CHAPMAN FUNDS INC, 485BPOS, 2000-02-29

CHAPMAN FUNDS INC
485BPOS, 2000-02-29

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As filed with the Securities and Exchange Commission on February 29, 2000
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. 23
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT TO COMPANY ACT OF 1940

X Amendment No. 25
---

THE CHAPMAN FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)

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

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

copy to:
Nathan A. Chapman, Jr., President Elizabeth R. Hughes, Esq.
The Chapman Funds, Inc. Venable, Baetjer and Howard, LLP
401 East Pratt Street, 28th Floor Two Hopkins Plaza, Suite 1800
Baltimore, Maryland 21202 Baltimore, Maryland 21201
-------------------------- -------------------------
(Name and Address of Agent for Service)
</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)

[X] on February 29, 2000 pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a) (1)

[ ] on [date] pursuant to paragraph (a) (1)

[ ] 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, 1999 was filed with
Securities and Exchange Commission on January 28, 1999.

<PAGE>
[LOGO]

The Chapman Funds, Inc.
Investor Shares
Prospectus
February 29, 2000

DEM EQUITY FUND
DEM INDEX FUND
DEM MULTI-MANAGER BOND FUND
DEM MULTI-MANAGER EQUITY FUND

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 DEM Profile-TM-, DEM
Universe-TM-, DEM Company-TM-, and DEM Equity-TM- are trademarks of Nathan A.
Chapman, Jr.

A DOMESTIC EMERGING MARKETS INVESTMENT OPPORTUNITY
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
OVERVIEW OF DEM STRATEGY.................................... 3

DEM EQUITY FUND............................................. 5

DEM INDEX FUND.............................................. 11

OVERVIEW OF DEM MULTI-MANAGER STRATEGY...................... 17

DEM MULTI-MANAGER EQUITY FUND............................... 18

DEM MULTI-MANAGER BOND FUND................................. 26

RISK FACTORS APPLICABLE TO ALL DEM FUNDS.................... 32

YOUR ACCOUNT................................................ 34

DISTRIBUTIONS AND TAXES..................................... 38

MANAGEMENT.................................................. 39
</TABLE>

WHY READING THIS PROSPECTUS IS IMPORTANT

This prospectus explains the objectives, risks and strategies of each of
Chapman's DEM funds. Reading the prospectus will help you to decide which DEM
funds, if any, are the right investments for you. We suggest that you keep it
for future reference.

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OVERVIEW OF DEM STRATEGY

APPLICABLE TO:

DEM EQUITY FUND

DEM INDEX FUND

The Domestic Emerging Markets, or DEM, Strategy consists of investing in
companies that are controlled by African Americans, Asian Americans, Hispanic
Americans or women that are located in the United States and its territories. We
refer to these companies as DEM companies. We believe that DEM companies have
not historically received the attention of mainstream securities analysts and
investment advisors. We also believe that the DEM segment includes many
companies whose growth potential is not fully represented in the prices of their
securities.

The Chapman Co., our distributor, has identified more than 180 DEM
companies. We call this group of DEM companies the DEM Universe. In determining
whether a specific company is "controlled" by African Americans, Asian
Americans, Hispanic Americans or women, and therefore, in the DEM Universe, the
following criteria, called the DEM Profile, are used, each of which must be met:

- 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 OF DEM STRATEGY

MARKET RISK

The DEM funds may experience market risk. Market risk is the risk that a
particular stock in a fund's portfolio, the portfolio itself or securities in
general may fall in value. Market value may be affected by a variety of factors
including:

- General stock market movements

- Changes in the financial condition of an issuer or an industry

- Changes in perceptions about an issuer or an industry

- Interest rates and inflation

- Governmental policies and litigation

- Purchases and sales of securities by a fund

GROWTH-ORIENTED INVESTING

Because the DEM strategy involves investment in growth-oriented companies,
the volatility of a fund following the DEM strategy may be higher than that of
the U.S. equity market as a whole. Generally, companies with high relative rates
of growth tend to reinvest more of their profits in the company and pay out less
to stockholders in the form of current dividends. As a result, growth investors
tend to receive most of their return in the form of capital appreciation. This
tends to make

3
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growth company securities more volatile than the market as a whole. In addition,
there can be no assurance that growth within a particular company will continue
to occur. Stock markets tend to move in cycles, with periods of rising prices
and periods of falling prices. Therefore you may lose money over short or even
long periods.

EMERGING MICRO-CAP AND SMALL-CAP COMPANIES

Because the DEM strategy involves substantial investments in securities of
emerging small-cap and micro-cap companies, you should be aware that investing
in such companies involves greater risk than is customarily associated with more
established companies. As compared to securities of larger companies, securities
of emerging small-cap and micro-cap companies may:

- Be subject to more abrupt or erratic price movements

- Have limited product lines and lack established markets for products and
services

- Have more limited financial resources

- Have less depth of management experience

Securities of such companies may be less liquid and more volatile than
securities of larger companies and therefore may involve greater risk than
investing in larger companies. In addition, micro- and small-capitalization
companies may not be well known to the investing public or securities analysts,
may not have institutional ownership and may have only cyclical, static or
moderate growth prospects. Because the capitalizations of micro-capitalization
companies are even smaller than the capitalizations of small-capitalization
companies, the risks described above can be expected to have a larger effect on
micro-capitalization companies than on small-capitalization companies.
Accordingly, micro-capitalization companies can be expected to be highly
volatile and very risky.

THERE ALSO EXIST RISKS THAT ARE COMMON TO ALL OF THE DEM FUNDS AND THAT ARE
NOT LISTED HERE. PLEASE REFER TO "RISK FACTORS COMMON TO ALL FUNDS IN THIS
PROSPECTUS."

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DEM EQUITY FUND

The following summarizes key features of the DEM Equity Fund.

INVESTMENT OBJECTIVE/GOAL

The DEM Equity Fund seeks aggressive long-term growth through capital
appreciation. Although the fund considers both capital appreciation and income
when selecting investments, it places primary emphasis on capital appreciation.

PRINCIPAL INVESTMENT STRATEGY

The fund invests in DEM Companies that it believes are best positioned for
growth based on the investment advisor's experience with the limited universe of
DEM Companies. DEM Companies are predominately emerging small-cap and micro-cap
companies.

PRINCIPAL RISKS- YOU MAY LOSE MONEY.

INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS ASSOCIATED WITH AN
INVESTMENT IN THE FUND. AN INVESTMENT IN THE FUND'S SHARES DOES NOT CONSTITUTE A
COMPLETE INVESTMENT PROGRAM SINCE IT INVOLVES THE GREATER MARKET RISKS INHERENT
IN SEEKING HIGHER RETURNS AND IS NOT RECOMMENDED FOR SHORT-TERM OR RISK AVERSE
INVESTORS.

NON-DIVERSIFIED STATUS

The fund is classified as non-diversified under the 1940 Act, which means
that the fund is not limited by that Act in the proportion of its assets that
may be invested in the securities of a single issuer. However, the fund intends
to comply with the diversification requirements imposed by the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company. As non-diversified portfolios, the fund may invest a greater
proportion of its assets in the obligations of a smaller number of issuers and,
as a result, may be subject to greater risks with respect to its portfolio
securities.

For other principal risks, see "DEM Strategy--Principal Risks" and "Risk
Factors Common to All DEM Funds."

PERFORMANCE INFORMATION

The bar chart shows the fund's actual performance during the year ended
December 31, 1999, its only complete calendar year since inception. The fund can
experience short-term performance swings, as shown below by the best and worst
calendar quarter returns during the year depicted in the bar chart. Of course,
the fund's past performance is no guarantee of its future returns.

