<PAGE>
================================================================================
ANNUAL REPORT
OCTOBER 31, 2000
DEM EQUITY FUND
DEM INDEX FUND
[LOGO]
A DOMESTIC EMERGING MARKETS
INVESTMENT OPPORTUNITY
THE CHAPMAN FUNDS, INC.
================================================================================
<PAGE>
A MESSAGE TO OUR SHAREHOLDERS
We are pleased to provide our annual report for shareholders of the DEM
Equity Fund and DEM Index Fund for the fiscal year ended October 31, 2000.
The DEM Equity Fund, which was launched on April 8, 1998, and the DEM Index
Fund, launched on March 23, 1999, are pioneers in the "Domestic Emerging
Markets" segment, which we believe offers exciting opportunities for investment.
The Domestic Emerging Markets market segment is comprised of companies ("DEM
Companies") that are controlled by African Americans, Asian Americans, Hispanic
Americans or women and that are located in the United States and its territories
(the "DEM profile").
DEM Equity Fund, a non-diversified portfolio, seeks aggressive long-term
growth through capital appreciation, the Fund invests in companies that we
believe are positioned for growth within the Domestic Emerging Market segment.
The Fund considers both capital appreciation and income in the selection of
investments, but we place primary emphasis on capital appreciation.
DEM Index Fund is an unmanaged index fund designed to track as closely as
possible the performance of the DEM Index. The DEM Index was developed and is
controlled by The Chapman Co., an investment banking affiliate of Chapman
Capital Management, Inc., the Fund's investment adviser. It is a market
capitalization weighted index of companies that meet the DEM Profile.
We are pleased that the DEM Equity Fund total return (+42.91% for
Institutional Shares and +41.69% for Investor Shares) and the DEM Index Fund
total return (+25.12% for Institutional Shares and +24.47% for Investor Shares)
outperformed their benchmark, the Russell 2000 Growth Index (+16.16%) during
this twelve month period, which was marked by high market volatility and
changing investor sentiment regarding large and small capitalization stocks and
technology and "old economy" stocks.
This period included the two strongest months of 1999, which served to
boost the negative ten months-to-date of 2000 to a positive twelve-month gain in
the Russell 2000 Growth Index. The U.S. economy showed continued, but slowing,
economic growth and volatile market performance in 2000. In the course of the
full twelve months, the Federal Reserve raised short-term interest rates four
times (November, February, March and May) in order to slow an economy that they
believed was growing too quickly to avoid the threat of inflation. The Federal
Funds rate is currently 6 1/2% and the Discount Rate is 6%. As the economy
slowed, in part due to the effects of increased interest rates, the Federal
Reserve chose not to raise rates at three succeeding meetings in June, August
and October. Strong economic growth in the Gross Domestic Product for the first
and second quarters of 2000 slowed to 2.7% in the third quarter. Employment
levels tightened to 3.9% in October along with rising hourly wage rates and
continued mild inflation. Earnings warnings from major companies in the
technology sector, renewed violence in the Middle East, and rising oil prices
added to the strong market volatility in both September and October. The S&P 500
and Nasdaq hit new lows for the year in mid-October, and the Dow Jones
Industrial Average dipped below 10000. A late October rally helped to regain
some of the losses, but all the major indices incurred a year-to-date loss. The
rally was driven by a strong earnings report by Microsoft and comments by Alan
Greenspan that the nation's productivity boom was continuing and oil prices were
not causing severe economic problems. Tax-driven sales of portfolio securities
by mutual funds also spurred buying, as professional investors began to
anticipate the bullish January effect of retirement saving inflows. Although
investors jumped in to buy downtrodden technology stocks, a true rally is
uncertain, as the Nasdaq composite remains 33% below its brief high above 5000
in March and over 17% below the beginning of the year.
The 30-year Treasury Bond closed October at a yield of 5.79%, well below
its close at October 29, 1999 of 6.16%, a shortage of long-term issues and the
bond market's belief that the Federal Reserve has stopped raising rates for now.
The yield curve lost its attempt to return to a normal pattern where short-term
rates are lower than long-term rates. October ended with decidedly inverted
rates, with only 10-year bonds yielding below 30-year bonds.
Small capitalization stocks, with double-digit returns, outperformed large
capitalization companies during the twelve-month period ended October 31, 2000.
Specifically, the Russell 2000 Growth Index gained 16.16% for the twelve months
ended October 31, 2000 compared to the S&P 500 Index's gain of 6.05%.
1
<PAGE>
DEM EQUITY FUND PERFORMANCE REVIEW
The DEM Equity Fund outperformed the Russell 2000 Growth Index, its
benchmark, returning 42.91% for Institutional Shares and 41.69% for Investor
Shares, compared to a 16.16% return for the Russell 2000 Growth Index for the
twelve months ended October 31, 2000. We are pleased to report that the DEM
Equity Fund's total net assets of $35,233,532 on October 31, 2000 have grown by
102% over the last twelve months. This increase is attributable to both a 61%
net increase in additional investment in the Fund and to the strong stock
performance of the DEM companies in the Fund's investment portfolio.
Since the Fund's inception in April 1998, a $10,000 initial investment in
the Fund's Investor Shares would have grown to $19,164 (including maximum sales
charge of 4.75%), and a $10,000 initial investment in the Fund's Institutional
Shares would have grown to $20,373. In comparison, the same initial investment
in the Russell 2000 Growth Index for the same period would have grown to
$11,747.
[GRAPH]
DEM EQUITY PERFORMANCE
<TABLE>
<CAPTION>
Russell 2000 Growth Institutional Shares Investor Shares
<S> <C> <C> <C>
April 8, 1998 10,000 10,000 9,525
Oct. 31, 1999 10,110 14,255 13,525
Oct. 31, 2000 11,747 20,373 19,164
</TABLE>
NOTE: PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE.
<TABLE>
<CAPTION>
1 YEAR AVERAGE ANNUAL
ENDED SINCE INCEPTION*
<S> <C> <C>
INVESTOR SHARES
(WITH SALES CHARGE) 34.97% 28.84%
(WITHOUT SALES CHARGE) 41.69% 31.30%
INSTITUTIONAL SHARES 42.91% 31.94%
RUSSELL 2000 GROWTH 16.16% 6.47%
</TABLE>
*April 8, 1998
2
<PAGE>
The Fund contains stocks in seven of the Russell 2000 Growth Index's
twelve sectors. As shown in the following pie charts, we continue to weight the
Fund heaviest in the Technology, Producer Durables, and Consumer Discretionary &
Services sectors as of October 31, 2000. Within the Russell 2000 Growth Index,
these same sectors gave returns of 17.31%, 18.83%, and -13.92%, respectively,
for the twelve months ended October 31, 2000. The Russell 2000 Growth Index
showed positive returns in six of the seven sectors represented within the Fund
over the same period.
