<PAGE>
SEMI ANNUAL REPORT
APRIL 30, 2000
[LOGO]
DEM EQUITY FUND
A DOMESTIC EMERGING MARKETS
INVESTMENT OPPORTUNITY
THE CHAPMAN FUNDS, INC.
<PAGE>
A MESSAGE TO OUR SHAREHOLDERS
With this semi-annual report we are pleased to have completed two full years
since the Fund's inception on April 8, 1998. The Fund, which was launched on
April 8, 1998, is a pioneer in the "Domestic Emerging Markets" segment, which we
believe offers exciting opportunities for investment. As a non-diversified
portfolio that seeks aggressive long-term growth through capital appreciation,
the Fund invests in companies that we believe are positioned for growth within
the Domestic Emerging Market segment. This segment is comprised of companies
that are controlled by African-Americans, Asian-Americans, Hispanic-Americans
and women and that are located in the United States and its territories ("DEM
companies"). The Fund considers both capital appreciation and income in the
selection of investment, but we place primary emphasis on capital appreciation.
We are pleased that your Fund's Domestic Emerging Market strategy has
outperformed its benchmark during the six months of this report during a period
of high domestic market volatility and a time when investors favored large
capitalization stocks. The Fund has returned 54.44%, (Institutional Shares net
of fees), during the last six months, compared to the Russell 2000 Growth
Index's return of 27.79%. This period includes the last two months of the fourth
quarter of 1999 and first four months of the year 2000.
The year, century and millenium closed with strong economic growth for the
U.S. economy, low unemployment and moderate inflation. Business transition to
the new year was smooth in spite of worldwide concerns over computer conversions
to the year 2000. The last quarter of 1999 was the strongest of the year as four
major U.S. market indices closed at new highs on December 31st. The DJIA, S&P
500, Nasdaq and Russell 2000 Growth Index all gained over 20% for the year.
Technology was the winning sector, with the Nasdaq gaining over 85%, and closing
above 4,000, only a month after closing above 3,000 for the first time. As
happened in the prior year, 1999 closed with large capitalization stocks
outperforming small capitalization stocks and growth style outperforming value
style. However, the bond market suffered its worst year since 1977, with the
30-year Treasury Bond ending the year at a yield of 6.484%, up by more than 138
basis points over 1998, due to concerns over rising oil prices, indications of
increasing inflation, and anticipation of continued increases in interest rates.
As strong economic growth continued with low unemployment into 2000, January
turned in a volatile and disappointing performance, with the four major indices
losing ground upon continued increases in inflation. Large capitalization stocks
continued their downward move during February, while technology and small
capitalization stocks turned in very strong, double digit returns for the month,
hitting new highs on the last day. March blew in with market volatility that
drove the large capitalization DJIA below 10,000 early in the month and
subjected the S&P 500 to several scare drops. However, both indices reversed
course and closed with positive returns for the month. Volatility was also
significant for small capitalization and technology stocks, as the Nasdaq and
Russell 2000 Growth indices hit new highs early in the month, with Nasdaq
closing above 5,000 for the first time on March 10th. Yet they both dropped by
March's end with a correction in the Russell 2000 (down 11% from its high) and
the Nasdaq close behind (down 9.4% from its high). The first quarter ended with
the DJIA showing a loss, and the other three indices holding on to gains due to
a strong February performance.
However, the momentum sell-off in technology and high-growth companies
continued to April 14th, pushing the Nasdaq down 34.2% from its March high,
considered to be bear-market territory. By the end of April, the indices had
gained back some of their lost ground so that relative to their highs, the DJIA
was down 8.4%, S&P 500 down 4.9%, Nasdaq down 23.5%, and the Russell 2000 Growth
Index down 16.5%, leaving technology in bear market territory. Returns for
December 31, 1999 through April 30, 2000 are the DJIA at -6.3%, S&P 500 at
-0.8%, Nasdaq at -5.1% and Russell 2000 at +0.7%. The Russell 2000 Growth Index
is at -1.8%. The general market outlook, however, is that with the pull-back,
losses have driven day-traders and margin investors from the market, with more
stable, long-term investors re-entering.
