CHAPMAN FUNDS INC, 485BPOS, 1997-03-03

CHAPMAN FUNDS INC
485BPOS, 1997-03-03

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As filed with the Securities and Exchange Commission on February 28, 1997.
Registration Nos. 33-25716
811-5697
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

/ / Pre-Effective Amendment No.

/ X / Post Effective Amendment No. 10 and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT TO COMPANY ACT OF 1940

/ X / Amendment No. 12

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

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

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

Nathan A. Chapman, Jr., President
The Chapman Funds, Inc.
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
-----------------------------------------------------------------------------
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: Continuous

It is proposed that this filing will become effective
(check appropriate box)

/ X / immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / on pursuant to paragraph (b)
/ / on pursuant to paragraph (a) (1)
/ / on pursuant to paragraph (a) (2) of Rule 485

Registrant has previously registered an indefinite number of securities
under the Securities Act of 1933 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, 1996 was filed with Securities and
Exchange Commission on December 30, 1996.

<PAGE>
THE CHAPMAN FUNDS, INC.

Registration Statement on Form N-1A

CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933

N-1A ITEM NO. LOCATION
- --------------------------------------------- ------------------------------------
<S> <C>
PART A PROSPECTUS CAPTION

Item 1. Cover Page.......................... Cover Page

Item 2. Synopsis............................ Fund Expenses

Item 3. Condensed Financial Information..... Financial Highlights

Item 4. General Description of Registrant... Investment Program
Other Information-
Capital Stock

Item 5. Management of the Fund.............. Management; Other Information
-Transfer Agent; Dividends and Taxes

Item 6. Capital Stock and Other
Securities.......................... Other Information-Capital Stock

Item 7. Purchase of Securities Being Management; Net Asset Value;
Offered............................. Purchase of Shares; Exchanges;
Redemption of Shares

Item 8. Redemption or Repurchase............ Purchase of Shares; Exchanges;
Redemption of Shares

Item 9. Pending Legal Proceedings........... Not Applicable
</TABLE>

<PAGE>

N-1A ITEM NO. LOCATION
- ----------------------------------------------- ------------------------------------
<S> <C>
STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION

Item 10. Cover Page.......................... Cover Page

Item 11. Table of Contents................... Table of Contents

Item 12. General Information and History..... Not Applicable

Item 13. Investment Objectives and
Policies............................ Investment Program

Item 14. Management of the Registrant........ Management

Item 15. Control Persons and Principal Capital Stock; Principal Holders of
Holders of Securities............... Securities

Item 16. Investment Advisory and Other
Services............................ Management; Independent Auditors

Item 17. Brokerage Allocation................ Portfolio Transactions

Item 18. Capital Stock and Other
Securities.......................... Capital Stock

Item 19. Purchase, Redemption and Pricing of Purchase of Shares; Exchanges;
Securities Being Offered............ Registration of Shares; Net Asset
Value

Item 20. Tax Status.......................... Taxes

Item 21. Underwriters........................ Management

Item 22. Calculation of Performance Data..... Yield

Item 23. Financial Statements................ Financial Statements
</TABLE>

iii

<PAGE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

<PAGE>

THE CHAPMAN FUNDS, INC.
World Trade Center--Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202

Prospectus February 28, 1997

The Chapman Funds, Inc. (the "Company") is an open-end, diversified
management investment company which offers two money market funds (each a
"Fund"). Both Funds seek as high a level of current income as is consistent with
preservation of capital and maintenance of liquidity. There is no assurance that
either Fund's objective will be achieved.

The Chapman US Treasury Money Fund invests solely in short-term direct
obligations of the U.S. Government and repurchase agreements collateralized
fully by direct obligations of the U.S. Government. It is intended primarily for
state and local governments and their authorities and agencies.

The Chapman Institutional Cash Management Fund invests in short-term money
market securities, including U.S. Government obligations, commercial paper, bank
instruments and repurchase agreements. It is intended primarily for
corporations, pension and endowment funds and other institutions.

Investors may purchase or redeem shares in either fund without charge. Both
funds seek to maintain a net asset value of $1 per share. The minimum initial
investment for each Fund is $1,000,000. Individuals may not purchase shares in
either Fund.

An investment in the Funds is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Funds will be able to maintain a
stable net asset value of $1 per share.

Chapman Capital Management, Inc. is the Funds' investment advisor and
manager. It is a subsidiary of The Chapman Co., the only minority controlled
full service securities firm headquartered in Maryland. Shares are distributed
by The Chapman Co. (the "Distributor").

This Prospectus sets forth concisely the information concerning the Funds
that a prospective investor should know before investing. It should be read and
retained for future reference. A Statement of Additional Information dated
February 28, 1997 containing additional information about the Company and the
Funds has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. It may be obtained without
charge by writing or calling the Distributor.