[CHART]
DEM EQUITY FUND
SECTOR WEIGHTINGS
<TABLE>
<CAPTION>
<S> <C>
AUTOS & TRANSPORTATION 2.8%
UTILITIES 0.2%
HEALTH CARE 0.8%
TECHNOLOGY 62.5%
CONSUMER DISCRETIONARY & SERVICES 12.6%
PRODUCER DURABLES 15.1%
FINANCIAL SERVICES 6.0%
</TABLE>
[CHART]
RUSSELL 2000 GROWTH
SECTOR WEIGHTINGS
<TABLE>
<CAPTION>
<S> <C>
AUTOS & TRANSPORTATION 1%
UTILITIES 5%
HEALTH CARE 25%
TECHNOLOGY 32%
CONSUMER DISCRETIONARY & SERVICES 18%
PRODUCER DURABLES 10%
FINANCIAL SERVICES 9%
</TABLE>
Our top three performers over the last twelve months were technology
companies: Nvidia Corporation (+461.8%), i2 Technologies (+330.7%) and
Informatica Corporation (+161.6%). NVIDIA (NVDA) is a computer graphics firm
headquartered in Santa Clara, California, which designs, develops and markets
three dimensional graphics processors and related software to the mainstream
personal computer market. Nvidia's stock split 2 for 1 in June and continued to
climb steadily in price appreciation. i2 TECHNOLOGIES (ITWO), headquartered in
Dallas, Texas, provides e-business solutions, services, marketplaces,
fulfillment and product development services. i2's stock also split 2 for 1 in
February, and continued to enjoy price appreciation as the year progressed.
INFORMATICA CORPORATION (INFA), a Palo Alto, California company, develops and
markets enterprise software services and products. Informatica's stock split 2
for 1 in March, and closed October within 10% of their 52 week high.
3
<PAGE>
The Fund's lowest three performers over the twelve months were Primus
Telecommunications Group (-77.1%), Startec Global Communications (-71.9%), and
Seranova (-69.9%). PRIMUS TELECOMMUNICATIONS GROUP (PRTL), headquartered in
McLean, Virginia, is a global telecommunications company that offers long
distance, internet access and data, web hosting and other related services to
business and residential customers. Their reports of record breaking 1st, 2nd
and 3rd quarter revenue and gross margin growth were not enough to offset the
decline in the stock price as the company continued to use cash to build its
infrastructure. We remain confident in the company's prospects as it has
developed an extensive, global fiber network that can exploit the technology
driving the convergence of voice, data, Internet and video applications into
packets.
STARTEC GLOBAL COMMUNICATIONS (STGC), headquartered in Bethesda, Maryland,
provides integrated communications services including voice, data and Internet
access. The company has suffered quarterly losses this year as it transitioned
from a primarily circuit-switched wholesale business to focus upon the growth of
higher-margin Internet-protocol-based digital services for voice traffic.
Startec's 3rd quarter earnings are showed improved revenues and increasing
higher-margin business customers driven by this strategy. Startec has also
announced a merger agreement that will add to the company's commercial marketing
and customer base.
SERANOVA (SERA), located in Edison, New Jersey, and a spin-off of the DEM
company Intelligroup, is a global provider of eBusiness consulting services
using an offshore-based global delivery model. Losses during the year were
driven by high spending on marketing, branding and building-out of the
organization to prepare for the spin-off from its parent company in July, 2000.
Although 3rd quarter earnings showed a one-cent loss, the revenue and margin
continued to show strong growth, along with positive earnings before interest,
taxes, and depreciation (EBITDA), compared to negative EBITDA in prior quarters.
Seranova has also reported strong new client, project and international revenues
growth. A merger expected to finalize during the 1st quarter 2001 will fill out
Seranova's offerings of IT services to offer complete end-to-end solutions.
PORTFOLIO HIGHLIGHTS
A new addition to the portfolio and our largest purchase in the last twelve
months was Infospace, an Internet content company headquartered in Bellevue,
Washington. Infospace provides commerce, information and communication
infrastructure services to wireless devices, merchants and Web sites. Other new
additions to the portfolio this year included technology companies that have
felt the effect of the market's pullback from that sector. We closed out
numerous positions in other technology companies that we believed would no
longer remain competitive in their industry groups, balancing these losses
against realized portfolio gains. Aspect Development was acquired by a fellow
DEM company, i2 Technologies. i2 had grown to such a large portion of the
portfolio due to the acquisition of Aspect Development and its own strong market
performance that we sold a portion of our holdings to realize some gains and
move toward attaining the appropriate security weighting in the Fund's
investment portfolio.
TOP TEN PORTFOLIO HOLDINGS AS OF 10/31/00
<TABLE>
<CAPTION>
STOCK % OF TOTAL NET ASSETS
========================================================================
<S> <C>
I2 TECHNOLOGIES 20.7%
BROADVISION 8.9
SOLECTRON 7.1
NVIDIA 4.9
LATTICE SEMICONDUCTOR 4.0
GEMSTAR INTERNATIONAL 3.7
UNIVISION 2.7
ATLAS AIR 2.4
POPULAR 2.0
INFORMATICA 1.9
</TABLE>
4
<PAGE>
DEM INDEX FUND PERFORMANCE REVIEW
The DEM Index Fund outperformed the Russell 2000 Growth Index, its
benchmark, returning 25.12% for Institutional Shares and 24.47% for Investor
Shares, compared to a 16.16% return for the Russell 2000 Growth Index for the
twelve months ended October 31, 2000. Much like most major indices, the DEM
Index experienced substantial volatility over the 12-month period ended October
31, 2000. The DEM Index followed an almost uninterrupted upward path from the
end of October 1999 through the beginning of March 2000. When the technology
sector experienced a sudden reversal in March, the DEM Index dropped
precipitously over the next four to five weeks. In subsequent months, the DEM
Index rallied several times, but ended the twelve-month period substantially
unchanged from the level reached in mid-April but well below the highs reached
in early March. The DEM Index experienced a much stronger rise than other major
indices in the early part of the twelve-month period and still managed to hold a
significant portion of this gain over the year. Consequently, the DEM Index
still managed to outperform these indices by a considerable margin.
The DEM Index Fund has tracked the performance of the DEM Index fairly
closely but, as is usually the case with index funds, the Fund's operating and
management expenses caused it to trail the DEM Index. In addition, with only
$284,000 in assets under management as of October 31, 2000, it is difficult to
match the Fund weightings with those in the DEM Index in a cost-effective
manner. Therefore, over the twelve-month period, Investor Share and
Institutional Share performance is 0.84% and 0.19% below that of the DEM Index.
Since the Fund's inception in March 1999, a $10,000 initial investment
in the Fund's Investor Shares would have grown to $15,822 (including maximum
sales charge of 4.75%), and a $10,000 initial investment in the Fund's
Institutional Shares would have grown to $16,724. In comparison, the same
initial investment in the Russell 2000 Growth Index for the same period would
have grown to $13,229.
[GRAPH]
DEM INDEX PERFORMANCE
<TABLE>
<CAPTION>
Russell 2000 Growth Institutional Shares Investor Shares
<S> <C> <C> <C>
March 22, 1999 10,000 10,000 9,525
Oct. 31, 1999 11,389 13,366 12,711
Oct. 31, 2000 13,229 16,724 15,822
</TABLE>
NOTE: PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE.
