25716; 811-5697) as filed with the
Securities and Exchange Commission on May 29, 1998.

(5) Filed herewith.

(6) Incorporated by reference from Post-Effective Amendment 12 to the
Registrant'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.

C-4
<PAGE>

None.

Item 26. Number of Holders of Securities.

<TABLE>
<CAPTION>
Number of Record
On September 30, 1998 Title of Class Holders
<S> <C> <C>
The Chapman US
Treasury Money Fund 25
Common Stock

The Chapman
Institutional Cash
Management Fund 0
Common Stock

DEM Equity Fund
Institutional Shares 2

DEM Equity Fund
Investor Shares 83

DEM Index Fund 1
Institutional Shares

DEM Index Fund 1
Investor Shares

DEM Fixed Income Fund 1
Institutional Shares

DEM Fixed Income Fund 1
Investor Shares

DEM Multi-Manager Equity Fund 1
Institutional Shares

DEM Multi-Manager Equity Fund 1
Investor Shares
</TABLE>

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

C-5
<PAGE>

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 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.

C-6
<PAGE>

Item 28. Business and Other Connections of Investment Advisor.

<TABLE>
<CAPTION>
Name and
Principal Business Address Position with Investment Advisor Other Business
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. Director and President President and Director of The
401 E. Pratt St. Chapman Co since 1986 and
28th Floor Chapman Capital Management, Inc.
Baltimore, MD 21202 since 1988. President and
Director of DEM, Inc. (a closed-
end investment company managed
by the Investment Advisor) since
1995. President and Director of
Chapman Holdings, Inc. since
1997 and Chapman Capital
Management Holdings, Inc. since
1998.
M. Lynn Ballard Treasurer and Assistant Secretary Controller since 1988 and
401 E. Pratt Street Treasurer and Assistant
28th Floor Secretary since 1997 of The
Baltimore, Maryland 21202 Chapman Co. Treasurer since
1990, Controller since 1995 and
Assistant Secretary since 1997
of Chapman Capital Management,
Inc. Treasurer and Assistant
Secretary of DEM, Inc.
Controller, Treasurer and
Assistant Secretary of Chapman
Holdings, Inc. since 1997 and
Chapman Capital Management
Holdings, Inc. since 1998.
Earl U. Bravo Secretary and Assistant Treasurer Secretary and Assistant
401 E. Pratt Street Treasurer since 1997 of The
28th Floor Chapman Co. Vice President,
Baltimore, MD 21202 Secretary and Assistant
Treasurer of DEM, Inc. since
1995. Senior Vice President,
Secretary, Assistant Treasurer
and Director of Chapman
Holdings, Inc. since 1997. Vice
President, Secretary, Assistant
Treasurer and Director of
Chapman Capital Management
Holdings, Inc. since 1998.
</TABLE>

C-7
<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

<TABLE>
<CAPTION>
Name and With With
Principal Business Address Underwriter Registrant
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. Director and President Director and President
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, MD 21202

Earl U. Bravo, Sr. Senior Vice President, Secretary and Secretary and Assistant Treasurer
The Chapman Co. Assistant Treasurer
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202

M. Lynn Ballard Treasurer and Assistant Secretary Treasurer and Assistant Secretary
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202
</TABLE>

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., World
Trade Center--Baltimore, 401 East Pratt Street, 28th Floor, Baltimore, Maryland
21202 or at the offices of First Data Investor Services Group, 3200 Horizon
Drive, PO Box 61503, King of Prussia, Pennsylvania 19406.

Item 31. Management Services.

Not applicable.

Item 32. Undertakings.

Not applicable.

C-8
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
post-effective amendment No. 16 and amendment No. 18 to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore, State of Maryland, on September 30, 1998.

