CHAPMAN FUNDS INC, 485APOS, 1999-07-15

CHAPMAN FUNDS INC
485APOS, 1999-07-15

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As filed with the Securities and Exchange Commission on July 15, 1999
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. 21
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT TO COMPANY ACT OF 1940

X Amendment No. 23
---

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
<TABLE>
<S> <C>

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)
</TABLE>

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, 1998 was filed with
Securities and Exchange Commission on January 27, 1999.

<PAGE>
SUBJECT TO COMPLETION
Preliminary Prospectus dated: July 15, 1999

[LOGO]

, 1999

DEM MULTI-MANAGER BOND FUND
INVESTOR SHARES

DEM Multi-Manager Bond Fund is a series of The Chapman Funds, Inc. The fund
is a non-diversified portfolio that seeks high current income with the potential
for capital appreciation through investment in income securities of companies
identified through the Company's domestic emerging markets or DEM Multi-Manager
strategy. Under the DEM Multi-Manager strategy, the assets of the fund are
managed by multiple sub-advisers selected by the fund's investment adviser,
Chapman Capital Management, Inc. Such sub-advisers 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. The fund's portfolio will have no maturity
restrictions and the average portfolio maturity will be in the judgement of the
fund's sub-advisers. The fund may invest up to 35% of its net assets in lower
grade fixed income securities commonly referred to as "junk bonds" which involve
a high degree of risk and are predominantly speculative. The Company also may
utilize leverage.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Domestic Emerging Markets-Registered Trademark- and
DEM-Registered Trademark- are registered trademarks and the stylized C-Eagle
Logo-TM-, DEM Profile-TM-, DEM Universe-TM-, DEM Company-TM- DEM Index-TM- and
DEM Multi-Manager-TM- are trademarks of Nathan A. Chapman, Jr.

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.

A DOMESTIC EMERGING MARKETS INVESTMENT OPPORTUNITY
<PAGE>
CONTENTS

<TABLE>
<S> <C>
THE FUND--AN OVERVIEW................................................................. 3
Investment Objectives and Principal Investment Strategies........................... 3
The DEM Multi-Manager Strategy...................................................... 3
Principal Risks..................................................................... 3
Fund Expenses....................................................................... 4

YOUR ACCOUNT.......................................................................... 6
Purchasing Shares................................................................... 6
How Sales Charges are Calculated.................................................... 8
Sales Charges Reductions............................................................ 8
Redeeming Shares.................................................................... 8
Keeping Your Account Open........................................................... 9
How and When Shares Are Priced...................................................... 9
How Your Purchase or Redemption Price is Determined................................. 9

DISTRIBUTIONS AND TAXES............................................................... 10
Dividends and Other Distributions................................................... 10
Tax Information..................................................................... 10

MANAGEMENT............................................................................ 11
The Investment Adviser.............................................................. 11
The Management Fee.................................................................. 11
Portfolio Management/The Sub-Advisers............................................... 11
Distribution........................................................................ 13
Brokerage........................................................................... 13
Stockholder Services................................................................ 13
Custodian........................................................................... 14

INVESTMENT PROGRAM.................................................................... 15
Types of Portfolio Securities....................................................... 15
Types of Management Practices....................................................... 16
Other Investment Limitations........................................................ 17
The Year 2000 Processing Issue...................................................... 18
</TABLE>

2
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THE FUND -- AN OVERVIEW

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

The fund's investment portfolio will seek high current income with the
potential for capital appreciation through investment in income securities such
as preferred stock, bonds, debentures, notes, and other similar securities. The
fund's portfolio will have no maturity restrictions and the average portfolio
maturity will be in the judgment of the fund's sub-advisers. To a limited
extent, the fund may also invest in equity securities. For temporary defensive
purposes, the fund may invest some or all of its assets in cash or money market
instruments.

THE DEM MULTI-MANAGER STRATEGY

The fund's portfolio investments are identified through the DEM
Multi-Manager strategy. Under this strategy, the assets of the fund are managed
by multiple sub-advisers recommended by Chapman Capital Management, Inc.
("CCM"), the fund's investment adviser, and approved by the Board of Directors.
Such sub-advisers 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. The
sub-advisers will not consider the DEM Profile in making investment decisions
for the fund's portfolio, so CCM does not expect income securities of companies
that meet the DEM Profile to constitute a large percentage of the fund's
portfolio.

In determining whether a specific investment management firm is controlled
by African Americans, Asian Americans, Hispanic Americans or women, CCM applies
one of the following criteria:

- At least 10% of the company's outstanding voting securities must be
beneficially owned by members of one or more of the listed groups.

- At least one of the company's top three executive officers (Chairman,
Chief Executive Officer or President) must be a member of one or more of
the listed groups.

CCM will track the performance of each of the fund's sub-advisers and will
have the discretion to allocate assets among the fund's sub-advisers, identify
and recommend new sub-advisers to the Board of Directors and terminate existing
sub-advisory relationships. Each sub-adviser 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. 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-adviser's performance during a period in
which such sub-adviser's approach is less successful. Although there may be some
overlap of investment styles, each sub-adviser will pursue its approach
independently of the other sub-advisers. Because the sub-advisers will act
independently, the performance of one or more sub-advisers is expected to dampen
the impact of any other sub-adviser's relatively adverse results. Conversely,
the successful results of a sub-adviser will be dampened by less successful
results of the other sub-advisers. There can be no assurance that the expected
advantages of the DEM Multi-Manager strategy will be realized.

PRINCIPAL RISKS

As with any fixed income mutual fund, the value of your investment will
fluctuate in response to price movements in the bond market. Therefore, when you
sell your shares, you may lose money. AN INVESTMENT IN THE FUND IS NOT A DEPOSIT
OF A BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. The principal sources of risk for
the fund are as follows:

- MARKET OR INTEREST RATE RISK The decline in bond prices that usually
accompanies a rise in interest rates. Longer maturity bonds typically
suffer greater declines than those with shorter maturities.

3
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- CREDIT RISK The chance that a portfolio security could have its credit
rating downgraded (due to such factors as changes in the issuer's
financial situation, economic forecasts, stock market conditions, and
overall market psychology) or that a bond issuer will default (the failure
of an issuer to make timely payments of interest or principal),
potentially reducing the fund's income level and share price. High quality
bonds such as Treasury bonds and investment grade bonds have less credit
risk than high-yield bonds (securities rated in the lower rating
categories of recognized statistical rating agencies, such as securities
rated "CCC or lower by S&P or "Caa" or lower by Moody's or non-rated
securities of comparable quality). High yield bonds are speculative since
their issuers are more vulnerable to financial setbacks and recession than
more credit worthy companies and are often referred to in the financial
press as "junk bonds." BBB-rated bonds (and especially split-rated ones)
may have speculative elements as well. High-yield bond issuers include
small companies lacking the history or capital to merit investment-grade
status, former blue chip companies downgraded because of financial
problems, and firms with heavy debt loads. The fund's credit risk is
greater than that of a Treasury fund or one with all high-quality bonds,
but less than a fund focusing entirely on high-yield bonds.

- DERIVATIVE RISK The fund may hold derivative securities to hedge or
enhance a particular type of exposure, such as to rising or falling
interest rates. Since some derivatives are unusually volatile, a small
position can cause a significant loss.

- LEVERAGE RISK The fund may borrow to invest in additional securities. 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.

- ILLIQUIDITY RISK The fund may invest in securities that are illiquid by
virtue of the absence of a readily available market and securities that
are restricted securities as defined under the Securities Act. These
securities are less liquid than publicly traded securities meaning that
large transactions can cause substantial price changes. The fund may take
longer to liquidate these positions than would be the case for publicly
traded securities. Difficulty in selling these securities may result in a
loss or may be costly to the fund.

The fund is categorized as "non-diversified" under the Investment Company
Act of 1940. This means that as compared to other funds, the fund may invest a
greater percentage of its total assets in a particular issuer, which subjects
the fund to greater risk with respect to its portfolio securities.

If you are a long-term, risk-oriented investor seeking a high level of
current income and some appreciation potential, the fund could be an appropriate
part of your overall investment strategy. If you are investing for principal
safety and liquidity, you should consider a money market fund. The fund should
not represent your complete investment program or be used for short-term trading
purposes.

FUND EXPENSES

The numbers in Table 1 describe the fees and expenses that you may pay if
you buy and hold shares in the fund. The expenses and fees set forth in the
table are estimates for the first full fiscal year of the fund and are expressed
as a percentage of estimated average daily net assets during such period.

4
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TABLE 1 ANNUAL FUND OPERATING EXPENSES

<TABLE>
<S> <C>
ESTIMATED SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price)......................................................................... 4.75%
Maximum Deferred Sales Charge (Load)............................................. -0-%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions.................................................................. -0-%
Redemption Fee (1)............................................................... -0-%

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fee................................................................... 1.25%
Distribution (12b-1) Fee (2)..................................................... .75%
Other Expenses (3)............................................................... 1.16%
Total Annual Fund Operating Expenses (3)......................................... 3.16%
</TABLE>

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(1) The fund imposes a $9.00 charge only on redemptions by wire transfer.

(2) The Chapman Co., the fund's 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 offered by this
Prospectus. The Chapman Co. has voluntarily limited such fee to an aggregate
of .50% (up to .25% service fee and .25% distribution fee) of average daily
net assets until at least October 31, 2000. However, there is no guarantee
that The Chapman Co. will continue to voluntarily limit the amount of such
fee beyond October 31, 2000.

(3) Amount includes estimates of expenses for the first full fiscal year of the
fund. CCM, the fund's investment advisor, has voluntarily agreed to limit
the total annual operating expenses of the fund, solely attributable to the
Investor Shares offered by this Prospectus, to 3.00% of average daily net
assets until at least December 31, 2000. However, there is no guarantee that
CCM will continue to voluntarily limit the total annual operating expenses
of the fund attributable to the Investor Shares beyond December 31, 2000.

Because of the 12b-1 fee, long-term stockholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.

EXAMPLE. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in the
fund with the cost of investing in other funds. Although your actual costs may
be higher or lower, the table shows expenses you would pay if operating expenses
remain the same, you invest $10,000, you earn a 5% annual return, and you hold
the investment for the following periods.

<TABLE>
<CAPTION>
INVESTOR SHARES
---------------
<S> <C>
1 Year*....................................................................... $ 779
3 Years*...................................................................... $ 1,403
</TABLE>

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* The Chapman Co. has voluntarily limited its fees for stockholder servicing
and distribution services to an aggregate of .50% of average daily net
assets of the fund attributable to the Investor Shares until at least
October 31, 2000. CCM, the fund's investment advisor, has voluntarily agreed
to limit the total annual operating expenses of the fund attributable to the
Investor Shares to 3.00% of average daily net assets until at least December
31, 2000. Based on the fee waiver of The Chapman Co. and CCM's voluntary
expense limitation, the estimated expenses set forth in the table above
would be $764 and $1,358 for the one year and three year periods,
respectively.

5
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YOUR ACCOUNT

PURCHASING SHARES

You may purchase shares of the fund by mail, by telephone, by bank wire, by
automatic investment from your bank account or through your broker-dealer or
bank. The fund requires a minimum initial investment of $25, and minimum
subsequent investments of $25. The fund reserves the right to vary the initial
investment minimum and minimums for subsequent investments at any time.

In addition, you may also purchase shares by exchanging shares of the fund
for shares in other DEM funds if the exchange is to an existing account and both
accounts are registered in the same name. Exchanges are subject to the $25
minimum investment.

The following table presents some procedures you should know about when
investing in the fund.

BY MAIL

To make an initial investment, send the fund's application and your check
to:

DEM Multi-Manager Bond Fund Investor Shares
c/o First Data Investor Services Group Inc.
211 S. Gulph Road
P.O. Box 61503
King of Prussia, PA 19406

To make a subsequent investment in an existing account, send the stub from
your account statement and your check to:

First Data Investor Services Group Inc.
P.O. Box 61767
King of Prussia, PA 19406

Please make your check payable to DEM Multi-Manager Bond Fund Investor
Shares.

BY WIRE

To make a same day wire investment, call (800) 752-1013 by 12 noon (Eastern
Time).

The following information will be required to open an account:

- Name and address for account registration

- Tax identification number

- Amount of wire transfer

- Name of bank

Call your bank with instructions to transmit funds to:

Boston Safe Deposit & Trust
ABA #011001234
Credit: (Insert name of Fund)
FBO: (Insert Shareholder name and account number)

Your bank may charge a wire fee.

To open a new account, you should mail your completed application to The
Chapman Funds, Inc.

6
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BY AUTOMATIC INVESTMENT

Shares of the fund may be purchased through our "Automatic Investment
Option" by completing the "Automatic Investment Option" section of the
investment application. The Automatic Investment Option provides a convenient
method by which investors may have monies deducted directly from their checking,
savings or bank money market accounts for investment in the fund. The minimum
investment is $25 per month. The account designated will be debited in the
specified amount, on the date indicated, and fund shares will be purchased. Only
an account maintained at a domestic financial institution which is an Automated
Clearing House member may be so designated. The fund may alter, modify or
terminate this Plan at any time.

THROUGH A BROKER-DEALER, BANK OR BANK AND TRUST DEPARTMENT

To have a broker-dealer, bank or bank and trust department initiate a
purchase of shares of the fund, complete the "Investment Dealer Information"
section of the investment application.

The fund may accept telephone orders from broker-dealers or service
organizations that it has previously approved.

Your broker-dealer, bank or bank and trust department may charge you a fee
for this service.

BY EXCHANGE

To request an exchange of shares of one fund into shares of another DEM fund
offered by The Chapman Funds, Inc., call (800) 441-6580 or send a written
request to:

DEM Multi-Manager Bond Fund Investor Shares
c/o First Data Investor Services Group Inc.
211 S. Gulph Road
P.O. Box 61503
King of Prussia, PA 19406

NOTE: An exchange must be made by mail if a new account must be opened or
the accounts are not identically registered.

IMPORTANT INFORMATION ABOUT EXCHANGE PRIVILEGES

- If you exchange shares of one fund for shares of another DEM fund by
telephone, the new shares will be registered in the same manner as the
shares for which they were exchanged.

- A fund may change or cancel exchange policies at any time, upon 60 days'
notice to stockholders and can terminate the telephone exchange privilege
at any time.

- An exchange of shares is treated like a sale of those shares; therefore,
you may realize capital gain or loss for federal income tax purposes when
shares are exchanged.

- Exchanges will be required to meet the minimum initial investment
requirement of each fund.

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HOW SALES CHARGES ARE CALCULATED

Sales charges on purchases of shares of the fund are calculated as follows:

<TABLE>
<CAPTION>
TOTAL SALES LOAD
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<S> <C> <C> <C>
DEALER'S REALLOWANCE
AS A % OF AS A % OF AS A % OF OFFERING
AMOUNT OF TRANSACTION OFFERING PRICE YOUR INVESTMENT PRICE
- ------------------------------------------------------------ ----------------- ----------------- -----------------------
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 sales charge schedule 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. The fund's distributor, The Chapman Co., will pay the
appropriate dealer concession to those selected dealers who have entered into an
agreement with The Chapman Co. The Chapman Co. may change these dealer
concessions from time to time, as well as offer incentives to dealers allowing
such dealers to retain an additional portion of the sales load.

SALES CHARGE REDUCTIONS

There are two ways you can combine multiple purchases of shares of the fund
to take advantage of the breakpoints in the sales charge schedule.

- RIGHT OF ACCUMULATION -- lets you add the value of any shares you already
own to the amount of your next investment for purposes of calculating the
sales charge. You must notify the fund's transfer agent at the time of
purchase to qualify for reduced sales loads.

- LETTER OF INTENT -- lets you purchase shares of the fund over a 13-month
period and receive the same sales charge as if all shares had been
purchased at once. A minimum initial purchase of $5,000 is required.

To use either of these methods, contact First Data Services, Inc. (the
fund's transfer agent; "First Data").

REDEEMING SHARES

You may redeem your shares at any time by mail, by telephone or by wiring
instructions (which must include the stockholder's name and account number).

You may also redeem your shares through certain brokers, financial
institutions or service organizations, banks and bank and trust departments.
These third parties may charge you a transaction fee or other fee for their
services at the time of redemption.

HOW YOU CAN RECEIVE PROCEEDS FROM A REDEMPTION

If First Data receives your request by 4 p.m. (Eastern Time) in correct
form, proceeds are usually sent within one business day. Proceeds can be sent to
you by mail or by wire. There is a $9.00 charge for redemptions by wire which
will be deducted from your redemption proceeds.

Under certain circumstances and when deemed to be in the fund's best
interests, your proceeds may not be sent for up to seven days after First Data
receives your sale or exchange request.

8
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If you redeem shares that you just purchased and paid for by check, First
Data will process your redemption request but will generally delay sending you
the proceeds for up to 15 days to allow the check to clear. This hold does not
apply to certified and cashier's checks.

REDEMPTIONS OVER $250,000

Large sales can adversely affect the ability of CCM and the sub-advisers to
implement the fund's investment strategy by causing the premature sale of
securities that would otherwise be held. If, in any 90-day period, you redeem
more than $250,000, or your sale amounts to more than 1% of fund net assets, the
fund has the right to pay the difference between the redemption amount and the
lesser of the two previously mentioned figures with securities from the fund.

KEEPING YOUR ACCOUNT OPEN

Due to the relatively high cost to the fund of maintaining small accounts,
we ask you to maintain an account balance of at least $25. If your balance is
below $25, we have the right to close your account after giving you 60 days in
which to increase your balance.

HOW AND WHEN SHARES ARE PRICED

The share price (also called "net asset value" or "NAV") for the fund is
generally calculated at 4 p.m. (Eastern Time) each day The New York Stock
Exchange is open for business. To calculate the NAV of the investor shares, the
investor shares' pro rated share of fund assets are valued and totaled, the
investor shares' pro rated share of fund liabilities are subtracted, and the
balance, called net assets, is divided by the number of investor shares
outstanding. In general, the fund's assets are valued at their market price.

HOW YOUR PURCHASE OR REDEMPTION PRICE IS DETERMINED

If First Data receives your request to purchase, redeem or exchange shares
in the fund in the correct form by 4 p.m. (Eastern Time), your transaction will
be priced at that day's NAV. If First Data your request after 4 p.m., your
transactions will be priced at the next business day's NAV.

