<PAGE>
SEMI ANNUAL REPORT
APRIL 30, 1999
[LOGO]
DEM EQUITY FUND
A DOMESTIC EMERGING MARKETS
INVESTMENT OPPORTUNITY
THE CHAPMAN FUNDS, INC.
<PAGE>
A MESSAGE TO OUR SHAREHOLDERS
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
With this semi-annual report, we are pleased to have completed a full year
since the Fund's inception on 4/8/98. We are pleased that your Fund's Domestic
Emerging Market strategy has outperformed its benchmark in a time of high
domestic and global market volatility, and a time when investors favored large
capitalization stocks. Total Fund market value has grown by over 20% during the
last six months, due to market performance.
DEM EQUITY FUND TOTAL RETURN*
AS OF APRIL 30, 1999
<TABLE>
<CAPTION>
6 MONTHS 1 YEAR INCEPTION
--------- ------ ----------
<S> <C> <C> <C>
Investor Shares................................... 21.24%(1) (5.20)%(1) (2.73)%
25.99%(2) (0.48)%(2) 2.10%
Institutional Shares.............................. 26.08% (0.34)% 2.24%
Russell 2000 Growth............................... 25.74% (3.77)% (1.64)%
</TABLE>
- ------------------------
(1) with sales charge
(2) without sales charge
*Past performance does not predict future performance
The U.S. economy gave another strong year of performance in 1998, despite
global turmoil. The fourth quarter of 1998 was the strongest performing of the
year. Both the S&P 500 and NASDAQ Composite finished the year at new highs,
achieving four straight years of greater than 20% returns. The DJIA reached its
new high in November, and closed December with greater than an 18% return. A
strong December gain in small capitalization stocks enabled the Russell 2000
Growth Index to close the year in positive territory (+1.23%) and show gains in
six of its twelve sectors. Technology was the winning sector with a 17.18%
return. Overall, large capitalization stocks outperformed small capitalization
stocks, and growth stocks outperformed value stocks. The fourth quarter GDP grew
at a very strong 6.0% annual rate, unemployment ended the year at a low 4.3%
rate, and inflation remained mild at 1.6% for the year. The Presidential
impeachment trial did not appear to hurt the market, as consumer confidence and
spending remained strong.
The strong US economy continued through the first quarter of 1999, unharmed
by the long-anticipated implementation of the European Monetary Union, Brazilian
currency devaluation shocks and growing hostilities in Kosovo. Large
capitalization stocks significantly outperformed small capitalization stocks
during the first quarter and through four months in 1999. Growth stocks
outperformed value stocks in the small capitalization arena with financial,
energy, and consumer discretionary stocks dominating.
Investors continued to move significantly higher cash inflows into both
stock and bond funds in early 1999. The Federal Reserve decided to keep interest
rates unchanged at their February and March meetings, and inflation remained
mild. Surging valuations on Internet stock IPOs reflected investors' frenzy to
participate in the "hot" sector of the market. Investors' love of large
capitalization stocks showed itself with the DJIA closing above 10,000 for the
first time on March 29. It continued to climb steadily throughout April, to
close above 11,000 for the first time on May 3. However, the strong economy with
low unemployment has moved investors toward a fear of the potential for rising
interest rates and inflation, bringing volatility to the market. Federal Reserve
Chairman, Alan Greenspan, continues to caution us that the remarkable
productivity achieved by technology cannot continue at a pace sufficient to
contain the need to raise consumer prices. As a result, the market continues to
gyrate over whether the Federal Reserve will raise short-term interest rates in
a preemptive strike against anticipated inflation.
1
<PAGE>
Within the portfolio, we have maintained a fully invested position with the
cash position at 1.9% of assets on 4/30/99 compared to 1.7% on 11/1/98. The Fund
continues to be weighted heaviest in the Technology, Consumer Discretionary and
Financial Services sectors, as shown in the attached chart. Other sectors
represented in your Fund include Producer Durables, Automobiles &
Transportation, Health Care, and Utilities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PORTFOLIO WEIGHTINGS
<S> <C>
Technology 37.7%
Producer Durables 14.0%
Health Care 0.6%
Financial Services 12.7%
Consumer Discretionary 28.4%
Cash 1.9%
Auto & Transportation 4.2%
Other 0.5%
</TABLE>
Portfolio composition now stands at 39 companies. We sold several positions
of companies that changed ownership and no longer met the DEM criteria,
including Pediatrix and Xylan. We also added numerous new positions in DEM
companies. One of the companies, Solectron, performed so well that we took the
gains on over 20% of the position to maintain the appropriate security weighting
in the portfolio. We closed our position in LCC International due to its
disappointing performance. We believed the money could be better deployed in
other DEM companies. With the purchase of Primus Telecommunications Group, the
DEM Equity Fund now has its first utility company.