1
<PAGE>
The economic and inflation statistics during these months led the Federal
Reserve to follow its November increase in short term interest rates with two
more 25 basis point increases in February and March 2000. Poor earnings reports
from several major blue chip companies, the potential Microsoft breakup, and
Wall Street strategists reducing their portfolio equity allocations, contributed
to the market stress. A strong first quarter GDP growth rate of 5.4%, high
consumer spending increase of 8.3%, and the Employment-Cost Index showing a
surge in annual labor costs of 4.3%, increased market speculation of a Federal
Reserve increase in interest rates at their May 16th meeting of 25 to 50 basis
points in an attempt to moderate a strong economy which they believe is growing
too fast.
Small capitalization and growth companies significantly outperformed large
capitalization and value style investing for the six-month period ended April
30, 2000. As a result, small capitalization growth stocks as measured by the
Fund's benchmark, Russell 2000 Growth Index, outperformed the S&P 500 Index.
Specifically, the Russell 2000 Growth Index gained 27.8% for the six months
ended April 30, 2000 compared to the S&P 500's gain of 7.2%.
PERFORMANCE REVIEW
The DEM Equity Fund significantly outperformed the Russell 2000 Growth
Index, its benchmark, for the six months, returning 53.82% for Investor shares
and 54.44% for Institutional shares, compared to 27.79% for the Russell 2000
Growth Index. We are pleased to report that the Fund's net assets of $37,143,095
as of April 30, 2000, represent an increase of 113% over the six-month period.
This increase is attributable to both strong stock performance of the DEM
companies in the Fund's investment portfolio and a 43% net increase in
additional investment dollars into the Fund.
Since the Fund's inception in April 1998, a $10,000 investment in the Fund's
Investor shares would have grown to $20,804 (including maximum sales charge of
4.75%), and a $10,000 investment in the Fund's institutional shares would have
grown to $22,017. In comparison, the same initial investment in the
Russell 2000 Growth Index would have grown to $12,923.
2
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Performance Comparison
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES INVESTOR SHARES RUSSELL 2000 GROWTH
<S> <C> <C> <C>
April 8, 1998* $10,000 $9,525 $10,000
October 31, 1998 $8,110 $7,725 $7,820
October 31, 1999 $14,255 $13,525 $10,110
April 30, 2000 $22,017 $20,804 $12,923
</TABLE>
*Commencement of operations
DEM EQUITY FUND
AVERAGE ANNUAL TOTAL RETURN
THROUGH APRIL 30, 2000
<TABLE>
<CAPTION>
SIX MONTHS SINCE
(CUMULATIVE) 1 YEAR INCEPTION*
------------ -------- ----------
<S> <C> <C> <C>
Investor Shares
with sales charge........................................ 46.51% 103.75% 42.63%
w/o sales charge......................................... 53.82% 113.91% 46.03%
Institutional Shares....................................... 54.44% 115.53% 46.60%
Russell 2000 Growth Index.................................. 27.79% 31.40% 13.24%
</TABLE>
------------------------
Performance data represents past performance, which is no guarantee of future
results. Investment return and principal value will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
3
<PAGE>
The Fund contains 46 stocks, representing seven of the Russell 2000 Growth
Index's twelve sectors. As shown in the following pie chart, we continue to
weight the Fund heaviest in the Technology, Consumer Discretionary & Services,
and Producer Durables sectors as of April 30, 2000.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DEM EQUITY
SECTOR WEIGHTINGS
<TABLE>
<S> <C>
Technology 44.0%
Consumer Discretionary & Services 13.9%
Product Durables 12.7%
Financial Services 3.7%
Autos & Transportation 2.2%
Utilities 1.0%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
RUSSELL 2000 GROWTH
SECTOR WEIGHTINGS
<TABLE>
<S> <C>
Health Care 15.5%
Producer Durables 10.5%
Financial Services 8.4%
Utilities 3.7%
Auto & Transportation 1.9%
Technology 35.3%
Consumer Discretionary & Services 16.7%
</TABLE>
4
<PAGE>
Our top three performers over the last six months were technology companies:
Nvidia (+302.9%), Aspect Development (+290.7%) and I2 Technologies (+227.5%).