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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S> <C>
DEM EQUITY FUND INVESTOR SHARES
1999 113.61%
1998 2.31%
</TABLE>

<TABLE>
<CAPTION>
QUARTER TOTAL
ENDED RETURN
---------- ---------------
<S> <C> <C>
Best Quarter 12/31/1999 81.68%
Worst Quarter 3/31/1999 -3.49%
</TABLE>

In the following table, the fund's average annual total returns for the
1-year period, and since inception through December 31, 1999 are compared with
the Russell 2000 Growth Index Index, which represents the broad market of small
capitalization stocks. By comparing the bar chart with the table, you can see
that average returns smooth out year-to-year variations.

DEM EQUITY FUND
TOTAL RETURN

<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
DECEMBER 31, 1999
--------------------------------
AVERAGE ANNUAL RETURN
1 YEAR SINCE INCEPTION*
-------- ---------------------
<S> <C> <C>
Investor Shares 113.61% 57.07%
Russell 2000 Growth Index 43.10% 17.15%
</TABLE>

* Inception April 8, 1998

FEES AND EXPENSES

The following table describes the fees and expenses you would pay if you buy
and hold shares of the fund. The expenses shown and fees set forth in the table
are for the fiscal year ended October 31, 1999.

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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)............................. 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............................................ .90%
Distribution (12b-1) Fee(2)............................... .75%
Other expenses(3)......................................... 1.85%
Total Annual Fund Operating Expenses(3)..................... 3.50%
Expense Reimbursement(3).................................... (.50)%
Net Expenses................................................ 3.00%
</TABLE>

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

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% stockholder 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% stockholder service fee and .25%
distribution fee) of average daily assets. However, there is no guarantee
that The Chapman Co. will continue to voluntarily limit the amount of such
fee beyond October 31, 2000.

3 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 offered by this Prospectus, to 3.00% of average daily net
assets effective July 1, 1999 until at least December 31, 2009. However,
there is no guarantee that CCM will contract to limit the total annual
operating expenses of the fund attributable to the Investor Shares beyond
December 31, 2009.

Because of the 12b-1 fee, long-term shareholders 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 exclusive of any expense limitation.

<TABLE>
<S> <C>
1 Year*..................................................... $ 764
3 Years*.................................................... $1,358
5 Years*.................................................... $1,977
10 Years*................................................... $3,635
</TABLE>

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

* 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.

THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

7
<PAGE>
DEM EQUITY FUND INVESTMENT PROGRAM

This section reviews the types of securities the fund may hold and the
various kinds of investment practices that the fund may use 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.

PRINCIPAL STRATEGY

Under normal circumstances the fund will invest at least 65% of the value of
its total assets in common stock of DEM companies. For temporary defensive
purposes, the fund may invest some or all of its assets in the securities of
non-DEM companies that otherwise meet the fund's investment objectives, hold
cash or invest in investment-grade debt securities.

The fund may also invest up to 10% of its 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.

OTHER INVESTMENT PRACTICES

BORROWING MONEY AND PLEDGING ASSETS

The fund can borrow up to 33 1/3% of the value of total fund assets from
banks to take advantage of investment opportunities and may pledge up to 33 1/3%
of its total fund assets to secure such borrowings. The fund may purchase
securities on margin up to the 33 1/3% limit on bank borrowings. The fund may
also borrow an additional 5% of its total assets without regard to the 33 1/3%
limitation for bank borrowings. 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.

OPTIONS

Options (a type of potentially high risk derivative) give the fund the right
(when 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
owns the underlying security. A put option is covered when, among other things,
cash

8
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or liquid securities are placed in a segregated account with the fund's
custodian to fulfill the obligation undertaken.

The fund may buy or sell options with respect to securities that meet the
fund's investment objectives, and the funds may write covered call and put
option contracts with respect to such securities. The total market value of
securities against which the fund writes call or put options may not exceed 15%
of its net assets. The fund will not commit more than 15% of its total assets to
premiums when purchasing call or put options.

Options may not always be successful hedges and their prices can be highly
volatile.

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 assets for hedging or risk management purposes
or when, in the fund's opinion, such techniques can be expected to yield a
higher investment return than other investment options.

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 will 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 annual
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 which will adversely
affect the fund's performance. The fund experienced a portfolio turnover rate of
17.27% for the fiscal year ended October 31, 1999.

DEM EQUITY FUND INVESTOR SHARES FINANCIAL HIGHLIGHTS

The Financial Highlights table set forth below is intended to help you
understand the financial performance of the DEM Equity Fund Investor Shares
since its commencement of operations. Certain information reflects financial
results for a single fund share. The total return in the table represents the
return that an investor would have earned or lost on an investment in the fund
(assuming reinvestment of dividends and distributions). This information has
been audited by Ernst & Young LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request.

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FINANCIAL HIGHLIGHTS

CHAPMAN FUND, INC.

DEM EQUITY FUND--INVESTOR SHARES

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE
FINANCIAL STATEMENTS. IT SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO.

<TABLE>
<CAPTION>
APRIL 8, 1998(1)
FOR THE YEAR ENDED THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998
------------------ ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................ $11.58 $ 14.29
------ -------

INCOME FROM INVESTMENT OPERATIONS:
Net investment loss(2).................................... (.45) (.29)
Net realized and unrealized gain (loss) on investments.... 9.16 (2.42)
------ -------
Total from investment operations.......................... 8.71 (2.71)
------ -------

DISTRIBUTIONS:
From net investment income................................ (-0-) (-0-)
From net realized gains on investments.................... (-0-) (-0-)
------ -------
Total distributions....................................... (-0-) (-0-)
------ -------
Net asset value, end of year.............................. $20.29 $ 11.58
====== =======
TOTAL RETURN(3)......................................... 75.21% (18.96)%

RATIOS TO AVERAGE NET ASSETS:(4)
Expenses.................................................. 3.25% 4.55%
Net investment loss....................................... (2.90)% (4.31)%
Expenses prior to voluntary expense waiver................ 3.50% 4.80%

SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted)................... $ 421 $ 45
Portfolio turnover rate................................... 17.27% 17.89%
</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
(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.

4 The Chapman Co., the fund(1)s distributor, voluntarily agreed to limit the
distribution fee to an aggregate of .25% of average daily net assets of the
Investor Shares. Additionally, CCM, the Fund(1)s investment advisor,
voluntarily agreed to limit the total annual operating expenses of the
Investor Shares to 3.00% of average daily net assets effective July 1, 1999.

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DEM INDEX FUND

The following summarizes key features of the DEM Index Fund.

INVESTMENT OBJECTIVE

The fund seeks to match the performance of a benchmark index that measures
the return of DEM Companies.

PRINCIPAL INVESTMENT STRATEGY

The fund employs a passive management strategy designed to track the
performance of the DEM Index. The fund invests in the stocks that comprise the
index.

PRINCIPAL RISKS- YOU MAY LOSE MONEY.

INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS ASSOCIATED WITH AN
INVESTMENT IN THE FUND. AN INVESTMENT IN THE FUND'S SHARES DOES NOT CONSTITUTE A
COMPLETE INVESTMENT PROGRAM AND IS NOT RECOMMENDED FOR SHORT-TERM OR RISK AVERSE
INVESTORS.

NON-DIVERSIFIED STATUS

For other principal risks, see "DEM Strategy--Principal Risks" and "Risk
Factors Common to All DEM Funds."

PERFORMANCE INFORMATION

The fund has not yet completed a full year of operations so performance
information is not yet available.

FEES AND EXPENSES

The following table describes the fees and expenses you would pay if you buy
and hold shares of the Fund. The expenses shown under Annual Fund Operating
Expenses are based upon those incurred in the fiscal year ended October 31,
1999.