NOTE: THE TIME AT WHICH TRANSACTIONS AND SHARES ARE PRICED AND THE TIME
UNTIL WHICH ORDERS ARE ACCEPTED MAY BE CHANGED IN CASE OF AN EMERGENCY OR IF THE
NEW YORK STOCK EXCHANGE CLOSES AT A TIME OTHER THAN 4 P.M.

9
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DISTRIBUTIONS AND TAXES

DIVIDENDS AND OTHER DISTRIBUTIONS

Dividend distributions are reinvested in additional fund shares in your
account unless you select another option on your investment application. The
advantage of reinvesting distributions arises from compounding; that is, you
receive income dividends and capital gain distributions on a rising number of
shares.

- The fund declares dividends daily to stockholders of record as of 12 noon
(Eastern Time) on that day. The fund will also credit stockholders with a
dividend on the business day on which a purchase order for the shares is
effective, provided that you notify the fund of your intention to invest
by 12 noon and the fund receives a wire payment by 4 p.m.

- Fund shares will earn dividends through the date of redemption.

TAX INFORMATION

You need to be aware of the possible tax consequences when:

- You redeem fund shares, including an exchange from one fund to another

- The fund makes a distribution to your account.

TAXES ON REDEMPTIONS

When you sell or redeem shares in the fund, you may realize a gain or loss.
An exchange from the fund to another DEM fund is still a redemption for tax
purposes.

After the end of its tax year, the fund will send you Form 1099-B indicating
the date and amount of each redemption made in the fund during the prior year.
The fund will also report this information to the IRS.

TAXES ON DISTRIBUTIONS

Distributions are taxable whether reinvested in additional shares or
received in cash. Dividends from the fund's long-term capital gains may qualify
as capital gains and may be taxed at preferential income tax rates. Dividends
from other sources are generally taxable as ordinary income.

After the end of its tax year, the fund will send you Form 1099-DIV
indicating the tax status of any dividend and capital gain distributions made to
you. The fund will also report this information to the IRS. Distributions made
by the fund are generally taxable to you for the year in which they were paid.
Certain dividends paid in January, however, may be taxable as if they had been
paid in the previous December.

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MANAGEMENT

THE INVESTMENT ADVISER

CCM serves as the fund's investment adviser pursuant to an advisory and
administrative services agreement with the fund. CCM was established in 1988 and
is located at the World Trade Center -- Baltimore, 28th Floor, 401 East Pratt
Street, Baltimore, Maryland 21202.

CCM has overall responsibility for assets under management, provides overall
investment strategies and programs for the fund, recommends new sub-advisers to
the Board of Directors, allocates assets among existing sub-advisers, monitors
and evaluates the performance of existing sub-advisers and manages short-term
investments for the fund.

CCM has been an investment adviser since 1988. CCM served as the investment
adviser of DEM, Inc., a closed-end company, from 1995 until its dissolution in
1998 and currently serves as the investment adviser for The Chapman US Treasury
Money Fund, DEM Equity Fund, DEM Index Fund, DEM Fixed Income Fund and DEM
Multi-Manager Equity Fund, five other series of The Chapman Funds, Inc. DEM
Fixed Income Fund and DEM Multi-Manager Equity Fund are not currently active. In
addition, CCM serves as portfolio manager to private accounts. As of March 31,
1999, CCM had approximately $637 million in assets under management.

Nathan A. Chapman, Jr. who has been the President and Chief Executive
Officer of CCM since 1988, is primarily responsible for supervision of the
performance of the sub-advisers 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 founded The Chapman Co., the fund's
distributor, in 1987 and has been President and Chairman of the Board since its
inception. The Chapman Co. is a full-service brokerage and investment banking
firm. As Mr. Chapman is the president of a brokerage and investment banking
firm, he does not devote his full time to the management of the fund's
portfolio.

THE MANAGEMENT FEE/EXPENSE REIMBURSEMENT

The fund pays CCM an annual advisory fee of 1.25% of the fund's average
weekly net assets and an administration fee of .15% of the fund's average weekly
net assets. Both fees are calculated weekly and paid monthly.

CCM has voluntarily agreed to limit the total annual operating expenses of
the fund, solely attributable to the Investor Shares offered by this Prospectus,
to 3.00% of average daily net assets until at least December 31, 2000. However,
there is no guarantee that CCM will continue to voluntarily limit the total
annual operating expenses of the fund attributable to the Investor Shares beyond
December 31, 2000.

PORTFOLIO MANAGEMENT/THE SUB-ADVISERS

Under the DEM Multi-Manager strategy, the assets of the fund are managed by
multiple sub-advisers selected by CCM. These sub-advisers enter into individual
sub-advisory agreements with the fund. Each sub-adviser 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-adviser's investment approach and strategies. A sub-adviser may direct fund
transactions to the fund's distributor, The Chapman Co. or a broker that is an
affiliate of such sub-adviser.

All sub-advisers recommended by CCM and approved by the Board of Directors
must meet the DEM Profile. In determining whether a specific investment adviser
is "controlled" by African Americans, Asian Americans, Hispanic Americans or
women and therefore meets the DEM Profile, CCM applies one of the following
criteria:

- At least 10% of the investment adviser's outstanding voting securities
must be beneficially owned by member of one or more of the listed groups,
or

11
<PAGE>
- At least one of the investment adviser'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 advisers through
research by the CCM. 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 advisers that have registered as minority or
women-owned business enterprises or are recognized as such by government
agencies; reviews of business lists compiled by magazines and other publications
which list DEM Profile companies; examination of investment advisers that
generally market themselves as DEM Profile companies; and reviews of annual
reports and other regulatory filings.

After identifying investment advisers that fit the DEM Profile, CCM applies
additional criteria in the selection and retention of sub-advisers, including:
(1) their historical performance records; (2) an investment approach that is
distinct in relation to the approaches of the fund's other sub-advisers; (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-adviser to apply its approach consistently. The fund's sub-advisers may not
necessarily exhibit all of these criteria to the same degree.

From its own management fee, CCM pays each sub-adviser a monthly management
fee of .35 of 1% of the value of the fund's average weekly net assets allocated
to the sub-adviser 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, CCM and each of the
investment advisers listed below to serve as sub-advisers of the fund. CCM will
allocate the fund's assets among these sub-advisers. In its discretion, CCM may
allocate as much as 100 percent or as little as 0 percent of the fund's assets
to any one sub-adviser.

The fund and CCM are seeking an exemption from the SEC that will permit CCM
to retain additional sub-advisers, terminate existing sub-advisers, 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 the prospectus and statement of additional information with
information about new sub-advisers 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-adviser or materially
amending a sub-advisory agreement, it will give its stockholders written notice
of such addition or material change.

The current sub-advisers of the fund are as follows:

<TABLE>
<S> <C>
Hughes Capital Management, Inc. African-American/Women
315 Cameron Street
Alexandria, VA 22314
</TABLE>

Hughes Capital Management, Inc. was founded as a fixed income investment
advisor in August 1993. The firm is dedicated exclusively to providing fixed
income portfolio management and advisory services to private sector and public
funds. Hughes has approximately $620 million in assets under management as of
March 31, 1999. The portfolio managers assigned to the fund are Frankie D.
Hughes, principal and Chief Investment Officer, who has over 18 years
professional investment experience and Charles L. Curry, Jr., Portfolio Manager,
who has 10 years of professional investment experience. Prior to forming Hughes
Capital Management, Inc. in 1993, Ms. Hughes was Director of Asset Management
and a member of the Investment Policy Committee for WR Lazard & Co. Prior to
joining Hughes in April 1998, Mr. Curry was

12
<PAGE>
a member of a five-person investment team that managed a $5 billion total return
bond portfolio at Sovran Capital Management, a wholly-owned subsidiary of
NationsBank.

<TABLE>
<S> <C>
MDL Capital Management, Inc. African-American
225 Ross Street, 3(rd) Floor
Pittsburgh, PA 15219
</TABLE>

MDL Capital Management, Inc. was founded as a fixed income investment
advisor in 1993 and has approximately $1.1 billion in assets under management as
of March 31, 1999. MDL uses a disciplined team approach to actively manage its
portfolios. Day to day management of the fund's assets assigned to MDL is the
responsibility of MDL's investment committee.

<TABLE>
<S> <C>
NCM Capital Management Group, Inc. African-American
103 W. Main Street, Suite 400
Durham, NC 27701-3638
</TABLE>

NCM Capital Management Group, Inc. was founded in 1986, has been a fixed
income investment advisor since 1987 and has approximately $4.5 billion in
assets under management as of March 31, 1999. NCM provides equity, fixed income
and balanced portfolio management services to over sixty-five clients
representing all sectors of the institutional investment management industry,
including acting as sub-advisor to investment companies registered under the
Investment Company Act of 1940. The portfolio manager assigned to the fund is
Paul Van Kampen, NCM's Director of Fixed Income, who has over four years
experience with NCM Capital Management in providing fixed income investment
advice. Prior to joining NCM, Mr. Van Kampen was Executive Director of Aon
Advisors, Inc. for eight years.

<TABLE>
<S> <C>
Seix Investment Advisors, Inc. Hispanic/Women
300 Tice Boulevard
Wookcliff Lake
</TABLE>

Seix Investment Advisors, Inc. was founded as a fixed income investment
advisor in 1992 and has approximately $3.7 billion in assets under management as
of March 31, 1999. Seix is an opportunistic, bottom-up, value manager that
invests in the U.S. fixed income market. Day to day management of the fund's
assets assigned to Seix is the responsibility of Seix "s investment committee.

DISTRIBUTION

The Chapman Co., an affiliated broker-dealer of CCM and the fund,
distributes (sells) shares of the fund and all other DEM funds.

The fund has adopted a plan under rule 12b-1 of the Investment Company Act
of 1940 pursuant to which the fund pays The Chapman Co. a service fee and a
distribution fee to cover the sale of its shares and for services provided to
stockholders. The 12b-1 fee paid by the fund is detailed in the Fund Expenses
section of this prospectus.

BROKERAGE

In placing portfolio trades, CCM and the sub-advisers may use The Chapman
Co., or a broker-dealer affiliated with one or more sub-advisers, but only when
CCM or the sub-advisers believe no other firm offers a better combination of
quality execution (i.e., timeliness and completeness) and favorable price.

STOCKHOLDER SERVICES

13
<PAGE>
purchase and redemption requests. Stockholder inquiries should be addressed to
First Data at 211 S. Gulph Rd., P.O. Box 61503, King of Prussia, Pennsylvania
61503 or (800) 441-6580.

CUSTODIAN

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

14
<PAGE>
INVESTMENT PROGRAM

This section takes a detailed look at some of the types of securities the
fund may hold in its portfolio and the various kinds of investment practices
that may be used in day-to-day portfolio management. The fund's investment
program is subject to further restrictions and risks described in the Statement
of Additional Information.

TYPES OF PORTFOLIO SECURITIES

Under normal circumstances, the fund will invest at least 65% of the value
of its non-cash total assets in corporate income securities. The fund may invest
up to 35% of its net assets in lower grade fixed income securities commonly
referred to as "junk bonds" and up to 20% of its net assets in equity
securities. While the fund intends to concentrate on publicly-traded securities,
the fund may invest up to 15% of its net assets in illiquid securities. Illiquid
securities include those securities that are illiquid because they have no
readily available market or because they are restricted securities under Rule
144 of the Securities Act of 1933. The fund may also invest up to 10% of its
total assets in private venture capital funds, including United States limited
partnerships or other investment funds that themselves invest in illiquid
securities. This 10% investment limitation is part of the 15% investment
limitation that applies to illiquid securities in general.

For temporary defensive purposes in attempting to respond to adverse market,
economic, political, or other conditions, the fund may invest some or all of its
assets in cash or investment-grade short-term debt securities. Such investment
practices are inconsistent with the fund's principal investment strategies and,
to the extent it implements such practices, the fund may not achieve its
investment objectives.

DEBT SECURITIES

Bonds and other debt instruments are used by issuers to borrow money from
investors. The issuer generally pays the investor a fixed, variable, or floating
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are sold
at a discount from their face values.

U.S. Government Securities are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government. Not all U.S. Government securities are backed by the full faith and
credit of the United States. For example, U.S. Government securities such as
those issued by Fannie Mae are supported by the instrumentality's right to
borrow money from the U.S. Treasury under certain circumstances. Other U.S.
Government securities such as those issued by the Federal Farm Credit Banks
Funding Corporation are supported only by the credit of the entity that issued
them.

Asset-Backed Securities include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value of these
securities depends on many factors, including changes in interest rates, the
availability of information concerning the pool and its structure, the credit
quality of the underlying assets, the market's perception of the servicer of the
pool, and any credit enhancement provided. In addition, these securities may be
subject to prepayment risk. Prepayment risk occurs when the issuer of a security
can prepay principal prior to the security's maturity. Securities subject to
prepayment risk generally offer less potential for gains during a declining
interest rate environment, and similar or greater potential for loss in a rising
interest rate environment. In addition, the potential impact of prepayment
features on the price of a debt security may be difficult to predict and result
in greater volatility.

Mortgage securities include interests in pools of commercial or residential
mortgages, and may include complex instruments such as collateralized mortgage
obligations and stripped mortgage-backed securities. Mortgage securities may be
issued by agencies or instrumentalities of the U.S. Government or

15
<PAGE>
by private entities. The price of a mortgage security may be significantly
affected by changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their prices highly volatile. Also, mortgage
securities, especially stripped mortgage-backed securities, are subject to
prepayment risk.

Stripped securities are the separate income or principal components of a
debt security. The risks associated with stripped securities are similar to
those of other debt securities, although stripped securities may be more
volatile and the value of certain types of stripped securities may move in the
same direction as interest rates. U.S. Treasury securities that have been
stripped by a Federal Reserve Bank are obligations issued by the U.S. Treasury.

Real estate-related instruments include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such as
changes in real estate values and property taxes, interest rates, cash flow of
underlying real estate assets, overbuilding, and the management skill and
creditworthiness of the issuer. Real-estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.

EQUITY SECURITIES

Equity securities may include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, the most familiar type of equity
security, represent an ownership interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a portfolio company's financial condition and on overall
market and economic conditions. The prices of smaller capitalization companies
are especially sensitive to these factors.

TYPES OF MANAGEMENT PRACTICES

BORROWING MONEY AND PLEDGING ASSETS

The fund can borrow up to 33 1/3% of the value of net assets (excluding such
borrowings) from banks to take advantage of investment opportunities and may
pledge up to 33 1/3% of net assets (excluding such borrowings) to secure such
borrowings. The fund may also borrow an additional 5% of net assets (excluding
such borrowings) without regard to the 33 1/3% limitation for bank borrowings
for temporary purposes such as clearance of portfolio transactions and share
redemptions.

The use of borrowings by the fund may involve leverage that creates an
opportunity for increased net income, but also creates special risks. In
particular, if the fund borrows or otherwise uses leverage to invest in
securities, any investment gains made on the securities in excess of interest or
other amounts paid by the fund will cause the net asset value of the fund's
shares to rise faster than would otherwise be the case. On the other hand, if
the investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on borrowed money) to the fund, the net
asset value of the fund's shares will decrease faster than would otherwise be
the case.

SECURITIES LENDING/REPURCHASE AGREEMENTS

The fund may use various investment techniques for hedging, risk management
and other investment purposes. These techniques may include, but are not limited
to lending portfolio securities and entering into repurchase agreements. The
fund may invest up to 20% of its net assets pursuant to such techniques.

OPTIONS

Options (a type of potentially high-risk derivative) give the fund the right
(where the fund purchases the option), or the obligation (where the fund writes
(sells) the option), to buy or sell an asset at a predetermined price in the
future. A covered call option is a call option with respect to which the fund

16
<PAGE>
owns the underlying security. A put option is covered when, among other things,
cash or liquid securities are placed in a segregated account with the fund's
custodian to fulfill the obligation undertaken. The total market value of
securities against which the fund writes call or put options may not exceed 15%
of its total assets. The fund will not commit more than 15% of its net assets to
premiums when purchasing call or put options. Options may not always be
successful hedges and their prices can be highly volatile.

OTHER INVESTMENT LIMITATIONS

The following paragraphs describe additional investment policies and
limitations to which the fund adheres.

In order to change the investment policies and limitations set forth below,
as well as the investment objectives of the fund, which are designated as
"fundamental policies," the fund must obtain stockholder approval. In general,
the fund will not:

- Issue senior securities, borrow money or pledge its assets, except that
the fund may borrow from banks in amounts aggregating not more than
33 1/3% of the value of its net assets (excluding such borrowings), and
may pledge up to 33 1/3% of its net assets (excluding such borrowings) to
secure such borrowings, and the fund may borrow an additional 5% of its
net assets for temporary purposes.

- Engage in the business of underwriting securities issued by other persons
except that to the extent that the fund purchases or sells illiquid
securities or private funds, the fund may be deemed to be an underwriter
under the federal securities laws.

- Concentrate investments in particular industries (for purposes of
determining concentration in an industry, the fund's policy is to limit
its investment in any one industry to no more than 25% of the value of its
assets).

- Engage in the purchase and sale of real estate, except that the fund may
purchase and sell debt, debt securities and other instruments that are
secured by real estate and real estate acquired as a result of foreclosure
upon such instruments.

- Purchasing or selling commodities, except that the fund may enter into
futures contracts and options thereon and may invest in index futures
contracts, and options on index futures contracts to the extent that not
more than 5% of the fund's net assets are required as margin deposit for
futures contracts and not more than 15% of the fund's net assets are
invested in futures and options at any time.

- Lend money; however, the fund may purchase qualified (publicly distributed
bonds, debentures or other securities) debt obligations, enter into
repurchase agreements and lend its portfolio securities consistent with
the fund's investment objectives.

The fund also follows certain investment policies which can be changed
without stockholder approval. However, significant changes are discussed with
stockholders in fund reports. The fund adheres to applicable investment
restrictions and policies at the time it makes an investment. A later change in
circumstances will not require the sale of an investment if it was proper at the
time it was made.