They represent 3.4%, 7.4% and 7.3% of the Fund's holdings, respectively. NVIDIA
CORPORATION (NVDA) designs, develops and markets three dimensional graphics
processors and related software in the personal computer market. ASPECT
DEVELOPMENT, INC. (ASDV) develops, markets and supports enterprise client/server
software, facilitating manufacturers' selection of optimal component suppliers.
I2 TECHNOLOGIES (ITWO) provides supply chain management software, used to plan
and schedule manufacturing logistics from raw materials procurement to customer
delivery and continues to perform strongly in the portfolio.
The Fund's lowest three performers over the six-month period were Network
Commerce, Inc. (formerly Shopnow.com) (-65.1%), APA Optics (-51.2%) and Marimba
(-50.1%). All three were new positions in the Fund during this six-month period
and were impacted by the technology pullback. They represent 0.5% or less of the
portfolio holdings on April 30, 2000. We believe they are currently undervalued
and our outlook for their future performance remains optimistic.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TOP TEN PORTFOLIO HOLDINGS AS OF 04/30/00
STOCK % OF TOTAL NET ASSETS
<S> <C>
Broadvision 8.5
Aspect Development 7.4
12 Technologies 7.3
Solectron 7.1
Lattice Semiconductor 4.4
Mastec, Inc. 3.5
Nvidia Corporation 3.4
Univision Communications 3.2
Computer Associates 2.3
Atlas Air, Inc. 2.2
</TABLE>
5
<PAGE>
PORTFOLIO HIGHLIGHTS
Among the new positions added during this report period are Appnet Systems
(APNT), Infospace (INSP), and Proxicom (PXCM). APPNET, INC. provides electronic
business application development, integration and outsourcing to Fortune 1000
and dot.com companies. INFOSPACE, INC. provides commerce, information and
communication infrastructure services to wireless devices, merchants and web
sites. PROXICOM, INC. provides business-to-business Internet solutions to the
energy, telecommunications, financial services, retail and services industries.
Our largest sale during the six months was to take some profits in
Broadvision. It had performed so well that we sold over 40% of the position to
bring the remaining number of shares back to below 10% of the Fund holdings. The
fund realized a 178.5% gain on this transaction relative to Broadvision's value
on October 31, 1999. We closed out our positions in Movado, Premisys
Communications, Ugly Duckling, and QuePasa as both their market performance and
competitive position weakened significantly.
OUTLOOK
During 2000 we believe that economic growth will continue. In the first four
months of 2000 we have seen technology drive the stock market in both
directions. Nevertheless, technology productivity enhancements continue to
benefit domestic business and economic growth. Market volatility can be expected
to continue as the Federal Reserve implements its interest rate tightenings
intended to slow the pace of consumer demand, business investment and,
ultimately, price inflation. Investors have demonstrated more caution over their
investment decisions relating to internet and high-growth companies, which will
likely keep stock valuations below their highs until interest rates settle down.
We believe that our strategy of investing in equities for the long term,
combined with a focus upon quality companies, helps to weather the normal ups
and downs of the market.
We thank you for your confidence and the opportunity to continue earning
your business.
Sincerely,
/s/ Nathan A. Chapman, Jr.
Nathan A. Chapman, Jr.
