<PAGE>
SEMI ANNUAL REPORT
APRIL 30, 2000
[LOGO]
DEM INDEX FUND
A DOMESTIC EMERGING MARKETS
INVESTMENT OPPORTUNITY
THE CHAPMAN FUNDS, INC.
<PAGE>
A MESSAGE TO OUR SHAREHOLDERS
We are pleased to provide you with this semi-annual report for shareholders
of the DEM Index Fund. The Fund, launched on March 23, 1999, is a pioneer in the
"Domestic Emerging Markets" segment, which we believe, offers exciting
opportunities for investment. The "Domestic Emerging Markets" market segment is
comprised of companies ("DEM Companies") that are controlled by African
Americans, Asian Americans, Hispanic/Latino Americans or women and that are
located in the United States and its territories (the "DEM Profile"). The Fund
is an unmanaged index fund designed to track as closely as possible the
performance of the DEM Index. The DEM Index was developed and is controlled by
The Chapman Co., an investment banking affiliate of Chapman Capital Management,
Inc., the fund's investment adviser. It is a market capitalization weighted
index of companies that meet the DEM Profile.
The DEM Index consists of 100 stocks chosen from the wider DEM Universe. The
resulting index is comprised of a mixture of small-, mid-, and large-cap stocks,
representing a broad mix of companies in each of these categories and covering a
wide range of industries. The DEM Index is intended to track the performance of
the DEM Universe, which currently consists of 190 DEM Companies identified by
The Chapman Co.
This report covers the six-month period from October 31, 1999 to April 30,
2000. During the six-month period from October through April, the domestic
economy remained very strong. The unemployment rate remained near recent
historic lows, reaching as low as 3.9% in April. Gross Domestic Product surged
at a 7.3% pace in the fourth quarter of 1999, followed by a strong 5.4% advance
in the first quarter of 2000. This strong economic performance raised increasing
concerns that a tight labor market could lead to a resurgence of inflation.
These fears prompted the Federal Reserve Board to raise interest rates several
times over the period. Three 25 basis point increases in the Fed Funds rate in
November, February and March (followed by a 50 basis point increase in May) put
the target Fed Funds rate at 6.0% at the end of April. Whether or not these
increases had any affect on the strength of the economy, evidence of
inflationary pressures remained elusive. The April Consumer Price Index (CPI)
stood only 3.0% above the prior year. Although this represents a modest increase
over the 2.7% and 1.6% inflation figures recorded in 1999 and 1998,
respectively, it is still a relatively low increase by historical standards.
The environment for stocks remained very volatile over this period. The
major stock indices fluctuated wildly and diverged markedly in performance.
After reaching new highs in mid- to late March, the S&P 500 Index dropped
precipitously in April, falling more than 11% before recovering much of its
losses towards the end of the month. The Russell 2000 Growth Index was even more
volatile. From October 31, 1999 to March 10, 2000, the Russell 2000 Growth Index
rose 27.8%. However, by April 14, the index had lost a substantial portion of
these gains, dropping 34.3% in just over a month. The DJIA reached its peak in
mid-January before dropping 16.4% to its low in early March. The Nasdaq
Composite Index ("Nasdaq") reached its high later in the period, cresting on
March 10 before dropping 34.2% by mid-April. As in recent periods, technology
issues drove much of this volatility.
1
<PAGE>
PERFORMANCE REVIEW
The DEM Index experienced similar volatility. The DEM Index reached a high
of 1470.00 on March 9, 2000, before experiencing a steep 47.7% decline to 768.81
on April 17. Despite this sudden reversal, at its low the DEM Index was still up
55.7% from its October 31 1999 level. Modest recovery through the end of April
saw the index regain much of its lost ground, finishing 28.0% above the low for
the period. The 55.7% growth of the DEM Index during the October-April period
outperformed the DJIA, the S&P 500, the Russell 2000 Growth Index and the Nasdaq
Composite indices, which returned 0.8%, 7.3%, 27.8%, and 30.1%, respectively,
over the same period.