PORTFOLIO TURNOVER

The fund generally purchases securities with the intention of holding them
for investment; however, when market conditions or other circumstances warrant,
the fund may purchase and sell securities without regard to the length of time
held. Due to the nature of the fund's investment program, the fund's portfolio
turnover rate may exceed 100%. Although the fund cannot accurately predict its
turnover rate for future years, it anticipates that its annual portfolio
turnover will not exceed 200%. A high turnover rate may increase transaction
costs and result in additional taxable gains.

17
<PAGE>
THE YEAR 2000 PROCESSING ISSUE

Many computer programs use two digits rather than four to identify the year.
Unless adapted, these programs will not correctly handle the change from "99" to
"00" on January 1, 2000 and will not be able to perform necessary functions. The
Year 2000 issue affects virtually all companies and organizations, including
mutual funds and their investment advisers.

CCM is taking steps intended to ensure that its major computer systems and
processes are capable of Year 2000 processing, including assessing, testing and
modifying its own systems and confirming that its and the fund's service
providers are Year 2000 compliant. CCM is also preparing a contingency plan
intended to ensure that third party noncompliance will not materially affect the
operations of CCM or the fund.

Companies, organizations, governmental entities and markets in which the
funds invest will be affected by the Year 2000 issue, but at this time, we
cannot predict the degree of impact. To the extent the effect is negative, the
fund's returns could be adversely affected.

18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

A Statement of Additional Information which contains additional information
about the funds has been filed with the Securities and Exchange Commission and
is incorporated by reference into this prospectus. To obtain free copies of this
document, call (800) 752-1013. For stockholder inquiries, call The Chapman Co.
at (800) 752-1013 or First Data Services, Inc. at (800) 441-6580.

Fund reports and Statements of Additional Information are also available
from the Securities and Exchange Commission by calling (800) SEC-0330 or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you
will be charged a duplicating fee); by visiting the SEC's public reference room;
or by consulting the SEC's web site at www.sec.gov.

------------------------

<TABLE>
<S> <C>
THE
CHAPMAN
[LOGO] FUNDS
A MEMBER OF THE
CHAPMAN GROUP
</TABLE>

World Trade Center -- Baltimore

401 East Pratt Street, 28 Floor
Baltimore, Maryland 21202
(800) 752-1013
www.demdata.com

1940 ACT FILE NO. 811-5697

[LOGO]

DEM MULTI-MANAGER
BOND FUND
INVESTOR SHARES

A DOMESTIC EMERGING
MARKETS INVESTMENT
OPPORTUNITY

---------------------

PROSPECTUS

---------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
Preliminary Prospectus dated: July 15, 1999

[LOGO]

, 1999

DEM MULTI-MANAGER BOND FUND
INSTITUTIONAL SHARES

DEM Multi-Manager Bond Fund is a series of The Chapman Funds, Inc. The fund is a
non-diversified portfolio that seeks high current income with the potential for
capital appreciation through investment in income securities of companies
identified through the Company's domestic emerging markets or DEM Multi-Manager
strategy. Under the DEM Multi-Manager strategy, the assets of the fund are
managed by multiple sub-advisers selected by the fund's investment adviser,
Chapman Capital Management, Inc. Such sub-advisers 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. The fund's portfolio will have no maturity
restrictions and the average portfolio maturity will be in the judgement of the
fund's sub-advisers. The fund may invest up to 35% of its net assets in lower
grade fixed income securities commonly referred to as "junk bonds" which involve
a high degree of risk and are predominantly speculative. The Company also may
utilize leverage.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

A DOMESTIC EMERGING MARKETS INVESTMENT OPPORTUNITY
<PAGE>
CONTENTS

<TABLE>
<S> <C>
THE FUND -- AN OVERVIEW............................................................... 3
Investment Objectives and Principal Investment Strategies........................... 3
The DEM Multi-Manager Strategy...................................................... 3
Principal Risks..................................................................... 3
Fund Expenses....................................................................... 4

MANAGEMENT............................................................................ 9
The Investment Adviser.............................................................. 9
The Management Fee.................................................................. 9
Portfolio Management/The Sub-Advisers............................................... 9
Distribution........................................................................ 11
Brokerage........................................................................... 11
Stockholder Services................................................................ 11
Custodian........................................................................... 11

INVESTMENT PROGRAM.................................................................... 12
Types of Portfolio Securities....................................................... 12
Types of Management Practices....................................................... 13
Other Investment Limitations........................................................ 14
The Year 2000 Processing Issue...................................................... 15
</TABLE>

2
<PAGE>
THE FUND -- AN OVERVIEW

INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES

THE DEM MULTI-MANAGER STRATEGY

In determining whether a specific investment management firm is controlled
by African Americans, Asian Americans, Hispanic Americans or women, CCM applies
one of the following criteria:

- At least 10% of the company's outstanding voting securities must be
beneficially owned by members of one or more of the listed groups.

- At least one of the company's top three executive officers (Chairman,
Chief Executive Officer or President) must be a member of one or more of
the listed groups.

PRINCIPAL RISKS

FUND EXPENSES

4
<PAGE>
TABLE 1 ANNUAL FUND OPERATING EXPENSES

<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price)......................................................................... -0-%
Maximum Deferred Sales Charge (Load)............................................. -0-%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions.................................................................. -0-%
Redemption Fee*.................................................................. -0-%

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fee................................................................... 1.25%
Distribution (12b-1) Fee......................................................... .25%
Other Expenses**................................................................. 1.16%
Total Annual Fund Operating Expenses **.......................................... 2.66%
</TABLE>

- ------------------------

* The fund imposes a $9.00 charge only on redemptions by wire transfer.

** Amount includes estimates of expenses for the first full fiscal year of the
fund. CCM, which serves as the fund's investment advisor, has voluntarily
agreed to limit the total annual operating expenses of the fund, solely
attributable to the Institutional Shares offered by this Prospectus, to
2.00% of average daily net assets until at least December 31, 2000. However,
there is no guarantee that CCM, will continue to voluntarily limit the total
annual operating expenses of the fund attributable to the Institutional
Shares beyond December 31, 2000.

Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front end sales charge.

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
-------------------------
<S> <C>
1 Year*............................................................... $ 269
3 Years*.............................................................. $ 826
</TABLE>

- ------------------------

* CCM, the fund's investment advisor, has voluntarily agreed to limit the
total annual operating expenses of the fund attributable to the
Institutional Shares to 2.00% of average daily net assets until at least
December 31, 2000. Based on CCM's voluntary expense limitation, the
estimated expenses set forth in the table above would be $203 and $627 for
the one year and three year periods, respectively.

5
<PAGE>
YOUR ACCOUNT

PURCHASING SHARES

You may purchase institutional shares of the fund only through institutions
such as broker-dealers, financial institutions, depository institutions,
retirement plans and other financial intermediaries that act as institutional
stockholders of record with respect to the fund. The fund may make institutional
shares available to other investors in the future. Each institution separately
determines the rules applicable to its customers that invest in institutional
shares including minimum initial and subsequent investment requirements, and the
procedures investors must follow to effect purchases, redemptions and exchanges
of institutional shares.

In order to invest in institutional shares in the fund, you must place an
order with an institution. The institution is then responsible for prompt
transmission of the order to the fund's transfer agent, as set forth below.

Institutions can purchase institutional shares directly from the fund by
mail, by telephone or by bank wire. There is no sales load in connection with
the purchase of institutional shares. The fund requires a minimum initial
investment in institutional shares of $25,000 with no minimum subsequent
investment; however the fund does not require a minimum initial investment of
qualified retirement plans. The fund reserves the right to vary the initial
investment minimum and minimums for subsequent investments at any time.

The following table presents some procedures institutions should know about
when investing in institutional shares.

BY MAIL

To make an initial investment, an institution should send the investment
shares application and its check (drawn on a U.S. bank and payable in U.S.
dollars) to:

DEM Multi-Manager Bond Fund Institutional Shares
c/o First Data Investor Services Group, Inc.
211 S. Gulph Road
P.O. Box 61503
King of Prussia, PA 19406

To make a subsequent investment in an existing account, an institution
should send the stub from its account statement and its check (drawn on a U.S.
bank and payable in U.S. dollars) to:

DEM Multi-Manager Bond Fund Institutional Shares
c/o First Data Investor Services Group, Inc.
P.O. Box 61767
King of Prussia, PA 19406

Please make your check payable to DEM Multi-Manager Bond Fund Institutional
Shares.

BY WIRE

To make a same day wire investment, and institution should call (800)
441-6580 by 12 noon (Eastern Time).

The following information will be required to open an account:

- Name and address for account registration

6
<PAGE>
- Tax identification number

- Amount of wire transfer

- Name of bank

The institution should contact its bank with instructions to transmit funds to:

Boston Safe Deposit & Trust
ABA: #011001234
Credit: (Insert Name of Fund)
A/C: 000795
FBO: "(Insert Shareholder name and new account number)

The institution's bank may charge a wire fee.

To open a new account, an institution should mail its completed application to
The Chapman Funds, Inc.

REDEEMING SHARES

You may redeem your institutional shares at any time by contacting the
institution through which your institutional shares were purchased. Institutions
are responsible for the prompt transmission of redemption requests to First Data
Services, Inc. (the fund's transfer agent; First Data). Institutions can redeem
institutional shares at any time by mail, telephone or by wire instructions
(which must include the institution's name and account number.)

HOW YOU CAN RECEIVE PROCEEDS FROM A REDEMPTION

If First Data receives an institution's request by 4 p.m. (Eastern Time) in
correct form, proceeds are usually sent within one business day. Proceeds can be
sent to institutions by mail or by wire. There is a $9.00 charge for redemptions
by wire which is deducted from redemption proceeds.

Under certain circumstances and when deemed to be in the fund's best
interests, proceeds may not be sent for up to seven days after the transfer
agent receives an institution's sale request.

If an institution redeems shares that have just been purchased and paid for
by check, First Data will process the redemption request but will generally
delay sending the proceeds for up to 15 days to allow the check to clear. This
hold does not apply to certified and cashier's checks.

REDEMPTIONS OVER $250,000

Large sales can adversely affect a portfolio manager's ability to implement
a fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, an institution redeems more
than $250,000, or its sale amounts to more than 1% of fund net assets, the fund
has the right to pay the difference between the redemption amount and the lesser
of the two previously mentioned figures with securities from the fund's
portfolio.

KEEPING AN ACCOUNT OPEN

Due to the relatively high cost to a fund of maintaining small accounts, we
ask institutions to maintain an account balance of at least $25,000. If an
account balance is below $25,000, we have the right to close the account after
giving the institution 60 days in which to increase the balance.

HOW AND WHEN SHARES ARE PRICED

7
<PAGE>
institutional shares, the institutional shares' pro rata share of fund assets
are valued and totaled, the institutional shares' pro rata share of fund
liabilities are subtracted, and the balance, called net assets, is divided by
the number of institutional shares outstanding. In general, the fund's assets
are valued at their market price.

HOW YOUR PURCHASE OR REDEMPTION PRICE IS DETERMINED

If First Data receives your request to purchase, redeem or exchange shares
in the fund in the correct form by 4 p.m. (Eastern Time), your transaction will
be priced at that day's NAV. If the transfer agent receives your request after 4
p.m., your transactions will be priced at the next business day's NAV.

NOTE: THE TIME AT WHICH TRANSACTIONS AND SHARES ARE PRICED AND THE TIME UNTIL
WHICH ORDERS ARE ACCEPTED MAY BE CHANGED IN CASE OF AN EMERGENCY OR IF THE
NEW YORK STOCK EXCHANGE CLOSES AT A TIME OTHER THAN 4 P.M.

DISTRIBUTIONS AND TAXES

DIVIDENDS AND OTHER DISTRIBUTIONS

- Fund shares will earn dividends through the date of redemption.

TAX INFORMATION

You need to be aware of the possible tax consequences when:

- You redeem fund shares, including an exchange from one fund to another

- The fund makes a distribution to your account.

TAXES ON REDEMPTIONS

When you sell or redeem shares in the fund, you may realize a gain or loss.
An exchange from the fund to another DEM fund is still a redemption for tax
purposes.

TAXES ON DISTRIBUTIONS

8
<PAGE>
MANAGEMENT

THE INVESTMENT ADVISER

THE MANAGEMENT FEE/EXPENSE REIMBURSEMENT

CCM has voluntarily agreed to limit the total annual operating expenses of
the fund, solely attributable to the Institutional Shares offered by this
Prospectus, to 2.00% of average daily net assets until at least December 31,
2000. However, there is no guarantee that CCM will continue to voluntarily limit
the total annual operating expenses of the fund attributable to the
Institutional Shares beyond December 31, 2000.

PORTFOLIO MANAGEMENT/THE SUB-ADVISERS

- At least 10% of the investment adviser's outstanding voting securities
must be beneficially owned by member of one or more of the listed groups,
or

- At least one of the investment adviser's top three executive officers
(Chairman, Chief Executive Officer or President) must be a member of one
or more of the listed groups

9
<PAGE>
The fund will seek to identify DEM Profile investment advisers through
research by the CCM. 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 advisers that have registered as minority or
women-owned business enterprises or are recognized as such by government
agencies; reviews of business lists compiled by magazines and other publications
which list DEM Profile companies; examination of investment advisers that
generally market themselves as DEM Profile companies; and reviews of annual
reports and other regulatory filings.

The current sub-advisers of the fund are as follows:

<TABLE>
<S> <C>
Hughes Capital Management, Inc. African-American/Women
315 Cameron Street
Alexandria, VA 22314
</TABLE>

10
<PAGE>
a member of a five-person investment team that managed a $5 billion total return
bond portfolio at Sovran Capital Management, a wholly-owned subsidiary of
NationsBank.

<TABLE>
<S> <C>
MDL Capital Management, Inc. African-American
225 Ross Street, 3(rd) Floor
Pittsburgh, PA 15219
</TABLE>

<TABLE>
<S> <C>
NCM Capital Management Group, Inc. African-American
103 W. Main Street, Suite 400
Durham, NC 27701-3638
</TABLE>

<TABLE>
<S> <C>
Seix Investment Advisors, Inc. Hispanic/Women
300 Tice Boulevard
Wookcliff Lake
</TABLE>

DISTRIBUTION

The Chapman Co., an affiliated broker-dealer of CCM and the fund,
distributes (sells) shares of the fund and all other DEM funds.

BROKERAGE

STOCKHOLDER SERVICES

First Data serves as the fund's transfer and dividend paying agent and
accounting agent and provides shareholder services, including record-keeping,
and statements, distribution of dividends and processing of purchase and
redemption requests. Stockholder inquiries should be addressed to First Data at
211 S. Gulph Rd., P.O. Box 61503, King of Prussia, Pennsylvania 61503 or (800)
441-6580.

CUSTODIAN

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

11
<PAGE>
INVESTMENT PROGRAM

TYPES OF PORTFOLIO SECURITIES

DEBT SECURITIES

12
<PAGE>
by private entities. The price of a mortgage security may be significantly
affected by changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their prices highly volatile. Also, mortgage
securities, especially stripped mortgage-backed securities, are subject to
prepayment risk.

EQUITY SECURITIES

TYPES OF MANAGEMENT PRACTICES

BORROWING MONEY AND PLEDGING ASSETS

SECURITIES LENDING/REPURCHASE AGREEMENTS

OPTIONS

13
<PAGE>
owns the underlying security. A put option is covered when, among other things,
cash or liquid securities are placed in a segregated account with the fund's
custodian to fulfill the obligation undertaken. The total market value of
securities against which the fund writes call or put options may not exceed 15%
of its total assets. The fund will not commit more than 15% of its net assets to
premiums when purchasing call or put options. Options may not always be
successful hedges and their prices can be highly volatile.

OTHER INVESTMENT LIMITATIONS

The following paragraphs describe additional investment policies and
limitations to which the fund adheres.

- Issue senior securities, borrow money or pledge its assets, except that
the fund may borrow from banks in amounts aggregating not more than
33 1/3%of the value of its net assets (excluding such borrowings), and may
pledge up to 33 1/3% of its net assets (excluding such borrowings) to
secure such borrowings, and the fund may borrow an additional 5% of its
net assets for temporary purposes.

PORTFOLIO TURNOVER

14
<PAGE>
THE YEAR 2000 PROCESSING ISSUE

15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

------------------------

<TABLE>
<S> <C>
THE
CHAPMAN
[LOGO] FUNDS
A MEMBER OF THE
CHAPMAN GROUP
</TABLE>

World Trade Center -- Baltimore

401 East Pratt Street, 28(th) Floor
Baltimore, Maryland 21202
(800) 752-1013
www.demdata.com

1940 ACT FILE NO. 811-5697

[LOGO]

DEM MULTI-MANAGER
BOND FUND
INSTITUTIONAL SHARES

A DOMESTIC EMERGING
MARKETS INVESTMENT
OPPORTUNITY

---------------------

PROSPECTUS

---------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PRELIMINARY

STATEMENT OF ADDITIONAL INFORMATION

JULY 15, 1999

THE CHAPMAN FUNDS, INC.

DEM MULTI-MANAGER BOND FUND
INVESTOR SHARES
INSTITUTIONAL SHARES

World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
(410) 625-9656 or (800) 752-1013

This Statement of Additional Information of the DEM Multi-Manager Bond Fund (the
"Fund") is not a prospectus and is only authorized for distribution when
preceded or accompanied by a Fund prospectus dated [ ], 1999 (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 Fund's distributor, The Chapman Co., World Trade Center - Baltimore, 401
East Pratt Street, 28th Floor, Baltimore, Maryland 21202, or calling (410)
625-9656 or (800) 752-1013.

CONTENTS
<TABLE>

- ------------------------------------------------------- -----------------------------------------------------
Investment Objectives
And Policies B-2 Taxation B-24
- ------------------------------------------------------- -----------------------------------------------------
Investment Program B-3 Capital Stock B-26
- ------------------------------------------------------- -----------------------------------------------------
Management B-11 Performance Information B-27
- ------------------------------------------------------- -----------------------------------------------------
Purchase of Shares B-22 Counsel to the Company B-30
- ------------------------------------------------------- -----------------------------------------------------
Redemption of Shares B-22 Independent Auditors B-30
- ------------------------------------------------------- -----------------------------------------------------
Portfolio Transactions B-23 Financial Statements B-30
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>

Domestic Emerging Markets(R) and DEM(R) are registered trademarks and the
stylized C-Eagle Logo(TM), DEM Profile(TM), DEM Universe(TM), DEM Company(TM)
DEM Index(TM) and DEM Multi-Manager(TM) are trademarks of Nathan A. Chapman, Jr.