PRESIDENT
6
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF NET ASSETS--APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
------ ------------
<C> <S> <C>
COMMON STOCK--77.6%
AUTO & TRANSPORTATION--2.2%
AIR TRANSPORTATION
23,000 Atlas Air, Inc.(+)........................................ $ 803,563
-----------
Total Auto & Transportation................................. 803,563
-----------
CONSUMER DISCRETIONARY--13.9%
APPAREL
18,500 Perry Ellis International, Inc.(+)........................ 187,313
ENTERTAINMENT
5,000 Hollywood.Com, Inc.(+).................................... 70,000
ENVIRONMENTAL SERVICES
5,000 ATG, Inc.(+).............................................. 17,813
HOUSEHOLD FURNISHINGS
19,500 Ethan Allen Interiors, Inc................................ 520,406
MEDIA/PUBLISHING
13,000 Radio One, Inc.(+)........................................ 754,000
20,000 Spanish Broadcasting(+)................................... 373,750
11,000 Univision Communications, Inc.(+)......................... 1,201,750
RETAIL
20,000 Wet Seal, Inc., Class A(+)................................ 355,000
15,000 PC Connection, Inc.(+).................................... 718,125
20,000 Shopnow.Com, Inc.(+)...................................... 127,500
SOFTWARE & TECHNOLOGY SERVICE
12,000 Advantage Learning, Inc.(+)............................... 174,750
12,000 Proxicom, Inc.(+)......................................... 410,250
12,000 Starmedia Network, Inc.(+)................................ 262,500
-----------
Total Consumer Discretionary................................ 5,173,157
-----------
FINANCIAL SERVICES--3.7%
BANKS
5,000 Carver Bancorp, Inc....................................... 47,500
20,000 Popular, Inc.............................................. 402,500
SOFTWARE & TECHNOLOGY SERVICE
9,000 Advent Software, Inc.(+).................................. 472,500
FINANCIAL SERVICES
14,000 R&G Financial Corporation, Class B........................ 120,750
20,000 Doral Financial Corporation............................... 238,750
5,333 Oriental Financial Group, Inc............................. 90,661
-----------
Total Financial Services.................................... 1,372,661
-----------
</TABLE>
(+) Non income producing securities
See notes to financial statements
7
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF NET ASSETS--APRIL 30, 2000 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
------ ------------
<C> <S> <C>
COMMON STOCK--CONTINUED
HEALTH CARE--.1%
HEALTH CARE MANAGEMENT SERVICES
5,500 Pediatrix Medical Group(+)................................ $ 45,375
-----------
Total Health Care........................................... 45,375
-----------
PRODUCER DURABLE--12.7%
COMMUNICATIONS
15,000 Mastec, Inc............................................... 1,295,625
TECHNOLOGY
17,000 Gemstar International Group Limited(+).................... 786,250
56,560 Solectron Corporation(+).................................. 2,647,715
-----------
Total Producer Durable...................................... 4,729,590
-----------
TECHNOLOGY--44.0%
COMMUNICATIONS TECHNOLOGY
23,000 Startec Global Communications Corporation(+).............. 336,375
SOFTWARE & TECHNOLOGY SERVICES
6,000 APA Optics Inc.(+)........................................ 130,500
10,000 Appnet Systems, Inc.(+)................................... 240,000
40,000 Aspect Development, Inc.(+)............................... 2,765,000
20,000 Autodesk, Inc............................................. 767,500
72,000 Broadvision, Inc.(+)...................................... 3,163,500
15,000 Complete Business Solutions, Inc.(+)...................... 343,125
5,000 Cysive, Inc.(+)........................................... 272,187
15,000 Computer Associate International(+)....................... 837,188
15,000 IMR Global Corporation(+)................................. 193,125
21,000 I2 Technologies, Inc.(+).................................. 2,714,250
20,000 Open Market, Inc.......................................... 206,250
5,000 Informatica Corporation(+)................................ 209,687
4,000 Infospace, Inc.(+)........................................ 287,250
13,000 Intelligroup, Inc.(+)..................................... 201,500
10,000 Marimba, Inc.(+).......................................... 198,125
10,000 Netscout System, Inc...................................... 150,000
5,000 Sycamore Networks, Inc.(+)................................ 392,500
6,000 Syntel, Inc.(+)........................................... 66,750
TECHNOLOGY
24,000 Lattice Semiconductor Corporation(+)...................... 1,617,000
14,000 Nvidia Corporation(+)..................................... 1,247,750
-----------
Total Technology............................................ 16,339,562
-----------
</TABLE>
(+) Non income producing securities
See notes to financial statements
8
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF NET ASSETS--APRIL 30, 2000 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
------ ------------
<C> <S> <C>
COMMON STOCK--CONTINUED
UTILITIES--1.0%
COMMUNICATIONS
11,000 Primus Telecommunications Group(+)........................ $ 360,937
-----------
Total Telecommunications.................................... 360,937
-----------
Total Common Stock (Cost $16,434,414)--77.6%................ 28,824,845
-----------
SHORT TERM INVESTMENTS--23.4%
MONEY MARKET ACCOUNT--23.4%