We expect market volatility to continue through 1999. Annual realignment of
the Russell 2000 Index, which occurs in June, will eliminate many high market
capitalization stocks that exceed the Index's parameters. These include several
of the large, successful Internet stocks. The Index will then include new,
smaller capitalization companies. This change will certainly impact the
benchmark performance in the months to come and may add to the appearance of
volatility. Although we may be facing a strong, but slowing domestic economy in
1999, we continue to believe that the best investment strategy ignores
short-term market fluctuations and looks for long-term capital appreciation.
We thank you for your confidence and the opportunity to earn your business.
Respectfully submitted,
/s/ Nathan A. Chapman, Jr.
-------------------------------------------------------------------------
Nathan A. Chapman, Jr.
PRESIDENT
2
<PAGE>
DEM EQUITY FUND PORTFOLIO HIGHLIGHTS
TOP TEN PORTFOLIO HOLDINGS* (AS OF 04/30/99)
<TABLE>
<S> <C>
Solectron Corporation......................................................... 8.8
Broadvision, Inc.............................................................. 7.5
Ethan Allen Interiors, Inc.................................................... 6.3
Computer Associates International, Inc........................................ 6.1
Univision Communications, Inc................................................. 6.1
Popular, Inc.................................................................. 5.4
Lattice Semiconductor Corp.................................................... 4.7
The Wet Seal, Inc., Class A................................................... 4.7
Atlas Air, Inc................................................................ 4.2
I2 Technologies, Inc.......................................................... 3.9
</TABLE>
- ------------------------
* As a percentage of the portfolio's total net assets.
3
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF NET ASSETS--APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
- --------- ------------
<C> <S> <C>
COMMON STOCK--98.4%
AUTO & TRANSPORTATION--4.2%
AIR TRANSPORTATION
15,000 Atlas Air, Inc.(+)...................................................................... $ 435,000
------------
Total Auto & Transportation............................................................... 435,000
------------
CONSUMER DISCRETIONARY--28.5%
APPAREL
18,500 Supreme International Corporation(+).................................................... 175,750
COMPUTER RETAIL
9,000 PC Connection, Inc.(+).................................................................. 138,938
CONSUMER PRODUCTS
10,000 Movado Group, Inc....................................................................... 241,250
EDUCATION SERVICES
2,000 Advantage Learnings, Inc.(+)............................................................ 52,750
ENTERTAINMENT
1,000 BIG Entertainment(+).................................................................... 21,250
ENVIRONMENTAL SERVICES
10,000 ATG Inc.(+)............................................................................. 80,000
FINANCE: AUTOMOBILES
9,000 Ugly Duckling Corporation(+)............................................................ 59,625
HOUSEHOLD FURNISHINGS
13,000 Ethan Allen Interiors, Inc.............................................................. 658,937
RADIO & TV BROADCASTERS
11,000 Univision Communications, Inc.(+)....................................................... 636,625
RENTAL/LEASING
2,000 Neff Corporation(+)..................................................................... 17,625
RETAIL
12,000 Wet Seal, Inc., Class A(+).............................................................. 489,000
TEXTILES: APPAREL MANUFACTURERS
15,000 The Warnaco Group, Inc., Class A........................................................ 400,313
------------
Total Consumer Discretionary.............................................................. 2,972,063
------------
FINANCIAL SERVICES--12.8%
BANKS
5,000 Carver Bancorp, Inc..................................................................... 46,250
14,000 Doral Financial Corporation 246,750
5,333 Oriental Financial Group, Inc............................................................. 153,657
18,000 Popular, Inc.............................................................................. 558,000
FINANCIAL DATA PROCESSING
3,000 Advent Software, Inc.(+)................................................................ 184,875
FINANCIAL SERVICES
8,000 R&G Financial Corp., Class B............................................................ 144,000
------------
Total Financial Services.................................................................. 1,333,532
------------
</TABLE>
(+) Non income producing securities
See notes to financial statements
4
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF NET ASSETS--APRIL 30, 1999 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
- --------- -------------
<C> <S> <C>
COMMON STOCK--CONTINUED
HEALTH CARE--.6%
HEALTH CARE MANAGEMENT SERVICES
3,500 Pediatrix Medical Group(+)............................................................ $ 66,281
-------------
Total Health Care....................................................................... 66,281
-------------
PRODUCER DURABLE--14.1%
PRODUCTION TECHNOLOGY EQUIPMENT
19,000 Solectron Corporation(+).............................................................. 921,500
TECHNOLOGY
1,500 Gemstar International Group Limited(+)................................................ 158,063