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>

INVESTMENT OBJECTIVE AND POLICIES

The Fund is a series of The Chapman Funds, Inc., an open-end management
investment company, known as a "series fund" (the "Company"; the Fund and each
other series of the Company are herein referred to as a "Series"). The Fund is
considered non-diversified under the Investment Company Act of 1940 (the "1940
Act").

The Fund seeks high current income with the potential for capital
appreciation through investment in income securities such as preferred stock,
bonds, debentures, notes, and other similar securities of companies identified
through the Company's domestic emerging markets or DEM Multi-Manager strategy.
Under the DEM Multi-Manager strategy, the assets of the fund are managed by
multiple sub-advisers selected by the fund's investment adviser, Chapman Capital
Management, Inc. ("CCM"). Such sub-advisers 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. The fund's portfolio will have no maturity restrictions and the
average portfolio maturity will be in the judgement of the fund's sub-advisers.
The fund may invest up to 35% of its net assets in lower grade fixed income
securities commonly referred to as "junk bonds" which involve a high degree of
risk and are predominantly speculative. The Company also may utilize leverage.
For temporary defensive purposes, the fund may invest some or all of its assets
in cash or money market instruments.

The Fund's principal investment objective of high current income with
the potential for capital appreciation through investment in income securities
identified through the DEM Multi-Manager strategy is not a "fundamental policy"
of the Fund (as described below) and can therefore be changed by the Company's
Board of Directors without stockholder approval. Except for the matters
specified under "Investment Limitations" in the Prospectus and under
"Fundamental Policies" in this Statement of Additional Information, all matters
described herein and in the Prospectus are not fundamental and may be changed
without the approval of stockholders. Each of the Fund's fundamental polices may
not be changed without the approval of at least a majority of the outstanding
shares of the Fund or, if it is less, 67% of the shares represented at a meeting
of stockholders at which the holders of 50% or more of the shares are
represented.

The following information supplements the discussion of the investment
policies of the Fund found in the Prospectus.

B-2
<PAGE>

INVESTMENT PROGRAM

Set forth below is additional information about certain of the
investments described in the Fund's Prospectus.

TYPES OF PORTFOLIO SECURITIES

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 of 1933, 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 CCM 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.

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.

PRIVATE FUNDS. As an alternative to direct investments in Illiquid
Securities, the Fund may invest up to 10% of its total assets in private venture
capital funds including United States private limited partnerships or other
investment funds ("Private Funds") that themselves invest in Illiquid
Securities. Although investments in Private Funds offer the opportunity for
significant capital gains, these investments involve a high degree of business
and financial risk that can result in substantial losses in the portion of the
Fund's portfolio invested in these investments. Among these are the risks
associated with investment in companies in an early stage of development or with
little or no operating history, companies operating at a loss or with
substantial variation in operation results from period to period, companies with
the need for substantial additional capital to support expansion or to maintain
a competitive position, or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources or more extensive development, manufacturing,
distribution or other attributes, over which the Fund will have no control.

Interests in the Private Funds in which the Fund may invest will be
subject to substantial restrictions on transfer and, in some instances, may be
non-transferable for a period of years. Private Funds may participate in only a
limited number of investments and, as a consequence, the return of a particular
Private Fund may be substantially adversely affected by the unfavorable
performance of even a single investment. Certain of the Private Funds in which
the Fund may invest may pay their investment managers a fee based on the
performance of the Private Fund, which may create an incentive for the manager
to make

B-3
<PAGE>

investments that are riskier or more speculative than would be the case if the
manager was paid a fixed fee. Private Funds are not registered under the 1940
Act and, consequently, are not subject to the restrictions on affiliated
transactions and other protections applicable to regulated investment companies.
The valuation of companies held by Private Funds, the securities of which are
generally unlisted and illiquid, may be very difficult and will often depend on
the subjective valuation of the managers of the Private Funds, which may prove
to be inaccurate. Inaccurate valuations of a Private Fund's portfolio holdings
may affect the Fund's net asset value calculations.

To the extent that these Private Funds are investment companies for
purposes of the 1940 Act, the Fund's ability to invest in them will be further
limited to, subject to certain exceptions, (i) 3% of the total voting stock of
any one investment company, (ii) 5% of total assets with respect to any one
investment company and, (iii) 10% of the Fund's total assets in the aggregate.
The securities of Private Funds will typically themselves be classified as
Illiquid Securities by the Board of Directors. Accordingly, the Fund's total
investment in Illiquid Securities, including Private Funds, is limited to 15% of
the Fund's net assets with no more than 10% of the Fund's total assets invested
in Private Funds.

OPTIONS TRANSACTIONS. The Fund may invest up to 15% of its net assets,
represented by the premium paid, in the purchase of call and put options in
respect of specific securities in which the Fund may invest. The Funds may write
covered call and put option contracts to the extent of 15% of the value of its
net assets at the time such option contracts are written. The principal reason
for the Fund writing covered call options is to realize, through the receipt of
premiums, a greater return than would be realized on its portfolio securities
alone. In return for a premium, the writer of a covered call option forfeits the
right to any appreciation in the value of the underlying security above the
strike price for the life of the option (or until a closing purchase transaction
can be effected). Nevertheless, the call writer retains the risk of a decline in
the price of the underlying security. Similarly, the principal reason for
writing covered put options is to realize income in the form of premiums. The
writer of a covered put option accepts the risk of a decline in the price of the
underlying security. The size of the premiums that the Fund may receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option-writing activities.

Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
time the options are written. In the case of call options, these exercise prices
are referred to as "in-the-money," "at-the-money" and "out-of-the-money,"
respectively. The Fund may write (a) in-the-money call options when CCM 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 CCM
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
CCM 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 CCM 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

B-4
<PAGE>

exist for any particular option or at any particular time, and for some options
no such secondary market may exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past, for example, higher than
anticipated trading activity or order flow, or other unforeseen events, at times
have rendered certain clearing facilities inadequate and resulted in the
institution of special procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or suspensions in one or more options.
There can be no assurance that similar events, or events that otherwise may
interfere with the timely execution of customers' orders, will not recur. In
such event, it might not be possible to effect closing transactions in
particular options. If, as a covered call option writer, the Fund is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it delivers the
underlying security upon exercise or it otherwise covers its position.

The Fund intends to treat options in respect of specific securities
that are not traded on a national securities exchange or the Nasdaq National
Market and the securities underlying covered call options written by the Fund as
Illiquid Securities subject to the Fund's investment limitation on Illiquid
Securities.

REPURCHASE AGREEMENTS AND LOANS OF SECURITIES. The Fund is authorized
to lend securities it holds to brokers, dealers and other financial
organizations, but it will not lend securities to any affiliate of CCM 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 net assets may be invested pursuant to such techniques for hedging
and risk management purposes or when, in the opinion of CCM, such techniques can
be expected to yield a higher investment return than other investment options.

The Fund may enter into repurchase agreements pertaining to the
securities in which it may invest with securities dealers or member banks of the
Federal Reserve System. A repurchase agreement arises when a buyer such as the
Fund purchases a security and simultaneously agrees to resell it to the vendor
at an agreed-upon future date, normally one day or a few days later. The resale
price is greater than the purchase price, reflecting an agreed-upon interest
rate which is effective for the period of time the buyer's money is invested in
the security and which is related to the current market rate rather than the
coupon rate on the purchased security. Such agreements permit the Fund to keep
its assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. The Fund requires continual maintenance by
its custodian for its account in the Federal Reserve/Treasury Book Entry System
of collateral in an amount equal to, or in excess of, the resale price. In the
event a vendor defaulted on its repurchase obligation, the Fund might suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. In the event of a vendor's bankruptcy, the Fund might
be delayed in, or prevented from, selling the collateral for the Fund's benefit.
The Board of Directors has established procedures, which it periodically
reviews, pursuant to which CCM monitors the creditworthiness of the dealers and
banks with which the Fund enters into repurchase agreement transactions.

B-5
<PAGE>

FUNDAMENTAL POLICIES

The following investment restrictions are fundamental and cannot be
changed without the approval of holders of at least a majority of the
outstanding shares of the Fund or, if it is less, 67% of the shares represented
at a meeting of stockholders at which the holders of 50% or more of the shares
are represented. 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 net assets
(excluding such borrowings ) (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 net assets (excluding such borrowings) to secure such
borrowings; and (ii) the Fund may borrow an additional 5% of its net assets
without regard to the foregoing limitation 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 or Private Funds (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.

(4) Engaging in the purchase and sale of real estate or real estate
mortgage-backed securities, except that the Fund may purchase and sell debt,
debt securities and other instruments that are secured by real estate and real
estate acquired as a result of foreclosure upon such instruments.

(5) Purchasing or selling commodities or commodities contracts except
that the Fund may enter into futures contracts and options thereon and may
invest in index futures contracts, and options on index futures contracts to the
extent that not more than 5% of the Fund's net assets are required as margin
deposit for futures contracts and not more than 15% of the Fund's net assets are
invested in futures and options at any time.

(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.

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
CCM, 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

B-6
<PAGE>

portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of its portfolio securities for the year by the monthly average value of
the portfolio securities. Securities with remaining maturities of one year or
less at the date of acquisition are excluded from the calculation.

As a result of the Fund's investment policies, under certain market
conditions its portfolio turnover rate may be higher than that of other mutual
funds. For example, options on securities may be sold in anticipation of a
decline in the price of the underlying security (market decline) or purchased in
anticipation of a rise in the price of the underlying security (market rise) and
later sold. To the extent that its portfolio is traded for the short-term, the
Fund will be engaged essentially in trading activities based 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. Although the Fund cannot
accurately predict its turnover rate for future years, it anticipates that its
annual portfolio turnover will not exceed 200%.

MANAGEMENT

BOARD OF DIRECTORS

The Fund is managed by the Company's Board of Directors. All of the
directors are members of minority groups. The Board of Directors approves all
significant agreements between the Fund and other Series of the Company and
between the Fund and persons who furnish services to the Fund, including the
Fund's agreements with CCM, The Chapman Co., the Funds' distributor, and the
sub-advisers. The Board of Directors delegates to the Company's officers and CCM
responsibility for day-to-day operations of the Fund. All of the officers of the
Company are directors, officers or employees of CCM or The Chapman Co.

The directors and officers of the Company are listed below. Directors
deemed to be "interested persons" of the Company for purposes of the 1940 Act
are indicated by asterisk.
<TABLE>
<CAPTION>

Nathan A. Chapman, Jr.* 41 President, Director and Chairman President and Director since
World Trade Center - Baltimore of the Board 1986 of The Chapman Co.
401 East Pratt Street, 28th Floor President and Director since
Baltimore, Maryland 21202 1988 of Chapman Capital
Management, Inc. President and
Director of Chapman Holdings,
Inc. since 1997. President and
Director of Chapman Capital
Management Holdings, Inc. since
1998.
- ----------------------------------------------------------------------------------------------------------------------------

B-7
<PAGE>

- --------------------------------------------- -------- ---------------------------------- ----------------------------------
Dr. Benjamin Hooks* 74 Director Senior Vice President of The
World Trade Center - Baltimore Chapman Co. since 1993.
401 East Pratt Street, 28th Floor Executive Director of the NAACP
Baltimore, Maryland 21202 from 1977 to 1993.

- --------------------------------------------- -------- ---------------------------------- ----------------------------------
James B. Lewis 51 Director City Administrator, City of Rio
World Trade Center - Baltimore Rancho, NM since March 1996.
401 East Pratt Street, 28th Floor Chief Clerk-State Corporation
Baltimore, Maryland 21202 Commission of New Mexico from
1995 to 1996. Chief of Staff,
Office of the Governor of New
Mexico from 1991 to 1995.

- --------------------------------------------- -------- ---------------------------------- ----------------------------------
Wilfred Marshall 63 Director Principal, Marshall Enterprises
World Trade Center - Baltimore since 1994. Director, Mayor's
401 East Pratt Street, 28th Floor Office of Small Business
Baltimore, Maryland 21202 Assistance - City of Los Angeles
1981 to 1994.

- --------------------------------------------- -------- ---------------------------------- ----------------------------------
David Rivers 55 Director Director of Community
World Trade Center - Baltimore Development Medical University
401 East Pratt Street, 28th Floor of South Carolina Environmental
Baltimore, Maryland 21202 Hazards Assessment Program since
1994; President, Research
Planning and Management from
1991 to 1994.

- --------------------------------------------- -------- ---------------------------------- ----------------------------------
Lottie H. Shackelford * 58 Director Executive Vice President of
World Trade Center - Baltimore Global USA since 1994. City
401 East Pratt Street, 28th Floor Director of Little Rock,
Baltimore, Maryland 21202 Arkansas, 1978 to 1992. Director
of Chapman Holdings, Inc. since
1998.

- --------------------------------------------- -------- ---------------------------------- ----------------------------------
Ronald A. White 49 Director Senior Partner, Ronald A. White,
World Trade Center - Baltimore P.C., since 1982.
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21201

- --------------------------------------------- -------- ---------------------------------- ----------------------------------

B-8
<PAGE>

- --------------------------------------------- -------- ---------------------------------- ----------------------------------
POSITION HELD WITH THE COMPANY PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS AGE PAST 5 YEARS
- --------------------------------------------- -------- ---------------------------------- ----------------------------------
Earl U. Bravo, Sr. 51 Secretary and Assistant Treasurer Secretary and Assistant
World Trade Center - Baltimore Treasurer since 1997 of The
401 East Pratt Street, 28th Floor Chapman Co. Senior Vice
Baltimore, Maryland 21202 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. Mr. Bravo has been
employed in various senior
executive positions with The
Chapman Co. and Chapman Capital
Management, Inc. since 1990
- --------------------------------------------- -------- ---------------------------------- ----------------------------------
M. Lynn Ballard 56 Treasurer and Assistant Secretary Treasurer and Assistant
World Trade Center - Baltimore Secretary since 1997 of The
401 East Pratt Street, 28th Floor Chapman Co. Treasurer and
Baltimore, Maryland 21202 Assistant Secretary of Chapman
Holdings, Inc. since 1997 and
Chapman Capital Management
Holdings, Inc. since 1998. Ms.
Ballard has been employed as a
senior financial executive of
The Chapman Co. and Chapman
Capital Management, Inc. since
1990.
- --------------------------------------------- -------- ---------------------------------- ----------------------------------
</TABLE>

The Company pays directors who are not officers of the Company a fee of
$1,000 for each Board of Directors meeting attended and reimburses each such
director for all out-of-pocket expenses relating to the attendance at meetings.
Officers of the Company do not receive compensation from the Company.

B-9
<PAGE>

COMPENSATION TABLE--FISCAL YEAR 1998

- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
RETIREMENT OR PENSION TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED AS ESTIMATED ANNUAL FROM COMPANY AND FUND
NAME OF PERSON/ COMPENSATION FROM PART OF COMPANY BENEFITS UPON COMPLEX (2 COMPANIES)
POSITION COMPANY EXPENSES RETIREMENT PAID TO DIRECTORS
- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
<S> <C> <C> <C> <C>

Nathan A. Chapman, Jr. None None None None
President, Director, Chairman of
the Board

- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
Dr. Glenda Glover $3,000 None None $6,000
Director

- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
Dr. Benjamin Hooks $5,000 None None $7,000
Director

- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
James Lewis $4,000 None None $8,000
Director

- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
Wilfred Marshall $5,000 None None $5,000
Director

- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
Lottie Shackelford $5,000 None None $9,000
Director

- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
Ronald A. White $3,000 None None $5,000
Director

- ----------------------------------- ------------------- ------------------------ ------------------- ------------------------
David Rivers $5,000 None None $5,000
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 Agreement and comparable distribution
agreements pertaining to other Series of the Company remain 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.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

The following table sets forth, to the Company's knowledge, the name,
address and percentage of the outstanding shares of the Fund owned beneficially
by each person who owned beneficially 5% or more of the outstanding shares of
the Fund as of March 31, 1999 and the ownership of all directors and executive
officers of the Company as a group.

B-10
<PAGE>

- ------------------------------------------------------------ ------------------- --------------------- -------------
NAME AND ADDRESS OF BENEFICIAL OWNER TOTAL INVESTOR TOTAL 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%
Chapman Capital Management Holdings, Inc.
World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202

- ------------------------------------------------------------ ------------------- --------------------- -------------
All current Directors and executive officers as a group 1 1 100%

- ------------------------------------------------------------ ------------------- --------------------- -------------
</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 Adviser, Chapman Capital Management, Inc., owns
in excess of 25% of the issued and outstanding Common Stock of the Fund as of
March 31, 1999, 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.

THE INVESTMENT ADVISER

CCM has been retained under an advisory and administrative services
agreement to provide investment advice and, in general, to conduct the
management and investment program of the Fund in accordance with the Fund's
investment objectives, policies, and restrictions and under the supervision and
control of the Company's Board of Directors. CCM was established in 1988 and is
located at the World Trade Center - Baltimore, 401 East Pratt Street, 28th
Floor, Baltimore, Maryland 21202.

CCM is a wholly-owned subsidiary of Chapman Capital Management
Holdings, Inc., which is structured as a holding company of CCM. 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 CCM.

The table below sets forth the names of affiliated persons of the
Company who are also affiliated persons of CCM:

B-11
<PAGE>

- ---------------------------------- ----------------------------------- --------------------------------------
NAME POSITION WITH CCM POSITION WITH COMPANY
- ---------------------------------- ----------------------------------- --------------------------------------
<S> <C> <C>

Nathan A. Chapman, Jr. President and Director President, Director and Chairman of
the Board

- ---------------------------------- ----------------------------------- --------------------------------------
Earl U. Bravo, Sr. Secretary and Assistant Treasurer Secretary and Assistant Treasurer

- ---------------------------------- ----------------------------------- --------------------------------------
M. Lynn Ballard Treasurer and Assistant Secretary Treasurer and Assistant Secretary

- ---------------------------------- ----------------------------------- --------------------------------------
</TABLE>

CCM has overall responsibility for assets under management, provides
overall investment strategies and programs for the Fund, recommends
sub-advisers, allocates assets among the sub-advisers, monitors and evaluates
sub-advisers' performance and manages short-term investments for the Fund. The
Fund's assets are managed by sub-advisers who enter into sub-advisory agreements
with the Fund. CCM 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. CCM
pays all sub-advisory fees from its advisory fee.