8,686,972 UMB Money Market Fiduciary Account........................ 8,686,972
-----------
Total Money Market Account.................................. 8,686,972
-----------
Total Investments in Securities--101%....................... 37,511,817
Other Assets Less Liabilities--(1.0%)....................... (368,722)
-----------
Net assets--100.0%.......................................... $37,143,095
===========
</TABLE>
(+) Non income producing security
See notes to financial statements
9
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES -- APRIL 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities at value (cost $16,434,414)....... $28,824,845
Short term investments...................................... 8,686,972
Receivable for shares sold.................................. 220,360
Deferred Organization Cost.................................. 30,849
Interest receivable......................................... 14,919
Receivable for investments sold............................. 13,799
Other assets................................................ 8,640
-----------
Total assets................................................ 37,800,384
-----------
Liabilities:
Payable for investments purchased........................... 437,481
Payable for fund shares repurchased......................... 181,774
Accrued expenses............................................ 38,034
-----------
Total liabilities........................................... 657,289
-----------
Net Assets.................................................. $37,143,095
===========
Net Assets consist of:
Paid-in capital............................................. $21,637,060
Accumulated net investment loss............................. (209,855)
Accumulated net realized gain on investments................ 3,325,459
Net unrealized appreciation of investments.................. 12,390,431
-----------
$37,143,095
===========
Net Asset Value and Redemption Price:
Institutional Shares
($36,255,692 / 1,152,520 shares outstanding).............. $ 31.46
===========
Investor Shares
($887,403 / 28,436 shares outstanding).................... $ 31.21
===========
Offering Price Per Investor Shares:
Net asset value........................................... $ 31.21
Sales Charge (maximum of 4.75% of offering price)......... 1.56
-----------
Offering price............................................ $ 32.77
===========
</TABLE>
See notes to financial statements
10
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDING
APRIL 30, 2000
---------------
<S> <C>
Investment Income:
Dividends................................................. $ 14,480
Interest.................................................. 38,773
-----------
Total investment income................................. 53,253
-----------
Expenses:
Management and administrative fees........................ 145,447
Registration fees......................................... 43,986
Transfer and dividend disbursing agent's fees............. 40,512
Distribution fees......................................... 34,630
Professional fees......................................... 23,900
Accounting fees........................................... 19,019
Shareholder reports....................................... 12,391
Director's fees........................................... 3,473
Other..................................................... 16,675
-----------
Total expenses.......................................... 340,033
Expenses reimbursed..................................... (76,925)
-----------
Net expenses.............................................. 263,108
-----------
Net investment loss....................................... (209,855)
-----------
Realized and Unrealized Gain on Investments:
Realized gain on investment transactions.................. 3,508,092
Change in unrealized appreciation/depreciation of
investments............................................. 6,793,330
-----------
Net realized and unrealized gain on investments........... 10,301,422
-----------
Net Increase In Net Assets Resulting From Operations........ $10,091,567
===========
</TABLE>
See notes to financial statements
11
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2000 OCTOBER 31, 1999
-------------- ----------------
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment loss....................................... $ (209,855) $ (294,099)
Net realized gain (loss) on investment transactions....... 3,508,092 (140,466)
Change in unrealized appreciation (depreciation) of
investments............................................. 6,793,330 7,245,970
----------- -----------
Net increase in net assets from operations................ 10,091,567 6,811,405
----------- -----------
Capital Share Transactions (Note 4):
Proceeds from shares sold
Institutional Shares.................................... 10,689,904 2,328,837
Investor Shares......................................... 276,192 204,046
----------- -----------
Total proceeds from shares sold......................... 10,966,096 2,532,883
----------- -----------
Cost of shares repurchased
Institutional Shares.................................... (1,292,543) (36,448)
Investor Shares......................................... (48,591) (33,383)
----------- -----------
Total cost of shares repurchased........................ (1,341,134) (69,831)
----------- -----------
Increase in net assets from capital share