The DEM Index Fund has tracked the performance of the DEM Index fairly
closely but, as is usually the case with index funds, the Fund's operating and
management expenses caused it to trail the DEM Index. In addition, with just
over $250 thousand in assets under management as of April 30, 2000, it is also
difficult to match the Fund weightings with those in the DEM Index in a
cost-effective manner. Consequently, over the six-month period, Investor Share
and Institutional Share performance were 11.18% and 10.62%, respectively, below
that of the DEM Index. However, the DEM Index Fund still managed to outperform
its benchmark, the Russell 2000 Growth Index, by a wide margin, returning 44.52%
for Investor Shares and 45.08% for Institutional Shares. In comparison, the
Russell 2000 Growth Index experienced a 27.79% increase during the same the
period.
Since the Fund's inception in March 1999, a $10,000 investment in the fund's
Investor Shares would have grown to $18,370 (including maximum sales charge of
4.75%), and a $10,000 investment in the Fund's Institutional Shares would have
grown to $19,391. In comparison, the same initial investment in the Russell 2000
Growth Index would have grown to $14,554.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Performance Comparison
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES INVESTOR SHARES RUSSELL 2000 GROWTH INDEX
<S> <C> <C> <C>
March 23, 1999* $10,000 $9,525 $10,000
October 31, 1999 $13,366 $12,711 $11,389
April 30, 2000 $19,391 $18,370 $14,554
</TABLE>
2
<PAGE>
DEM INDEX FUND TOTAL RETURN
FOR THE PERIOD ENDED APRIL 30, 2000
<TABLE>
<CAPTION>
SIX MONTHS ENDED AVERAGE ANNUAL
APRIL 30, 2000 SINCE INCEPTION
---------------- ---------------
<S> <C> <C>
Investor Shares
with sales charge............................... 37.66% 72.99%
w/o sales charge................................ 44.52% 80.75%
Institutional Shares.............................. 45.08% 81.64%
Russell 2000 Growth Index......................... 27.79% 40.25%
DEM Index......................................... 55.70% 96.69%
</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.
The changes in the portfolio were driven by many of the same trends
occurring in the wider stock market. Technology stocks rode a wave of favorable
momentum early in the period, before rising interest rates and the high
expectations and valuations for Internet stocks came back to earth in March. As
is often the case in the market, investors decided that the sell-off was
overdone and began returning to these same issues late in the period. As in
recent periods, technology stocks led the top performers in the DEM Index Fund.
Fiber Optics has been one of the hottest segments in the stock market of late.
Two of the top five performers operate in this area. FiberCore, Inc. (FBCE),
which makes single and multi-mode fiber optic cabling, gained 952.2% during the
period, while Osicom Technologies (FIBR), which makes DWDM equipment and
announced an optical switching product during the period, rose 530.3%. Voxware,
Inc. (VOXW), maker of voice recognition products, rose 608.4%, largely on its
introduction of its VoiceLogistics product, which is designed to provide order
fulfillment services. Silicon Storage Technology, Inc. (SSTI) rose 471.4% on the
strength of its first quarter earnings announcement, which exceeded consensus
estimates by a wide margin as demand for its flash memory products remained
strong. InfoSpace, Inc. (INSP) gained 416.4% as investor enthusiasm for its
wireless service offerings outweighed the market's general disenchantment with
Internet companies.
The worst performers in the portfolio seem to have suffered more from
company specific events than from the general retrenchment in the market. Movado
Group, Inc. (MOVA), maker of several watch brands, led the decline with a 60.8%
drop, driven by a disappointing performance in its fourth quarter caused by
large closeout sales and inventory write-offs. Neff Corp. (NFF), an equipment
rental company, received a buyout offer from a member of management following
several quarters of poor performance. Its stock was down 59.3% during the
period. NeoMagic Corp. (NMGC), which makes multimedia chips for mobile
computers, announced that production delays of its 3D multimedia chips would
hurt revenues going forward, leading to a 57.6% decline in its stock. Granite
Broadcasting Corp (GBTVK), operator of a number of network affiliate TV stations
fell 56.8% on investor concerns about the effects of Granite's groundbreaking
agreement with NBC in San Francisco, which marked the first time a station group
had agreed to pay a network for content. Finally, Network Commerce, Inc. (NWKC),
formerly Shopnow.com, fell 51.0% primarily due to a Barron's article questioning
the viability and cash burn rates of many of the new Internet companies. Shopnow
was listed among companies that Barron's believed were headed for a liquidity
crisis within a year.