<TABLE>
<CAPTION>
1 YEAR AVERAGE ANNUAL
ENDED SINCE INCEPTION*
<S> <C> <C>
INVESTOR SHARES
(WITH SALES CHARGE) 18.56% 32.88%
(WITHOUT SALES CHARGE) 24.47% 37.07%
INSTITUTIONAL SHARES 25.12% 37.65%
RUSSELL 2000 GROWTH 16.16% 19.00%
</TABLE>
March 23, 1999
5
<PAGE>
The changes in the portfolio were driven by many of the same trends
occurring in the wider stock market. Technology stocks rode a wave of favorable
investor sentiment through March 2000 before valuations came back to earth and
the market in general and technology stocks in particular saw their prices
plummet. Continuing news of dot com failures have had a negative impact on the
shares of technology stocks for most of 2000. Some sectors held their values
better than others. Among the better performing sectors were semiconductors and
fiber optics. Among the top ten performers in the DEM Index Fund, six were in
semiconductors and related fields, two were in fiber optics, one provides B-to-B
e-commerce software and one is a biopharmaceutical company. FiberCore, Inc.
(FBCE) was our top performer, turning in a 1,175.5% gain over the twelve-month
period ended October 31, 2000. The continued growth of data traffic over the
Internet has caused an unsated demand for the installation of fiber optic
cabling worldwide. Expanded uses for semiconductors beyond computer related
products into everything from automobiles, cell phones and appliances to toys
and building controls is driving demand for semiconductors. This was reflected
in our semiconductor stocks, such as Merix Corp. (MERX), Oak Technology (OAKT),
Nvidia Corp. (NVDA), Catalyst Semiconductor (CATS), Silicon Storage Technology
(SSTI) and Pericom Semiconductor (PSEM). These stocks advanced between 547.9%
(MERX) to 228.7% (PSEM). i2 Technologies (ITWO), a leading developer of supply
chain software, is also increasingly viewed as an e-commerce play, a perception
that helped this stock climb 330.7% during the period. Rounding out the top ten
performing stocks in the Fund was Neopharm Inc (NEOL), a company that develops
anti-cancer drugs. Neopharm gained 163.6% over this twelve-month period.
The worst performers in the portfolio were affected by a variety of
factors, some industry-wide and some company specific. Chromatics Color Sciences
(CCSI), our worst performer for the period, fell 83.3%. We believe that
investors may be avoiding the stock due to the company's lack of revenue growth.
Warnaco Group (WAC) stock fell 81.6% in the period due to a weak retail
environment, several large inventory write-offs and a dispute with Calvin Klein
over issues related to Warnaco's licenses for CK products. Open Market (OMKT)
was among the weaker competitors in the B-to-B e-commerce software market,
prompting a decline of 81.3% in its stock price. Rounding out the five worst
performers are Agency.com (ACOM) and Marimba (MRBA), which fell 79.4% and 79.2%,
respectively. Despite exhibiting strong revenue growth and positive cash flow,
Agency.com suffered from investor disaffection with new economy stocks,
particularly those with a ".com" in the name as more and more dot com businesses
failed. Marimba also suffered as investors lost their enthusiasm for a once hot
sector. Marimba provides Internet-based software management products under a
model that was once called push technology. Despite solid sales growth and
turning the corner to profitability in 2000, Marimba stock price has declined as
other companies that used push technology under different models of push
technology have struggled and investors turned sour on the entire sector.
Overall, the number of stocks posting advances and those posting declines
was fairly even, with 48 advancing and 51 declining.
<TABLE>
<CAPTION>
TOP TEN PORTFOLIO HOLDINGS AS OF 10/31/00
STOCK % OF TOTAL NET ASSETS
=============================================================================
<S> <C>
GOLDEN WEST FINANCIAL 7.13%
UNIVISION COMMUNICATIONS 6.33
BROADVISION INC 5.92
INFOSPACE INC 3.66
ART TECHNOLOGY GROUP 3.34
NVIDIA CORP 3.31
POPULAR INC 3.05
NEW FOCUS INC 2.98
VITRIA TECHNOLOGY 2.74
INFORMATICA CORP 2.52
</TABLE>
6
<PAGE>
OUTLOOK
The Federal Reserve's goal for the economy of a "soft landing", in which
economic growth is slowed without resulting inflation or increased unemployment,
is still uncertain. Although somewhat lower, consumer confidence remains at a
historically high level. Long term, the technology sector appears to remain
attractive, but from a "re-valued" position that brings price earnings ratios
and valuations to a lower, more rational level. We believe that the near-term
outlook remains favorable for equities based upon continued economic growth, low
unemployment and low inflation. We believe that our strategy of investing for
the long term, combined with a focus upon quality companies, helps to weather
the normal ups and downs of the market.
We thank you for your confidence and the opportunity to continue EARNING
your business.
Sincerely,
/s/ NATHAN A. CHAPMAN, JR.
Nathan A. Chapman, Jr.
President
7
<PAGE>
<TABLE>
<CAPTION>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
Schedule of Investments- October 31, 2000
================================================================================================================
MARKET
VALUE
SHARES (NOTE 2)
-------------- ---------------
<S> <C> <C>
COMMON STOCK - 83.7 %
AUTO & TRANSPORTATION - 2.5%
AIR TRANSPORTATION
23,000 Atlas Air, Inc.+ ......................................................... $ 833,750
---------------
Total Auto & Transportation 833,750
---------------
CONSUMER DISCRETIONARY - 10.5%
FURNITURE
13,500 Ethan Allen Interiors, Inc. .............................................. 394,875
MEDIA/PUBLISHING
25,000 Radio One, Inc., Class A + ............................................... 198,437
30,000 Radio One, Inc., Class D + ............................................... 240,469
25,000 Univision Communications, Inc.+ .......................................... 956,250
RETAILERS
22,500 PC Connection, Inc. + .................................................... 613,477
20,000 Wet Seal, Inc., Class A + ................................................ 375,000
SOFTWARE & TECHNOLOGY SERVICE
20,000 Advantage Learning , Inc. + .............................................. 593,750
25,000 Proxicom, Inc. + ......................................................... 337,500
---------------
Total Consumer Discretionary 3,709,758
---------------
FINANCIAL SERVICES - 5.0%
BANKS
5,000 Carver Bancorp, Inc. ..................................................... 36,250
25,000 Popular, Inc. ............................................................ 695,312
FINANCIAL SERVICES
20,000 Doral Financial Corporation .............................................. 357,500
14,000 R&G Financial Corporation, Class B ....................................... 137,375
SOFTWARE & TECHNOLOGY SERVICE
9,000 Advent Software, Inc. + .................................................. 538,313
---------------
Total Financial Services 1,764,750
---------------
HEALTH CARE - 0.7%
HEALTH CARE MANAGEMENT SERVICES
16,000 Pediatrix Medical Group + ................................................ 255,000
---------------
Total Health Care 255,000
---------------
PRODUCER DURABLE -12.6%
COMMUNICATIONS
22,500 Mastec, Inc. ............................................................. 651,094
TECHNOLOGY
19,000 Gemstar International Group Limited + .................................... 1,302,687
56,560 Solectron Corporation + .................................................. 2,488,640
---------------
Total Producer Durable 4,442,421
---------------
</TABLE>
See notes to financial statements
8
<PAGE>
<TABLE>
<CAPTION>
THE CHAPMAN FUNDS, INC.