transactions.......................................... 9,624,962 2,463,052
----------- -----------
Total increase in net assets.............................. 19,716,529 9,274,457
----------- -----------
Net Assets:
Beginning of period....................................... 17,426,566 --
----------- -----------
End of period............................................. $37,143,095 $17,426,566
=========== ===========
</TABLE>
See notes to financial statements
12
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND--INVESTOR SHARES
FINANCIAL HIGHLIGHTS (UNAUDITED)
The financial highlights table is intended to help you understand the Fund's
financial performance since the inception of the Fund. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited for the periods ended October 31. It should be read
in conjunction with financial statements and notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS
ENDING APRIL 8, 1998(1)
APRIL 30, 2000 YEAR ENDED THROUGH
(UNAUDITED) OCTOBER 31, 1999 OCTOBER 31, 1998
--------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............. $20.29 $11.58 $14.29
------ ------ ------
Income from Investment Operations:
Net investment loss(2)........................... (.31) (.45) (.29)
Net realized and unrealized gain (loss) on
investments.................................... 11.23 9.16 (2.42)
------ ------ ------
Total from investment operations................. 10.92 8.71 (2.71)
------ ------ ------
Distributions to shareholders:
From net investment income....................... -0- -0- -0-
From net realized gains on investments........... -0- -0- -0-
------ ------ ------
Total distributions.............................. -0- -0- -0-
------ ------ ------
Net asset value, end of period................... $31.21 $20.29 $11.58
====== ====== ======
Total Return(3).................................... 53.82% 75.21% (18.96)%
Ratios to Average Net Assets:
Expenses(5)...................................... 2.37%(4) 3.25% 4.55%(4)
Net investment loss.............................. (1.99)% (2.90)% (4.31)%
Expenses prior to expense limitation............. 2.48% 3.50% 4.80%
Supplemental Data:
Net Assets, end of period (000 omitted).......... $ 887 $ 421 $ 45
Portfolio turnover rate.......................... 17.00% 17.27% 17.89%
</TABLE>
------------------------
1 Commencement of operations.
2 Net investment loss per share was calculated using the average shares
method.
3 Total Return represents the return that an investor would have earned on an
investment in the Fund (assuming investment in the Fund the first day of the
fiscal year, and reinvestment of all dividends and distributions). It
excludes the effect of sales load. Total return for periods less than one
year have not been annualized.
4 Annualized.
5 The Chapman Co., the Fund's distributor, voluntarily agreed to limit the
distribution fee to an aggregate of .25% of average daily net assets of the
Investor Shares for fiscal year 2000. Additionally, CCM, the Fund's
investment advisor, contractually agreed to limit the total annual operating
expenses of the Fund, solely attributable to the Investor Shares to 2.00% of
average daily net assets effective March 17, 2000 until at least
December 31, 2009. Prior to March 17, 2000, CCM voluntarily agreed to limit
total annual operating expenses of the Investor Shares to 3.00% of average
daily net assets.
See notes to financial statements.
13
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND--INSTITUTIONAL SHARES
FINANCIAL HIGHLIGHTS (UNAUDITED)
The financial highlights table is intended to help you understand the Fund's
financial performance since the inception of the Fund. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited for the periods ended October 31. It should be read
in conjunction with financial statements and notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS
ENDING APRIL 8, 1998(1)
APRIL 30, 2000 YEAR ENDED THROUGH
(UNAUDITED) OCTOBER 31, 1999 OCTOBER 31, 1998
--------------- ----------------- ----------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............. $ 20.37 $ 11.58 $14.29
------- ------- ------
Income from Investment Operations:
Net investment loss(2)........................... (.23) (.40) (.29)
Net realized and unrealized gain (loss) on
investments.................................... 11.32 9.19 (2.42)
------- ------- ------
Total from investment operations................. 11.09 8.79 (2.71)
------- ------- ------
Distributions:
From net investment income....................... -0- -0- -0-
From net realized gains on investments........... -0- -0- -0-
------- ------- ------
Total distributions.............................. -0- -0- -0-
------- ------- ------
Net asset value, end of period................... $ 31.46 $ 20.37 $11.58
======= ======= ======
Total Return(3).................................... 54.44% 75.91% (18.96)%
Ratios to Average Net Assets:
Expenses(5)...................................... 1.86%(4) 2.97% 4.30%(4)
Net investment loss.............................. (1.48)% (2.64)% (4.06)%
Expenses prior to expense limit.................. 2.43% 3.00% 4.30%
Supplemental Data:
Net Assets, end of period (000 omitted).......... $36,257 $17,006 $8,107
Portfolio turnover rate.......................... 17.00% 17.27% 17.89%
</TABLE>
------------------------
1 Commencement of operations.
2 Net investment loss per share was calculated using the average shares
method.