TELECOMMUNICATION EQUIPMENT
15,000 Mastec, Inc.(+)....................................................................... 390,000
-------------
Total Producer Durable.................................................................. 1,469,563
-------------
TECHNOLOGY--37.9%
COMMUNICATIONS TECHNOLOGY
25,000 Premisys Communications, Inc.(+)...................................................... 212,500
8,000 Startec Global Communications Corporation(+)............................................ 80,500
COMPUTER SERVICES SOFTWARE & SYSTEMS
3,500 Aspect Development, Inc.(+)........................................................... 38,281
7,000 Autodesk, Inc........................................................................... 208,250
13,500 Broadvision, Inc.(+).................................................................... 783,844
8,000 Complete Business Solutions, Inc.(+).................................................... 179,000
15,000 Computer Associates International, Inc.................................................. 640,312
12,000 I2 Technologies, Inc.(+)................................................................ 406,500
5,000 IMR Global Corporation(+)............................................................... 86,250
13,000 Intelligroup, Inc.(+)................................................................... 87,750
20,000 Open Market, Inc.(+).................................................................... 270,000
COMPUTER TECHNOLOGY
12,000 CHS Electronics, Inc.(+).............................................................. 60,750
23,000 Smart Modular Technologies, Inc......................................................... 307,625
5,000 Nvidia Corporation(+)................................................................... 91,250
ELECTRONICS: SEMI-CONDUCTORS
12,000 Lattice Semiconductor Corporation..................................................... 490,500
-------------
Total Technology........................................................................ 3,943,312
-------------
UTILITIES--.3%
TELECOMMUNICATIONS
2,000 Primus Telecommunications Group....................................................... $ 33,375
-------------
Total Telecommunications................................................................ 33,375
-------------
Total Common Stock (Cost $9,934,974)--98.4%............................................. $ 10,253,126
-------------
</TABLE>
(+) Non income producing securities
See notes to financial statements
5
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF NET ASSETS--APRIL 30, 1999 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
- --------- -------------
<C> <S> <C>
COMMON STOCK--CONTINUED
SHORT TERM INVESTMENTS--1.9%
MONEY MARKET ACCOUNT--1.9%
198,311 UMB Money Market Fiduciary Account.................................................... $ 198,311
-------------
Total Money Market Account.............................................................. 198,311
-------------
Total Investments in Securities--100.3%................................................. 10,451,437
Other Assets Less Liabilities--(.3%).................................................... (35,371)
-------------
Net assets--100.0%...................................................................... $ 10,416,066
-------------
-------------
</TABLE>
(+) Non income producing security
See notes to financial statements
6
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF NET ASSETS--APRIL 30, 1999 (UNAUDITED) (CONTINUED)
<TABLE>
<S> <C>
Net Assets Consist of:
Paid-in capital................................................................. $9,973,267
Accumulated net investment loss................................................. (161,396)
Accumulated net realized gain on investments.................................... 286,043
Net unrealized appreciation of investments...................................... 318,152
----------
$10,416,066
----------
----------
Net Asset Value and Redemption Price per:
Institutional Shares
($10,221,294 / 699,791 shares outstanding).................................... $ 14.61
----------
----------
Investor Shares
($194,772 / 13,353 shares outstanding)........................................ $ 14.59
----------
----------
Offering Price Per Investor Shares:
Net asset value............................................................... $ 14.59
Sales Charge (maximum of 4.75% of offering price)............................. .73
----------
Offering price................................................................ $ 15.32
----------
----------
</TABLE>
+ Non income producing securities
See notes to financial statements
7
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDING
APRIL 30, 1999
--------------
<S> <C>
Investment Income:
Dividends....................................................................................... $ 12,828
Interest........................................................................................ 2,914
--------------
Total investment income....................................................................... 15,742
--------------
Expenses:
Management and administrative fees (Note 3)..................................................... 51,500
Registration fees............................................................................... 24,044
Transfer and dividend disbursing agent's fees (Note 3).......................................... 21,013
Accounting fees................................................................................. 17,593