CCM has voluntarily agreed to limit the total annual operating expenses
of the Fund, solely attributable to the Institutional Shares, to 2.00% of
average daily net assets until at least December 31, 2000. However, there is no
guarantee that CCM will continue to voluntarily limit the total annual operating
expenses attributable to the Institutional Shares beyond December 31, 2000.

CCM has voluntarily agreed to limit the total annual operating expenses
of the Fund, solely attributable to the Investor Shares, to 3.00% of average
daily net assets until at least December 31, 2000. However, there is no
guarantee that CCM will continue to voluntarily limit the total annual operating
expenses attributable to the Investor Shares beyond December 31, 2000.

In connection with the provision of advisory services, CCM will
supervise a continuous program of investment, evaluation and, if appropriate,
sale and reinvestment of the Fund's assets. Further, CCM will supply office
facilities, data processing services, clerical, accounting and bookkeeping
services, internal auditing services, executive and other administrative
services; provide stationery and office supplies; prepare reports to the Fund's
stockholders, tax returns and reports to and filings with the SEC and state Blue
Sky authorities; calculate the net asset value of the Fund's shares; provide
persons to serve as the Company's officers and generally assist in all aspects
of the Company's operations. CCM will pay for its own costs in providing the
above listed services.

CCM will place orders for the purchase and sale of short-term
investments and will solicit brokers to execute transactions, including The
Chapman Co., in accordance with the Company's policies and restrictions
regarding brokerage allocations. CCM 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-ADVISERS

The Fund employs several sub-advisers to manage the Fund's assets on a
day-to-day basis. In connection with the provision of sub-advisory services,
each sub-adviser will conduct a continuous program of investment, evaluation
and, if appropriate, sale and reinvestment of the Fund's assets allocated to
such sub-adviser in accordance with the Fund's investment objectives and
policies and the sub-adviser's investment approach and strategies. The
sub-advisers 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-advisers of the
Fund, in accordance with the Company's policies and restrictions regarding
brokerage allocations. The sub-advisers will furnish to CCM

B-12
<PAGE>

and the Company such statistical information with respect to the investments
which the Fund may hold or contemplate purchasing as CCM or the Company may
reasonably request.

All sub-advisers 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 adviser is "controlled" by African
Americans, Asian Americans, Hispanic Americans or women and therefore meets that
DEM Profile, CCM will apply the following criteria: at least 10% of the
investment adviser'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
adviser'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-advisers that satisfy the DEM criteria, CCM
applies additional criteria in the selection and retention of sub-advisers,
including: (1) historical performance; (2) investment approaches that are
distinct from the approaches of the Fund's other sub-advisers; (3) consistent
performance in the 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-adviser will not necessarily exhibit all of these
criteria to the same degree.

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

The current sub-advisers of the fund are as follows:

- ------------------------------------------- ------------------------------------
Hughes Capital Management, Inc. African-American/Women
2001 Pennsylvania Avenue, NW
Washington DC 20006
- ------------------------------------------- ------------------------------------

Because Ms. Frankie Hughes beneficially owns 100% of the outstanding
equity securities of Hughes Capital Management, Inc. she is controls Hughes
Capital. Ms. Hughes is the President and Chief Investment Officer of Hughes
Capital and has 18 years of professional investment experience.

- ------------------------------------------- ------------------------------------
MDL Capital Management, Inc. African-American
225 Ross Street--Third Floor
Pittsburgh, PA 15219
- ------------------------------------------- ------------------------------------

Because Mr. Mark Lay beneficially owns over 25% of the outstanding
equity securities of MDL Capital Management, Inc., he is presumed to control
MDL. Mr. Lay is the Chairman, Chief Executive Officer and Fixed Income Portfolio
Manager of MDL.

- ------------------------------------------- ------------------------------------
NCM Capital Management Group, Inc. African-American
103 West Main Street
Durham, NC 27701-3638
- ------------------------------------------- ------------------------------------

NCM Capital Management Group, Inc. is a subsidiary of by Sloan
Financial Group a financial holding company. Because Maceo K. Sloan, Chairman,
President and Director of NCM and Justin F. Beckett, Executive Vice President of
NCM each beneficially owns over 25% of the outstanding equity securities of
Sloan Financial Group they are presumed to control Sloan Financial Group and NCM
Capital.

- ------------------------------------------- ------------------------------------
Seix Investment Advisors, Inc. Hispanic/Women
388 Market Street, Suite 500
San Francisco, CA 94111
- ------------------------------------------- ------------------------------------

B-13
<PAGE>

Because Christina Seix beneficially owns 74% of the outstanding equity
securities of Seix Investment Advisors, Inc. she is presumed to control Seix.
Ms. Seix is the Chairman and Chief Investment Officer of Seix.

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

The Fund and CCM are seeking an exemption from the SEC that will permit
CCM to retain additional sub-advisers, terminate existing sub-advisers, 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-advisers 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-adviser or materially amending a sub-advisory agreement, it
will give its stockholders written notice of such addition or material change.

DISTRIBUTOR AND PRINCIPAL UNDERWRITER

The Chapman Co., the Fund's distributor, is a registered broker-dealer
and member of the NASD. The Chapman Co. is located at World Trade
Center-Baltimore, 28th Floor, Baltimore, Maryland 21202. 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
offering of the Fund's shares is continuous.

The Chapman Co. acts as exclusive underwriter to the Fund on a best
efforts basis.

INVESTOR SHARES

The Chapman Co. 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"). The Chapman Co. 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 Chapman Co. has voluntarily
limited such fee to an aggregate of .50% (.25% service fee and .25% distribution
fee) of average daily net assets until at least October 31, 2000. However,
there is no guarantee that The Chapman Co. will continue to voluntarily limit
the amount of such fee beyond October 31, 2000.

The Chapman Co. will be paid fees under the Investor Shares
Distribution Plan to compensate The Chapman Co. or enable The Chapman Co. 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

B-14
<PAGE>

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 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 Investor
Shares including, but not limited to, office space and equipment, telephone
facilities, answering routine inquiries regarding the Fund, and providing any
other Service; and (iii) to make, or cause to be made, payments to compensate
selected dealers or other authorized persons for providing any Services.
Administrative Services may include, but are not limited to, (i) responding to
inquiries of prospective investors regarding the Fund; (ii) services to holders
of Investor Shares not otherwise required to be provided by the Fund's custodian
or any co-administrator; (iii) establishing and maintaining accounts and records
on behalf of holders of Investor Shares; (iv) processing purchase, redemption
and exchange transactions in Investor Shares; and (v) other similar services not
otherwise required to be provided by the Fund's transfer agent or any
co-administrator. Payments under the Plan are not tied exclusively to the
distribution and administrative expenses actually incurred by The 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 holders of Investor Shares or to foster distribution of the Investor
Shares.

INSTITUTIONAL SHARES

The Chapman Co. 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 Chapman Co. 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 Chapman Co. will be paid fees under the Institutional Shares
Distribution 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 Organizations"),
for providing (a) services primarily intended to result in the sale of the
Institutional Shares ("Selling Services") and (b) stockholder servicing,
administrative and accounting services to Customers ("Stockholder Services").

The annual fee paid to The Chapman Co. with respect to 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.

B-15
<PAGE>

The annual fee paid to The Chapman Co. with respect to Stockholder
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 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 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.

GENERAL INFORMATION

Pursuant to the Distribution Plans, The Chapman Co. provides the Board
of Directors with periodic reports of amounts expended under the Distribution
Plans and the purpose for which the expenditures were made.

The Distribution Plans will continue in effect for so long as their
continuance is specifically approved at least annually by the Board of
Directors, including a majority of the Directors who are not interested persons
of the Company and who have no direct or indirect financial interest in the
operation of the Distribution Plans as the case may be (the "Independent
Directors"). Any material amendment of the Distribution Plans would require the
approval of the Board in the manner described above. A Distribution Plan may not
be amended to increase materially the amount to be spent thereunder without the
approval of the holders of a majority of the relevant class of Shares. A
Distribution Plan may be terminated at any time, without penalty, by the vote of
a majority of the Independent Directors or by a vote of a majority of the
outstanding voting securities of the relevant class.

Listed below are persons affiliated with both the Funds and The Chapman
Co.
<TABLE>
<CAPTION>

- ---------------------------------- ----------------------------------- --------------------------------------
NAME AND
PRINCIPAL BUSINESS ADDRESS POSITION WITH THE CHAPMAN CO. POSITION WITH COMPANY
- ---------------------------------- ----------------------------------- --------------------------------------
<S> <C> <C>

Nathan A. Chapman, Jr. President, Director and Chairman President, Director and Chairman of
of the Board the Board

- ---------------------------------- ----------------------------------- --------------------------------------
Earl U. Bravo, Sr. Secretary and Assistant Treasurer Secretary and Assistant Treasurer

- ---------------------------------- ----------------------------------- --------------------------------------
M. Lynn Ballard Treasurer and Assistant Secretary Treasurer and Assistant Secretary

- ---------------------------------- ----------------------------------- --------------------------------------
Lottie Shackelford Control Person Director

- ---------------------------------- ----------------------------------- --------------------------------------
</TABLE>

CUSTODIAN

B-16
<PAGE>

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

First Data Services, Inc., 211 S. Gulph Road, PO Box 61503, King of
Prussia, Pennsylvania 19406, (800) 441-6580, serves as transfer and dividend
paying agent and accounting agent for the Fund's shares pursuant to an
Investment Company Services Agreement.

PURCHASE OF SHARES
(APPLICABLE TO INVESTOR SHARES ONLY)

The following information supplements and should be read in conjunction
with the sections in the Fund's Prospectus entitled "Purchasing 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 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>
<CAPTION>

- ------------------------------------------------------- ------------------------
Net Asset Value per Share $14.29
- ------------------------------------------------------- ------------------------
<S> <C>

Per Share Sales Charge--4.75% 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.

B-17
<PAGE>

PORTFOLIO TRANSACTIONS

CCM, with respect to short-term investments of the Fund, and the
sub-advisers, with respect to assets of the Fund allocated to such sub-advisers,
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-advisers of the Fund may effect
brokerage transactions for the Fund when they are able to provide a net price
and execution at least as favorable to the Fund as those determined to be
available from unaffiliated brokers or dealers. The commissions paid to the
Distributor or an affiliate of a sub-adviser on transactions for the Fund may
not exceed those charged by the Distributor or such sub-adviser 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-adviser 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-adviser 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, CCM or a sub-adviser. 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 CCM and the sub-advisers 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, CCM believes the value of
such services is not determinable and does not significantly reduce expenses.
The fees payable to CCM will not be reduced by the value of such services.

CCM, the sub-advisers 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 CCM and the sub-advisers.

Other accounts of CCM and the sub-advisers 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-18
<PAGE>

TAXATION

The following discussion reflects certain applicable tax laws as of the
date of this Statement of Additional Information.

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 must, among other things: (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies 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 and cash items, U.S. government securities,
securities of other regulated investment companies, and other securities which,
with respect to any one issuer, do not represent more than 5% of the value of
the Fund's 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 and at
least 90% of its net tax-exempt income, 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. 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 the
Fund's ordinary income for such calendar year; (b) 98% of the 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 paid by the
Fund on the gain allocable to such shares.

Any capital losses resulting from the Fund's disposition of securities
can only be used to offset capital gains and cannot be used to reduce the Fund's
ordinary income. Unused 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.

B-19
<PAGE>

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.

CAPITAL STOCK

The Company is an open-end management investment company, known 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. The Company was incorporated under the laws of the
State of Maryland on November 22, 1988.

The Company's charter authorizes the Board of Directors to issue 10
billion full and fractional shares of common stock, par value, $.001 per share,
of which 750 million are designated DEM Multi-Manager Bond Fund, Investor Class
Shares and 750 million are designated DEM Multi-Manager Bond Fund, Institutional
Class Shares.

The Board has the power to classify and 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 of Directors 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.

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.

Stockholders are entitled to one vote for each full share held and a
fractional vote for fractional shares held.

Each share of a Fund is entitled to such dividends and distributions
out of the assets belonging to that Fund as are declared in the discretion of
the Company's Board of Directors. In determining a Fund's net asset value, each
Fund is charged with the direct expenses of that 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 Funds at the time of
allocation.

In the event of the liquidation or dissolution of the Company, shares
of a Fund are entitled to receive the assets attributable to that 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.

B-20
<PAGE>

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.

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 CCM that are controlled by
African Americans, Asian Americans, Hispanic/Latino Americans or women. The DEM
Index was created by CCM 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 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.

B-21
<PAGE>

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, 10 years
and over the life of the Fund. This method of calculating total return is based
on the assumption that, all dividends and distributions by the Fund are
reinvested in shares of the Fund at net asset value and all recurring fees are
included for applicable periods. Total return may also be expressed in terms of
the cumulative value of an investment in the Fund at the end of a defined period
of time. Any fees charged by banks or their institutional investors directly to
their customer accounts in connection with investments in Investor Shares will
not be included in the Fund's calculations of total returns.

All data is based on the Fund's past investment results and does not
predict future performance. Investment performance, which may vary, is based on
many factors, including market conditions, the composition of the investments in
the Fund, and the Fund's operating expenses. Investment performance also often
reflects the risk associated with the Fund's investment objectives and policies.
These factors should be considered when comparing the Fund to other mutual funds
and other investment vehicles.

The performance of the Institutional Shares will normally be higher
than the Investor Shares because of the sales charge (when applicable) and
additional expenses charged to the Investor Shares. Performance may also be
affected by any fee reimbursements or waivers that are no applied equally
between the classes.

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 CCM and The Chapman Co.

INDEPENDENT AUDITORS

Ernst & Young LLP, Two Commerce Square, Suite 4000, 2001 Market Street,
Philadelphia, PA 19103, 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-22
<PAGE>

CORPORATE BOND RATINGS

Moody's Investors Service, Inc.

Aaa Bonds that are rated Aaa are judged to be of the best quality.
they carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.

Aa Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa Securities.

A Bonds that are rated A possess may favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.

Baa Bonds that are rated Baa are considered as medium-grade
obligations i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics
as well.

Ba Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.

Moody's applies numerical modifiers (l, 2, and 3) with respect to the
bonds rated "Aa" through "B". The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.

Caa Bonds that are rated Caa are of poor standing. These issues
may be in default or there may be present elements of danger
with respect to principal or interest.

Ca Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.

C Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

B-23
<PAGE>

Standard & Poor's Ratings Group

"AAA" An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.

"AA" An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.

"A" An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.

"BBB" An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.

Obligations rated "BB", "B", "CCC", "CC", and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.

"BB" An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment on
the obligation.

"B" An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.

"CCC" An obligation rated "CCC" is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial or economic conditions, the obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.

"CC" An obligation rated "CC" is currently highly vulnerable to
nonpayment.

"C" The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on
this obligation are being continued.

"D" The "D" rating, unlike other ratings, is not prospective, rather, it
is used only where a default has actually occurred--and not where a default
is only expected. Standard & Poor's changes ratings to "D" either:

- On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and Standard & Poor's
believes that a payment will be made, in which case the rating can be
maintained; or

- Upon voluntary bankruptcy filing or similar action. An exception is
made if Standard & Poor's expects that debt service payments will
continue to be made on a specific issue. In the absence of a payment
default or bankruptcy filing, a technical default (i.e., covenant
violation) is not sufficient for assigning a "D" rating.

An issuer credit rating (also known as a corporate credit rating,
counterparty credit rating, natural rating, senior implied rating, or default
risk rating) is changed to "N.M." (for "not meaningful") upon:

- The first occurrence of a payment default on any financial obligation,
rated or unrated, other than a financial obligation subject to a bona
fide commercial dispute. (In this context, preferred stock is not
considered to be a financial obligation. Thus, a missed preferred stock
dividend does not necessarily mean that the issuer credit rating is
changed to "N.M.")

- A voluntary bankruptcy filing by the issuer, or similar action--even
if the issuer continues debt service payments on some financial
obligations; or

- Seizure of a rated bank by a regulator or placement of an issuer under
regulatory supervision owing to its financial condition. Such regulatory
actions imply substantial uncertainty about the issuer's ability to
continue meeting financial obligations. (An insurer's claims-paying
ability rating would go to "R" if the issuer were placed under
regulatory supervision because of its financial condition.)

Preferred stock "CCC-" is the lowest preferred stock rating when an
issuer is current on dividend payments. Preferred stock ratings are lowered
to "C" when an issuer omits dividend payments. The "CC" rating is used for
cumulative preferred stock where an issuer has resumed paying dividends but
an arrearage still exists.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.

r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

B-24
<PAGE>

FINANCIAL STATEMENTS

DEM MULTI-MANAGER BOND FUND

COMPOSITE STATEMENT OF ASSETS AND LIABILITIES - October 31, 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>

B-25
<PAGE>

PART C. OTHER INFORMATION

Item 23. Exhibits.