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ANNUAL FUND OPERATING EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fee............................................ .90%
Distribution (12b-1) Fee(2)............................... .75%
Other expenses(3)......................................... 130.91%
Total Annual Fund Operating Expenses(3)..................... 132.56%
Expense Reimbursement(3).................................... (129.87)%
Net Expenses................................................ 2.69%
</TABLE>

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

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% stockholder 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 waived such fee
for fiscal year 2000. However, there is no guarantee that The Chapman Co.
will continue to voluntarily limit the amount of such fee beyond fiscal year
2000.

3 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 offered by this Prospectus, to 2.69% of average daily net
assets until at least December 31, 2009. However, there is no guarantee that
CCM will contract to limit the total annual operating expenses of the fund
attributable to the Investor Shares beyond December 31, 2009.

Because of the 12b-1 fee, long-term shareholders 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 maybe
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>
<S> <C>
1 Year*..................................................... $ 734
3 Years*.................................................... $1,271
5 Years*.................................................... $1,832
10 Years*................................................... $3,354
</TABLE>

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

* The Chapman Co. has voluntarily waived its fees for stockholder servicing
and distribution services for fiscal year 2000. CCM, the fund's investment
advisor, has contractually agreed to limit the total annual operating
expenses of the fund attributable to the Investor Shares to 2.69% of average
daily net assets until at least December 31, 2009.

THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

12
<PAGE>
DEM INDEX FUND INVESTMENT PROGRAM

PRINCIPAL STRATEGY

The fund employs a passive management strategy designed to track the
performance of the DEM Index. The fund invests in the stocks that comprise the
index.

WHAT IS AN INDEX AND INDEX INVESTING?

An index is an unmanaged group of securities whose overall performance is
used as a standard to measure investment performance. An index fund tries to
match, as closely as possible, the performance of an established target index.
An index fund does this by holding all, or a representative sample, of the
securities that comprise the index. Stock index funds may seek to track indexes
that hold a certain type of stock--such as growth or value, small-cap or
large-cap, or those from just one industry--or they may seek to track indexes
that consist of a broader range of stocks--for example, the entire U.S. stock
market. Index funds are not actively managed by investment advisors who buy and
sell securities based on research and analysis in an attempt to outperform a
particular benchmark or the market as a whole. Rather, index funds simply
attempt to mirror what the target index does, for better or worse.

WHAT IS THE DEM INDEX?

The DEM Index is an index developed and controlled by The Chapman Co., an
investment banking affiliate of the CCM, that is designed to track the
performance of the DEM Universe. The DEM Index is comprised of the stocks of 100
companies chosen from the DEM Universe to reflect the market capitalization and
industry classification characteristics of the DEM Universe and is set forth on
Appendix A.

TYPES OF PORTFOLIO SECURITIES

The DEM Index Fund seeks to implement the DEM Strategy by tracking the DEM
Index. The fund employs a passive management strategy designed to track the
performance of the DEM Index while keeping costs low. THERE IS NO ASSURANCE THAT
THE FUND WILL ACHIEVE ITS STATED OBJECTIVE.

In tracking the performance of the DEM Index, the fund will invest in DEM
Companies with both large and small market capitalizations; however, since the
DEM Universe includes a large proportion of companies with small market
capitalizations, a significant portion of the Fund's portfolio that is invested
pursuant to the DEM Index strategy will be small capitalization companies. To
the extent the fund invests in companies with smaller market capitalizations,
the securities of such companies may be traded in such over-the-counter markets
as the OTC Bulletin Board and the Pink Sheets. See "Principal Risks" in this
section and "Risk Factors -- Small Companies" in the Statement of Additional
Information.

In order to cover expenses and net redemptions and prior to investment of
net receipts, the fund expects to have a portion of its assets in cash or
invested in short-term investment grade fixed income securities, including
obligations of the United States Government and its agencies or
instrumentalities, commercial paper, bank certificates of deposit, and bankers'
acceptances, and repurchase agreements collateralized by these securities. The
specific percentage of net assets held in cash at any given time will depend
upon the judgement of the fund with respect to future redemptions and expenses.
Excluding assets held in cash, the fund generally intends to invest directly or
indirectly in each stock

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<PAGE>
found in the DEM Index in approximately the same proportion as such stock is
represented in the DEM Index itself. For example, if 10% of the market
capitalization of the DEM Index is made up of securities of a specific company,
securities of such company can be expected, directly or indirectly, to represent
10% of the fund's non-cash assets. Over time, the percentage of the fund's
assets invested in particular companies in the DEM Index will vary depending on
changes in the weighted market capitalizations of such companies.

OTHER INVESTMENT PRACTICES

Although the fund intends to remain substantially fully invested in common
stocks in the DEM Index, as discussed above, the fund will not be able to invest
100% of its assets pursuant to its investment strategy of tracking the DEM
Index. Further, the fund will incur operating expenses whereas the DEM Index
itself does not. Therefore, although the fund will seek to track the DEM Index
as closely as possible, it may not be able to match its performance. In order to
more closely track the DEM Index notwithstanding these considerations, the fund
is permitted to employ the management practices set forth below. THERE CAN BE NO
ASSURANCE THAT THE USE OF THESE STRATEGIES BY THE FUND WILL BE SUCCESSFUL AND
THE USE OF SUCH STRATEGIES MAY SUBJECT THE FUND TO ADDITIONAL RISKS.

BORROWING MONEY AND PLEDGING ASSETS

The fund may not issue senior securities, borrow money or pledge its assets,
except that it may borrow from banks in amounts aggregating not more than 5% of
the value of the fund's total assets (calculated when the loan is made) to take
advantage of investment opportunities and may pledge up to 5% of the value of
its total assets to secure such borrowings. The fund is also authorized to
borrow an additional 5% of its total assets without regard to the foregoing
limitations for temporary purposes such as clearance of portfolio transactions
and share redemptions. 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.

OPTIONS

The fund may invest up to 15% of its total assets, calculated at the time
such option contracts are written and as represented by the premium paid, in the
purchase of call options in respect of specific securities in which the fund may
invest. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying security at the exercise price at
any time during the option period.

SECURITIES LENDING/REPURCHASE AGREEMENTS

The fund may, but is not required to, utilize various investment techniques
for hedging, risk management and other investment purposes. These investment
techniques may include, but are not limited to, lending of portfolio securities
and entering into "repurchase agreements." Up to 20% of the fund's assets may be
invested pursuant to such techniques for hedging and risk management purposes

14
<PAGE>
or when such techniques can be expected to yield a higher investment return than
other investment options. To the extent that the fund seeks to increase its
income by lending portfolio securities, such securities loans will be secured by
collateral in cash, cash equivalents, U.S. government securities, or such other
collateral as may be permitted under the fund's investment program and by
regulatory agencies. 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. Repurchase agreements facilitate portfolio
management and allow the fund to earn additional revenue. If the fund enters
into repurchase agreements, it will do so in order to increase liquidity or as a
temporary investment.

PORTFOLIO TURNOVER

Although the fund seeks to invest for the long term, the fund retains the
right to sell securities regardless of how long they have been held. Generally,
a passively managed fund sells securities only to respond to redemption requests
or to adjust the number of shares held to reflect a change in the fund's target
index. Although the fund cannot accurately predict its turnover rate, because of
this, the fund anticipates that its annual portfolio turnover will not exceed
20%. (A turnover of 100% would occur, for example, if a portfolio sold and
replaced securities valued at 100% of its total net assets within a one year
period.) 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. Accordingly, a high portfolio turnover
rate will adversely affect the fund's performance. The fund experienced a
portfolio turnover rate of 87.47% for the fiscal year ended October 31, 1999
primarily due to an adjustment to the DEM Index that resulted in an increase in
the number of securities in the DEM Index from 30 to 100.