Shareholder reports............................................................................. 17,050
Distribution fees (Note 3)...................................................................... 12,262
Audit fees...................................................................................... 8,613
Director's fees (Note 6)........................................................................ 7,495
Custodian fees.................................................................................. 2,390
Other........................................................................................... 15,178
--------------
Total expenses................................................................................ 177,138
--------------
Net investment loss............................................................................. (161,396)
--------------
Realized and Unrealized Gain on Investments:
Realized gain on investment transactions........................................................ 328,210
Change in unrealized appreciation/depreciation of investments................................... 1,967,021
--------------
Net realized and unrealized gain on investments............................................... 2,295,231
--------------
Net Increase In Net Assets Resulting From Operations.............................................. $ 2,133,835
--------------
--------------
</TABLE>
See notes to financial statements
8
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 8,
1998(1)
FOR THE SIX THROUGH
MONTHS ENDED OCTOBER 31,
APRIL 30, 1999 1998
-------------- ---------------
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment loss........................................................... $ (161,396) $ (201,608)
Net realized gain (loss) on investment transactions........................... 328,210 (42,167)
Change in unrealized appreciation (depreciation) of investments............... 1,967,021 (1,648,870)
-------------- ---------------
Net increase (decrease) in net assets from operations....................... 2,133,835 (1,892,645)
-------------- ---------------
Capital Share Transactions (Note 4):
Proceeds from shares sold
Institutional Shares........................................................ -0- 10,000,014
Investor Shares............................................................. 141,642 50,832
-------------- ---------------
Total proceeds from shares sold............................................. 141,642 10,050,846
-------------- ---------------
Cost of shares repurchased
Investor Shares............................................................. (11,520) (6,092)
-------------- ---------------
Increase in net assets from capital share transactions...................... 130,122 10,044,754
-------------- ---------------
Total increase in net assets.................................................. 2,263,957 8,152,109
-------------- ---------------
Net Assets:
Beginning of period........................................................... 8,152,109 --
-------------- ---------------
End of period................................................................. $ 10,416,066 $ 8,152,109
-------------- ---------------
-------------- ---------------
</TABLE>
- ------------------------
1 Commencement of operations
See notes to financial statements
9
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND--INVESTOR SHARES
FINANCIAL HIGHLIGHTS (UNAUDITED)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited for the period ended October 31, 1998. It should be
read in conjunction with the financial statements and notes thereto.
<TABLE>
<CAPTION>
APRIL
8,1998(1)
FOR THE SIX THROUGH
MONTHS ENDED OCTOBER 31,
APRIL 30, 1999 1998
-------------- -------------
<S> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of period................. $11.58 $14.29
------ ------
Income from Investment
Operations:
Net investment loss(2)...... (.25) (.29)
Net realized and unrealized
gain (loss) on
investments............... 3.26 (2.42)
------ ------
Total from investment
operations................ 3.01 (2.71)
------ ------
Distributions:
From net investment
income.................... -0- -0-
From net realized gains on
investments............... -0- -0-
Return of capital........... -0- -0-
------ ------
Total distributions......... -0- -0-
------ ------
Net asset value, end of
period.................... $14.59 $11.58
------ ------
------ ------
Total Return(3)............... 25.99% (18.96)%
Ratios to Average Net
Assets:(4)
Expenses(5)................. 3.85% 4.55%
Net investment loss......... (3.53)% (4.31)%
Expenses prior to voluntary
expense waiver(5)......... 4.10% 4.80%
Supplemental Data:
Net Assets, end of period
(000 omitted)............. $ 195 $ 45
Portfolio turnover rate..... 9.37% 17.89%
</TABLE>
- ------------------------
1 Commencement of operations.
2 Net investment loss per share was calculated using the average shares
method.
3 Total Return represents the return that an investor would have earned on an
investment in the Fund (assuming investment in the Fund the first day of the
fiscal year, and reinvestment of all dividends and distributions). It
excludes the effect of sales load. This ratio has not been annualized.
4 Ratios have been annualized.
5 The Distributor has voluntarily agreed to limit the distribution fee to an
aggregate of .25 % of average daily net assets of the Investor Shares.
However, there is no guarantee that the distributor will continue to
voluntarily limit the amount of such fee beyond fiscal year 1999.
See notes to financial statements.