3
<PAGE>
TOP TEN PORTFOLIO HOLDINGS AS OF 04/30/00
<TABLE>
<CAPTION>
STOCK % OF TOTAL NET ASSETS
----- ---------------------
<S> <C>
Infospace.com, Inc................................ 12.5
Univision Communications.......................... 9.3
Broadvision, Inc.................................. 8.7
Art Technology Group, Inc......................... 6.7
Amkor Technology, Inc............................. 6.4
Golden West Financial............................. 4.6
Vitria Technology................................. 3.8
Aspect Development................................ 3.3
Lattice Semiconductor............................. 2.7
Nvidia Corporation................................ 2.3
</TABLE>
OUTLOOK
We remain cautiously optimistic that the favorable economic environment will
continue and that the recent interest rate increases by the Federal Reserve
Board will be their last. Recent signals do indicate a modest slowdown in the
economy, which may be just what the Fed is looking for. We believe that such an
environment should be conducive to the continued strength of the DEM Index and
to the performance of the Fund.
We thank you for your confidence and the opportunity to continue earning
your business.
<TABLE>
<S> <C>
Sincerely,
/s/ Nathan A. Chapman, Jr.
Nathan A. Chapman, Jr.
PRESIDENT
</TABLE>
4
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
STATEMENT OF NET ASSETS--APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
------ ------------
<C> <S> <C>
COMMON STOCK--97.4%
AUTO & TRANSPORTATION--.6%
AIR TRANSPORTATION
46 Atlas Air, Inc.+.......................................... $ 1,607
--------
Total Auto & Transportation................................. 1,607
--------
CONSUMER DISCRETIONARY--16.6%
APPAREL
29 Donna Karan International+................................ 196
CONSUMER PRODUCTS
76 Martha Stewart Living, Class A+........................... 1,083
26 Movado Group, Inc........................................... 224
10 National Presto Industries, Inc............................. 345
CONSUMER SERVICES
80 INFOUSA , Inc.+........................................... 465
ENTERTAINMENT
11 Hollywood.Com, Inc.+...................................... 154
FURNITURE
66 Ethan Allen Interiors, Inc................................ 1,761
MEDIA/PUBLISHING
16 Granite Broadcasting Corporation+......................... 89
50 Radio One, Inc., Class A.................................... 2,900
127 Spanish Broadcasting+....................................... 2,373
214 Univision Communications, Inc.+............................. 23,380
RENTAL/LEASING COMMERCIAL
29 Neff Corporation+......................................... 131
RETAILERS
21 PC Connection, Inc.+...................................... 1,005
17 Wet Seal, Inc.+............................................. 302
SOFTWARE & TECHNOLOGY SERVICE
46 Advantage Learnings, Inc.+................................ 670
110 Proxicom, Inc.+............................................. 3,761
95 Starmedia Network, Inc.+.................................... 2,078
TEXTILES
78 The Warnaco Group, Inc., Class A.......................... 829
--------
Total Consumer Discretionary................................ 41,746
--------
CONSUMER STAPLES -- 1.1%
CONSUMER PRODUCTS
24 Natures Sunshine Products................................. 204
FOOD
81 Tootsie Roll Industries, Inc.............................. 2,496
--------
Total Consumer Staples...................................... 2,700
--------
</TABLE>
+ Non income producing security
See notes to financial statements
5
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
STATEMENT OF NET ASSETS--APRIL 30, 2000 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
------ ------------
<C> <S> <C>
COMMON STOCK--CONTINUED
FINANCIAL SERVICES--10.0%
BANKS
12 Cathay Bancorp, Inc....................................... $ 546
17 First Indiana Corporation................................... 317
39 First Bank Puerto Rico...................................... 690
20 GBC Bancorp................................................. 558
340 Golden West Financial....................................... 11,603
14 Hamilton Bancorp, Inc.+..................................... 257
24 International Bancshares.................................... 993
285 Popular, Inc................................................ 5,736
FINANCIAL SERVICES
64 Doral Financial Corp...................................... 764
18 Oriental Financial Group, Inc............................... 306
39 R&G Financial Corp., Class B................................ 336
INVESTMENT MANAGEMENT