DEM EQUITY FUND
Schedule of Investments-October 31, 2000-Concluded
================================================================================================================
MARKET
VALUE
SHARES (NOTE 2)
-------------- ---------------
<S> <C> <C>
COMMON STOCK - CONTINUED
TECHNOLOGY - 52.3%
COMMUNICATIONS TECHNOLOGY
10,000 Startec Global Communications Corporation + .............................. $ 45,000
COMPUTERS
10,000 Vitech America, Inc. ..................................................... 41,563
SOFTWARE & TECHNOLOGY SERVICES
15,000 Autodesk , Inc. .......................................................... 330,937
106,000 Broadvision, Inc. + ...................................................... 3,153,500
7,000 Computer Associate International + ....................................... 223,125
43,000 i2 Technologies, Inc. + .................................................. 7,310,000
8,000 IMR Global Corporation + ................................................. 66,000
7,000 Informatica Corporation + ................................................ 661,500
30,000 Infospace, Inc. + ........................................................ 603,750
25,000 Netscout System, Inc. .................................................... 467,188
15,000 Network Commerce, Inc. ................................................... 44,531
15,000 Numerical Technologies ................................................... 307,500
15,000 OSI Systems, Inc. ........................................................ 119,063
13,000 Seranova, Inc. ........................................................... 52,000
6,000 Sycamore Networks, Inc. + ................................................ 379,500
TECHNOLOGY
25,000 Amkor Technology, Inc. ................................................... 562,500
48,000 Lattice Semiconductor Corporation + ...................................... 1,401,000
7,000 New Focus, Inc. .......................................................... 444,500
28,000 Nvidia Corporation + ..................................................... 1,739,937
15,000 Osicom Technologies ...................................................... 480,000
---------------
Total Technology 18,433,094
---------------
UTILITIES - 0.1%
COMMUNICATIONS
10,000 Primus Telecommunications Group + ........................................ 50,625
---------------
Total Utilities 50,625
---------------
Total Common Stock (Cost $16,403,233)......................................... 29,489,398
---------------
SHORT-TERM INVESTMENTS - 16.4%
MONEY MARKET ACCOUNT - 16.4%
5,791,679 UMB Money Market Fiduciary Account ....................................... 5,791,679
---------------
Total Short-Term Investments (Cost $5,791,679)................................ 5,791,679
---------------
Total Investments (Cost $22,194,912)- 100.1% ................................. 35,281,077
Other Assets Less Liabilities - (0.1%) ....................................... (47,545)
---------------
Net assets - 100.0% .......................................................... $35,233,532
===============
</TABLE>
+ Non-income producing security for the year ended October 31, 2000.
See notes to financial statements
9
<PAGE>
<TABLE>
<CAPTION>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
Schedule of Investments - October 31, 2000
================================================================================================================
MARKET
VALUE
SHARES (NOTE 2)
-------------- ---------------
<S> <C> <C>
COMMON STOCK - 86.5%
AUTO & TRANSPORTATION -1.0 %
AIR TRANSPORTATION
82 Atlas Air, Inc. + ........................................................ $ 2,973
---------------
Total Auto & Transportation 2,973
---------------
CONSUMER DISCRETIONARY & SERVICES - 13.0%
APPAREL
29 Donna Karan International + .............................................. 154
CONSUMER PRODUCTS
120 Martha Stewart Living, Class A + ......................................... 3,007
26 Movado Group, Inc. ....................................................... 374
10 National Presto Industries, Inc. ......................................... 304
CONSUMER SERVICES
80 INFOUSA , Inc. + ......................................................... 260
ENTERTAINMENT
11 Hollywood.Com, Inc. + .................................................... 83
FURNITURE
100 Ethan Allen Interiors, Inc. .............................................. 2,925
MEDIA/PUBLISHING
50 Radio One, Inc., Class A + ............................................... 397
100 Radio One, Inc., Class D + ............................................... 801
127 Spanish Broadcasting + ................................................... 1,143
528 Univision Communications, Inc. + ......................................... 20,196
RETAILERS
61 PC Connection, Inc. + .................................................... 1,663
17 Wet Seal, Inc. + ......................................................... 319
SOFTWARE & TECHNOLOGY SERVICE
88 Advantage Learnings, Inc. + .............................................. 2,613
110 Proxicom, Inc. + ......................................................... 1,485
155 Starmedia Network, Inc. + ................................................ 949
TEXTILES
78 The Warnaco Group, Inc., Class A ......................................... 205
---------------
Total Consumer Discretionary 36,878
---------------
CONSUMER STAPLES - 1.7%
CONSUMER PRODUCTS
24 Natures Sunshine Products ................................................ 170
FOOD
121 Tootsie Roll Industries, Inc. ............................................ 4,643
---------------
Total Consumer Staples 4,813
---------------
</TABLE>
See notes to financial statements
10
<PAGE>
<TABLE>
<CAPTION>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
Schedule of Investments - October 31, 2000 - Continued
================================================================================================================
MARKET
VALUE
SHARES (NOTE 2)
-------------- ---------------
<S> <C> <C>
COMMON STOCK - CONTINUED
FINANCIAL SERVICES - 15.1%
BANKS
12 Cathay Bancorp, Inc. ..................................................... $ 592
17 First Indiana Corporation ................................................ 391
39 First Bank Puerto Rico ................................................... 895
20 GBC Bancorp .............................................................. 638
406 Golden West Financial .................................................... 22,761
14 Hamilton Bancorp, Inc. + ................................................. 210
30 International Bancshares ................................................. 1,074
350 Popular, Inc. ............................................................ 9,734
FINANCIAL SERVICES
64 Doral Financial Corp. .................................................... 1,144
18 Oriental Financial Group, Inc. ........................................... 220
39 R&G Financial Corp., Class B ............................................. 383
INVESTMENT MANAGEMENT
30 Siebert Financial Corporation ............................................ 188
MEDIA/PUBLISHING
13 Value Line, Inc. ......................................................... 453
SOFTWARE & TECHNOLOGY SERVICE
69 Advent Software + ........................................................ 4,127
---------------
Total Financial Services 42,810
---------------
HEALTH CARE - 1.8%
BIOTECHNOLOGY
70 Tanox, Inc. + ............................................................ 2,607
HEALTH CARE
35 Pediatrix Medical Group + ................................................ 558
MEDICAL PRODUCTS
11 ICU Medical, Inc. + ...................................................... 275
MEDICAL SUPPLIES
155 Celsion Corporation + .................................................... 310
PHARMACEUTICAL
39 Akorn, Inc. + ............................................................ 180
32 First Horizon Pharmaceuticals + .......................................... 668
54 Genelabs Technologies, Inc. + ............................................ 282
11 Neopharm, Inc. + ......................................................... 399
---------------
Total Health Care 5,279
---------------
MATERIALS AND PROCESSING - .1%
BUILDING MATERIALS
7 Puerto Rican Cement Company, Inc. ........................................ 215
---------------
Total Materials and Processing 215
---------------
</TABLE>
See notes to financial statements
11
<PAGE>
<TABLE>
<CAPTION>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
Schedule of Investments - October 31, 2000 - Continued
================================================================================================================
MARKET
VALUE
SHARES (NOTE 2)
-------------- ---------------
<S> <C> <C>
COMMON STOCK - CONTINUED
PRODUCER DURABLES - 1.1%
COMMUNICATIONS
88 Mastec, Inc. + ........................................................... $ 2,547
RETAILERS
32 Electronics Boutique Holdings + .......................................... 500
---------------
Total Producer Durable 3,047
---------------
TECHNOLOGY - 49.9%
COMMUNICATIONS
125 Accelerated Networks + ................................................... 1,742
46 Egain Communications + ................................................... 299
40 Sunrise Telecommunications + ............................................. 995
ELECTRONICS
21 Merix Corporation + ...................................................... 981
60 Pericom Semiconductor Corporation + ...................................... 1,590
28 Tripath Technology, Inc. + ............................................... 819
SOFTWARE & TECHNOLOGY SERVICE
53 Agency.Com Limited + ..................................................... 557
13 APA Optics, Inc. + ....................................................... 143
170 ART Technology Group + ................................................... 10,668
130 Autodesk, Inc. ........................................................... 2,868
100 Avant! Corporation + ..................................................... 1,681
635 Broadvision, Inc. + ...................................................... 18,891
47 Complete Business Solutions, Inc. + ...................................... 488
50 Crossworlds Software + ................................................... 584
36 Cysive, Inc. + ........................................................... 286
56 Embarcadero Technology, Inc. + ........................................... 3,385
34 Imanage, Inc. + .......................................................... 132
46 IMRGlobal Corporation + .................................................. 379
85 Informatica Corporation + ................................................ 8,032
580 Infospace, Inc. + ........................................................ 11,672
106 Igate Capital Corporation + .............................................. 537
48 Keynote Systems, Inc. + .................................................. 1,152
37 Marimba, Inc. + .......................................................... 220
24 Netcreations, Inc. + ..................................................... 179
45 Netiq Corporation + ...................................................... 3,876
43 Netscout Systems, Inc. + ................................................. 804
27 Netsol International + ................................................... 240
30 Numerical Technologies + ................................................. 615
18 NetGuru + ................................................................ 90
55 Network Commerce, Inc. + ................................................. 163
73 Open Market + ............................................................ 242
100 Pinnacle Systems, Inc. + ................................................. 1,262
75 Selectica, Inc. + ........................................................ 1,978
116 Sonicwall, Inc. + ........................................................ 1,733
51 Syntel, Inc. + ........................................................... 481
</TABLE>
See notes to financial statements
12
<PAGE>
<TABLE>
<CAPTION>
THE CHAPMAN FUNDS, INC.