Exhibit
Number Description
<S> <C>

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)

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

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

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

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

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

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

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

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

3(I) Form of Stock Certificate (DEM Multi-Manager Equity Fund, Investor
Class)(5)

3(J) Form of Stock Certificate (DEM Multi-Manager Equity Fund, Institutional
Class)(5)

3(I) Form of Stock Certificate (DEM Multi-Manager Bond Fund,
Investor Class)(6)

3(J) Form of Stock Certificate (DEM Multi-Manager Bond Fund, Institutional
Class)(6)

4(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)

</TABLE>

<PAGE>

Exhibit
Number Description
<S> <C>

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

4(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)

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

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

4(F) Advisory and Administrative Services Agreement between the Registrant
and Chapman Capital Management, Inc. (DEM Multi-Manager Equity Fund)(6)

4(G) Form of Sub-Advisory Agreement between Chapman Capital Management, Inc.
and the various sub-advisers of the Registrant as set forth on
Appendix 1 thereto. (DEM Multi-Manager Equity Fund)(6)

4(H) Advisory and Administrative Services Agreement between the Registrant
and Chapman Capital Management, Inc. (DEM Multi-Manager Bond Fund)(6)

4(I) Form of Sub-Advisory Agreement between Chapman Capital Management, Inc.
and the various sub-advisers of the Registrant as set forth on
Appendix 1 thereto. (DEM Multi-Manager Bond Fund)(6)

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

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

5(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)

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

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

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

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

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

7(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)

7(C) Amendment to Investment Company Services Agreement between the
Registrant and First Data Investor Services Group (formerly FPS
Services, Inc.)(6)

7(D) Appendix B to Investment Company Services Agreement between the
Registrant and First Data Investor Services Group (formerly FPS
Services, Inc.)(6)
</TABLE>

B-2
<PAGE>

Exhibit
Number Description
<S> <C>

8(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)

8(B) Service Mark Licensing Agreement between the Registrant and Nathan A.
Chapman, Jr.(6)

9 Opinion and consent of Venable, Baetjer and Howard, LLP(6)

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

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

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

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

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

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

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

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

13(I) Distribution Plan (DEM Multi-Manager Bond Fund Investor Shares)(6)

13(J) Distribution Plan (DEM Multi-Manager Bond Fund Institutional Shares)(6)

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

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

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

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

15(E) Multiple Class Plan (DEM Multi-Manager Bond Fund)(6)

99.1 Power of Attorney(7)

99.2 Power of Attorney(5)

</TABLE>
- ----------------------
(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.

C-3
<PAGE>

(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) Incorporated by reference from Amendment 18 to Registrant's
Registration Statement on Form N-1A (File Nos. 33-25716; 811-5697) as
filed with the Securities and Exchange Commission September 30, 1998.

(6) Filed herewith.

(7) 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 24. Persons Controlled by or under Common Control with the Registrant.

None.

Item 25. Indemnification.

Reference is made to Article VII of the Registrant's Articles of Incorporation,
Article IV of the Registrant's By-laws, Section 7 of the Advisory and
Administrative Services Agreement between the Registrant and Chapman Capital
Management, Inc. and Section 4 of the Distribution Agreement between the
Registrant and the Distributor, which provide for indemnification or limitation
of the liability of Directors and officers, CCM, 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.

Item 26. Business and Other Connections of Investment Adviser.

INVESTMENT ADVISER

- --------------------------------------------------------------------------------
CHAPMAN CAPITAL MANAGEMENT, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>

- ------------------------------------- ---------------------------------- ------------------------------------
Name and Position with Investment Adviser Business, profession, vocation or
Principal Business Address employment of a substantial
nature, that the Sub-Adviser, and
each director, officer or partner of
the Sub-Adviser, IS OR HAS BEEN
ENGAGED WITHIN THE LAST TWO FISCAL
YEARS for his or her own account or
in the capacity of director, officer,
employee, partner or trustee.
- ------------------------------------- ---------------------------------- ------------------------------------
</TABLE>

B-4
<PAGE>

<TABLE>

<S> <C> <C>
- ------------------------------------- ---------------------------------- ------------------------------------
Nathan A. Chapman, Jr. Director and President President and Director of The
401 E. Pratt St. Chapman Co. since 1986. President
28th Floor and Director of Chapman Holdings,
Baltimore, MD 21202 Inc. since 1997 and Chapman
Capital Management Holdings, Inc.
since 1998.
- ------------------------------------- ---------------------------------- ------------------------------------
M. Lynn Ballard Treasurer and Assistant Secretary Treasurer and Assistant Secretary
401 E. Pratt Street since 1997 of The Chapman Co.
28th Floor Treasurer and Assistant Secretary
Baltimore, Maryland 21202 of Chapman Holdings, Inc. since
1997 and Chapman Capital
Management Holdings, Inc. since
1998.
- ------------------------------------- ---------------------------------- ------------------------------------
Earl U. Bravo Director Secretary and Assistant Treasurer
401 E. Pratt Street since 1997 of The Chapman Co.
28th Floor Senior Vice President, Secretary,
Baltimore, MD 21202 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>

SUB-ADVISERS

- --------------------------------------------------------------------------------
HUGHES CAPITAL MANAGEMENT, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>

- ------------------------ ------------ ------------------------------------------
Name Position Business, profession, vocation or
with employment of a substantial nature, that
Sub- the Sub-Adviser, and each director,
Adviser officer or partner of the Sub-Adviser, IS
OR HAS BEEN ENGAGED WITHIN THE LAST TWO
FISCAL YEARS for his or her own account or
in the capacity of director, officer,
employee, partner or trustee.
- ------------------------ ------------ ------------------------------------------
N/A N/A N/A

- ------------------------ ------------ ------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
MDL CAPITAL MANAGEMENT, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- ------------------------ ------------ ------------------------------------------
Name Position Business, profession, vocation or
Sub- employment with of a substantial nature,
Adviser that the Sub-Adviser, and each director,
officer or partner of the Sub-Adviser,
IS OR HAS BEEN ENGAGED WITHIN THE LAST TWO
FISCAL YEARS for his or her own account or
in the capacity of director, officer,
employee, partner or trustee.
- ------------------------ ------------ ------------------------------------------
N/A N/A N/A

- ------------------------ ------------ ------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
NCM CAPITAL MANAGEMENT GROUP, INC.
- --------------------------------------------------------------------------------

- ------------------------ ------------ ------------------------------------------
Name Position Business, profession, vocation or
with employment of a substantial nature, that
Sub- officer or partner of the Sub-Adviser
Adviser the Sub-Adviser, and each director,
officer or partner of the Sub-Adviser,
IS OR HAS BEEN ENGAGED WITHIN THE LAST TWO
FISCAL YEARS for his or her own account or
in the capacity of director, officer,
employee, partner or trustee.
- ------------------------ ------------ ------------------------------------------
Maceo K. Sloan Chairman, Chairman, CONXUS Communications (formerly
President, PCS Development Corporation), 12 North
CEO and Main Street, Greenville, SC 29601
Director (wireless communications); Chairman and
CEO, Sloan Communications, 103 West Main
Street, Durham, NC 27701 (wireless
communications); Director, CREF, 730 3rd
Avenue, New York, NY 10017 (insurance);
Director, Mechanics & Farmers Bank 116
West Parrish Street, Durham, NC 27701
(banking); Chairman, New Africa Advisers,
103 West Main Street, Durham, NC 27701
(investment management); Chairman,
President and CEO, Sloan Financial
- --------------------------------------------------------------------------------
</TABLE>

B-5
<PAGE>

Group, 103 West Main Street, Durham, NC
27701 (holding company); Director,
Portfolio Manager, Calvert New Africa
Fund, 4550 Montgomery Avenue, Bethesda, MD
20814 (investment management)
- ------------------------ ------------ ------------------------------------------
Justin F. Beckett Executive Director, CONXUS Communications
Vice (formerly PCS Development Corporation), 12
President North Main Street, Greenville, SC 29601
and (wireless communications); President, CEO,
Director New Africa Advisers, and 103 West Main
Street, Durham, NC 27701 (investment
management); Director President, Sloan
Communications, 103 West Main Street,
Durham, NC 27701 (wireless
communications); Executive Vice President,
Sloan Financial Group, 103 West Main
Street, Durham, NC 27701 (holding
company); Portfolio Manager, Calvert New
Africa Fund, 4550 Montgomery Avenue,
Bethesda, MD 20814 (investment management)
- ------------------------ ------------ ------------------------------------------
Clifford D. Mpare Executive Chief Investment Officer and Director, New
Vice Africa Advisers, 103 West Main Street,
President Durham, NC 27701 (investment management);
and Portfolio Manager, Calvert New Africa
Co-Chief Fund, 4550 Montgomery Avenue, Bethesda, MD
Investment 20814 (investment management)
Officer
- ------------------------ ------------ ------------------------------------------
Edith H. Noel Secretary Secretary and Treasurer, Sloan Financial
and Group, 103 West Main Street, Durham, NC
Treasurer 27701 (holding company)
- ------------------------ ------------ ------------------------------------------
Peter Jon Anderson Director Director and Senior Vice President,
American Express Financial Corporation,
IDS Tower 10, Minneapolis, MN 55440
(financial services business); Chairman,
CIO and Director, American Express Asset
Management Group, Inc., IDS Tower 10,
Minneapolis, MN 55440 (asset management);
Senior Vice President, American Express
Financial Advisers, IDS Tower 10,
Minneapolis, MN 55440 (financial advisors);
Chairman, Executive Vice President and
Director, IDS International, Inc., IDS
Tower 10, Minneapolis, MN 55440 (financial
advisors); Vice President, American
Express Securities Service, IDS Tower 10,
Minneapolis, MN 55440 (financial services
business)
- ------------------------ ------------ ------------------------------------------
Morris Goodwin, Jr. Director Treasurer, Deluxe Corporation, 3680
Victoria Street, Shoreview, MN 55126
(check printing)
- ------------------------ ------------ ------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
Seix Investment Advisors
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>

- ------------------------ ------------ ------------------------------------------
Name Position Business, profession, vocation or
with employment of a substantial nature, that
Sub- the Sub-Adviser, and each director,
Adviser officer or partner of the Sub-Adviser,
IS OR HAS BEEN ENGAGED WITHIN THE LAST TWO
FISCAL YEARSfor his or her own account or
in the capacity of director, officer,
employee, partner or trustee.
- ------------------------ ------------ ------------------------------------------
Christina Seix Chairman Director, Federal Home Loan Mortgage
and CIO Corporation, 8200 Jones Branch Drive,
McLean, VA 22102 (consolidates,
securitizes and reissues home mortgages);
Director until 1998, Fordham University,
441 E. Fordham Road, Bronx, NY 10458
(university)
- ------------------------ ------------ ------------------------------------------
</TABLE>

Item 27. Principal Underwriter.

(a) Not applicable.

(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. President, Director and Chairman of President, Director and Chairman of
- -------------------------------------------------------------------------------------------------------------
</TABLE>

B-6
<PAGE>

- ------------------------------------- ----------------------------------- -----------------------------------
The Chapman Co. the Board the Board
401 East Pratt Street
28th Floor
Baltimore, MD 21202

- ------------------------------------- ----------------------------------- -----------------------------------
Earl U. Bravo, Sr. Senior Vice President, Secretary Secretary and Assistant Treasurer
The Chapman Co. and 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 28. Location of Accounts and Records.

All accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder will be maintained at the offices of Chapman Capital Management,
Inc., 401 East Pratt Street, 28th Floor, Baltimore, Maryland 21202 or at the
offices of First Data Investor Services Group, Inc., 3200 Horizon Drive,
PO Box 61503, King of Prussia, Pennsylvania 19406.

Item 29. Management Services.

Not applicable.

Item 30. Undertakings.

Not applicable.

B-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this post-effective
amendment No. 20 and amendment No. 22 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Baltimore, State of Maryland, on July 15, 1999.

THE CHAPMAN FUNDS, INC.

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

Pursuant to the requirements of the Securities Act of 1933, this post-effective
amendment No. 20 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>

Signature Title Date

/s/ NATHAN A. CHAPMAN, JR. President and Director July 15, 1999
- --------------------------- (principal executive
Nathan A. Chapman, Jr. officer)

/s/ M. LYNN BALLARD Treasurer (principal July 15, 1999
- --------------------------- financial and
M. Lynn Ballard accounting officer)
</TABLE>

Each of the Directors:

Nathan A. Chapman, Jr., Dr. Glenda Glover, Lottie H. Shackelford, James
B. Lewis, Ronald A. White, Dr. Benjamin Hooks, David Rivers, and Wilfred
Marshall.

By: /s/ NATHAN A. CHAPMAN, JR. July 15, 1999
--------------------------
Nathan A. Chapman, Jr.
as Attorney-in-Fact

B-8
<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit Number Description
- -------------- -----------
<S> <C>

3(I) Form of Stock Certificate (DEM Multi-Manager Bond Fund, Investor
Class)

3(J) Form of Stock Certificate (DEM Multi-Manager Bond Fund,
Institutional Class)

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

4(G) Form of Sub-Advisory Agreement between Chapman Capital
Management, Inc. and the various sub-advisers of the
Registrant as set forth on Appendix 1 thereto.
(DEM Multi-Manager Equity Fund)

4(H) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (DEM
Multi-Manager Bond Fund)

4(I) Form of Sub-Advisory Agreement between Chapman Capital
Management, Inc. and the various sub-advisers of the
Registrant as set forth on Appendix 1 thereto. (DEM
Multi-Manager Bond Fund)

5(G) Distribution Agreement between the Registrant and The Chapman
Co. (DEM Multi-Manager Bond Fund)

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

7(D) Appendix B to Investment Company Services Agreement between the
Registrant and First Data Investor Services Group (formerly FPS
Services, Inc.)

8(B) Service Mark Licensing Agreement between the Registrant and
Nathan A. Chapman, Jr.

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

13(I) Distribution Plan (DEM Multi-Manager Bond Fund Investor Shares)

13(J) Distribution Plan (DEM Multi-Manager Bond Fund Institutional
Shares)

15(E) Multiple Class Plan (DEM Multi-Manager Bond Fund)
</TABLE>

C-9

<PAGE>
EXHIBIT 3(I)

STATE OF MARYLAND

NUMBER SHARES

------ --------

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER BOND 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 BOND 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 CORPORATED SEAL TO BE HEREUNTO
AFFIXED THIS __ DAY OF ___________ A.D. _____.

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

PAR VALUE
$0.001

FIRST DATA SERVICES, INC.
By:
------------------------------------------
Authorized Signature

<PAGE>
EXHIBIT 3(J)

STATE OF MARYLAND

NUMBER SHARES

- ---------- ----------

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER BOND FUND INSTITUTIONAL CLASS
COMMON STOCK
PAR VALUE - $.001

Fully Paid Non-Assessable

THIS CERTIFIES THAT _______________________ IS THE REGISTERED HOLDER OF
____________________ (______________) SHARES OF THE DEM MULTI-MANAGER BOND
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

FIRST DATA SERVICES, INC.
By:
------------------------------------------
Authorized Signature

<PAGE>

Exhibit 4(F)

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

October 23, 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.
October 23, 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 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

<PAGE>

Chapman Capital Management, Inc.
October 23, 1998
Page 3

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 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

<PAGE>

Chapman Capital Management, Inc.
October 23, 1998
Page 4

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 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,

<PAGE>

Chapman Capital Management, Inc.
October 23, 1998
Page 5

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.

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

Accepted:

CHAPMAN CAPITAL MANAGEMENT, INC.

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

<PAGE>

Exhibit 4(G)

SUB-ADVISORY AGREEMENT

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

[ ], 1999

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, 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

<PAGE>

Page 2

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 .45 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 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 Adviser 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

<PAGE>

Page 3

loss suffered by the Investment Adviser, the Fund or the Corporation, and the
Investment Adviser 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 Adviser'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 Adviser 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 Adviser
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 Adviser 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 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"

<PAGE>

Page 4

(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). This Agreement will terminate immediately and
automatically in the event of the termination of the Investment Advisory and
Administrative Services Agreement between the Investment Adviser and the
Corporation, on behalf of the Fund.

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:

<PAGE>

APPENDIX 1
<TABLE>
<CAPTION>

- ------------------------------------------------------- -----------------------------------------------------
Name and Address of Sub-Advisor Date of Agreement

- ------------------------------------------------------- -----------------------------------------------------
<S> <C>

Albriond Capital Management, LLC March 31, 1999
55 E. 59th Street, 19th Floor
New York, NY 10022

- ------------------------------------------------------- -----------------------------------------------------
Charter Financial Group, Inc. March 31, 1999
1401 I Street, NW, Suite 505
Washington, DC 20005

- ------------------------------------------------------- -----------------------------------------------------
CIC Asset Management, Inc. March 31, 1999
633 W. 5th Street, Suite 1180
Los Angeles, CA 90071

- ------------------------------------------------------- -----------------------------------------------------
Diaz-Verson Capital Investments, Inc. March 31, 1999
1200 Brookstone Centre Parkway
Suite 105
Columbus, GA 31909

- ------------------------------------------------------- -----------------------------------------------------
EverGreen Capital Management, Inc. March 31, 1999
10707 Pacific Street, Suite 201
Omaha, NE 68114

- ------------------------------------------------------- -----------------------------------------------------
GLOBALT, Inc. March 31, 1999
3060 Peachtree Road, NW
One Buckhead Plaza, Suite 225
Atlanta, GA 30305

- ------------------------------------------------------- -----------------------------------------------------
John Hsu Capital Group, Inc. March 31, 1999
767 Third Avenue, 18th Floor
New York, NY 10017

- ------------------------------------------------------- -----------------------------------------------------
The Kenwood Group, Inc. March 31, 1999
10 South LaSalle Street, Suite 3610
Chicago, IL 60610

- ------------------------------------------------------- -----------------------------------------------------
Union Heritage Capital Management, Inc. March 31, 1999
1642 First National Building
Detroit, MI 48226

- ------------------------------------------------------- -----------------------------------------------------
Valenzuela Capital Partners LLC March 31, 1999
1270 Avenue of the Americas, Suite 508
New York, N.Y. 10020

- ------------------------------------------------------- -----------------------------------------------------
Zevenbergen Capital, Inc. March 31, 1999
601 Union Street, Suite 2434
Seattle, WA 98101
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>

<PAGE>

Exhibit 4(h)

ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT

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

October 23, 1998

Chapman Capital Management, Inc.
The World Trade Center-Baltimore
401 East Pratt street
Suite 2800
Baltimore, Maryland 21202

Ladies and Gentlemen:

This will confirm the agreement between the undersigned (the
"Corporation") and you as follows:

1. GENERAL. The Corporation is an open-end management
investment company which has multiple investment portfolios including, the DEM
Multi-Manager Bond 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.

<PAGE>

Chapman Capital Management, Inc.
October 23, 1998
Page 2

portfolio securities and will solicit brokers to execute transactions, including
The Chapman Co., in accordance with the policies and restrictions regarding
brokerage allocations of the Fund and the Corporation. You will furnish to the
Corporation such statistical information with respect to the investments which
the Corporation may hold or contemplate purchasing as the Corporation may
reasonably request.

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.

<PAGE>

Chapman Capital Management, Inc.
October 23, 1998
Page 3

computed in the manner, on such days and at such time or times as described in
the Prospectus from time to time. The fee for the period from the effective date
of the Registration Statement to the end of the first month thereafter shall be
pro-rated according to the proportion which such period bears to the full
monthly period, and upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.