3 Total Return represents the return that an investor would have earned on an
investment in the Fund (assuming investment in the Fund the first day of the
fiscal year, and reinvestment of all dividends and distributions). Total
return for periods less than one year have not been annualized.
4 Annualized.
5 CCM, the Fund's investment advisor, contractually agreed to limit the total
annual operating expenses of the Fund, solely attributable to the
Institutional Shares to 1.25% of average daily net assets effective
March 17, 2000 until at least December 31, 2009. Prior to March 17, 2000,
CCM voluntarily agreed to limit total annual operating expenses of the
Institutional Shares to 2.00% of average daily net assets.
See notes to financial statements.
14
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
Notes To Financial Statements--April 30, 2000 (Unaudited)
NOTE 1--GENERAL
The Chapman Funds, Inc. (the "Company"), is an open-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act").
The Company currently offers six series; DEM Equity Fund, DEM Index Fund, DEM
Multi-Manager Bond Fund, DEM Multi-Manager Equity Fund, U.S. Treasury Money
Fund, and Institutional Cash Management Fund. These financial statements pertain
to the DEM Equity Fund (the "Fund").
The Fund is a non-diversified portfolio that seeks aggressive long-term growth
through capital appreciation from investments in companies that are controlled
by African Americans, Asian Americans, Hispanic Americans or women ("DEM
Companies"). The Fund, which commenced operations on April 8, 1998, offers two
classes of shares, Institutional Shares and Investor Shares. The Institutional
Shares are sold without a sales load, and the Investor Shares have a maximum
4.75% front-end sales load.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund.
Security Valuation--Portfolio securities primarily traded on an exchange are
valued at the last quoted sales price for that day. Securities traded
over-the-counter are valued, if bid and asked quotations are available, at the
mean between the current bid and asked prices. If bid and asked quotations are
not available, then over-the-counter securities are valued through valuations
obtained from an independent pricing service or as determined in good faith by
the Board of Directors. Investments in short-term securities having a maturity
of 60 days or less are valued at amortized cost.
Federal Income Taxes--No provision for federal income taxes has been made since
the Fund intends to qualify as a Regulated Investment Company under Subchapter M
of the Internal Revenue Code and distribute all of its taxable income.
Deferred Organization Costs--Costs incurred in connection with the Fund's
organization have been capitalized and are being amortized on a straight-line
basis over a five-year period.
Securities Transactions, Investment Income, Distributions, and Other--The Fund
accounts for security transactions on a trade date basis. Realized gains and
losses on sales of securities are determined using the specific identification
method for both financial and income tax reporting purposes. Interest income and
expenses are recorded on an accrual basis. Income and common expenses are
allocated on a daily basis to each class based on its respective net assets.
Class specific expenses are charged directly to each class. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Use of Estimates in the Preparation of Financial Statements--The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 3--INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES
Chapman Capital Management, Inc. ("CCM") is the investment adviser for the Fund.
The Fund pays CCM an advisory fee at an annual rate of .90% of the Fund's
average daily net assets, and an administration fee at an annual rate of .15% of
the Fund's average daily net assets.
15
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2000 (UNAUDITED)
NOTE 3--INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES
(CONTINUED)
CCM has agreed to contractually limit the total annual operating expenses
(excluding income, excise and other taxes and extraordinary expenses) in excess
of 1.25% of average daily net assets of the Institutional Shares effective March
17, 2000 until at least December 31, 2009. In addition, CCM has agreed to
contractually limit the total annual operating expenses (excluding income,
excise and other taxes and extraordinary expenses) in excess of 2.00% of average
daily net assets of the Investor Shares of average daily net assets until at
least December 31, 2009.
At April 30, 2000, approximately $2,100 was due from CCM pursuant to the above
agreements.