10
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND--INSTITUTIONAL SHARES
FINANCIAL HIGHLIGHTS (UNAUDITED)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited for the period ended October 31, 1998. It should be
read in conjunction with the financial statements and notes thereto.
<TABLE>
<CAPTION>
APRIL 8,
1998(1)
FOR THE SIX THROUGH
MONTHS ENDED OCTOBER 31,
APRIL 30, 1999 1998
-------------- --------------
<S> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 11.58 $14.29
------- ------
Income from Investment
Operations:
Net investment loss(2)...... (.23) (.29)
Net realized and unrealized
gain (loss) on
investments............... 3.26 (2.42)
------- ------
Total from investment
operations................ 3.03 (2.71)
------- ------
Distributions:
From net investment
income.................... -0- -0-
From net realized gains on
investments............... -0- -0-
Return of capital........... -0- -0-
------- ------
Total distributions......... -0- -0-
------- ------
Net asset value, end of
period.................... $ 14.61 $11.58
------- ------
------- ------
Total Return(3)............... 26.08% (18.96)%
Ratios to Average Net
Assets:(4)
Expenses.................... 3.60% 4.30%
Net investment loss......... (3.28)% (4.06)%
Supplemental Data:
Net Assets, end of period
(000 omitted)............. $10,221 $8,107
Portfolio turnover rate..... 9.37% 17.89%
</TABLE>
- ------------------------
1 Commencement of operations.
2 Net investment loss per share was calculated using the average shares
method.
3 Total Return represents the return that an investor would have earned on an
investment in the Fund (assuming investment in the Fund the first day of the
fiscal year, and reinvestment of all dividends and distributions). It
excludes the effect of sales load. This ratio has not been annualized.
4 Ratios have been annualized.
See notes to financial statements.
11
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
Notes To Financial Statements--April 30, 1999 (Unaudited)
NOTE 1--GENERAL
The Chapman Funds, Inc. (the "Company"), is an open-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act"),
containing diversified and non-diversified series. The Company currently offers
six series; DEM Equity Fund (the "Fund"), DEM Index Fund, DEM Fixed Income Fund,
DEM Multi Manager Equity Fund, U.S. Treasury Money Fund, and Institutional Cash
Management Fund.
The Fund is a non-diversified portfolio that seeks aggressive long-term growth
through capital appreciation from investments in companies that are controlled
by African Americans, Asian Americans, Hispanic Americans or women ("DEM
Companies"). The Fund, which commenced operations on April 8, 1998, offers two
classes of shares, Institutional Shares and Investor Shares. The Institutional
Shares are sold without a sales load, and the Investor Shares have a maximum
4.75% front-end sales load.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund.
Security Valuation--Portfolio securities primarily traded on an exchange are
valued at the last quoted sales price for that day. Securities 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 an independent pricing service or as determined in good faith by
the Board of Directors. Investments in short-term securities having a maturity
of 60 days or less are valued at amortized cost.
Federal Income Taxes--No provision for federal income taxes has been made since
the Fund intends to qualify as a Regulated Investment Company under Subchapter M
of the Internal Revenue Code and distribute all of its taxable income.
Deferred Organization Costs--Costs incurred in connection with the Fund's
organization have been capitalized and will be amortized on a straight-line
basis over a five-year period.
Securities Transactions, Investment Income, Distributions, and Other--The Fund
accounts for security transactions on a trade date basis. Realized gains and
losses on sales of securities are determined using the specific identification
method for both financial and income tax reporting purposes. Interest income and
expenses are recorded on an accrual basis. Income and common expenses are
allocated on a daily basis to each class based on its respective net assets.
Class specific expenses are charged directly to each class. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Use of Estimates in the Preparation of Financial Statements--The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 3--INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES
Chapman Capital Management, Inc. ("CCM"), a wholly-owned direct subsidiary of
Chapman Capital Management Holdings, Inc., is the investment adviser for the
Fund. The Fund pays CCM an advisory fee at an annual rate of .9 of 1% of the
Fund's average weekly net assets, and an administration fee at an annual
12
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 1999 (UNAUDITED)
NOTE 3--INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES
(CONTINUED)
rate of .15 of 1% of the Fund's average weekly net assets. For the six months
ended April 30, 1999 expenses payable to CCM for advisory and administrative
services was $51,500.
First Data Investor Services Group ("First Data") serves as the Fund's Transfer
and Dividend Paying Agent (the "Transfer Agent"), and Accounting Agent pursuant
to an Investment Company Services Agreement. As compensation for transfer agent
services, the Fund pays First Data an account fee plus an additional class fee.