7. 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.

<PAGE>

Chapman Capital Management, Inc.
October 23, 1998
Page 4

law or for any loss suffered by the Fund or the Corporation and the Fund and the
Corporation agree to indemnify and hold harmless you and such other persons
against and from any claims, liabilities, actions, suits, proceedings, judgments
or damages (and expenses incurred in connection therewith, including the
reasonable cost of investigating or defending same, including, but not limited
to attorneys' fees) arising out of any such error of judgment or mistake of law
or loss; provided, however, that the Corporation's obligation with respect to
such claims, liabilities, actions, suits, proceedings, judgments or damages (and
expenses incurred in connection therewith, including the reasonable cost of
investigating or defending same, including, but not limited to attorneys' fees)
arising out of any such error of judgment or mistake of law or loss shall be
limited to the "assets belonging to" (as such expression is defined in the
Corporation's charter) the Fund and further provided that nothing herein shall
be deemed to protect or purport to protect you or any other such person against
any liability to the Corporation or to its security holders 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.

<PAGE>

Chapman Capital Management, Inc.
October 23, 1998
Page 5

person or by proxy or (b) more than 50% of the outstanding shares of the Fund,
provided that in either event its continuance also is approved by a majority of
the Corporation's Directors who are not "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable
with respect to the Fund without penalty, on 60 days' notice, by you or by the
Corporation's Board of Directors or by vote of the lesser of (a) 67% of the
shares of the Fund represented at a meeting if holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund. This Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).

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
BOND FUND

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

Accepted:

CHAPMAN CAPITAL MANAGEMENT, INC.

<PAGE>

Chapman Capital Management, Inc.
October 23, 1998
Page 6

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

<PAGE>

Exhibit 4(I)

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

Ladies and Gentlemen:

This will confirm the agreement between CHAPMAN CAPITAL
MANAGEMENT, INC. (the "Investment Advisor") 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 Bond 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 Advisor you
will provide investment management of that portion of the Fund's portfolio
allocated to you by the Investment Advisor 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 Chapman Co. or a broker that may be affiliated with
you or another sub- advisor 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 Advisor such
statistical information with respect to the investments which the Fund may hold
or contemplate purchasing as the Corporation or the Investment Advisor may
reasonably request. You acknowledge that this agreement does not require the
Corporation or the Investment Advisor to allocate any specific percentage of the

<PAGE>

Page 2

Fund's assets to you at any time or for any specific period. You further
acknowledge that the Corporation or the Investment Advisor may at any time or
from time to time allocate you no assets at all.

5. FEES. In consideration of the sub-advisory services
rendered pursuant to this Agreement, the Investment Advisor will pay you on the
first business day of each month a fee at the annual rate of .25 of 1% of the
value of that portion of the Fund's average weekly net assets that is allocated
to you by the Investment Advisor 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 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

<PAGE>

Page 3

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 advisor 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 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.

<PAGE>

Page 4

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). This
Agreement will terminate immediately and automatically in the event of the
termination of the Investment Advisory and Administrative Services Agreement
between the Investment Advisor and the Corporation, on behalf of the Fund.

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:

<PAGE>

APPENDIX 1
<TABLE>
<CAPTION>

- ------------------------------------------------------- -----------------------------------------------------
Name and Address of Sub-Advisor Date of Agreement

- ------------------------------------------------------- -----------------------------------------------------
<S> <C>

Hughes Capital Management, Inc. December 14, 1998
2001 Pennsylvania Avenue, N.W.
Washington, DC 20006

- ------------------------------------------------------- -----------------------------------------------------
MDL Capital Management, Inc. December 14, 1998
225 Ross Street
Third Floor
Pittsburgh, PA 15219

- ------------------------------------------------------- -----------------------------------------------------
NCM Capital Management Group, Inc. December 14, 1998
103 West Main Street
Durham, NC 27701-3638

- ------------------------------------------------------- -----------------------------------------------------
Seix Investment Advisors Inc. December 14, 1998
300 Tice Boulevard
Woodcliff Lake, NJ 07675

- ------------------------------------------------------- -----------------------------------------------------
</TABLE>

<PAGE>

Exhibit 5(G)

DISTRIBUTION AGREEMENT

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER BOND 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 Bond 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 Bond 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 providing compensation for
Investor Selling Services in accordance with the Investor Class Plan, The
Chapman Co. is

<PAGE>

The Chapman Co.
February 11, 1998
Page 3

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 Organizations"), for providing (i) services primarily
intended to result in the sale of the Institutional Shares ("Institutional
Selling Services"), and (ii) stockholder servicing,

<PAGE>

The Chapman Co.
February 11, 1998
Page 4

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 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

<PAGE>

The Chapman Co.
February 11, 1998
Page 5

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).

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.

<PAGE>

The Chapman Co.
February 11, 1998
Page 6

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 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

<PAGE>

The Chapman Co.
February 11, 1998
Page 7

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 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.

<PAGE>

The Chapman Co.
February 11, 1998
Page 8

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 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

<PAGE>

The Chapman Co.
February 11, 1998
Page 9

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 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

<PAGE>

The Chapman Co.
February 11, 1998
Page 10

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.

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

<PAGE>

The Chapman Co.
February 11, 1998
Page 11

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.

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

<PAGE>

The Chapman Co.
February 11, 1998
Page 12

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 BOND
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>

Exhibit 7(c)

AMENDMENT TO
INVESTMENT COMPANY SERVICES AGREEMENT

This Amendment dated as of February __, 1999, is entered into by THE
CHAPMAN FUNDS, INC. (the "Company") and FIRST DATA INVESTOR SERVICES GROUP, INC.
("Investor Services Group"), the successor in interest to FPS Services, Inc.
("FPS").

WHEREAS, the Company and FPS entered into an Investment Company
Services Agreement dated as of October 1, 1997 (as amended and supplemented, the
"Agreement");

WHEREAS, the Company and Investor Services Group wish to amend the
Agreement to revise certain Schedules to the Agreement;

NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, hereby agree as follows:

I. Schedule A to the Agreement is revised to include the following:

CASH MANAGEMENT SERVICES. Funds received by Investor Services
Group in the course of performing its services hereunder will be held in bank
accounts and/or money market fund accounts. With respect to funds maintained in
money market fund accounts, Investor Services Group shall retain any interest
generated or earned. With respect to funds maintained in bank accounts, Investor
Services Group shall retain any excess balance credits or excess benefits earned
or generated by or associated with such bank accounts or made available by the
institution at which such bank accounts are maintained after such balance
credits or benefits are first applied towards banking service fees charged by
such institution in connection with banking services provided on behalf of the
Company.

LOST SHAREHOLDERS. Investor Services Group shall perform such
services as are required in order to comply with Rules 17a-24 and 17Ad-17 of the
34 Act (the Lost Shareholder Rules"), including, but not limited to those set
forth below. Investor Services Group may, in its sole discretion, use the
services of a third party to perform the some or all such services.

(a) documentation of electronic search policies and procedures;
(b) execution of required searches;
(c) creation and mailing of confirmation letters;
(d) taking receipt of returned verification forms;
(e) providing confirmed address corrections in batch via
electronic media;;
(f) tracking results and maintaining data sufficient to comply
with the Lost Shareholder Rules; and
(g) preparation and submission of data required under the Lost
Shareholder Rules.

<PAGE>

II. Schedule B to the Agreement shall be deleted in its entirety and
:replaced with the attached Schedule B.

III. Schedule C to the Agreement shall be deleted in its entirety and
replaced with the attached Schedule C.

IV. Except to the extent amended hereby, the Agreement shall remain
unchanged and in full force and effect and is hereby ratified and confirmed in
all respects as amended hereby.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first written above.

THE CHAPMAN FUNDS, INC.

By: /S/ NATHAN A. CHAPMAN, JR.
--------------------------

FIRST DATA INVESTOR SERVICES
GROUP, INC.

By: /S/ KENNETH J. KEMPF
-------------------------

<PAGE>

SCHEDULE "B"

FEE SCHEDULE
FOR
THE CHAPMAN FUNDS, INC.

I. Fees related to Shareholder Servicing

A. TRANSFER AGENT AND SHAREHOLDER SERVICES:
$20.00 per account per year per portfolio

Minimum monthly fee - $2,250 per portfolio (This fee is
reduced to $24,000/year for the first two years of a 3-year
contract)

Each additional class minimum monthly fee is $1,250

B. IRA'S, 403(b) PLANS, DEFINED CONTRIBUTION/BENEFIT PLANS:
Annual Maintenance Fee - $12.00/account per year (Normally
charged to participants)

C. FUNDSERV PROCESSING: (If Applicable)
$1,000 One time start-up fee
$50.00 Per month/per fund monthly maintenance fee

D. NETWORKING PROCESSING: (If Applicable)
$1,000 One time start-up fee
$75.00 Per month/per fund monthly maintenance fee

E. Lost Shareholder Search/Reporting: $2.75 per account search*
* The per account search fee shall be waived until June 2000
so long as the Fund retains Keane Tracers, Inc. ("KTI") to
provide the Fund with KTI's "In-Depth Research Program"
services.

II. Fees related to Portfolio Valuation and Mutual Fund Accounting

A. ANNUAL FEE SCHEDULE PER DOMESTIC PORTFOLIO: U.S. Dollar
Denominated Securities only (1/12th payable monthly)

<TABLE>

<S> <C> <C>
$25,000 Minimum to $ 20 Million of Average Net Assets*
.0003 On Next $ 30 Million of Average Net Assets*
.0002 On Next $ 50 Million of Average Net Assets*
.0001 Over $100 Million of Average Net Assets*

</TABLE>

Each additional class is subject to a $10,000 minimum per
year.
Each additional Advisor of a Multiple Advisor Portfolio is
subject to a $5,000 minimum per year.

<PAGE>

*For multiple class or multiple Advisor Portfolios, fees are
based on COMBINED CLASSES'/PORTFOLIOS' AVERAGE NET ASSETS

B. ANNUAL FEE SCHEDULE PER COMPLEX DOMESTIC PORTFOLIO: (/12TH
PAYABLE MONTHLY)

<TABLE>

$30,000 Minimum to $ 20 Million of Average Net Assets*
.0003 On Next $ 30 Million of Average Net Assets*
.0002 On Next $ 50 Million of Average Net Assets*
.0001 Over $100 Million of Average Net Assets*

</TABLE>

Each additional class is subject to a $12,000 minimum per year.
Each additional Advisor of a Multiple Advisor Portfolio is subject to
a $5,000 minimum per year.

*For multiple class or multiple Advisor Portfolios, fees are
based on COMBINED CLASSES'/PORTFOLIOS' AVERAGE NET ASSETS

B. PRICING SERVICES QUOTATION FEE
Specific costs will be identified based upon options selected
by the Company and will be billed monthly.

Investor Services Group does not currently pass along the
charges for the U.S. equity prices supplied by Muller Data.
Should the Series invest in security types other than domestic
equities supplied by Muller, the following fees would apply.

----------------- ---------------- ----------------

MULLER DATA INTERACTIVE J.J. KENNY
SECURITY TYPES CORP.* DATA CORP.* CO., INC.*
--------------------------------------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>

Government Bonds $ .50 $ .50 $ .25 (a)
--------------------------------------------------- ----------------- ---------------- ----------------

Mortgage-Backed (evaluated, seasoned, closing) .50 .50 .25 (a)
--------------------------------------------------- ----------------- ---------------- ----------------

Corporate Bonds (short and long term) .50 .50 .25 (a)
--------------------------------------------------- ----------------- ---------------- ----------------

U.S. Municipal Bonds (short and long term) .55 .80 .50 (b)
--------------------------------------------------- ----------------- ---------------- ----------------

CMO's/ARM's/ABS 1.00 .80 1.00 (a)
--------------------------------------------------- ----------------- ---------------- ----------------

Convertible Bonds .50 .50 1.00 (a)
--------------------------------------------------- ----------------- ---------------- ----------------

High Yield Bonds .50 .50 1.00 (a)
--------------------------------------------------- ----------------- ---------------- ----------------

Mortgage-Backed Factors (per Issue per Month) 1.00 n/a n/a
--------------------------------------------------- ----------------- ---------------- ----------------

U.S. Equities (d) .15 n/a
--------------------------------------------------- ----------------- ---------------- ----------------

U.S. Options n/a .15 n/a
--------------------------------------------------- ----------------- ---------------- ----------------
--------------------------------------------------- ----------------- ---------------- ----------------
</TABLE>
<PAGE>

----------------- ---------------- ----------------

MULLER DATA INTERACTIVE J.J. KENNY
SECURITY TYPES CORP.* DATA CORP.* CO., INC.*
--------------------------------------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>

Domestic Dividends & Capital Changes
(per Issue per Month) (d) 3.50 n/a
--------------------------------------------------- ----------------- ---------------- ----------------

Foreign Securities .50 .50 n/a
--------------------------------------------------- ----------------- ---------------- ----------------

Foreign Securities Dividends & Capital Changes
(per Issue per Month) 2.00 4.00 n/a
--------------------------------------------------- ----------------- ---------------- ----------------

Set-up Fees n/a n/a (e) .25 (c)
--------------------------------------------------- ----------------- ---------------- ----------------

All Added Items n/a n/a .25 (c)
--------------------------------------------------- ----------------- ---------------- ----------------

</TABLE>

* Based on current Vendor costs, subject to change. Costs are
quoted based on individual security CUSIP/identifiers and are per
issue per day.
(a) $35.00 per day minimum
(b) $25.00 per day minimum
(c) $ 1.00, if no CUSIP
(d) At no additional cost to Investor Services Group clients
(e) Interactive Data also charges monthly transmission costs and
disk storage charges.

1) Futures and Currency Forward Contracts $2.00 per Issue per
Day

2) Dow Jones Markets (formerly Telerate Systems, Inc.)* (if
applicable)
*Based on current vendor costs, subject to change.

Specific costs will be identified based upon options selected
by the Company and will be billed monthly.

3) Reuters, Inc.*
*Based on current vendor costs, subject to change.

Investor Services Group does not currently pass along
the charges for the domestic security prices supplied
by Reuters, Inc.

4) Municipal Market Data* (if applicable)
*Based on current vendor costs, subject to change.

Specific costs will be identified based upon options
selected by the Company and will be billed monthly.

C. SEC Yield Calculation: (if applicable)
Provide up to 12 reports per year to reflect the yield
calculation for non-money market Funds required by the SEC,
$1,000 per year per Fund. For multiple class

<PAGE>

Funds, $1,000 per year per class. Daily SEC yield reporting is
available at $3,000 per year per Fund (US dollar denominated
securities only).

III. Fees related to Custody of Fund Assets using UMB Bank, NA

A. DOMESTIC SECURITIES AND ADRS PER PORTFOLIO: (1/12th payable
monthly)
U.S. Dollar Denominated Securities only

<TABLE>

.0002 On the First $ 30 Million of Average Net Assets*
.00015 On the Next $ 70 Million of Average Net Assets*
.0001 Over $100 Million of Average Net Assets*

</TABLE>

* For multiple custody account Portfolios, fees are based on
COMBINED CUSTODY ACCOUNTS' AVERAGE NET ASSETS.

Minimum monthly fee is $400 per portfolio.
Minimum monthly fee for Portfolios with Multiple Custody
Accounts is $200 per Custody Account.

B. CUSTODY DOMESTIC SECURITIES TRANSACTIONS CHARGE: (billed
monthly)

Book Entry DTC, Federal Book Entry, PTC $ 14.00
Physical Securities/Options/Futures $ 28.00
RIC's $ 24.50
P & I Paydowns $ 11.00
Wires $ 8.00
Check Request $ 8.00

</TABLE>

A transaction includes buys, sells, maturities or free
security movements.

C. WHEN ISSUED, SECURITIES LENDING, INDEX FUTURES, ETC.:
Should any investment vehicle require a separate segregated
custody account, a fee of $250 per account per month will
apply.

D. CUSTODY MISCELLANEOUS FEES:
Administrative fees incurred in certain local markets will be
passed onto the customer with a detailed description of the
fees. Fees include income collection, corporate action
handling, overdraft charges, funds transfer, special local
taxes, stamp duties, registration fees, messenger and courier
services and other out-of-pocket expenses.

IV. Out-of-Pocket Expenses

The Company shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:

<PAGE>

- Postage - direct pass through to the Fund
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Shipping, Certified and Overnight mail and insurance
- Terminals, communication lines, printers and other equipment and
any expenses incurred in connection with such terminals and lines
- Duplicating services
- Distribution and Redemption Check Issuance
- Courier services
- Federal Reserve charges for check clearance
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping
vendors
- Third party audit reviews
- Insurance
- Pricing services (or services used to determine Fund NAV)
- Vendor set-up charges for Blue Sky and other services
- Blue Sky filing or registration fees
- EDGAR filing fees o Vendor pricing comparison
- Such other expenses as are agreed to by Investor Services Group and
the Fund

The Company agrees that postage and mailing expenses will be paid on
the day of or prior to mailing as agreed with Investor Services Group. In
addition, the Company will promptly reimburse Investor Services Group for any
other unscheduled expenses incurred by Investor Services Group whenever the
Company and Investor Services Group mutually agree that such expenses are not
otherwise properly borne by Investor Services Group as part of its duties and
obligations under the Agreement.

VI. Miscellaneous Charges. The Company shall be charged for the following
products and services as applicable:

- Ad hoc reports
- Ad hoc SQL time
- COLD Storage
- Digital Recording

<PAGE>

- Banking Services, including incoming and outgoing wire charges
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Manual Pricing
- Materials for Rule 15c-3 Presentations
- Pre-Printed Stock, including business forms, certificates, envelopes,
checks and stationary

VII. Additional Services

To the extent the Company commences investment techniques such as
Security Lending, Swaps, Leveraging, Short Sales, Derivatives, Precious
Metals, or foreign (non-U.S. dollar denominated) securities and
currency, additional fees will apply. Activities of a non-recurring
nature such as shareholder in-kinds, fund consolidations, mergers or
reorganizations will be subject to negotiation. Any additional/enhanced
services, programming requests, or reports will be quoted upon request.

<PAGE>

SCHEDULE "C"

IDENTIFICATION OF FUNDS

Below are listed the separate funds to which services under this Agreement are
to be performed as of the Execution Date of this Agreement:

THE CHAPMAN FUNDS, INC.