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, as
amended, this post-effective amendment No. 16 to 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 September 30, 1998
- -------------------------- (principal executive
Nathan A. Chapman, Jr. officer)

/S/ M. LYNN BALLARD Treasurer (principal September 30, 1998
- -------------------------- financial and
M. Lynn Ballard accounting officer)

Each of the Directors:
Nathan A. Chapman, Jr., Lottie H. Shackelford, Dr. Levi Watkins, Jr., James
B. Lewis, Ronald A. White, Dr. Benjamin Hooks, David Rivers, and Wilfred
Marshall.

By: /S/ NATHAN A. CHAPMAN, JR. September 30, 1998
--------------------------
Nathan A. Chapman, Jr.
as Attorney-in-Fact

C-9
<PAGE>
EXHIBIT INDEX

<TABLE>
<S> <C>
4(I) Form of Stock Certificate (DEM Multi-Manager Equity Fund,
Investor Class)

4(J) Form of Stock Certificate (DEM Multi-Manager Equity Fund,
Institutional Class)

5(F) Form of Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (DEM Multi-
Manager Equity Fund)

5(G) Form of sub-Advisory Agreement between the Registrant and
Sub-advisors (DEM Multi-Manager Equity Fund)

6(E) Distribution Agreement between the Registrant and The Chapman Co.
(DEM Multi-Manager Equity Fund)

10 Opinion and consent of Venable, Baetjer and Howard, LLP

15(G) Distribution Plan (DEM Multi-Manager Equity Fund Investor Shares)

15(H) Distribution Plan (DEM Multi-Manager Equity Fund Institutional
Shares)

18(D) Multiple Class Plan (DEM Multi-Manager Equity Fund)

99.2 Power of Attorney
</TABLE>

<PAGE>

<TABLE>
<S><C>
STATE OF MARYLAND

NUMBER SHARES

_______ _______

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER EQUITY FUND INVESTOR CLASS
COMMON STOCK
PAR VALUE - $0.001
Fully Paid Non-Assessable

THIS CERTIFIES THAT ______________ IS THE REGISTERED HOLDER OF _____________
(_______) SHARES OF THE DEM MULTI-MANAGER EQUITY FUND INVESTOR CLASS COMMON
STOCK OF THE CHAPMAN FUNDS, INC. TRANSFERABLE ONLY ON THE BOOKS OF THE
CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF
THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS
COUNTERSIGNED BY THE TRANSFER AGENT.

IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE HEREUNTO
AFFIXED THIS ___ DAY OF _______ A.D. ____.

__________________________________ ____________________________________
EARL U. BRAVO, SR., SECRETARY NATHAN A. CHAPMAN, JR., PRESIDENT

PAR VALUE
$0.001
</TABLE>

<PAGE>

<TABLE>
<S><C>
STATE OF MARYLAND

NUMBER SHARES

_______ _______

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER EQUITY FUND INSTITUTIONAL CLASS
COMMON STOCK
PAR VALUE - $0.001
Fully Paid Non-Assessable

THIS CERTIFIES THAT ______________ IS THE REGISTERED HOLDER OF _____________
(_______) SHARES OF THE DEM MULTI-MANAGER EQUITY FUND INSTITUTIONAL CLASS
COMMON STOCK OF THE CHAPMAN FUNDS, INC. TRANSFERABLE ONLY ON THE BOOKS OF THE
CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF
THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS
COUNTERSIGNED BY THE TRANSFER AGENT.

IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE HEREUNTO
AFFIXED THIS ___ DAY OF _______ A.D. ____.

__________________________________ ____________________________________
EARL U. BRAVO, SR., SECRETARY NATHAN A. CHAPMAN, JR., PRESIDENT

PAR VALUE
$0.001
</TABLE>

<PAGE>

ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER EQUITY FUND
World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202

[ ], 1998

Chapman Capital Management, Inc.
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 DEM Multi-
Manager 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 portfolio
securities and will solicit brokers to execute transactions, including The

<PAGE>

Chapman Capital Management, Inc.
[ ], 1998
Page 2

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. RECORD KEEPING AND OTHER INFORMATION. You will create and
maintain all records required of you pursuant to your duties hereunder in
accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. All such records will be the
property of the Corporation and will be available upon request of the
Corporation for inspection, copying and use by the Corporation and will be
surrendered to the Corporation upon demand of the Corporation. Where
applicable, such records will be maintained by you for the periods and in the
places required by Rule 31a-2 under the 1940 Act. Upon termination of this
Agreement, you will promptly surrender all such records to the Corporation or
such person as the Corporation may designate.