TABLE OF CONTENTS

Fund Expenses 2 Redemption of Shares 11

Financial Highlights 3 Net Asset Value 12

Investment Program 4 Dividends and Taxes 12

Management 7 Yield 12

Purchase of Shares 9 Other Information 12

Exchanges 10

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

1
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FUND EXPENSES

The following table illustrates the expenses and fees incurred by each
Fund. The U.S. Treasury Money Fund expenses and fees set forth in the table
are for the period November 1, 1995 to October 31, 1996 and are expressed as
a percentage of fiscal 1996 average daily net assets. The Institutional Cash
Management Fund expenses and fees are estimated as there was no activity for
the period November 1, 1995 to October 31, 1996.

<TABLE>

THE CHAPMAN US THE CHAPMAN INSTITUTIONAL
TREASURY MONEY FUND CASH MANAGEMENT FUND
-------------------- -----------------------------
<S> <C> <C>

Shareholder Transaction Expenses:

Maximum Sales Load Imposed on Purchases.......................... None None

Maximum Sales Load Imposed on Reinvested Dividends............... None None

Maximum Deferred Sales Load...................................... None None

Redemption Fees.................................................. None None

Exchange Fee..................................................... None None

Annual Fund Operating Expenses:(as a percentage of average net
assets)

Management Fees.................................................. .50% .50%

12b-1 Fees....................................................... None None

Administration Fee............................................... .10% .10%

Other Expenses(After Reimbursement).............................. .15%* .15%*

Net Fund Expenses After Expense Reimbursement.................... .75%* .75%*

</TABLE>

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

* Effective January 1, 1997, the Advisor has agreed to bear annual expenses
(excluding income, excise and other taxes and extraordinary expenses) in
excess of .65% and .75% of average daily net assets for the Chapman US
Treasury Money Fund and the Chapman Institutional Cash Management Fund (the
"Cash Management Fund"), respectively, until December 31, 1997. The
Advisor's obligation will be limited to the total of its advisory and
administration fees. For the entire fiscal year 1996, the Advisor agreed to
bear annual expenses (excluding income, excise and other taxes and
extraordinary expenses) of each Fund in excess of .75% of average daily net
assets. The actual expenses of The Chapman US Treasury Money Fund prior to
reimbursement of expenses was 0.87% of average daily net assets. The actual
other expenses of The Chapman US Treasury Money Fund for the year ended
October 31, 1996 prior to reimbursement of other expenses was .27% of
average daily net assets. During fiscal year 1991, the Cash Management Fund
liquidated its portfolio and distributed the proceeds to its shareholders.
There has been no activity, including subscriptions for purchases of shares,
in the Cash Management Fund since that time. However, the Cash Management
Fund is still authorized to sell shares to investors meeting the
qualifications of the Fund prospectus.

Example: The Funds' expenses are illustrated below assuming a hypothetical
$1,000 investment, a 5% annual return, and reinvestment at the end of each
period. The expense tables are based upon net expenses of .65% and .75% of
average daily net assets for The Chapman US Treasury Money Fund and The
Chapman Institutional Cash Management Fund, respectively, for the entire
ten year period. Earnings for each Fund would be reduced by operating
expenses as follows:

THE CHAPMAN
THE CHAPMAN US INSTITUTIONAL CASH
TREASURY MONEY FUND MANAGEMENT FUND
----------------------------- -----------------------------
<S> <C> <C>

One Year.......................... $ 7 $ 8

Three............................. $ 21 $ 24

Years

Five Years........................ $ 36 $ 42

Ten Years......................... $ 81 $ 93
</TABLE>

The purpose of this table is to assist current and prospective stockholders in
understanding the various costs and expenses that an investor in the Funds will
bear, directly or indirectly. It is only an illustration and should not be
considered as representative of actual past or expected future performance or
expenses. The actual past performance and expenses may be greater or less than
those shown.

2
<PAGE>

THE CHAPMAN FUNDS, INC.

FINANCIAL HIGHLIGHTS

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements. They should be read in conjunction with the Company's audited
financial statements, the notes thereto, and auditor's report thereon, all of
which are included in the Company's Statement of Additional Information.