The Chapman U.S. Treasury Money Fund*

DEM Equity Fund
"Investor Shares"
"Institutional Shares"

DEM Index Fund
"Investor Shares"
"Institutional Shares"

DEM Fixed Income Fund
"Investor Shares"
"Institutional Shares"

DEM Multi-Manager Equity Fund
"Investor Shares"
"Institutional Shares"

DEM Multi Manager Bond Fund
"Investor Shares"
"Institutional Shares"

This Schedule "C" may be amended from time to time by agreement of the Parties.

* Services Related to Custody Administration only

January 1, 1999

<PAGE>
Exhibit 7(D)
APPENDIX B

CUSTODY AGREEMENT

The following open-end management investment companies ("Funds") are hereby made
parties to the Custody Agreement dated DECEMBER 23, 1994 with UMB Bank, n.a.
("Custodian") and THE CHAPMAN FUNDS, INC. and agree to be bound by all the terms
and conditions contained in said Agreement.

LIST THE FUNDS

The Chapman U.S. Treasury Money Fund
DEM Equity Fund
DEM Index Fund
DEM Fixed Income Fund
DEM Multi-Manager Equity Fund
DEM Multi-Manager Bond Fund

ATTEST: THE CHAPMAN FUNDS, INC.
-----------------------

/S/ M. LYNN BALLARD By: /S/ NATHAN A. CHAPMAN, JR.
- ------------------- Name: Nathan A. Chapman, Jr.
----------------------------
Title: President
-----------------
Date: 2/1/99
------------

ATTEST: UMB BANK, N.A.
/S/ R. WILLIAM BLOEMKER By: /S/ RALPH R. SANTORO
Name: Ralph R. Santoro
----------------------
Title: Senior Vice President
-----------------------------
Date: 01/11/99
---------------

<PAGE>

Exhibit 8(B)

SERVICE MARK LICENSE AGREEMENT

THIS AGREEMENT made as of the 22nd day of June 1999 by and between
NATHAN A. CHAPMAN, JR., an individual and citizen of the United States (the
"Licensor"), and The Chapman Funds, Inc., a Maryland corporation (the
"Licensee") (the "Agreement").

WITNESSETH:

WHEREAS, Licensor owns certain valuable service marks described in
Appendix A hereto (hereinafter the "Marks"), said Marks having been used by
Licensor in connection with its investment banking and brokerage services,
mutual fund services and insurance services, and said Marks are well known and
recognized by the general public and associated in the public mind with
Licensor;

WHEREAS, Licensee desires to use the Marks in its business operations
as a multiple series mutual fund (the "Services"); and

WHEREAS, on the terms set forth herein, Licensor is willing to grant
unto Licensee a license to use the Marks.

NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, it is hereby agreed:

1. GRANT OF LICENSE.

1.1 Upon the terms and conditions herein set forth, Licensor grants to
Licensee, and Licensee hereby accepts, a revocable, non-exclusive,
non-transferable license to utilize the Marks in connection with the Services.

1.2 Licensee shall not be required to make any further payments for
the use of the Marks as contemplated herein.

1.3 Licensee shall use the Marks only in the United States and its
territories.

2. SERVICES.

2.1 For the preservation of Licensor's rights in the Marks, the parties
understand and agree that Licensor must maintain control over the nature and
quality of the Services, any advertising, promotional activities, and other
activities in connection with which Licensee uses the Marks. Licensor authorizes
the Licensee to use the Marks for the Services, but Licensor has the right,
prior to use by Licensee of the Marks (or any one of

<PAGE>

them) in any manner on or in connection with the Services to examine and approve
the manner in which Licensee uses the Marks. Licensee shall ensure that the
Services meet or exceed the highest quality standards of the mutual fund
industry. Licensor reserves the right, at any time during the term of this
License, to review Licensee's use of the Marks to insure that Licensee's use is
in compliance with this Agreement. In addition, Licensee, if Licensor so
requests, shall submit to Licensor for its prior approval, all advertising,
promotional or display material proposed to bear the Marks.

2.2 Licensee agrees to cooperate fully with Licensor for the purpose of
securing and preserving Licensor's rights or registrations in and to the Marks.
All artwork and designs involving the Marks, or any reproduction thereof, shall
remain the property of Licensor (notwithstanding their invention or use by
Licensee), and Licensor shall be entitled to use the same and to license the use
of the same by others except where inconsistent with the terms of this
Agreement. During the term hereof, Licensee agrees to diligently and continually
use and advertise the Marks in connection with the Services subject to the
provisions of this Agreement.

3. EFFECT OF LICENSEE'S USE.

Any use of the Marks by Licensee in accordance with this Agreement
shall enure to the benefit of Licensor and this Agreement shall not operate to
transfer or convey any proprietary interest in the Marks to Licensee.

4. ACKNOWLEDGMENT OF VALIDITY AND GOODWILL OF THE MARKS.

Licensee acknowledges and admits the validity of the Marks and any
registrations thereof, Licensor's exclusive right, title and interest therein,
the goodwill pertaining thereto and the secondary meaning of the Marks in the
mind of the public. Licensee covenants that it will not, directly or indirectly,
attack or assist another in attacking the validity of the Marks or any
registrations therefor. This paragraph shall survive the termination for any
reason whatsoever of this Agreement.

5. TRADEMARK NOTICE.

Where feasible, practical and appropriate, Licensee shall mark all
advertising and promotional materials utilizing the Marks with proper trademark
notices as prescribed by Licensor.

6. INFRINGEMENT BY THIRD PARTIES.

6.1 Licensor has the first right, but not the obligation, to enforce
its rights in any of the Marks against any third parties and, if it so desires,
may commence or prosecute any claim or suit in its own name or in the name of
Licensee or join Licensee as a party. Licensor shall bear the expense of, and
receive any recovery from, any action resulting from any such infringement;
provided, however, that if Licensor and Licensee agree that Licensee

2
<PAGE>

shall bear part of the expense of such litigation, Licensee shall be entitled to
share in any monetary judgment recovered in the same proportion as the amount
that its contribution of expenses bears to the total expense of the litigation.
Licensee shall not institute any suit or take any action on account of the Marks
without first obtaining Licensor's written consent.

6.2 In the event that suit for infringement by the Marks is brought
against Licensee, Licensee shall immediately notify Licensor in writing of such
suit. Upon timely notice of such suit, Licensor shall provide a defense at
Licensor's sole cost and expense.

7. TERM AND TERMINATION.

7.1 Licensor shall have the right to terminate this Agreement for any
reason or for no reason at all upon thirty (30) days' written notice to
Licensee.

7.2 Licensor shall have the right to immediately terminate this
Agreement upon the occurrence of any of the following:

7.2.1 Any attempt by Licensee to assign or otherwise transfer
this Agreement or any rights granted under this Agreement without the prior
written consent of Licensor.

7.2.2 The sale by Licensee of substantially all of its assets,
whether by sale of shareholder interest or sale of assets, or a change in
control of Licensee.

7.2.3 The insolvency of Licensee.

7.2.4 The cessation of the use of the Marks in Licensee's
business.

7.2.5 The receivership or bankruptcy of Licensee, or if
Licensee should make an assignment for the benefit of creditors.

8. INDEMNIFICATION.

Licensee shall indemnify, defend and hold Licensor harmless
from and against all claims, losses, liabilities, judgments and expenses (as
provided below) resulting from or attributable to claims against Licensor by
virtue of Licensee's use of the Marks. If a claim is asserted against Licensor,
Licensor shall promptly advise Licensee in writing of such claim and Licensor
shall cooperate fully in the defense thereof and furnish to Licensee all
evidence and assistance in Licensor's control. To the extent that Licensee
controls the defense, agrees to have Licensor control the defense, or to the
extent Licensee enters into or agrees to a settlement agreement, Licensee shall
indemnify Licensor from and against any and all liability, damages, and
reasonable costs (including attorneys' fees but not including attorneys' fees
incurred by Licensor in monitoring or participating in any defense provided by
Licensee) incurred by Licensor as a result of any such claim or any resulting
judgment or settlement.

3
<PAGE>

9. ASSIGNMENT.

Licensee shall not assign or otherwise transfer this Agreement or the
license granted under this Agreement without the prior written consent of
Licensor, which consent may be withheld in Licensor's sole and absolute
discretion, for any reason or for no reason whatsoever.

10. USE OF MARKS AFTER TERMINATION.

Upon the termination of this Agreement, for any reason whatsoever,
Licensee shall immediately discontinue the use of the Marks and thereafter shall
no longer use or have the right to use the Marks, any variation thereof or any
word(s) and or logo(s) similar thereto. In addition to the foregoing, Licensee
shall take all necessary actions to remove the Marks from its corporate name and
from the name of any series, portfolio or class of its stock. Licensee hereby
agrees that at the termination of this Agreement, Licensee shall be deemed to
have assigned, transferred and conveyed to Licensor any rights, equities,
goodwill, titles or other rights in and to the Marks which have been obtained by
Licensee pursuant to this Agreement or otherwise. If requested by Licensor,
Licensee shall, without further consideration therefor, execute any instrument
to accomplish or confirm the foregoing.

11. LICENSOR'S REMEDIES.

Licensee acknowledges that its failure to comply with its obligations
and covenants as set forth in this Agreement (after notice, if applicable, in
accordance with Section 7), will result in immediate and irremediable damage to
Licensor. Licensee acknowledges and admits that there is no adequate remedy at
law for such default, and Licensee agrees that in the event of such default,
Licensor shall be entitled to equitable relief by way of temporary and permanent
injunctions and such other further relief as any court may deem just and proper.
Resort to any remedies referred to herein shall not be construed as a waiver of
any other rights and remedies to which Licensor is entitled under this Agreement
or otherwise at law or equity. In addition, Licensee agrees to publish, at its
sole expense, a statement (approved by Licensor) in such trade journals and
other periodicals that collectively have a circulation reasonably likely to be
seen by Licensee's customers acknowledging Licensee's breach of this Agreement.

12. NOTICES.

Any and all notices or communications hereunder shall be in writing and
duly given if mailed or transmitted via any standard form of transmittal
telecommunication to the Licensor and Licensee c/o Nathan A. Chapman, Jr.,
401 E. Pratt Street, 28th Floor, Baltimore, MD 21201-2978.

4
<PAGE>

13. SEVERABILITY.

The provisions of this Agreement shall not be severable, and if any
provision of this Agreement shall be held or declared to be illegal, invalid, or
unenforceable, this Agreement shall be deemed to be terminated in accordance
with the terms regarding termination. Notwithstanding the foregoing, Licensor
may in its sole discretion determine that the illegality, invalidity or
unenforceability of any provision is not material, in which event such
illegality, invalidity or unenforceability shall not affect any other provision
hereof, and the remainder of this Agreement, disregarding such invalid portion,
shall continue in full force and effect as though such invalid provision had not
been contained herein.

14. ENTIRE AGREEMENT.

This Agreement contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes and cancels all
previous written or oral understandings, agreements, negotiations, commitments,
or any other writing or communications in respect of such subject matter. This
Agreement may not be released, discharged, abandoned, changed, or modified in
any manner except by an instrument in writing signed by each of the parties
hereto.

15. GOVERNING LAW; VENUE.

This Agreement shall be deemed to be made and entered into pursuant to
the laws of the State of Maryland and, in the event of any dispute, shall be
governed by and shall be construed and interpreted in accordance with the laws
of the State of Maryland and the United States of America. Each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any federal
court located in the State of Maryland or any Maryland state court in the event
any dispute arises out of this Agreement, (b) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for leave
from any such court, and (c) agrees that it will not bring any action relating
to this Agreement or any of the transactions contemplated by this Agreement in
any court other than a federal court sitting in the State of Maryland or a
Maryland state court.

16. WAIVER.

The waiver by either of the parties hereto of any breach of any
provision hereof by the other party shall not be construed to be either a waiver
of any succeeding breach of any such provision or a waiver of the provision
itself.

17. NATURE OF RELATIONSHIP.

Nothing herein shall be construed to place the parties in a
relationship of partners or joint venturers, and neither party shall have the
power to obligate or bind the other in any manner whatsoever.

5
<PAGE>

18. SURVIVAL.

The provisions of Sections 4, 8, 10, 11 and 15 hereof shall survive
termination or expiration of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date specified above.

WITTNESS: LICENSOR:

EARL U. BRAVO, SR. /S/ NATHAN A. CHAPMAN, JR. (SEAL)
- -------------------------- --------------------------
NATHAN A. CHAPMAN, JR.

ATTEST: LICENSEE:

THE CHAPMAN FUNDS, INC.

EARL U. BRAVO, SR. By: NATHAN A. CHAPMAN, JR. (SEAL)
- -------------------------- ----------------------
Secretary Nathan A. Chapman, Jr.
President

[Corporate Seal]

6
<PAGE>

APPENDIX A

TRADEMARKS

1. Domestic Emerging Markets-Registered Trademark-

2. DEM-Registered Trademark-

3. Stylized C-Eagle Logo-Trademark-

4. DEM Index-Trademark-

5. DEM Profile-Trademark-

6. DEM Universe-Trademark-

7. DEM Company-Trademark-

8. DEM Multi-Manager-Trademark-

9. Chapman-Trademark-

<PAGE>

Exhibit 9

Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201-2978

June 25, 1999

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

Re: The Chapman Funds, Inc.
DEM MULTI-MANAGER BOND 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 Bond Fund,
Investor Class (the "Investor Class Shares") and DEM Multi-Manager Bond Fund,
Institutional Class (the "Institutional Class Shares") (collectively the
"Shares").

As counsel for the Company, we are familiar with its Charter
and Bylaws. We have examined Post-Effective Amendment No. 21 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
the conformity with originals of all documents submitted to us as copies.

<PAGE>

The Chapman Funds, Inc.
June 25, 1999
Page 2

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 13(I)

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER BOND 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 Bond Fund
Investor Class Common Stock, par value $.001 per share, of the Fund (the
"Shares") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act
of 1940, as amended (the "1940 Act"), subject to the following terms and
conditions:

SECTION 1. SERVICES PAYABLE UNDER THE PLAN.

(a) The Chapman Co. will be paid fees under the Plan to
compensate The Chapman Co. or enable The Chapman Co. to compensate other
persons, ("Service Providers"), including any other distributor of the Shares,
for providing: (i) services primarily intended to result in the sale of the
Shares ("Selling Services") and (ii) stockholder servicing, administrative and
accounting services ("Administrative Services" and collectively with Selling
Services, "Services"). Selling Services may include, but are not limited to: the
printing and distribution to prospective investors in the Shares of prospectuses
and statements of additional information describing the Fund; the preparation,
including printing, and distribution of sales literature, reports and media
advertisements relating to the Shares; providing telephone services relating to
the Fund; distributing the Shares; costs relating to the formulation and
implementation of marketing and promotional activities, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising, and related travel and entertainment expenses;
and costs involved in obtaining whatever information, analyses and reports with
respect to marketing and promotional activities that the Fund may, from time to
time, deem advisable. In providing compensation for Selling Services in
accordance with the Plan, The Chapman Co. is expressly authorized (i) to make,
or cause to be made, payments reflecting an allocation of overhead and other
office expenses related to providing Services; (ii) to make, or cause to be
made, payments, or to provide for the reimbursement of expenses of, persons who
provide support services in connection with the distribution of the Shares
including, but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, and providing any other Service;
and (iii) to make, or cause to be made, payments to compensate selected dealers
or other authorized persons for providing any Services. Administrative Services
may include, but are not limited to, (i) responding to inquiries of prospective
investors regarding the Fund; (ii) services to stockholders not otherwise
required to be provided by the Fund's custodian or any co-administrator; (iii)
establishing and maintaining accounts and records on behalf of Fund
stockholders; (iv) processing purchase, redemption and exchange transactions in
Shares; and (v) other similar services not otherwise required to be provided by
the Fund's transfer agent or any co-administrator. Payments under the Plan are
not tied exclusively to the selling and administrative expenses actually
incurred by The Chapman Co. or any Service Provider, and the payments may exceed
expenses actually incurred by The Chapman Co. and/or a Service Provider.
Furthermore, any portion of any fee paid to The Chapman Co. or to any of its
affiliates by the Fund or any of their past profits or other revenue

<PAGE>

may be used in their sole discretion to provide services to stockholders of the
Fund or to foster distribution of the Shares.

SECTION 2. AMOUNT OF PAYMENTS.

The Fund will pay The Chapman Co. on the first business day of
each quarter a fee for the previous quarter calculated at an annual rate of up
to .75% of the average daily net assets of the Shares consisting of up to .50%
as compensation for Selling Services and .25% as compensation for Administrative
Services provided by The Chapman Co. or any Service Providers to the Shares
pursuant to this Agreement.

SECTION 3. APPROVAL OF PLAN.

Neither this Plan nor any related agreements will take effect
until approved by a majority of (a) the full Board of Directors of the Fund and
(b) those Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreements related to it (the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on this Plan and the related
agreements.

SECTION 4. CONTINUANCE OF PLAN.

This Plan will continue in effect with respect to the Shares
from year to year so long as its continuance is specifically approved annually
by vote of the Fund's Board of Directors in the manner described in Section 3(a)
and 3(b) above. The Fund's Board of Directors will evaluate the appropriateness
of this Plan and its payment terms on a continuing basis and in doing so will
consider all relevant factors, including the types and extent of Selling
Services and Administrative Services provided by The Chapman Co. and/or Service
Providers and amounts The Chapman Co. and/or Service Providers receive under
this Plan.

SECTION 5. TERMINATION.

This Plan may be terminated at any time with respect to the
Shares by vote of a majority of the Independent Directors or by a vote of a
majority of the outstanding voting Shares.

SECTION 6. AMENDMENTS.

This Plan may not be amended to increase materially the amount
of the fees described in Section 1 above with respect to the Shares without
approval of at least a majority of the outstanding voting Shares. In addition,
all material amendments to this Plan must be approved in the manner described in
Section 3(a) and 3(b) above.

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

<PAGE>

Exhibit 13(J)

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER BOND 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 Bond 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.

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<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.

3
<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 15(E)

THE CHAPMAN FUNDS, INC.
DEM MULTI-MANAGER BOND 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

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<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

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