DEM INDEX FUND
Schedule of Investments - October 31, 2000 - Concluded
================================================================================================================
MARKET
VALUE
SHARES (NOTE 2)
-------------- ---------------
<S> <C> <C>
COMMON STOCK - CONTINUED
SOFTWARE & TECHNOLOGY SERVICE (Continued)
28 Telecommunication Systems, Class A + ..................................... $ 441
45 V-One Corporation + ...................................................... 83
25 Viador, Inc. + ........................................................... 116
325 Vitria Technology + ...................................................... 8,734
30 Webex, Inc. + ............................................................ 1,352
TECHNOLOGY
335 Amkor Technology, Inc. + ................................................. 7,537
103 Alliance Semiconductor + ................................................. 2,060
35 Catalyst Semiconductor + ................................................. 269
54 ESS Technology, Inc. + ................................................... 837
79 Fibercore, Inc. + ........................................................ 494
73 Komag, Inc. + ............................................................ 132
252 Lattice Semiconductor + .................................................. 7,355
150 New Focus, Inc. + ........................................................ 9,525
170 Nvidia Corporation + ..................................................... 10,564
135 Oak Technology, Inc. + ................................................... 3,788
21 Osicom Technologies, Inc. + .............................................. 672
100 Silicon Laboratories + ................................................... 2,806
225 Silicon Storage Technology + ............................................. 5,119
18 Trident Microsystems, Inc. + ............................................. 154
---------------
Total Technology 141,802
---------------
UTILITIES - 2.8%
COMMUNICATIONS
80 Entravision Communications, Class A + .................................... 1,415
77 Primus Telecommunications Group + ........................................ 390
UTILITIES
250 American Water Works, Inc. + ............................................. 6,094
---------------
Total Utilities 7,899
---------------
Total Common Stock (Cost $267,951) - 86.5% ................................... 245,716
Other Assets Less Liabilities - 13.5% ........................................ 38,338
---------------
Net Assets - 100% ............................................................ $ 284,054
===============
</TABLE>
+ Non-income producing security for the year ended October 31, 2000.
See notes to financial statements
13
<PAGE>
THE CHAPMAN FUNDS, INC.
Statements of Assets and Liabilities - October 31, 2000
================================================================================
<TABLE>
<CAPTION>
DEM EQUITY FUND DEM INDEX FUND
--------------------------------------
<S> <C> <C>
ASSETS:
Investments in securities at value (cost $16,403,233 and $267,951,
respectively) ............................................................. $29,489,398 $245,716
Short-term investments ........................................................ 5,791,679 -
Cash .......................................................................... - 73,537
Receivable for shares sold .................................................... 3,387 1,782
Interest and dividends receivable ............................................. 23,139 61
Receivable from investment advisor ............................................ 14,286 8,712
Other assets .................................................................. 4,622 4,969
--------------------------------------
Total assets ............................................................. 35,326,511 334,777
--------------------------------------
LIABILITIES:
Payable for shares repurchased ................................................ 8,219 -
Accrued expenses .............................................................. 84,760 50,723
--------------------------------------
Total liabilities ........................................................ 92,979 50,723
--------------------------------------
NET ASSETS $35,233,532 $284,054
======================================
NET ASSETS CONSIST OF:
Paid-in capital ............................................................... $22,338,783 $241,870
Accumulated net realized gain (loss) on investments ........................... (191,416) 64,419
Net unrealized appreciation (depreciation) of investments ..................... 13,086,165 (22,235)
--------------------------------------
Net Assets $35,233,532 $284,054
======================================
NET ASSET VALUE AND REDEMPTION PRICE PER:
Institutional Shares:
($34,252,047 / 1,176,587 shares outstanding and $167,231 / 7,393 shares
outstanding, respectively) ............................................. $29.11 $22.62
======================================
Investor Shares:
($981,485 / 34,144 shares outstanding and $116,823 / 5,199 shares
outstanding, respectively) ............................................. $28.75 $22.47
======================================
OFFERING PRICE PER INVESTOR SHARES:
Net asset value .......................................................... $28.75 $22.47
Sales Charge (maximum of 4.75% of offering price) ........................ 1.43 1.12
--------------------------------------
Offering price ........................................................... $30.18 $23.59
======================================
</TABLE>
See notes to financial statements
14
<PAGE>
THE CHAPMAN FUNDS, INC.
Statements of Operations - For the year ending October 31, 2000
================================================================================
<TABLE>
<CAPTION>
DEM EQUITY FUND DEM INDEX FUND
--------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ......................................................................... $ 31,356 $ 648
Interest .......................................................................... 212,602 -
--------------------------------------
Total investment income ...................................................... 243,958 648
--------------------------------------
EXPENSES:
Management and administrative fees ................................................ 342,036 2,463
Distribution fees ................................................................. 82,529 651
Transfer agent fees ............................................................... 81,881 43,142
Fund accounting fees .............................................................. 36,421 46,528
Registration fees ................................................................. 89,891 13,505
Professional fees ................................................................. 49,385 28,905
Shareholder reports ............................................................... 36,387 18,291
Custody fees ...................................................................... - 6,509
Directors fees .................................................................... 6,584 5,419
Other ............................................................................. 48,710 16,173
--------------------------------------
Total expenses before reimbursement/waiver ................................... 773,824 181,586
Expenses reimbursed/waived ........................................................ (272,948) (175,978)
--------------------------------------
Net expenses ................................................................. 500,876 5,608
--------------------------------------
Net investment loss .......................................................... (256,918) (4,960)
--------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investment transactions ............................... (8,783) 69,484
Net change in unrealized appreciation/depreciation of investments ................. 7,489,064 (47,315)
--------------------------------------
Net realized and unrealized gain on investments .............................. 7,480,281 22,169
--------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................. $ 7,223,363 $ 17,209
======================================
</TABLE>
See notes to financial statements
15
<PAGE>
THE CHAPMAN FUNDS, INC.