DEM INDEX FUND INVESTOR SHARES FINANCIAL HIGHLIGHTS

The Financial Highlights table set forth below is intended to help you
understand the financial performance of the DEM Index Fund Investor Shares since
its commencement of operations. Certain information reflects financial results
for a single fund share. The total return in the table represents the return
that an investor would have earned or lost on an investment in the fund
(assuming reinvestment of dividends and distributions). This information has
been audited by Ernst & Young LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request.

15
<PAGE>
FINANCIAL HIGHLIGHTS

CHAPMAN FUND INC.

DEM INDEX FUND--INVESTOR SHARES

THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE
FINANCIAL STATEMENTS. IT SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO.

<TABLE>
<CAPTION>
MARCH 23, 1999(1)
THROUGH
OCTOBER 31, 1999
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................... $ 14.29
-------
INVESTMENT OPERATIONS:
Net investment loss(2).................................... (.23)
Net realized and unrealized gain on investments........... 5.01
-------
Total from investment operations.......................... 4.78
-------
DISTRIBUTIONS:
From net investment income................................ 0
From net realized gains on investments.................... 0
-------
Total distributions....................................... 0
-------
Net asset value, end of period............................ $ 19.07
=======
TOTAL RETURN(3)......................................... 33.45%
RATIOS TO AVERAGE NET ASSETS:(4)
Expenses.................................................. 2.69%
Net investment loss....................................... (2.23)%
Expenses prior to voluntary expense waiver
And reimbursement....................................... N.M.
SUPPLEMENTAL DATA:
Net Assets, end of period................................. $12,296
Portfolio turnover rate................................... 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.

4 The Chapman Co., the Fund's distributor, voluntarily agreed to waive the
distribution fee during the first fiscal year of the Investor Shares.
Chapman Capital Management, Inc.,(CCM), the Fund's investment advisor,
voluntarily agreed to limit the advisory fee to an aggregate of .41% of the
average daily net assets for the first fiscal year of the Fund.
Additionally, CCM also voluntarily agreed to limit the total annual
operating expenses of the Investor Shares, to 2.69% (exclusive of income,
excise and other taxes and extraordinary expenses) of average daily net
assets. 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.

16
<PAGE>
OVERVIEW OF DEM MULTI-MANAGER STRATEGY

APPLICABLE TO:

DEM MULTI-MANAGER EQUITY FUND

DEM MULTI-MANAGER BOND FUND

Under DEM Multi-Manager strategy, a fund's assets are managed by multiple
sub-advisers selected by CCM, the fund's investment adviser. CCM aggressively
recruits qualified sub-advisers that meet the DEM Profile, which includes those
companies that are controlled by African Americans, Asian Americans, Hispanic
Americans or women that are located in the United States and its territories;
however, CCM and funds employing the DEM Multi-Manager strategy will not
discriminate on the basis of race, gender or national origin in the selection of
sub-advisers.

The sub-advisors will not consider the DEM Profile in making investment
decisions, so CCM does not expect securities of DEM Companies to constitute a
large percentage of the portfolios of funds that employ the DEM Multi-Manager
Strategy.

CCM will track the performance of each of the sub-advisors and will have the
discretion to allocate assets among the sub-advisors, identify and recommend new
sub-advisors to the Board of Directors and to terminate existing sub-advisers.
Each sub-advisor uses its own investment strategies to achieve a fund's
investment objectives in accordance with such 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 a 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-advisor will pursue its approach independently of
the other sub-advisors. Because the sub-advisors will act independently, the
performance of other sub-advisors is expected to dampen the impact of any
specific sub-advisor's relatively adverse results. Conversely, the successful
results of a sub-advisor will be dampened by less successful results of the
other sub-advisors. There can be no assurance that the expected advantages of
the DEM Multi-Manager strategy will be realized.

Each sub-advisor makes specific portfolio investments for that segment of
the assets of the fund under its management in accordance with the fund's
investment objectives and policies and the sub-advisor's investment approach and
strategies.

CCM will aggressively recruit sub-advisors that meet the DEM Profile;
however, the fund will not discriminate on the basis of race, gender or national
origin in the selection of sub-advisors. CCM applies the following criteria in
the selection and retention of sub-advisors: (1) their historical performance
records; (2) an investment approach that is distinct in relation to the
approaches of each of the funds' other sub-advisors; (3) consistent performance
in the context of the markets and preservation of capital in declining markets;
(4) organizational stability and reputation; (5) the quality and depth of
investment personnel; and (6) the ability of the sub-advisor to apply its
approach consistently. The sub-advisors selected may not necessarily exhibit all
of these criteria to the same degree.

CCM will allocate the Multi-Manager Funds' assets among the respective
fund's sub-advisors. In its discretion, CCM may allocate as much as 100 percent
or as little as 0 percent of a fund's assets to any one sub-advisor.

CCM pays to each sub-advisor a monthly management fee from its own
management fee.

17
<PAGE>
DEM MULTI-MANAGER EQUITY FUND

The following summarizes key features of the DEM Equity Fund.

INVESTMENT OBJECTIVE/GOAL

The DEM Multi-Manager Equity Fund seeks long-term growth through capital
appreciation by investment in companies deemed to possess strong growth
characteristics.

PRINCIPAL INVESTMENT STRATEGY

The fund invests pursuant to the DEM Multi-Manager strategy in common stocks
of growth companies without limitation as to the market capitalization of
portfolio companies.

PRINCIPAL RISKS- YOU MAY LOSE MONEY.

MARKET RISK

- General stock market movements

- Changes in the financial condition of an issuer or an industry

- Changes in perceptions about an issuer or an industry

- Interest rates and inflation

- Governmental policies and litigation

- Purchases and sales of securities by a fund

GROWTH-ORIENTED INVESTING

Because the fund will be invested in growth-oriented companies, the
volatility of the fund may be higher than that of the U.S. equity market as a
whole. Generally, companies with high relative rates of growth tend to reinvest
more of their profits in the company and pay out less to stockholders in the
form of current dividends. As a result, growth investors tend to receive most of
their return in the form of capital appreciation. This tends to make growth
company securities more volatile than the market as a whole. In addition, there
can be no assurance that growth within a particular company will continue to
occur. Stock markets tend to move in cycles, with periods of rising prices and
periods of falling prices. Therefore you may lose money over short or even long
periods.

18
<PAGE>
NON-DIVERSIFIED STATUS

THERE ALSO EXIST PRINCIPAL RISKS THAT ARE COMMON TO ALL OF THE DEM FUNDS AND
THAT ARE NOT LISTED HERE. PLEASE REFER TO "RISK FACTORS COMMON TO ALL FUNDS IN
THIS PROSPECTUS."

PERFORMANCE INFORMATION

The fund has not yet commenced operations so performance information is not
yet available.

FEES AND EXPENSES

The numbers in the table describe the fees and expenses that you may pay if
you buy and hold shares in the fund.

DEM MULTI-MANAGER EQUITY FUND
ANNUAL FUND OPERATING EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)(2)
Management Fee............................................ 1.25%
Distribution (12b-1) Fee(3)............................... .75%
Other expenses(4)......................................... 1.25%
Total Annual Fund Operating Expenses(4)..................... 3.25%
Expense Reimbursement(3).................................... (.25)%
Net Expenses................................................ 3.00%
</TABLE>

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

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

2 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.

3 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% stockholder 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

19
<PAGE>
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.

4 Amount includes estimates of expenses for the first full fiscal year of the
fund. 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 offered by this Prospectus, to 3.00% of average daily net
assets until at least December 31, 2009. However, there is no guarantee that
CCM will contract to limit the total annual operating expenses of the fund
attributable to the Investor Shares beyond December 31, 2009.

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

EXAMPLE. This Example is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds. The Example
assumes that you invest $10,000 in the fund for the time periods indicated and
then redeem all of your shares at the end of those time periods. The Example
also assumes that your investment has a 5% return each year and that the fund's
operating expenses remain the same exclusive of any expense limitation. Although
your actual costs may be higher or lower, based on these assumptions, your costs
would be:

<TABLE>
<S> <C>
1 Year*..................................................... $ 764
3 Years*.................................................... $1,358
</TABLE>

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

* 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 contractually
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, 2009.

THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

20
<PAGE>
DEM MULTI-MANAGER EQUITY FUND INVESTMENT PROGRAM

PRINCIPAL STRATEGY

The fund invests pursuant to the DEM Multi-Manager strategy in common stocks
of growth companies without limitation as to the market capitalization of
portfolio companies.

To achieve the fund's investment objectives, the sub-advisors invest in a
wide variety of types of portfolio companies and seek to identify those
companies that are positioned for growth. Among other factors, the sub-advisors
consider a company's above average earnings growth, high potential profit
margins, innovative products, high quality management, and competitive advantage
in making investment decisions. The fund retains maximum flexibility as to the
types of investments it may make and is permitted to invest in portfolio
companies with large, mid, small and micro market capitalizations. Some of these
investments may involve the purchase of securities directly from portfolio
companies in initial or other public offerings of their securities.

Under normal circumstances, the fund will invest at least 65% of the value
of its total assets in equity securities; however, the fund retains the
flexibility to respond promptly to changes in market conditions. Accordingly,
during periods when the sub-advisors believe a temporary defensive posture in
the market is warranted, the fund has reserved the right to invest a significant
proportion or all of its assets in cash (U.S. dollars) and/or invest any portion
or all of its assets in high quality short-term debt securities and money market
instruments. The decision to adopt a temporary defensive posture may be affected
by such factors as market conditions generally, the sub-advisors' views on the
direction of movement of the stock prices of specific targeted portfolio
companies and other related factors. It is impossible to predict when or for how
long the Fund will employ defensive strategies, and to the extent it is so
invested, the Fund may not achieve its investment objectives. The Fund will also
invest in the instruments described above pending investment of the net proceeds
of sales of its shares.

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
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.

Most of the fund's investments are in marketable common stocks or marketable
securities convertible into common stock traded on an exchange or in the
over-the-counter markets. To the extent the fund invests in companies with
smaller market capitalizations, the securities of such companies may be traded
in such over-the-counter markets as the OTC Bulletin Board and the Pink Sheets.

21
<PAGE>
OTHER INVESTMENT PRACTICES

BORROWING MONEY AND PLEDGING ASSETS

OPTIONS

Options may not always be successful hedges and their prices can be highly
volatile.

SECURITIES LENDING/REPURCHASE AGREEMENTS

DEM MULTI-MANAGER EQUITY FUND SUB-ADVISORS

The current sub-advisors of the DEM Multi-Manager Equity Fund are as
follows:

Charter Financial Group, Inc.
1401 I Street, N.W., Suite 505
Washington, D.C. 20005

22
<PAGE>
Charter Financial Group, Inc. was founded in 1995 and has approximately $120
million in assets under management as of December 31, 1999. The firm specializes
in large-cap equity management with an investment philosophy of growth at a
reasonable price. Susan Stewart and Thomas King are responsible for the
day-to-day management of the funds' assets assigned to Charter Financial. Ms.
Stewart is Chairman and President of Charter Financial and in the fourteen years
prior to co-founding Charter Financial, she was a stockbroker with Merrill Lynch
and Shearson Lehman Brothers and a Vice President with NationsBank and First
Union Bank. Mr. King is Chief Investment Officer of Charter Financial and prior
to co-founding the firm, he was an institutional portfolio manager with the
Chase Manhattan Bank, PNC Bank, and First Union Bank. Mr. King is a Chartered
Financial Analyst.

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

CIC Asset Management, Inc. was founded in 1989 and has approximately $341
million in assets under management as of December 31, 1999. The firm specializes
in managing large-cap equity portfolios. Day-to-day management of the funds'
assets assigned to CIC Asset Management is the responsibility of the firm's
investment committee.

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

Diaz-Verson Capital Investments, Inc. was founded in 1991 and has
approximately $256.1 million in assets under management as of December 31, 1999.
The firm follows a value investing approach in the management of its individual
and institutional equity portfolios. Day-to-day management of the funds' assets
assigned to Diaz-Verson Capital is the responsibility of the firm's investment
committee.

EverGreen Capital Management
10707 Pacific Street, Suite 201
Omaha, NE 68114

EverGreen Capital Management, Inc. was founded in 1989 and has approximately
$50.0 million in assets under management as of December 31, 1999. The firm
specializes in the management of institutional tax-exempt assets. Michael L.
Green and Gary A. Barohn are responsible for the day-to-day management of the
funds' assets assigned to EverGreen. Mr. Green is President and Chief Investment
Officer and is the firm's portfolio manager. Mr. Green has 20 years experience
in the financial services industry. Mr. Barohn is Senior Vice President and
Director of Research of EverGreen. Mr. Barohn has 12 years experience in the
financial services industry and is a Chartered Financial Analyst.

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

GLOBALT, Inc. was founded in 1990 and has approximately $2.1 billion in
assets under management as of December 31, 1999. The firm invests exclusively in
diversified portfolios of globally

23
<PAGE>
competitive U.S. companies. The day-to-day management of the funds' assets
assigned to GLOBALT is the responsibility of the firm's investment committee.

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

John Hsu Capital Group, Inc. was founded in 1991 and has approximately
$415.5 million in assets under management as of December 31, 1999. The firm
focuses on large capitalization companies utilizing a global, top-down
growth/value approach. John Hsu Capital Group provides investment management
services for domestic equity, global international equity, and domestic fixed
income portfolios. John Hsu is Chairman and Chief Investment Officer and is
responsible for the day-to-day management of the funds' assets assigned to the
firm.

The Kenwood Group, Inc.
10 South LaSalle Street, Suite 3610
Chicago, IL 60610

The Kenwood Group, Inc. was founded in 1989 and has approximately $407
million in assets under management as of December 31, 1999. The firm employs a
contrarian approach to its investment strategy. Day-to-day management of the
funds' assets assigned to The Kenwood Group is the responsibility of the firm's
investment committee.

Union Heritage Capital Management, Inc.
1642 First National Building
Detroit, MI 48226

Union Heritage Capital Management, Inc. was founded in 1990 and has
approximately $85 million in assets under management as of December 31, 1999.
The firm is a fixed income and equity investment advisor to corporate and public
pension funds, trusts and estates. Derek T. Batts, James L. Bashaw, and Eric L.
Small are responsible for the day-to-day management of the funds' assets
assigned to Union Heritage. Mr. Batts is President and has served as the firms'
portfolio manager since 1992. He also sits on the firm's investment committee.
Mr. Bashaw is Director of Research of Union Heritage and has served on the
firm's investment committee for the last eight years. Mr. Small is Vice
President of Union Heritage and has served on the firm's investment committee
for the last five years.

Valenzuela Capital Partners, LLC
1270 Avenue of the Americas, Suite 508
New York, NY 10020

Valenzuela Capital Partners LLC was founded in 1989 and has approximately
$1.9 billion in assets under management as of December 31, 1999. The firm
employs quantitative and qualitative analyses to identify stocks with the
potential for significant appreciation over a three year period. Day-to-day
management of the funds' assets assigned to Valenzuela Capital is the
responsibility of the firm's investment committee.

24
<PAGE>
Zevenbergen Capital, Inc.
601 Union Street, Suite 2434
Seattle, WA 98101

Zevenbergen Capital was founded in 1987 and has approximately $2.5 billion
in assets under management as of December 31, 1999. The firm employs a
fundamental, bottom-up approach, investing primarily in domestic growth
companies. Nancy Zevenbergen and Brooke de Boutray are responsible for the
day-to-day management of the funds' assets assigned to Zevenbergen Capital. Ms.
Zevenbergen is President and oversees the firm's investment policy and portfolio
management decisions. She is a Chartered Financial Analyst and has 13 years of
investment experience. Ms. de Boutray is Vice President of Zevenbergen Capital
and defines the investment policy in addition to selecting the firm's equity
holdings. Ms. de Boutray is a Chartered Financial Analyst and has seven years of
investment experience.