6. 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 1.25% 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

<PAGE>

Chapman Capital Management, Inc.
[ ], 1998
Page 3

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.

7. 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 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.

8. 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

<PAGE>

Chapman Capital Management, Inc.
[ ], 1998
Page 4

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 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.

9. 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.

10. TERM. This Agreement shall continue with respect to the Fund
until December 29, 1999 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

<PAGE>

Chapman Capital Management, Inc.
[ ], 1998
Page 5

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).

11. "CHAPMAN," "DEM MULTI-MANAGER" 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, business trusts, partnerships or other entities (including
other investment companies) and that such other entities may include the name
"Chapman," "DEM Multi-Manager" 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," "DEM Multi-Manager" and/or "DEM" in any form or combination of words.

<PAGE>

Chapman Capital Management, Inc.
[ ], 1998
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
DEM MULTI-MANAGER EQUITY FUND

By:
-----------------------------------
Name: Nathan A. Chapman, Jr.,
Title: President

Accepted:

CHAPMAN CAPITAL MANAGEMENT, INC.

By:
--------------------------------
Name: Nathan A. Chapman, Jr.
Title: President

BA3DOCS1/0080877.01

<PAGE>
SUB-ADVISORY AGREEMENT

CHAPMAN CAPITAL MANAGEMENT, INC.
World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202

[ ], 1998

(nameaddress)

Ladies and Gentlemen:

This will confirm the agreement between CHAPMAN CAPITAL MANAGEMENT,
INC. (the "Investment Adviser") and you as follows:

1. GENERAL. The Chapman Funds, Inc., a Maryland corporation (the
"Corporation") is an open-end management investment company which has multiple
investment portfolios including, the DEM Multi-Manager 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. SUB-ADVISORY SERVICES. Subject to the supervision and approval
of the Corporation's Board of Directors and the Investment Adviser you will
provide investment management of that portion of the Fund's portfolio allocated
to you by the Investment Adviser 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 portfolio
securities and will solicit brokers to execute transactions,

<PAGE>

[ ], 1998
Page 2

including The Chapman Co. or a broker that may be affiliated with you or another
sub-adviser of the Fund, in accordance with the policies and restrictions
regarding brokerage allocations of the Fund and the Corporation. You will
furnish to the Corporation and/or the Investment Adviser such statistical
information with respect to the investments which the Fund may hold or
contemplate purchasing as the Corporation or the Investment Adviser may
reasonably request. You acknowledge that this agreement does not require the
Corporation or the Investment Adviser to allocate any specific percentage of the
Fund's assets to you at any time or for any specific period. You further
acknowledge that the Corporation or the Investment Adviser may at any time or
from time to time allocate you no assets at all.

3. ASSISTANCE. You may employ or contract with other persons to
assist you in the performance of this Agreement. The fees or other compensation
of such persons shall be paid by you and no obligation may be incurred on behalf
of the Corporation or the Investment Adviser to any such person.

4. RECORD KEEPING AND OTHER INFORMATION. You will create and
maintain all records required of you pursuant to your duties hereunder in
accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. All such records will be the
property of the Corporation and will be available upon request of the
Corporation for inspection, copying and use by the Corporation and will be
surrendered to the Corporation upon demand of the Corporation. Where
applicable, such records will be maintained by you for the periods and in the
places required by Rule 31a-2 under the 1940 Act. Upon termination of this
Agreement, you will promptly surrender all such records to the Corporation or
such person as the Corporation may designate.