30 Siebert Financial Corporation............................. 283
MEDIA/PUBLISHING
13 Value Line, Inc........................................... 455
SOFTWARE & TECHNOLOGY SERVICE
47 Advent Software+.......................................... 2,415
--------
Total Financial Services.................................... 25,259
--------
HEALTH CARE--.5%
MEDICAL PRODUCTS
11 ICU Medical, Inc.+........................................ 241
MEDICAL INFORMATION SYSTEMS
25 Kendle International+..................................... 228
PHARMACEUTICAL
39 Akorn, Inc.+.............................................. 271
54 Genelabs Technologies, Inc.+................................ 284
11 Neopharm, Inc.+............................................. 168
--------
Total Health Care........................................... 1,192
--------
MATERIALS AND PROCESSING--.1%
BUILDING MATERIALS
7 Puerto Rican Cement Company, Inc.......................... 214
--------
Total Materials and Processing.............................. 214
--------
</TABLE>
+ Non income producing security
See notes to financial statements
6
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
STATEMENT OF NET ASSETS--APRIL 30, 2000 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
------ ------------
<C> <S> <C>
COMMON STOCK--CONTINUED
PRODUCER DURABLES--2.3%
COMMUNICATIONS
59 Mastec, Inc.+............................................. $ 5,096
RETAILERS
32 Electronics Boutique Holdings+............................ 520
TECHNOLOGY
20 Altigen Communications+................................... 176
--------
Total Producer Durable...................................... 5,792
--------
TECHNOLOGY--63.4%
COMMUNICATIONS TECHNOLOGY
46 Egain Communications+..................................... 765
13 Startec Global Communications Corporation+.................. 190
ELECTRONICS
14 Merix Corporation+........................................ 306
13 Pericom Semiconductor Corporation+.......................... 571
15 Sage, Inc.+................................................. 254
25 SRS Labs, Inc.+............................................. 363
SOFTWARE & TECHNOLOGY SERVICE
53 Agency.Com Limited+....................................... 1,116
13 APA Optics, Inc.+........................................... 283
50 Appnet Systems, Inc.+....................................... 1,200
280 ART Technology Group+....................................... 17,010
120 Aspect Development, Inc.+................................... 8,295
130 Autodesk, Inc............................................... 4,989
45 Avant! Corporation+......................................... 810
500 Broadvision, Inc.+.......................................... 21,969
47 Complete Business Solutions, Inc.+.......................... 1,075
18 Cysive, Inc.+............................................... 980
61 DME Interactive Holdings+................................... 206
15 DSET Corporation+........................................... 278
106 Igate Capital Corporation+.................................. 3,180
34 Imanage, Inc.+.............................................. 323
46 IMRGlobal Corporation+...................................... 592
64 Informatica Corporation+.................................... 2,684
437 Infospace, Inc.+............................................ 31,382
21 Intelligroup, Inc.+......................................... 326
48 Keynote Systems, Inc.+...................................... 2,154
21 Litronic, Inc.+............................................. 162
37 Marimba, Inc.+.............................................. 733
</TABLE>
+ Non income producing security
See notes to financial statements
7
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
STATEMENT OF NET ASSETS--APRIL 30, 2000 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 2)
------ ------------
<C> <S> <C>
COMMON STOCK--CONTINUED
TECHNOLOGY--CONTINUED
SOFTWARE & TECHNOLOGY SERVICE--(CONTINUED)
24 Netcreations, Inc.+......................................... $ 822
18 NetGuru+.................................................... 409
23 Netiq Corporation+.......................................... 845
43 Netscout Systems, Inc.+..................................... 645
28 OAO Technology Solutions, Inc.+............................. 136
20 OSI Systems, Inc.+.......................................... 186
73 Open Market+................................................ 753
100 Pinnacle Systems, Inc.+..................................... 2,400
41 QAD, Inc.+.................................................. 241