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
DEM EQUITY FUND
----------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2000 1999
----------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .......................................................... $ (256,918) $ (294,099)
Net realized loss on investment transactions ................................. (8,783) (140,466)
Net change in unrealized appreciation/depreciation of investments ............ 7,489,064 7,245,970
----------------------------------
Net increase in net assets from operations .............................. 7,223,363 6,811,405
----------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from shares sold:
Institutional Shares .................................................... 12,563,797 2,328,837
Investor Shares ......................................................... 526,553 204,046
----------------------------------
Total proceeds from shares sold .............................................. 13,090,350 2,532,883
----------------------------------
Cost of shares repurchased
Institutional Shares .................................................... (2,386,808) (36,448)
Investor Shares ......................................................... (119,939) (33,383)
----------------------------------
Total cost of shares repurchased ............................................. (2,506,747) (69,831)
----------------------------------
Increase in net assets from capital share transactions .................. 10,583,603 2,463,052
----------------------------------
Total increase in net assets ................................................. 17,806,966 9,274,457
NET ASSETS:
Beginning of year ............................................................ 17,426,566 8,152,109
----------------------------------
End of year .................................................................. $ 35,233,532 $ 17,426,566
==================================
</TABLE>
See notes to financial statements
16
<PAGE>
THE CHAPMAN FUNDS, INC.
Statements of Changes in Net Assets - Continued
================================================================================
<TABLE>
<CAPTION>
DEM INDEX FUND
----------------------------------
MARCH 23,
FOR THE YEAR 1999(1)
ENDED THROUGH
OCTOBER 31, OCTOBER 31,
2000 1999
----------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .......................................................... $ (4,960) $ (778)
Net realized gain on investment transactions ................................. 69,484 10,769
Net change in unrealized appreciation/depreciation of investments ............ (47,315) 25,080
----------------------------------
Net increase in net assets from operations .............................. 17,209 35,071
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain:
Institutional Shares .................................................... (9,217) -
Investor Shares ......................................................... (970) -
----------------------------------
Total distributions .......................................................... (10,187) -
----------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
Shares sold:
Institutional Shares .................................................... - 100,014
Investor Shares ......................................................... 134,963 11,164
Distributions reinvested:
Institutional Shares .................................................... 9,217 -
Investor Shares ......................................................... 970 -
----------------------------------
Total proceeds from shares sold .............................................. 145,150 111,178
----------------------------------
Shares repurchased:
Institutional Shares .................................................... - -
Investor Shares ......................................................... (14,090) (277)
----------------------------------
Total cost of shares repurchased ............................................. (14,090) (277)
----------------------------------
Increase in net assets from capital share transactions .................. 131,060 110,901
----------------------------------
Total increase in net assets ................................................. 138,082 145,972
NET ASSETS:
Beginning of period .......................................................... 145,972 -
----------------------------------
End of period ................................................................ $ 284,054 $ 145,972
==================================
</TABLE>
See notes to financial statements
------------------------------------
(1) Commencement of operations.
17
<PAGE>
THE CHAPMAN FUNDS, INC.
Financial Highlights
================================================================================
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUND'S
FINANCIAL PERFORMANCE SINCE THE INCEPTION OF THE FUND. CERTAIN INFORMATION
REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. IT SHOULD BE READ IN
CONJUNCTION WITH FINANCIAL STATEMENTS AND NOTES THERETO.
<TABLE>
<CAPTION>
DEM EQUITY FUND - INSTITUTIONAL SHARES
-----------------------------------------------------
FOR THE YEAR FOR THE YEAR APRIL 8,
ENDED ENDED 1998(1) THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 1998
-----------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......................... $20.37 $11.58 $14.29
-----------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(2)........................................ (.24) (.40) (.29)
Net realized and unrealized gain (loss) on investments ....... 8.98 9.19 (2.42)
-----------------------------------------------------
Total from investment operations ........................ 8.74 8.79 (2.71)
-----------------------------------------------------
DISTRIBUTIONS:
From net investment income ................................... - - -
From net realized gains on investments ....................... - - -
-----------------------------------------------------
Total distributions ..................................... - - -
-----------------------------------------------------
Net asset value, end of period ............................... $29.11 $20.37 $11.58
=====================================================
TOTAL RETURN(3)............................................... 42.91% 75.91% (18.96)%
RATIOS / SUPPLEMENTAL DATA:
Ratios to Average Net Assets:
Expenses (net of reimbursement/waiver) .................. 1.52% 2.97% 4.30%
Expenses prior to reimbursement/waiver .................. 2.36% 3.00% 4.30%
Net investment loss ..................................... (0.78)% (2.64)% (4.06)%
Supplemental Data:
Net Assets, end of period (000 omitted) ................. $34,252 $17,006 $8,107
Portfolio turnover rate ................................. 31% 17% 18%
</TABLE>
See notes to financial statements
------------------------------------
(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 or
lost on an investment in the Fund (assuming investment in the Fund the first
day of the fiscal year, and reinvestment of all dividends and
distributions).
18
<PAGE>
THE CHAPMAN FUNDS, INC.
Financial Highlights
================================================================================
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUND'S
FINANCIAL PERFORMANCE SINCE THE INCEPTION OF THE FUND. CERTAIN INFORMATION
REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. IT SHOULD BE READ IN
CONJUNCTION WITH FINANCIAL STATEMENTS AND NOTES THERETO.
<TABLE>
<CAPTION>
DEM EQUITY FUND - INVESTOR SHARES
-----------------------------------------------------
FOR THE YEAR FOR THE YEAR APRIL 8,
ENDED ENDED 1998(1) THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 1998
-----------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......................... $20.29 $11.58 $14.29
-----------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(2)........................................ (.45) (.45) (.29)
Net realized and unrealized gain (loss) on investments ....... 8.91 9.16 (2.42)
-----------------------------------------------------
Total from investment operations ........................ 8.46 8.71 (2.71)
-----------------------------------------------------
DISTRIBUTIONS:
From net investment income ................................... - - -
From net realized gains on investments ....................... - - -
-----------------------------------------------------
Total distributions ..................................... - - -
-----------------------------------------------------
Net asset value, end of period ............................... $28.75 $20.29 $11.58
-----------------------------------------------------
TOTAL RETURN(3)............................................... 41.69% 75.21% (18.96)%
RATIOS / SUPPLEMENTAL DATA:
Ratios to Average Net Assets:
Expenses (net of reimbursement/waiver) .................. 2.59% 3.25% 4.55%
Expenses prior to reimbursement/waiver .................. 3.20% 3.50% 4.80%
Net investment loss ..................................... (1.47)% (2.90)% (4.31)%
Supplemental Data:
Net Assets, end of period (000 omitted) ................. $981 $421 $45
Portfolio turnover rate ................................. 31% 17% 18%
</TABLE>
See notes to financial statements
------------------------------------
(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 or
lost on an investment in the Fund (assuming investment in the Fund the first
day of the fiscal year, and reinvestment of all dividends and
distributions), excluding the effect of any sales charge.