As compensation for its accounting services, the Fund pays First Data a fee
based on its average daily net assets plus an additional class fee.
For the six months ended April 30, 1999, The Chapman Co., an affiliate of CCM,
earned commissions on sales of Investor Shares of $6,736, and received brokerage
commissions related to Fund portfolio transactions of $3,915
Pursuant to Rule 12b-1 under the 1940 Act, the Distributor receives a fee under
the Investor Shares Distribution Plan for stockholder service and distribution
services at an annual rate 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. The Distributor has voluntarily limited such fee of the Fund to an
aggregate of .50% of average daily net assets (up to .25% service fee and .25%
distribution fee). These voluntary limits are not contractual and could change.
For the six months ended April 30, 1999, total distribution fees waived was
$12,295. The Distributor also receives a fee under the Institutional Shares
Distribution Plan for stockholder administrative and distribution services at an
annual rate of .25% of the average daily net assets of the Fund attributable to
the Institutional Shares. At April 30, 1999 expenses payable to The Chapman Co.
for distribution services was $2,079.
NOTE 4--CAPITAL SHARE TRANSACTIONS
The Chapman Funds, Inc. is authorized to issue 10 billion full and fractional
shares of common stock, par value $.001 per share, of which 1 billion shares are
designated as DEM Equity Institutional Shares, and 1 billion shares are
designated as DEM Equity Investor Shares. Transactions in shares of the
respective classes were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
APRIL 30, 1999
------------------------------------
<S> <C> <C>
INSTITUTIONAL
SHARES INVESTOR SHARES
------------------- ---------------
Shares sold.................................................................. -- 10,532
Shares issued as reinvestment of dividends................................... -- --
Shares repurchased........................................................... -- 1,095
------ ------
Net increase in shares outstanding........................................... -- 9,437
------ ------
------ ------
</TABLE>
NOTE 5--INVESTMENT TRANSACTIONS
Excluding short-term obligations, purchases of investment securities aggregated
$918,589 and proceeds from sales aggregated $973,241 during the six months
ending April 30, 1999.
13
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 1999 (UNAUDITED)
NOTE 5--INVESTMENT TRANSACTIONS (CONTINUED)
The following balances are as of April 30, 1999:
<TABLE>
<CAPTION>
TAX BASIS TAX BASIS
(NET) TAX BASIS (GROSS) (GROSS)
COST FOR FEDERAL UNREALIZED UNREALIZED UNREALIZED
INCOME TAX PURPOSES APPRECIATION APPRECIATION (DEPRECIATION)
------------------- -------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
DEM Equity Fund.................. $ 9,934,974 $ 318,152 $ 1,846,939 ($1,528,787)
</TABLE>
NOTE 6--DIRECTOR'S FEES AND RELATED PARTIES
Certain officers and directors of the Company are "affiliated persons", as
defined in the Investment Company Act of 1940, of the adviser. For the six
months ended April 30, 1999, these "affiliated persons" did not receive any
compensation from the Company.
Those directors who are not officers of the Company receive $1,000 compensation
plus certain expenses from the Company for each Board of Directors meeting they
attend. Total compensation and expenses paid to directors for the six months
ended April 30, 1999 were $7,495.
14
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THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY TO SHAREHOLDERS AND TO OTHERS
WHO HAVE RECEIVED A COPY
OF THE DEM EQUITY FUND PROSPECTUS
[LOGO]
THE CHAPMAN FUNDS
A MEMBER OF THE CHAPMAN GROUP OF COMPANIES
TRANSFER AND DIVIDEND PAYING AGENT
AND ACCOUNTING AGENT:
FIRST DATA INVESTOR SERVICES GROUP, INC.
3200 HORIZON DRIVE
PO BOX 61503
KING OF PRUSSIA, PA 19406
(800) 441-6580
INVESTMENT ADVISOR:
CHAPMAN CAPITAL MANAGEMENT, INC.
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET, 28(TH) FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
CUSTODIAN:
UMB BANK, N.A.
928 GRAND AVENUE
KANSAS CITY, MISSOURI 64141-6226
DISTRIBUTOR:
THE CHAPMAN COMPANY
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET, 28(TH) FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
FOR SHAREHOLDER INQUIRIES CALL THE CHAPMAN CO. AT 1-800-752-1013
OR
FIRST DATA INVESTOR SERVICES GROUP, INC. AT 1-800-441-6580