55 Shopnow.com, Inc............................................ 351
41 Sonicwall, Inc.+............................................ 2,481
51 Syntel, Inc.+............................................... 567
25 Viador Inc.+................................................ 505
260 Vitria Technology+.......................................... 9,604
28 Voxware, Inc.+.............................................. 149
TECHNOLOGY
263 Amkor Technology, Inc.+................................... 16,092
56 Alliance Semiconductor...................................... 1,141
54 ESS Technology, Inc.+....................................... 702
79 Fibercore, Inc.+............................................ 407
73 Komag, Inc.+................................................ 214
101 Lattice Semiconductor+...................................... 6,805
34 Neomagic Corporation+....................................... 115
65 Nvidia Corporation+......................................... 5,793
68 Oak Technology, Inc.+....................................... 956
21 Osicom Technologies, Inc.+.................................. 1,092
41 Silicon Storage Technology+................................. 3,997
18 Trident Microsystems, Inc.+................................. 164
--------
Technology Total............................................ 159,768
--------
UTILITIES -- 2.8%
COMMUNICATIONS
77 Primus Telecommunications Group+.......................... 2,526
UTILITIES
204 American Water Works, Inc.+............................... 4,628
--------
Total Utilities 7,154
--------
Total Common Stock (Cost $187,922)--97.4%................... 245,432
Other Assets Less Liabilities--2.6%......................... 6,460
--------
Net Assets--100% $251,892
========
</TABLE>
+ Non income producing security
See notes to financial statements
8
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
STATEMENT OF NET ASSETS--APRIL 30, 2000 (UNAUDITED) (CONTINUED)
<TABLE>
<S> <C>
Net Assets Consist of:
Paid-in capital............................................. $150,974
Accumulated net investment loss............................. (2,102)
Accumulated net realized gain on investments................ 45,510
Net unrealized appreciation of investments.................. 57,510
--------
$251,892
========
Net Asset Value and Redemption Price Per:
Institutional Shares
($204,835 / 7,393 shares outstanding)..................... $ 27.71
========
Investor Shares
($47,057 / 1,707 shares outstanding)...................... $ 27.56
========
Offering Price Per Investor Shares:
Net asset value........................................... $ 27.56
Sales Charge (maximum of 4.75% of offering price)......... 1.37
--------
Offering price............................................ $ 28.93
========
</TABLE>
See notes to financial statements
9
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDING
APRIL 30, 2000
---------------
<S> <C>
Investment Income:
Dividends................................................. $ 302
--------
Total investment income................................. 302
--------
Expenses:
Management and administrative fees........................ 948
Transfer agent............................................ 29,155
Professional.............................................. 24,965
Fund accounting........................................... 23,604
Registration.............................................. 6,454
Shareholder reports....................................... 4,809
Custody................................................... 3,624
Directors................................................. 2,812
Distribution.............................................. 257
Other..................................................... 1,178
--------
Total expenses.......................................... 97,806
--------
Reimbursement of expenses................................. (95,402)
--------
Net investment loss..................................... (2,102)
--------
Realized And Unrealized Gain On Investments:
Realized gain on investment transactions.................. 45,706
Change in unrealized appreciation of investments.......... 32,430
--------
Net realized and unrealized gain on investments......... 78,136
--------
Net Increase In Net Assets Resulting From Operations........ $ 76,034
========
</TABLE>
See notes to financial statements
10
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE PERIOD
ENDING MARCH 23, 1999(1)
APRIL 30, 2000 THROUGH
(UNAUDITED) OCTOBER 31, 1999
--------------- ------------------
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment loss....................................... $ (2,102) $ (778)
