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THE CHAPMAN FUNDS, INC.
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THE CHAPMAN FUNDS, INC.
ANNUAL REPORT
OCTOBER 31, 1997
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THE CHAPMAN FUNDS, INC.
SCHEDULE OF INVESTMENTS - October 31, 1997
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(Showing Percentage of Total Value of Net Assets)
U.S. TREASURY MONEY FUND
Principal Value
Amount (Note B)
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U.S. GOVERNMENT - 51.3%
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$ 26,000,000 U.S. Treasury Bills 4.500%, Due 11/06/97 $ 25,983,750
2,000,000 U.S. Treasury Bills 5.075%, Due 11/13/97 1,996,616
1,000,000 U.S. Treasury Bills 5.300%, Due 01/08/98 989,989
2,000,000 U.S. Treasury Bills 5.220%, Due 05/28/98 1,939,680
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30,910,035
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REPURCHASE AGREEMENTS - 49.2%
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14,596,000 Credit Suisse First Boston, dated
10/31/97, 5.60% agreement to repurchase
at $14,602,811 on 11/03/97
(collateralized by $13,594,000 U.S.
Treasury Notes, 7.50%, due 11/15/2001) 14,596,000
15,000,000 Societe Generale, dated 10/31/97, 5.65%
agreement to repurchase at $15,007,063
on 11/03/97 (collateralized by
$12,632,000 U.S. Treasury Notes,
7.875%, due 02/15/2021) 15,000,000
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29,596,000
Total Investment (Cost $60,506,035)* -
100.5% 60,506,035
Other Assets and Liabilities - (0.5%) (295,925)
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Net Assets - 100.0% $ 60,210,110
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* Cost for federal income tax purposes
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See Notes to Financial Statements
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THE CHAPMAN FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES - October 31, 1997
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U.S. TREASURY MONEY FUND
ASSETS:
Investments in securities (Including
repurchase agreements of $29,596,000) at value
(Amortized cost $60,506,035) (Note B) $ 60,506,035
Cash 282
Receivable Due from Manager 15,639
Interest Receivable 4,625
Prepaid expenses 7,895
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Total Assets 60,534,476
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LIABILITIES:
Accrued expenses (Note D) 77,770
Distribution Payable 246,596
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Total Liabilities 324,366
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NET ASSETS $ 60,210,110
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NET ASSETS CONSIST OF:
Capital Stock $ 60,210
Paid-in-Capital 60,149,900
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Net Assets, for 60,210,110 common shares
outstanding (Note C) $ 60,210,110
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NET ASSET VALUE PER SHARE ($60,210,110
divided by 60,210,110 shares outstanding)
$ 1.00
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See Notes to Financial Statements.
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THE CHAPMAN FUNDS, INC.
STATEMENT OF OPERATIONS - For the year ended October 31, 1997
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U.S. TREASURY MONEY FUND
INVESTMENT INCOME:
Interest income (Note B) $ 2,726,061
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EXPENSES:
Management and administrative fees (Note D) 303,841
Custodian fees 32,906
Rating fees 24,214
Transfer and dividend disbursing agent's fees
(Note D) 18,989
Legal and auditing fees 26,388
Insurance fees 25,153
Director's fees (Note E) 24,309
Other 16,426
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Total expenses before reimbursement 472,226
Reimbursement of expenses (Note D) (134,280)
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Net expenses 337,946
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Increase in Net Assets
resulting from operations $ 2,388,115
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See Notes to Financial Statements.
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THE CHAPMAN FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
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U.S. TREASURY MONEY FUND
Year ended October 31,
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1997 1996
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INCREASE IN NET ASSETS:
OPERATIONS:
Net increase in net assets from operations $ 2,388,115 $ 1,849,863
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DIVIDENDS:
Dividends paid to shareholders from
net investment income ($.0470 and $.0464
per share, respectively) (Note B) (2,388,115) (1,849,863)
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CAPITAL SHARE TRANSACTIONS (AT $1 PER
SHARE):
Proceeds from sales of shares 176,692,845 162,896,210
Shares issued in reinvestment of
dividends from net investment income 1,381,641 1,070,762
Shares redeemed (172,992,911) (143,209,871)
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Increase in net assets derived
from capital share transactions 5,081,575 20,757,101
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Total increase in net assets: 5,081,575 20,757,101
NET ASSETS:
Beginning of year 55,128,535 34,371,434
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End of year $ 60,210,110 $ 55,128,535
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See Notes to Financial Statements.
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THE CHAPMAN FUNDS, INC.