5. FEES. In consideration of the sub-advisory services rendered
pursuant to this Agreement, the Investment Adviser will pay you on the first
business day of each month a fee at the annual rate of .35 of 1% of the value of
that portion of the Fund's average weekly net assets that is allocated to you by
the Investment Adviser 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 date of the
allocation of a portion of the Fund's portfolio to you 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 or if your allocation of the Fund's portfolio is reduced to nothing
before the end of any

<PAGE>

(header)
[ ], 1998
Page 3

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.

6. EXPENSES:

You will bear all expenses in connection with the performance of your
services under this Agreement.

7. LIABILITY. You shall exercise your best judgment in rendering
the services to be provided to the Fund. The Investment Advisor 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 Investment Advisor,
the Fund or the Corporation, and the Investment Advisor agrees 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 Investment Advisor'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
amount of "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, its security holders or the Investment Advisor
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 and the Investment Advisor
understand 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 and the Investment Advisor have 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

<PAGE>

(header)
[ ], 1998
Page 4

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.

9. TERM. This Agreement shall continue until December 29, 1999 and
thereafter shall continue automatically for successive annual periods ending on
the anniversary of such date, provided such continuance 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
without penalty, on 60 days' notice, by the Investment Adviser, by you, 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).

<PAGE>

(header)
[ ], 1998
Page 5

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,

CHAPMAN CAPITAL MANAGEMENT, INC.

By:
------------------------------------
Name: Nathan A. Chapman, Jr.
Title: President

Accepted:

By:
-----------------------------------
Name:
Title:

BA3DOCS1/0095847.01

<PAGE>

DISTRIBUTION AGREEMENT

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER EQUITY FUND
The World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202

February 11, 1998

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 DEM
Multi-Manager 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 DEM Multi-Manager 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.
February 11, 1998
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.
February 11, 1998
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.
February 11, 1998
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.
February 11, 1998
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.
February 11, 1998
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.

1.11 The Chapman Co. will create and maintain all records
required of it pursuant to its duties hereunder in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. All such records will be the property of the
Corporation and will be available upon request of the Corporation for
inspection, copying and use by the Corporation and will be surrendered to the
Corporation promptly upon demand of the Corporation. Where applicable, such
records will be maintained by The Chapman Co. for the periods and in the
places required by Rule 31a-2 under the 1940 Act. Upon termination of this
Agreement, The Chapman Co. will promptly surrender all such records to the
Corporation or such person as the Corporation may designate.

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

<PAGE>

The Chapman Co.
February 11, 1998
Page 7

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 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

<PAGE>

The Chapman Co.
February 11, 1998
Page 8

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 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

<PAGE>

The Chapman Co.
February 11, 1998
Page 9

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
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

<PAGE>

The Chapman Co.
February 11, 1998
Page 10

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 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.

<PAGE>

The Chapman Co.
February 11, 1998
Page 11

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.

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.

<PAGE>

The Chapman Co.
February 11, 1998
Page 12

7. TERM OF AGREEMENT

This Agreement shall continue until December 29, 1998 with
respect to each of the Investor Shares and Institutional Shares, and
thereafter shall continue automatically for successive annual periods ending
on the anniversary of such date, 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 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.
February 11, 1998
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
DEM MULTI-MANAGER EQUITY FUND

By: /S/ NATHAN A. CHAPMAN, JR.
Name: Nathan A. Chapman, Jr.
Title: President

Accepted:

THE CHAPMAN CO.

By: /s/ NATHAN A. CHAPMAN, JR.
------------------------------
Name: Nathan A. Chapman, Jr.
Title: President

<PAGE>
Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201-2978
(410) 244-7400
Fax (410) 244-7742

September 30, 1998

The Chapman Funds, Inc.
401 E. Pratt Street
Suite 2800
Baltimore, Maryland 21202

Re: The Chapman Funds, Inc.
DEM Multi-Manager Equity Fund
-----------------------------

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 DEM Multi-Manager Equity Fund,
Investor Class and DEM Multi-Manager 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. 16 to its Registration
Statement on Form N-1A (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 be filed with the Securities and
Exchange Commission (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.