PFPC, Inc. ("PFPC") serves as the Fund's Transfer and Dividend Paying Agent and
Accounting Agent pursuant to an Investment Company Services Agreement. As
compensation for transfer agent services, the Fund pays PFPC an account fee plus
an additional class fee. As compensation for its accounting services, the Fund
pays PFPC a fee based on its average daily net assets plus an additional class
fee.
For the six months ended April 30, 2000, The Chapman Co., an affiliate of CCM,
earned commissions on sales of Investor Shares of $13,119, and received
brokerage commissions related to Fund portfolio transactions of $11,500.
Pursuant to Rule 12b-1 under the 1940 Act, The Chapman Co., the Distributor of
the Fund (the "Distributor"), receives a fee under the Investor Shares
Distribution Plan for stockholder and distribution services at an annual rate of
.75% (up to .25% stockholder service fee and .50% distribution fee) of the
average daily net assets of the Fund attributable to the Investor Shares. The
Distributor has voluntarily limited such fee of the Fund to an aggregate of .50%
of average daily net assets (up to .25% stockholder service fee and .25%
distribution fee). These voluntary limits are not contractual and could change.
For the six months ended April 30, 2000, total distribution fees waived were
$946. The Distributor also receives a fee under the Institutional Shares
Distribution Plan for stockholder administrative and distribution services at an
annual rate of .25% of the average daily net assets of the Fund attributable to
the Institutional Shares. At April 30, 2000 expenses payable to The Chapman Co.
for distribution services was $6,163.
NOTE 4--CAPITAL SHARE TRANSACTIONS
The Chapman Funds, Inc. is authorized to issue 10 billion full and fractional
shares of common stock, par value $.001 per share, of which 1 billion shares are
designated as DEM Equity Institutional Shares, and 1
16
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2000 (UNAUDITED)
NOTE 4--CAPITAL SHARE TRANSACTIONS (CONTINUED)
billion shares are designated as DEM Equity Investor Shares. Transactions in
shares of the respective classes were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
APRIL 30, 2000 FOR THE YEAR ENDED
(UNAUDITED) OCTOBER 31, 1999
------------------------ ------------------
<S> <C> <C>
Shares sold
Institutional Shares.................................. 356,987 137,228
Investor Shares....................................... 9,353 19,345
Shares issued as reinvestment of dividends.............. -- --
Shares repurchased
Institutional Shares.................................. (39,463) (2,023)
Investor Shares....................................... (1,660) (2,514)
------- -------
Net increase in shares outstanding...................... 325,217 152,036
======= =======
</TABLE>
NOTE 5--INVESTMENT TRANSACTIONS
Excluding short-term obligations, purchases of investment securities aggregated
$6,078,693 and proceeds from sales aggregated $4,325,773 during the six months
ending April 30, 2000.
NOTE 6--DIRECTOR'S FEES AND RELATED PARTIES
Certain officers and directors of the Company are "affiliated persons", as
defined in the Investment Company Act of 1940, of the adviser. For the six
months ended April 30, 2000, these "affiliated persons" did not receive any
compensation from the Company.
17
<PAGE>
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY TO SHAREHOLDERS AND TO OTHERS
WHO HAVE RECEIVED A COPY
OF THE DEM EQUITY FUND PROSPECTUS
[LOGO]
THE CHAPMAN FUNDS
A MEMBER OF THE CHAPMAN GROUP OF COMPANIES
TRANSFER AND DIVIDEND PAYING AGENT
AND ACCOUNTING AGENT:
PFPC, INC.
3200 HORIZON DRIVE
PO BOX 61503
KING OF PRUSSIA, PA 19406
(800) 441-6580
INVESTMENT ADVISOR:
CHAPMAN CAPITAL MANAGEMENT, INC.
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET, 28(TH) FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
CUSTODIAN:
UMB BANK, N.A.
928 GRAND AVENUE
KANSAS CITY, MISSOURI 64141-6226
DISTRIBUTOR:
THE CHAPMAN COMPANY
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET, 28(TH) FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
FOR SHAREHOLDER INQUIRIES CALL THE CHAPMAN CO. AT 1-800-752-1013
OR
PFPC, INC. AT 1-800-441-6580