Net realized gain on investment transactions.............. 45,706 10,769
Net unrealized appreciation of investments................ 32,430 25,080
-------- --------
Net increase in net assets from operations.............. 76,034 35,071
-------- --------
Distributions to shareholders:
From net realized gain:
Institutional Shares.................................... (9,217) --
Investor Shares......................................... (970) --
-------- --------
Total distributions..................................... (10,187) --
-------- --------
Capital Share Transactions (Note 4):
Shares sold
Institutional Shares.................................... -- 100,014
Investor Shares......................................... 36,333 11,164
Shares repurchased
Institutional Shares.................................... -- --
Investor Shares......................................... (6,447) (277)
Shares reinvested
Institutional Shares.................................... 9,217 --
Investor Shares......................................... 970 --
-------- --------
Total increase in net assets from capital share
transactions.......................................... 40,073 110,901
-------- --------
Total increase in net assets.............................. 105,920 145,972
-------- --------
Net Assets:
Beginning of period....................................... 145,972 --
-------- --------
End of period............................................. $251,892 $145,972
======== ========
</TABLE>
------------------------
1 Commencement of operations
See notes to financial statements
11
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX--INVESTOR SHARES
FINANCIAL HIGHLIGHTS
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>
FOR THE SIX
MONTHS ENDED MARCH 23, 1999(1)
APRIL 30, 2000 THROUGH
(UNAUDITED) OCTOBER 31, 1999
--------------- ------------------
<S> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 19.07 $ 14.29
------- -------
Investment Operations:
Net investment loss(2)...... (.34) (.23)
Net realized and unrealized
gain on investments....... 10.15 5.01
------- -------
Total from investment
operations................ 9.81 4.78
------- -------
Distributions:
From net realized gains on
investments............... (1.32) -0-
------- -------
Total distributions......... (1.32) -0-
------- -------
Net asset value, end of
period.................... $ 27.56 $ 19.07
======= =======
Total Return(3)............... 44.52% 33.45%
Ratios to Average Net
Assets:(4)
Expenses(5)................. 2.69% 2.69%
Net investment loss......... (2.43)% (2.23)%
Expenses prior to waiver and
limitation(6)............. N.M. N.M.
Supplemental Data:
Net Assets, end of period... $47,057 $12,296
Portfolio turnover rate..... 33% 87.47%
</TABLE>
------------------------
1 Commencement of operations. Ratios have been annualized and total return has
not been annualized.
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 waive the
distribution fee for fiscal year 2000 of the Investor Shares. Additionally,
Chapman Capital Management, Inc. (CCM), the Fund's investment advisor has
contractually agreed to limit the total annual operating expenses of the
Fund, solely attributable to the Investor Shares, to 2.69% of average daily
net assets effective March 17, 2000 until at least December 31, 2009.
6 Due to the relatively short period of operations, the gross expenses to
average net assets has not been presented as it is deemed to be not
meaningful.
See notes to financial statements
12
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX 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>
FOR THE SIX
MONTHS ENDED MARCH 23, 1999(1)
APRIL 30, 2000 THROUGH
(UNAUDITED) OCTOBER 31, 1999
--------------- ------------------
<S> <C> <C>
Per Share Operating
Performance:
Net asset value, beginning
of period................. $ 19.10 $ 14.29
-------- --------
Investment Operations:
Net investment loss(2)...... (.25) (.19)
Net realized and unrealized
gain on investments....... 10.18 5.00
-------- --------
Total from investment
operations................ 9.93 4.81
-------- --------
Distributions:
From net realized gains on
investments............... (1.32) -0-
-------- --------
Total distributions......... (1.32) -0-
-------- --------
Net asset value, end of
period.................... $ 27.71 $ 19.10
======== ========
Total Return(3)............... 45.08% 33.66%
Ratios to Average Net
Assets:(4)
Expenses(5)................. 2.00% 2.40%
Net investment loss......... (1.73)% (1.94)%
Expenses prior to voluntary
expense limitation(6)..... N.M. N.M.