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

<PAGE>

the conformity with originals of all documents submitted to us as copies.

Based on such examination, we are of the opinion that:

1. The one Investor Class Share and the one Institutional
Class Share currently issued and outstanding have been
validly and legally issued and are fully paid and
nonassessable.

2. The Shares to be offered for sale pursuant to the
Registration Statement are, to the extent of the number
of Shares of each class 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.

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>

Exhibit 15(G)

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER 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 DEM Multi-Manager 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

<PAGE>

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 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.

-2-

<PAGE>

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.

SECTION 11. DATE OF EFFECTIVENESS.

This Plan will become effective as of the date the Fund first
commences its investment operations.

IN WITNESS WHEREOF, the Fund has executed this Plan as of the 11th
day of February, 1998.

THE CHAPMAN FUNDS, INC.

By: /s/ NATHAN A. CHAPMAN, JR.
--------------------------
Name: Nathan A. Chapman, Jr.
Title: President

-3-

<PAGE>

Exhibit 15(H)

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER 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 DEM Multi-Manager 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

<PAGE>

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 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.

SECTION 4. CONTINUANCE OF PLAN.

<PAGE>

Administrative Services provided by the Distributor and/or Service
Organizations and amounts the Distributor and/or Service Organizations
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.

SECTION 7. SELECTION OF CERTAIN DIRECTORS.

SECTION 8. WRITTEN REPORTS.

SECTION 9. PRESERVATION OF MATERIALS.

SECTION 10. MEANING OF CERTAIN TERMS.

<PAGE>

SECTION 11. DATE OF EFFECTIVENESS.

This Plan will become effective as of the date the Fund first
commences its investment operations.

IN WITNESS WHEREOF, the fund has executed this Plan as of the 11th
day of February, 1998.

THE CHAPMAN FUNDS, INC.

By: /s/ NATHAN A. CHAPMAN, JR.
-----------------------------
Name: Nathan A. Chapman, Jr.
Title: President

<PAGE>

Exhibit 18(D)

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER 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

<PAGE>

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

-2-

<PAGE>

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.

IN WITNESS WHEREOF, the Fund has executed this Plan as of the 11th
day of February, 1998.

THE CHAPMAN FUNDS, INC.

By: /s/ NATHAN A. CHAPMAN, JR.
--------------------------
Name: Nathan A. Chapman, Jr.
Title: President

-3-

<PAGE>

THE CHAPMAN FUNDS, INC.
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned Director(s) and
Officer(s) of The Chapman Funds, Inc., a Maryland corporation, hereby constitute
and appoint NATHAN A. CHAPMAN, JR., and M. LYNN BALLARD and either of them, the
true and lawful agents and attorney-in-fact of the undersigned with full power
and authority in either said agent and attorney-in-fact, to sign for the
undersigned and in their respective names as Director(s) and Executive
Officer(s) of The Chapman Funds Inc., the post-effective amendment to the
Registration Statement on Form N-1A (Registration Statement Nos. 33-27516 and
811-5697) filed with the Securities and Exchange Commission, and any and all
further amendments or supplements (including post effective amendments) to said
Registration Statement, hereby ratifying and confirming all acts taken by such
agent and attorney-in-fact, as herein authorized.

- ------------------------------ -------------------------------------
Nathan A. Chapman, Jr. M. Lynn Ballard
Director and President Treasurer and Assistant Secretary
(Principal Executive Officer) (Principal Financial & Accounting
Officer

- ------------------------------ -------------------------------------
David Rivers Ronald White
Director Director

- ------------------------------ -------------------------------------
Wilfred Marshall Dr. Benjamin Hooks
Director Director

- ------------------------------ -------------------------------------
James Lewis Lottie Shackelford
Director Director

/s/ GLENDA GLOVER
- ------------------------------
Glenda Glover
Director

Dated this 28th day of September 1998.

BA3DOCS1/0095883.01