25
<PAGE>
DEM MULTI-MANAGER BOND FUND

The following summarizes key features of the DEM Multi-Manager Bond Fund.

INVESTMENT OBJECTIVE/GOAL

The DEM Multi-Manager Bond 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 mortgages,
asset-backed securities and other similar securities.

PRINCIPAL INVESTMENT STRATEGY

The fund invests pursuant to the DEM Multi-Manager strategy in debt
securities without regard to the capitalization of the issuers thereof.

PRINCIPAL RISKS- YOU MAY LOSE MONEY.

As with any fixed income mutual fund, the value of your investment will
fluctuate in response to price movements in the bond market. Therefore 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:

- 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.

- 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) 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.

- PREPAYMENT RISK -- Asset-backed 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.

- NON-DIVERSIFIED STATUS -- The fund is classified as non-diversified under
the 1940 Act, which means that the fund is not limited by that Act in the
proportion of its assets that may be invested in the securities of a
single issuer. However, the fund intends to comply with the

26
<PAGE>
diversification requirements imposed by the U.S. Internal Revenue Code of
1986, as amended (the "Code"), for qualification as a regulated investment
company. As non-diversified portfolios, the fund may invest a greater
proportion of its assets in the obligations of a smaller number of issuers
and, as a result, may be subject to greater risks with respect to its
portfolio securities.

THERE ALSO EXIST PRINCIPAL RISKS THAT ARE COMMON TO ALL OF THE DEM FUNDS AND
THAT ARE NOT LISTED HERE. PLEASE REFER TO "RISK FACTORS COMMON TO ALL FUNDS IN
THIS PROSPECTUS."

PERFORMANCE INFORMATION

The fund has not yet commenced operations so performance information is not
yet available.

FEES AND EXPENSES

The numbers in the table describe the fees and expenses that you may pay if
you buy and hold shares in the fund.

DEM MULTI-MANAGER BOND FUND
ANNUAL FUND OPERATING EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)(2)
Management Fee............................................ 1.25%
Distribution (12b-1) Fee(3)............................... .75%
Other expenses(4)......................................... 1.25%
Total Annual Fund Operating Expenses(4)..................... 3.25%
Expense Reimbursement(4).................................... (.25)%
Net Expenses................................................ 3.00%
</TABLE>

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

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

2 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 Amount includes estimates of expenses for the first full fiscal year of the
fund. CCM, the fund's investment advisor, has contractually agreed to limit
the total annual operating expenses of the

27
<PAGE>
fund, solely attributable to the Investor Shares offered by this Prospectus,
to 3.00% of average daily net assets until at least December 31, 2009.
However, there is no guarantee that CCM will contract to limit the total
annual operating expenses of the fund attributable to the Investor Shares
beyond December 31, 2009.

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

<TABLE>
<S> <C>
1 Year*..................................................... $ 764
3 Years*.................................................... $1,358
</TABLE>

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

* 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 contractually
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, 2009.

THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

DEM MULTI-MANAGER BOND FUND INVESTMENT PROGRAM

PRINCIPAL INVESTMENT STRATEGY

The fund invests pursuant to the DEM Multi-Manager strategy in debt
securities without regard to the capitalization of the issuers thereof.

DEBT 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-advisors. 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. To a limited extent, the fund may also invest in
equity 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.

28
<PAGE>
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 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.

29
<PAGE>
OTHER INVESTMENT PRACTICES

BORROWING MONEY AND PLEDGING ASSETS

OPTIONS

Options may not always be successful hedges and their prices can be highly
volatile.

SECURITIES LENDING/REPURCHASE AGREEMENTS

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

30
<PAGE>
200%. A high turnover rate may increase transaction costs and result in
additional taxable gains which will adversely affect the fund's performance.

DEM MULTI-MANAGER BOND FUND SUB-ADVISORS

The current sub-advisors of the DEM Multi-Manager Bond Fund are as follows:

Hughes Capital Management, Inc.
315 Cameron Street
Alexandria, VA 22314

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 $769 million in assets under management as of
December 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 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.

MDL Capital Management, Inc.
225 Ross Street, 3(rd) Floor
Pittsburgh, PA 15219

MDL Capital Management, Inc. was founded as a fixed income investment
advisor in 1993 and has approximately $1.6 billion in assets under management as
of December 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.

NCM Capital Management Group, Inc.
103 W. Main Street, Suite 400
Durham, NC 27701-3638

NCM Capital Management Group, Inc. was founded in 1986, has been a fixed
income investment advisor since 1987 and has approximately $5.7 billion in
assets under management as of December 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.

31
<PAGE>
Seix Investment Advisors, Inc.
388 Market Street, Suite 500
San Francisco, CA 94111

Seix Investment Advisors, Inc. was founded as a fixed income investment
advisor in 1992 and has approximately $5.2 billion in assets under management as
of December 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.

32
<PAGE>
RISK FACTORS APPLICABLE TO ALL DEM FUNDS

In addition to the risks discussed in the description of each fund, the
following risk factors are common to all of the DEM Funds:

OPTIONS RISK

Each of the DEM Funds may invest up to 15% of its total assets, represented
by the premium paid, in the purchase of options in respect of specific
securities in which such fund may invest. The principal reason for writing
options is to realize, through the receipt of premiums, a greater return then
would be realized on portfolio securities alone. The use of options involves
certain investment risks and transaction costs. These risks include: dependence
on the ability of CCM and sub-advisors, in the case of the DEM Multi-Manager
Funds, to predict movements in the prices of individual securities (except DEM
Index Fund), fluctuations in the securities markets in general and movements in
interest rates; imperfect correlation between movements in the price of options
and movements in the price of the security or securities hedged or used for
cover; the fact that skills and techniques needed to trade options are different
from those needed to select securities in which the funds invest; and lack of
assurance that a liquid secondary market will exist for any particular option at
any particular time.

DERIVATIVE RISK

The funds 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 funds may borrow to invest in additional securities. The use of
borrowings may involve leverage that creates an opportunity for increased net
income, but also creates special risks. In particular, if the funds borrow or
otherwise use leverage to invest in securities, any investment gains made on the
securities in excess of interest or other amounts paid by the funds will cause
the net asset value of the funds' 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 funds, the net asset value of the funds' shares will
decrease faster than would otherwise be the case. To reduce these risks, with
the exception of the DEM Index Fund, each of the funds will limit its borrowings
to 33 1/3% of the value of such fund's total assets. If any of the funds' asset
coverage for borrowings falls below 300%, the fund will take prompt action to
reduce its borrowings. The DEM Index Fund will limit its borrowings to 5% of the
value of its total assets. Each fund may also borrow an additional 5% of its
total assets without regard to the limitation for bank borrowings.

LIQUIDITY RISK

NOT APPLICABLE TO DEM INDEX FUND

Because, with the exception of the DEM Index Fund, each fund is permitted to
invest up to 15% of its net assets in illiquid securities, the funds are also
subject to liquidity risk. Liquidity risk is the risk that securities may be
difficult or impossible to sell at the time and price that the fund would like.
Illiquid Securities include securities which have not been registered under the
Securities Act, sometimes

33
<PAGE>
referred to as private placements, and are purchased directly from the issuer or
in the secondary market. Illiquid Securities may involve a high degree of
business and financial risk and may result in substantial losses. These
securities are less liquid than publicly traded securities, and the fund may
take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded. Therefore the fund may have to accept a lower price, sell other
securities instead, or forego an investment opportunity, any of which could have
a negative effect on fund management and performance.