FINANCIAL HIGHLIGHTS - U.S. TREASURY MONEY FUND
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The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.0470 0.0464 0.0497 0.0294 0.0241
-------- -------- -------- -------- --------
DISTRIBUTIONS:
From net investment income (0.0470) (0.0464) (0.0497) (0.0294) (0.0241)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN: 4.80% 4.74% 5.09% 3.04% 2.44%
RATIOS TO AVERAGE NET ASSETS:
Expenses * 0.67% 0.75% 0.75% 0.75% 0.75%
Expenses (prior to limitation) 0.93% 0.87% 0.97% 1.12% 1.15%
Net investment income 4.72% 4.63% 5.02% 2.94% 2.41%
SUPPLEMENTAL DATA:
Net Assets, end of year (000 omitted) $ 60,210 $ 55,129 $ 34,371 $ 20,011 $ 23,515
</TABLE>
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*Chapman Capital Management, Inc. (the "Advisor") agreed to bear all expenses
(excluding income, excise and other taxes and extraordinary expenses) of the
Fund in excess of .65% of average daily net assets on an annual basis effective
January 1, 1997. Prior to this period, the expense ratio was limited to .75% of
average daily net assets on an annual basis.
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THE CHAPMAN FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
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NOTE A - GENERAL
The Chapman Funds, Inc. (the "Fund") was incorporated on November 22, 1988, and
operates as a series fund. There are currently two series, the U.S. Treasury
Money Fund (the "Money Fund") and the Institutional Cash Management Fund (the
"Cash Management Fund"). The Fund is registered as a diversified open-end
management investment company under the Investment Company Act of 1940 (the
"1940 Act"). During fiscal year 1991, the Cash Management Fund liquidated its
portfolio and distributed the proceeds to its shareholders. Since 1991, there
has been no activity, including subscriptions for purchase of shares, in the
Cash Management Fund, however, the Cash Management Fund is still authorized to
sell shares to investors meeting the qualifications of the Fund prospectus.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund uses the amortized cost method, which approximates market value, to
value portfolio securities pursuant to Rule 2a-7 of the 1940 Act, provided the
Fund complies with certain conditions. The amortized cost valuation method
involves valuing a security at its cost on the date of purchase and thereafter
assuming a constant amortization from date of purchase to date of maturity of
any discount or premium.
Repurchase Agreements
The Fund's custodian takes possession, through the Federal Book Entry System, of
the collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily to ensure that the value, including accrued interest,
is at least equal to the repurchase price. In the event of default, the Fund
has the right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation.
Distributions to Shareholders
Dividends to shareholders of the Fund are declared daily from net investment
income, which consist of accrued interest and earned discount (including both
original issue and market discount), less amortization of premium and the
accrued expenses applicable to the dividend period.
Federal Income Taxes
Each series of the Fund is treated as a separate entity for Federal income tax
purposes and each intends to continue to qualify as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code and distribute all of
its net investment income to its shareholders. Therefore no provision for
income taxes has been made.
Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Interest income is
recorded on the accrual basis.
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THE CHAPMAN FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
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Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE C - CAPITAL STOCK
The authorized capital stock of the Fund consists of eight billion shares, par
value of $.001 per share divided into two portfolios. Each portfolio currently
consists of four billion authorized shares.
NOTE D - MANAGEMENT ADVISORY AND ADMINISTRATIVE FEES
Chapman Capital Management, Inc. ("CCM") acts as the investment advisor and
administrator for the Fund. The investment advisory and administrative fees are
based on the average daily net assets of the Fund computed at annual rates of
.5% and .1%, respectively. For the year ended October 31, 1997, these expenses
were $303,841.
CCM also serves as Transfer and Dividend Disbursing Agent for the Fund pursuant
to a Shareholder Services Agreement. For its services, CCM is compensated $18
per account with a monthly minimum of $1,500 per fund excluding out-of-pocket
expenses. For the year ended October 31, 1997 expenses for these services
amounted to $18,989.
CCM agreed to bear all expenses (excluding income, excise and other taxes and
extraordinary expenses) of the Fund in excess of .65% of average daily net
assets on an annual basis effective January 1, 1997. Prior to this period, the
expense ratio was limited to .75% of average daily net assets on an annual
basis. Total expenses reimbursed for the year ended October 31, 1997 were
$134,280.
NOTE E - DISTRIBUTION FEES AND RELATED PARTIES
Certain officers and directors of the Fund are "affiliated persons", as defined
in the Investment Company Act of 1940, of the Advisor and Sub-Advisor. For the
year ended October 31, 1997, these "affiliated persons" did not receive any
compensation from the fund.
Those directors who are not "affiliated persons" (independent directors) receive
$1,000 plus certain expenses from the Fund for each Board of Directors meeting
they attend. Total expenses paid to directors for the year ended October 31,
1997 were $24,309.
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
The Chapman Funds, Inc.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Chapman Funds, Inc. (comprised of the U.S.
Treasury Money Fund) as of October 31, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's 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 generally accepted auditing
standards. 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, 1997, by correspondence with the custodian
and brokers. 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 the
Chapman Funds, Inc. at October 31, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and its financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 17, 1997