Supplemental Data:
Net Assets, end of period... $204,835 $133,676
Portfolio turnover rate..... 33% 87.47%
</TABLE>
------------------------
1 Commencement of operations. Ratios have been annualized and total return has
not been annualized.
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 Chapman Capital Management, Inc. (CCM), the Fund's investment advisor, has
contractually 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 effective March 17, 2000 until at least December 31, 2009.
6 Due to the relatively short period of operations, the gross expenses to
average net assets has not been presented as it is deemed to be not
meaningful.
See notes to financial statements
13
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX 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 Index Fund , DEM Equity Fund, DEM
Multi-Manager Equity Fund, DEM Multi-Manger Bond Fund, U.S. Treasury Money Fund,
and Institutional Cash Management Fund. These financial statements pertain to
the DEM Index Fund (the "Fund").
The Fund seeks to match as closely as possible, the DEM Index, an index
developed and controlled by The Chapman Co., an investment banking affiliate of
Chapman Capital Management, Inc., the Fund's investment advisor. The DEM Index
is comprised of companies that are located in the Untied States and its
territories and that are controlled by African Americans, Asian Americans,
Hispanic Americans or women. The Fund 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.
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.
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 Institutional Shares effective March
17, 2000 until at least December 31, 2009. In addition, CCM has agreed to
14
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2000 (UNAUDITED)
NOTE 3--INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES
(CONTINUED)
contractually limit the total annual operating expenses (excluding income,
excise and other taxes and extraordinary expenses) in excess of 2.69% of average
daily net assets of the Investor Shares of average daily net assets until at
least December 31, 2009.
PFPC, Inc. ("PFPC"), serves as the Fund's Transfer and Dividend Paying Agent
(the "Transfer Agent") and Accounting Agent pursuant to an Investment Company
Services Agreement. As compensation for transfer agent services, the Fund pays
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 $1,726, and received brokerage
commissions related to Fund portfolio transactions of $209.
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 waived such fee during fiscal year 2000. These
voluntary limits are not contractual and could change. For the six months ended
April 30, 2000, total distribution fees waived were $580. 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 $172.
NOTE 4--CAPITAL SHARE TRANSACTIONS
The Company 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 Index Institutional Shares, and 1 billion shares are
designated as DEM Index Investor Shares. Transactions in shares of the
respective classes were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDING MARCH 23, 1999(1)
APRIL 30, 2000 THROUGH
(UNAUDITED) OCTOBER 31, 1999
----------------- ------------------
<S> <C> <C>
Shares sold
Institutional Shares...................................... -- 6,999
Investor Shares........................................... 1,261 663
Shares issued as reinvestment of dividends
Institutional Shares...................................... 394 --
Investor Shares........................................... 42 --
Shares repurchased
Institutional Shares...................................... -- --
Investor Shares........................................... (242) (18)
----- -----
Net increase in shares outstanding.......................... 1,455 7,644
===== =====
</TABLE>
------------------------
1 Commencement of operations
15
<PAGE>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2000 (UNAUDITED)
NOTE 5--INVESTMENT TRANSACTIONS
Excluding short-term obligations, purchases of investment securities aggregated
$107,812 and proceeds from sales aggregated $74,269 for the period 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.
16
<PAGE>
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY TO SHAREHOLDERS AND TO OTHERS
WHO HAVE RECEIVED A COPY
OF THE DEM INDEX 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
1-800-441-6580
INVESTMENT ADVISOR:
CHAPMAN CAPITAL MANAGEMENT, INC.
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET, 28TH FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
CUSTODIAN:
UMB BANK, N.A.
928 GRAND AVENUE
KANSAS CITY, MISSOURI 64141-6226
DISTRIBUTOR:
THE CHAPMAN CO.
WORLD TRADE CENTER--BALTIMORE
401 EAST PRATT STREET, 28TH FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
FOR SHAREHOLDER INQUIRIES CALL THE CHAPMAN CO. AT 1-800-752-1013
OR
PFPC, INC. AT 1-800-441-6580