POTENTIAL CONFLICT OF INTEREST

The funds may utilize the funds' distributor, The Chapman Co., a
broker-dealer registered under the Securities Exchange Act of 1934, as amended,
and a member of the NASD, and broker-dealer affiliates of sub-advisors of the
DEM Multi-Manager Funds in connection with the purchase or sale of portfolio
securities in certain circumstances. CCM is a wholly-owned subsidiary of Chapman
Capital Management Holdings, Inc. Mr. Nathan A. Chapman, Jr., the President and
Chairman of the Board of Directors of The Chapman Funds, Inc., is also the
President and Chairman of the Board of Directors of CCM and Chapman Capital
Management Holdings, Inc. The Chapman Co. is a wholly-owned subsidiary of
Chapman Holdings, Inc. Mr. Nathan A. Chapman, Jr. is also the President and
Chairman of the Board of Directors of The Chapman Co. and Chapman Holdings, Inc.
Mr. Chapman owns a majority of the outstanding voting securities of each of
Chapman Capital Management Holdings, Inc. and Chapman Holdings, Inc.
Accordingly, these relationships represent a potential conflict of interest with
respect to commissions and other fees on brokerage transactions conducted on the
funds' behalf by The Chapman Co. Similar potential conflicts of interest may
arise with respect to the use of affiliates of sub-advisors for the purchase or
sale of portfolio securities. The Board of Directors has adopted procedures in
compliance with the 1940 Act to address such potential conflicts. Furthermore,
at least 40% of the members of Board of Directors of The Chapman Funds, Inc.
must be disinterested under the 1940 Act.

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" during the Year 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 advisors.

CCM has taken steps to insure that its major computer systems are capable of
Year 2000 processing, including assessing, testing, and modifying its own
systems and confirming that its and the funds' service providers are Year 2000
compliant. CCM has also prepared a contingency plan intended to ensure that
third party noncompliance will not materially affect its operations or the
funds.

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
funds' returns could be adversely affected.

34
<PAGE>
YOUR ACCOUNT

PURCHASING SHARES

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

In addition, you may also purchase shares by exchanging shares of one DEM
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.

BY MAIL

To make an initial investment, send your application for the appropriate
fund and check to:

--------------------- Investor Shares (Insert appropriate fund name)
c/o PFPC, Inc.
211 S. Gulph Road
P.O. Box 61767
King of Prussia, PA 19406

DEM Equity Fund Investor Shares
DEM Index Fund Investor Shares
DEM Multi-Manager Equity Fund Investor Shares
DEM Multi-Manager Bond Fund Investor Shares

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

PFPC, Inc.
211 S. Gulph Road
P.O. Box 61767
King of Prussia, PA 19406

BY WIRE

To make a same day wire investment, 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

- Tax identification number

- Amount of wire transfer

- Name of bank

35
<PAGE>
Call your bank with instructions to transmit funds to:

Boston Safe Deposit & Trust
ABA# 011001234
Credit: (Insert name of Fund)
Account #: 000795
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.

BY AUTOMATIC INVESTMENT

You may purchase shares of the funds 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 funds. The minimum
investment is $25 per month. We will debit the account designated in the
specified amount, on the date indicated, and you will receive fund shares
credited to your account. You may only designate an account maintained at a
domestic financial institution which is an Automated Clearing House member for
the Automatic Investment Option. The funds 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 a fund, complete the "Investment Dealer Information"
section of the investment application. You may purchase investor shares of the
DEM Equity Fund under the ticker symbol "DEMEX" through a brokerage account.

A 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 fund
offered by The Chapman Funds, Inc. call (800) 441-6580 or send a written request
to:

--------------------- Investor Shares (Insert appropriate fund name)
c/o PFPC, Inc.
211 S. Gulph Road
P.O. Box 61767
King of Prussia, PA 19406

DEM Index Fund Investor Shares
DEM Multi-Manager Equity Fund Investor Shares
DEM Equity Fund Investor Shares
DEM Multi-Manager Bond Fund Investor Shares

36
<PAGE>
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 fund by
telephone, we will register the new shares 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.

HOW SALES CHARGES ARE CALCULATED

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

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

The 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 funds' 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 one of
the funds 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 funds over a 13-month
period and receive the same sales charge as if all the shares of each fund
had been purchased at once. A minimum initial purchase of $5,000 of a
single fund is required.

37
<PAGE>
To use either of these methods, contact PFPC, Inc. (the funds' transfer
agent; "PFPC").

The funds have adopted a plan under rule 12b-1 of the Investment Company Act
of 1940 pursuant to which the funds pay The Chapman Co. a stockholder service
fee and a distribution fee to cover the sale of its shares and for services
provided to stockholders. The 12b-1 fees paid by the funds are detailed in the
Fund Expenses sections of this prospectus.

Because these fees are paid out of the funds' assets on an on-going basis,
over time, these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.

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 PFPC 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 by a fund to be in its best
interest, PFPC may not send you your proceeds for up to seven days after they
receive your sale or exchange request.

If you redeem shares that you just purchased and paid for by check, PFPC
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 a fund to implement its
investment strategies 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 net assets, in any one fund, the affected
fund has the right to pay the difference between the redemption amount and the
lesser of the two previously mentioned figures with securities from such fund's
portfolio.

KEEPING YOUR ACCOUNT OPEN

Due to the relatively high cost to the funds of maintaining small accounts,
we ask you to maintain an account balance of at least $25. If your account
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 each 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 rata share of fund assets is valued and totaled, the
investor shares' pro rata share of fund liabilities is subtracted, and the
balance, called net assets, is

38
<PAGE>
divided by the number of investor shares outstanding. In general, the funds'
assets are valued at their market price.

HOW YOUR PURCHASE OR REDEMPTION PRICE IS DETERMINED

If PFPC receives your request to purchase, redeem or exchange shares in a
fund in the correct form by 4 p.m. (Eastern Time) we will price your transaction
at that day's NAV. If PFPC receives your request after 4 p.m., we will price
your transaction 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

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.

- Each of the funds calculates its dividends, if any, from net investment
income. Net investment income includes interest accrued and dividends
earned on the fund's portfolio securities for the applicable period less
applicable expenses.

- (NOT APPLICABLE TO DEM MULTI-MANAGER BOND FUND) Each fund declares
dividends, if any, from its investment income quarterly.

- (APPLICABLE ONLY TO DEM MULTI-MANAGER BOND FUND) The fund declares
dividends from net investment income 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.

- Each fund distributes net realized capital gains annually unless such
capital gains are used to offset losses carried forward from prior years,
in which case no such capital gains will be distributed.

- 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 redeem shares in one of the funds, you may realize a gain or loss.
An exchange from the fund to another fund is still a redemption for tax
purposes.

39
<PAGE>
After the end of the tax year, we will send you a Form 1099-B for each fund
in which you owned shares during the year indicating the date and amount of each
redemption made in the fund during the prior year. We 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 a 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 taxed as ordinary income.

After the end of the tax year, we will send you a Form 1099-DIV for each
fund in which you owned shares during the year indicating the tax status of any
dividend and capital gain distributions made to you. We will also report this
information to the IRS. Distributions made by a 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.

MANAGEMENT

THE INVESTMENT ADVISOR

Chapman Capital Management, Inc., CCM, serves as the investment advisor to
each of the funds pursuant to a separate advisory and administrative services
agreement with each fund. CCM was established in 1988 and is located at the
World Trade Center - Baltimore, Suite 2800, 401 East Pratt Street, Baltimore,
Maryland 21202.

CCM has been an investment advisor since 1988. CCM served as the investment
advisor of DEM, Inc., a closed-end company that invested in DEM securities from
1995 until its dissolution in 1998, and currently serves as the investment
advisor for The Chapman US Treasury Money Fund and The Chapman Institutional
Cash Management Fund, in addition to the four funds described in this
prospectus. The Chapman Institutional Cash Management Fund is not currently
active. In addition, CCM serves as portfolio manager to a private fund and
private accounts. As of December 31, 1999, CCM had approximately $771 million in
assets under management.