19
<PAGE>
THE CHAPMAN FUNDS, INC.
Financial Highlights
================================================================================
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUND'S
FINANCIAL PERFORMANCE SINCE THE INCEPTION OF THE FUND. CERTAIN INFORMATION
REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. IT SHOULD BE READ IN
CONJUNCTION WITH FINANCIAL STATEMENTS AND NOTES THERETO.
<TABLE>
<CAPTION>
DEM INDEX FUND -
INSTITUTIONAL SHARES
----------------------------------
MARCH 23,
FOR THE YEAR 1999(1)
ENDED THROUGH
OCTOBER 31, OCTOBER 31,
2000 1999
----------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .......................... $19.10 $14.29
----------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(2)......................................... (.52) (.19)
Net realized and unrealized gain on investments ............... 5.36 5.00
----------------------------------
Total from investment operations ......................... 4.84 4.81
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains on investments ........................ (1.32) -
----------------------------------
Total distributions ...................................... (1.32) -
----------------------------------
Net asset value, end of period ................................ $22.62 $19.10
==================================
TOTAL RETURN(3)................................................ 25.12% 33.66%
RATIOS/SUPPLEMENTAL DATA:
Ratios to Average Net Assets:
Expenses (net of reimbursement/waiver) ................... 2.00% 2.40%
Expenses prior to reimbursement/waiver(4)................. N.M. N.M.
Net investment loss ...................................... (1.74)% (1.94)%
Supplemental Data:
Net Assets, end of period ................................ $167,230 $133,676
Portfolio turnover rate .................................. 58% 87%
</TABLE>
See notes to financial statements
------------------------------------
(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 or
lost on an investment in the Fund (assuming investment in the Fund the first
day of the fiscal year, and reinvestment of all dividends and
distributions).
(4) The gross expenses to average net assets has not been presented as it is
deemed to be not meaningful. CCM has agreed to contractually limit the total
annual operating expenses (excluding income, excise and other taxes and
extraordinary expenses) to 2.00% of average daily net assets until at least
December 31, 2010.
20
<PAGE>
THE CHAPMAN FUNDS, INC.
Financial Highlights
================================================================================
THE FINANCIAL HIGHLIGHTS TABLE IS INTENDED TO HELP YOU UNDERSTAND THE FUND'S
FINANCIAL PERFORMANCE SINCE THE INCEPTION OF THE FUND. CERTAIN INFORMATION
REFLECTS FINANCIAL RESULTS FOR A SINGLE FUND SHARE. IT SHOULD BE READ IN
CONJUNCTION WITH FINANCIAL STATEMENTS AND NOTES THERETO.
<TABLE>
<CAPTION>
DEM INDEX FUND -
INVESTOR SHARES
----------------------------------
MARCH 23,
FOR THE YEAR 1999(1)
ENDED THROUGH
OCTOBER 31, OCTOBER 31,
2000 1999
----------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .......................... $19.07 $14.29
----------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(2) ........................................ (.64) (.23)
Net realized and unrealized gain on investments ............... 5.36 5.01
----------------------------------
Total from investment operations ......................... 4.72 4.78
----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains on investments ........................ (1.32) -
----------------------------------
Total distributions ...................................... (1.32) -
----------------------------------
Net asset value, end of period ................................ $22.47 $19.07
==================================
TOTAL RETURN(3) ............................................... 24.47% 33.45%
RATIOS/SUPPLEMENTAL DATA:
Ratios to Average Net Assets:
Expenses (net of reimbursement/waiver) ................... 2.69% 2.69%
Expenses prior to reimbursement/waiver(4)................. N.M. N.M.
Net investment loss ...................................... (2.44)% (2.23)%
Supplemental Data:
Net Assets, end of period ................................ $116,823 $12,296
Portfolio turnover rate .................................. 58% 87%
</TABLE>
See notes to financial statements
------------------------------------
(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 or
lost on an investment in the Fund (assuming investment in the Fund the first
day of the fiscal year, and reinvestment of all dividends and
distributions), excluding the effect of any sales charge.
(4) The gross expenses to average net assets has not been presented as it is
deemed to be not meaningful. CCM has agreed to contractually limit the total
annual operating expenses (excluding income, excise and other taxes and
extraordinary expenses) to 2.69% of average daily net assets until at least
December 31, 2010.
21
<PAGE>
THE CHAPMAN FUNDS, INC.
Notes To Financial Statements - October 31, 2000
================================================================================
NOTE 1 - GENERAL
The Chapman Funds, Inc. (the "Company"), is an open-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act").
The Company currently offers three series; DEM Index Fund , DEM Equity Fund, and
the Chapman U.S. Treasury Money Fund. The Company has registered three
additional series, which are currently not operating: Chapman Institutional Cash
Management Fund, DEM Multi-Manager Equity Fund, and DEM Multi-Manager Bond
Fund.. These financial statements pertain to the DEM Equity Fund and DEM Index
Fund (the "Funds"). The Funds offers two classes of shares, Institutional Shares
and Investor Shares. The Institutional Shares are sold without a sales load, and
the Investor Shares have a maximum 4.75% front-end sales load.
The DEM Equity Fund is a non-diversified portfolio that seeks aggressive
long-term growth through capital appreciation from investments in companies that
are located in the United States and its territories and that are controlled by
African Americans, Asian Americans, Hispanic Americans or women.
The DEM Index Fund seeks to match as closely as possible, the DEM Index, an
index developed and controlled by The Chapman Co., an investment banking
affiliate of Chapman Capital Management, Inc., the Fund's investment advisor.
The DEM Index is comprised of companies that are located in the Untied States
and its territories and that are controlled by African Americans, Asian
Americans, Hispanic Americans or women.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds.
SECURITY VALUATION - Portfolio securities primarily traded on an exchange are
valued at the last quoted sales price for that day. Securities traded
over-the-counter are valued, if bid and asked quotations are available, at the
mean between the current bid and asked prices. If bid and asked quotations are
not available, then over-the-counter securities are valued through valuations
obtained from an independent pricing service or as determined in good faith by
the Board of Directors. Investments in short-term securities having a maturity
of 60 days or less are valued at amortized cost.
FEDERAL INCOME TAXES - No provision for federal income taxes has been made since
each Fund intend to qualify as a Regulated Investment Company under Subchapter M
of the Internal Revenue Code and distribute all of its taxable income.
DISTRIBUTIONS TO STOCKHOLDERS - Distributions to shareholders of the Fund from
net investment income, if any, are declared and paid quarterly. Distributions
from net realized gains, if any, are declared and paid annually in December.
SECURITIES TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS, AND OTHER - The Funds
account for security transactions on a trade date basis. Realized gains and
losses on sales of securities are determined using the specific identification
method for both financial and income tax reporting purposes. Interest income and
expenses are recorded on an accrual basis. Income and common expenses are
allocated on a daily basis to each class based on its respective net assets.
Class specific expenses are charged directly to each class. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
22
<PAGE>
THE CHAPMAN FUNDS, INC.