CCM provides investment advice to the funds and, in general, conducts the
management and investment programs of the funds in accordance with each fund's
investment objectives, policies and restrictions.

THE MANAGEMENT FEE

Each of the funds pays CCM an annual advisory fee and administration fee,
based on the following percentages of the fund's average daily net assets:

<TABLE>
<CAPTION>
ADVISORY ADMINISTRATION
-------- --------------
<S> <C> <C>
DEM Equity Fund....................................... .90% .15%
DEM Index Fund........................................ .90% .15%
DEM Multi-Manager Equity Fund......................... 1.25% .15%
DEM Multi-Manager Bond Fund........................... 1.25% .15%
</TABLE>

40
<PAGE>
PORTFOLIO MANAGEMENT

Nathan A. Chapman, Jr. has been the president of CCM since 1988 and is
primarily responsible for the management of the funds' assets and, with respect
to the DEM Multi-Manager Funds, the selection and supervision of sub-advisors.

Mr. Chapman has served as President and Chairman of the Board of Directors
of The Chapman Funds, Inc. since its organization in 1988. In addition, Mr.
Chapman founded The Chapman Co., the funds' distributor, in 1987 and has been
its President 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 funds' portfolios.

DISTRIBUTION

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

BROKERAGE

In placing portfolio trades, CCM may use The Chapman Co. and, with respect
to the DEM Multi-Manager Funds, the sub-advisors may use broker dealers with
whom they are affiliated, but only when the CCM or the respective sub-advisor
believes no other firm offers a better combination of quality execution (i.e.,
timeliness and completeness) and favorable price.

STOCKHOLDER SERVICES

PFPC serves as the funds' 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:

PFPC, Inc.
211 S. Gulph Road
P.O. Box 61767
King of Prussia, PA 19406
(800) 441-6580

CUSTODIAN

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

41
<PAGE>
APPENDIX A
DEM INDEX

COMPONENT SECURITIES

<TABLE>
<CAPTION>
TICKER NAME
- ------ ----
<S> <C>
ALSI ADVANTAGE LEARNING SYS INC
ADVS ADVENT SOFTWARE INC
ALSC ALLIANCE SEMICONDUCTOR CORP
ATGN ALTIGEN COMMUNICATIONS INC
AWK AMERICAN WATER WORKS INC
AMKR AMKOR TECHNOLOGY INC
APAT APA OPTICS INC
APNT APPNET INC
ARSC ARIS CORP/WA
ASDV ASPECT DEVELOPMENT INC
CGO ATLAS AIR INC
ADSK AUTODESK INC
AVNT AVANT CORP
BVSN BROADVISION INC
CATY CATHAY BANCORP
CBSI COMPLETE BUSINESS SOLUTIONS
CYSV CYSIVE INC
DK DONNA KARAN INTL INC
DORL DORAL FINANCIAL CORP
DSET DSET CORP
EGAN EGAIN COMMUNICATIONS
ELBO ELECTRONICS BOUTIQUE HLDG CP
ESST ESS TECHNOLOGY INC
ETH ETHAN ALLEN INTERIORS INC
FBP FIRST BANCORP P R
FISB FIRST INDIANA CORP
GBCB GBC BANCORP/CA
GMST GEMSTAR INTERNATIONAL GROUP
GNLB GENELABS TECHNOLOGIES INC
GDW GOLDEN WEST FINANCIAL CORP
GBTVK GRANITE BROADCASTING
HABK HAMILTON BANCORP
HOLL HOLLYWOOD.COM INC -CL A
ITWO I2 TECHNOLOGIES INC
ICUI ICU MEDICAL INC
IMRS IMRGLOBAL CORP
INFA INFORMATICA CORP
INSP INFOSPACE COM INC
IUSA INFOUSA INC
ITIG INTELLIGROUP INC
IBOC INTL BANCSHARES CORP
KEYN KEYNOTE SYSTEMS INC
KMAG KOMAG INC
</TABLE>

<TABLE>
LSCC LATTICE SEMICONDUCTOR CORP
MRBA MARIMBA INC
<CAPTION>
TICKER NAME
- ------ ----
<S> <C>
MSO MARTHA STEWART LIVING OMNIMD
MTZ MASTEC INC
MAST MASTECH CORP
MIGI MERIDIAN INS GROUP INC
MOVA MOVADO GROUP INC
NPK NATIONAL PRESTO INDS INC
NATR NATURES SUNSHINE PRODS INC
NFF NEFF CORP
NMGC NEOMAGIC CORP
NEO NEOPHARM INC
NTIQ NETIQ CORP
NVDA NVIDIA CORP
OAOT OAO TECHNOLOGY SOLUTIONS INC
OMGA OMEGA RESEARCH INC
OMKT OPEN MARKET INC
OFG ORIENTAL FINANCIAL GROUP
FIBR OSICOM TECHNOLOGIES INC
PCCC PC CONNECTION INC
PSEM PERICOM SEMICONDUCTOR CORP
PCLE PINNACLE SYSTEMS INC
BPOP POPULAR INC
PRTL PRIMUS TELECOMM GROUP INC
PXCM PROXICOM INC
PRN PUERTO RICAN CEMENT CO INC
QADI QAD INC
PASA QUEPASA.COM INC
RGFC R&G FINANCIAL CORP -CL B
ROIA RADIO ONE INC
RENG RESEARCH ENGINEERS INC
SPNW SHOPNOW.COM INC
SIEB SIEBERT FINANCIAL CORP
SIGM SIGMA DESIGNS INC
SSTI SILICON STORAGE TECHNOLOGY
SBSA SPANISH BROADCASTING SYS INC
SPLT SPLITROCK SERVICES INC
STRM STARMEDIA NETWORK INC
STGC STARTEC GLOBAL COMMUNICTNS
SYNT SYNTEL INC
TR TOOTSIE ROLL INDS
TRID TRIDENT MICROSYSTEMS INC
</TABLE>

42
<PAGE>

<TABLE>
<CAPTION>
TICKER NAME
- ------ ----
<S> <C>
UVN UNIVISION COMMUNICATIONS INC
VALU VALUE LINE INC
VITR VITRIA TECHNOLOGY
WAC WARNACO GROUP INC -CL A
WTSLA WET SEAL INC -CL A
SAGI SAGE INC
</TABLE>

<TABLE>
ACOM AGENCY.COM LTD
NTCR NETCREATIONS INC
<CAPTION>
TICKER NAME
- ------ ----
<S> <C>
SNWL SONICWALL INC
OAKT OAK TECHNOLOGY INC
IMAN IMANAGE INC
NTCT NETSCOUT SYSTEMS INC
VIAD VIADOR INC
</TABLE>

43
<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. Further information about
market conditions and the funds' investment strategies that significantly
affected the funds' performance during their last fiscal year are available in
the annual and semi-annual stockholder reports. To obtain free copies of any of
these documents, call (800) 752-1013. For stockholder inquiries, call The
Chapman Co. at (800) 752-1013 or PFPC, Inc. at (800) 441-6580.

Fund reports and Statements of Additional Information are also available
from the Securities and Exchange Commission by sending an electronic request to
[email protected]; 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 (call (202) 942-8090 for hours of operation); or by
consulting the SEC's web site at www.sec.gov.

44
<PAGE>
[LOGO]

The Chapman Funds, Inc.
Prospectus
February 29, 2000

DEM EQUITY FUND
DEM INDEX FUND
DEM MULTI-MANAGER BOND FUND
DEM MULTI-MANAGER EQUITY FUND
INSTITUTIONAL SHARES