Notes to Financial Statements - October 31, 2000 - Continued
================================================================================
NOTE 3 - INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES
Chapman Capital Management, Inc. ("CCM") is the investment adviser for the
Funds. Each Fund pays CCM an advisory fee at an annual rate of .90% of the
Fund's average daily net assets, and an administration fee at an annual rate of
.15% of the Fund's average daily net assets.
CCM has agreed to contractually limit the total annual operating expenses
(excluding income, excise and other taxes and extraordinary expenses) of DEM
Equity Fund to 1.25% and 2.00% of average daily net assets of the Institutional
Shares and Investor Shares, respectively, until at least December 31, 2010.
Prior to March 19, 2000, CCM voluntarily agreed to limit such expenses to 2.00%
and 3.00% of average daily net assets of Institutional Shares and Investor
Shares, respectively.
CCM has agreed to contractually limit the total annual operating expenses
(excluding income, excise and other taxes and extraordinary expenses) of DEM
Index Fund to 2.00% and 2.69% of average daily net assets of the Institutional
Shares and Investor Shares, respectively, until at least December 31, 2010.
PFPC, Inc. ("PFPC"), serves as the Funds' Transfer and Dividend Paying Agent and
Accounting Agent pursuant to an Investment Company Services Agreement. As
compensation for transfer agent services, each Fund pays PFPC an account fee
plus an additional class fee. As compensation for accounting services, each Fund
pays PFPC a fee based on its average daily net assets plus an additional class
fee.
Pursuant to Rule 12b-1 under the 1940 Act, The Chapman Co., an affiliate of CCM
and the distributor of the Fund (the "Distributor"), receives a fee under the
Investor Shares Distribution Plan for stockholder and distribution services at
an annual rate of .75% (up to .25% stockholder service fee and .50% distribution
fee) of the average daily net assets of each Fund attributable to the Investor
Shares. The Distributor has voluntarily limited such fee of DEM Equity Fund to
an aggregate of .50% of average daily net assets (up to .25% stockholder service
fee and .25% distribution fee) and has voluntarily waived such fee in its
entirety during fiscal year 2000 with respect to DEM Index Fund. These voluntary
limits are not contractual and could change. For the year ended October 31,
2000, total distribution fees waived were $1,092 and $148, respectively. The
Distributor also receives a fee under the Institutional Shares Distribution Plan
for stockholder administrative and distribution services at an annual rate of
.25% of the average daily net assets of each Fund attributable to the
Institutional Shares. At October 31, 2000, expenses payable to The Chapman Co.
for DEM Equity Fund and DEM Index Fund distribution services was $7,411 and $64,
respectively.
For the year ended October 31, 2000, The Chapman Co., earned commissions on
sales of Investor Shares of DEM Equity Fund and DEM Index Fund amounting to
$25,011 and $6,316, respectively, and received brokerage commissions related to
Fund portfolio transactions of $41,167 and $431, respectively.
NOTE 4 - CAPITAL SHARE TRANSACTIONS
The Company is authorized to issue 10 billion full and fractional shares of
common stock, par value $.001 per share, of which 1 billion shares have been
designated for each of the Funds' classes.
23
<PAGE>
THE CHAPMAN FUNDS, INC.
Notes to Financial Statements - October 31, 2000 - Continued
================================================================================
NOTE 4 - CAPITAL SHARE TRANSACTIONS - CONTINUED
Transactions in shares of the respective classes were as follows:
<TABLE>
<CAPTION>
DEM EQUITY FUND DEM INDEX FUND
--------------------------------- ----------------------------------
MARCH 23,
FOR THE YEAR FOR THE YEAR FOR THE YEAR 1999(1)
ENDED ENDED ENDED THROUGH
OCTOBER OCTOBER OCTOBER OCTOBER 31,
31, 2000 31, 1999 31, 2000 1999
--------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Shares ...................... 416,224 137,228 - 6,999
Investor Shares ........................... 17,390 19,345 5,047 663
Shares issued as reinvestment of dividends:
Institutional Shares ...................... - - 394 -
Investor Shares ........................... - - 42 -
Shares repurchased:
Institutional Shares ...................... (74,633) (2,023) - -
Investor Shares ........................... (3,990) (2,514) (535) (18)
--------------------------------- ----------------------------------
Net increase in shares outstanding ............. 354,991 152,036 4,948 7,644
================================= ==================================
</TABLE>
NOTE 5 - INVESTMENT TRANSACTIONS
Excluding short-term obligations, purchases of investment securities and
proceeds from sales during the year ending October 31, 2000 were as
follows:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
----------------------------------------------------------
<S> <C> <C>
DEM EQUITY FUND ............. $13,792,470 $8,553,857
DEM INDEX FUND .............. $229,780 $140,291
</TABLE>
The following balances are as of October 31, 2000:
<TABLE>
<CAPTION>
COST FOR FEDERAL TAX BASIS (NET) TAX BASIS TAX BASIS
INCOME TAX UNREALIZED (GROSS) (GROSS)
PURPOSES DEPRECIATION UNREALIZED UNREALIZED
APPRECIATION (DEPRECIATION)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEM EQUITY FUND ........... $22,303,954 $12,977,123 $15,709,374 ($2,732,251)
DEM INDEX FUND ............ $268,058 ($22,342) $36,136 ($58,478)
</TABLE>
At October 31, 2000, DEM Equity Fund had capital loss carryforwards for federal
income tax purposes of $82,374, which expire in 2007.
NOTE 6 - DIRECTOR'S FEES AND RELATED PARTIES
Certain officers and directors of the Company are "affiliated persons", as
defined in the 1940 Act, of the adviser. For the year ended October 31, 2000,
these "affiliated persons" did not receive any compensation from the Company or
the Funds.
(1) Commencement of operations
24
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of The Chapman Funds, Inc. - DEM
Equity Fund and DEM Index Fund
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of DEM Equity Fund and DEM Index Fund (the
"Funds") as of October 31, 2000, and the related statements of operations for
the year then ended and the statements of changes in net assets and financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2000, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds at October 31, 2000, the results of their operations for
the year then ended, and the changes in their net assets and their financial
highlights for each of the periods indicated therein, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 8, 2000
25
<PAGE>
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY TO SHAREHOLDERS AND TO OTHERS
WHO HAVE RECEIVED A COPY OF THE DEM EQUITY FUND AND DEM INDEX FUND PROSPECTUS
[LOGO]
THE CHAPMAN FUNDS
A MEMBER OF THE CHAPMAN GROUP OF COMPANIES
TRANSFER AND DIVIDEND PAYING AGENT
AND
ACCOUNTING AGENT:
PFPC, INC.
3200 HORIZON DRIVE
PO BOX 61503
KING OF PRUSSIA, PA 19406
1-800-441-6580
INVESTMENT ADVISER:
CHAPMAN CAPITAL MANAGEMENT, INC.
WORLD TRADE CENTER - BALTIMORE
401 EAST PRATT STREET, 28TH FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
CUSTODIAN:
UMB BANK, N.A.
928 GRAND AVENUE
KANSAS CITY, MISSOURI 64141-6226
DISTRIBUTOR:
THE CHAPMAN CO.
WORLD TRADE CENTER - BALTIMORE
401 EAST PRATT STREET, 28TH FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
FOR SHAREHOLDER INQUIRIES CALL THE CHAPMAN CO. AT 1-800-752-1013
OR
PFPC, INC. AT 1-800-441-6580