<TABLE>

<CAPTION>
PERIOD
FOR THE YEARS ENDED OCTOBER 31, JUNE 1, 1989*
--------------------------------------------------------------------------- TO
US TREASURY MONEY FUND 1996 1995 1994 1993 1992 1991 1990 OCTOBER 31, 1989
- ------------------------------- --------- --------- --------- --------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Per Share Operating
Performance:

Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- -----

Income from Investment
Operations:

Net investment income.......... 0.0464 0.0497 0.0294 0.0241 0.0315 0.0619 0.0705 0.0318
--------- --------- --------- --------- --------- --------- --------- -----

Distributions:

From net investment income..... 0.0464 0.0497 0.0294 0.0241 0.0315 0.0619 0.0705 0.0318
--------- --------- --------- --------- --------- --------- --------- -----

Net asset value, end of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- --------- --------- -----

Total Return................... 4.74% 5.09% 3.04% 2.44% 3.20% 6.37% 7.28% 3.22%**

Ratios/Supplemental Data:

Net Assets, end of period (000
omitted)..................... $ 55,129 $ 34,371 $ 20,011 $ 23,515 $ 33,002 $ 12,229 $ 29,034 $ 37,330

Ratios to Average Net Assets:

Expenses****................... 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.74% 0.27%**

Net investment income.......... 4.63% 5.02% 2.94% 2.41% 3.15% 6.19% 6.97% 2.97%**

Expenses Prior to Reimbursement
by Advisor................... 0.87% 0.97% 1.12% 1.15% 1.02% 1.13% 1.05% 0.38%**
</TABLE>
<TABLE>
<CAPTION>

PERIOD
FOR THE YEARS ENDED OCTOBER 31, JUNE 1, 1989*
INSTITUTIONAL CASH MANAGEMENT -------------------------------------------------------------- TO
FUND*** 1996 1995 1994 1993 1992 1991 1990 OCTOBER 31, 1989
- ---------------------------------- ------ ----- ----- ----- ----- ----- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Per Share Operating Performance:

Net asset value, beginning of
period.......................... -- -- -- -- -- $1.00 $1.00 $1.00
----- ----- ---- ----- ----- ------- ------- --------

Income from Investment Operations:

Net investment income............. -- -- -- -- -- 0.0697 0.0762 0.0340
----- ----- ---- ----- ----- ------- ------ ---------
Distributions:

From net investment income........ -- -- -- -- -- 0.0697 0.0762 0.0340
----- ----- ---- ----- ----- ------ ------ -------

Net asset value, end of period.... -- -- -- -- -- $1.00 $1.00 $1.00
----- ----- ---- ----- ----- ------ ------ -------
----- ----- ---- ----- ----- ------ ------ -------

Total Return...................... -- -- -- -- -- 7.20% 7.89% 3.45%**

Ratios/Supplemental Data:

Net Assets, end of period
(000 omitted )........... -- -- -- -- -- -- $25,000 $25,000

Ratios to Average Net Assets:

Expenses****...................... -- -- -- -- -- 0.75% 0.74% 0.28%**

Net investment income............. -- -- -- -- -- 6.97% 7.55% 3.36%**

Expenses Prior to Reimbursement by
Advisor......................... -- -- -- -- -- 1.14% 1.14% 0.41%**

</TABLE>

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

* Commencement of Operations

** These amounts have not been annualized.

*** During fiscal year 1991, The Institutional Cash Management Fund liquidated
its portfolio and distributed the proceeds to its shareholders. There has
been no activity in The Institutional Cash Management Fund since that time.
**** 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 .75% of average daily net assets on an
annual basis.

3
<PAGE>
INVESTMENT PROGRAM

INVESTMENT OBJECTIVES

The Chapman US Treasury Money Fund seeks as high a level of current income
as is consistent with maximum safety of principal and maintenance of liquidity.
It will invest solely in US Treasury securities and repurchase agreements
collateralized fully by such securities. It is considered diversified under the
Investment Company Act of 1940.

The Chapman Institutional Cash Management Fund seeks as high a level of
current income as is consistent with preservation of capital and maintenance of
liquidity. To achieve its objectives, it will invest in a diversified portfolio
of high quality, domestic government, bank and commercial money-market
instruments.

INVESTMENTS

The money-market instruments in which the Funds may invest are described
below. The Chapman US Treasury Money Fund will invest only in US Treasury
securities and repurchase agreements collateralized fully by US Treasury
securities.

Each Fund will invest only in securities that mature in 397 days or less and
will maintain a dollar-weighted average maturity of 90 days or less. Both Funds
have a policy of maintaining a net asset value of $1 per share, but there is no
assurance they will be able to do so at all times.

The Chapman Institutional Cash Management Fund will limit its portfolio
investments to U.S. dollar-denominated instruments that its Board of Directors
determines present minimal credit risk (based on factors in addition to the
rating assigned to the security by the rating agency) and which are eligible
securities (as defined in Rule 2a-7 under the Investment Company Act of 1940) at
the time of acquisition. Eligible securities include those rated in one of the
two highest rating categories for short-term debt obligations by two nationally
recognized statistical rating organizations or, if only one such rating
organization has issued a rating, by that rating organization. Eligible
securities may also include unrated securities of comparable quality as
determined by the Company's Board of Directors.

At least 95% of the total assets of The Chapman Institutional Management
Fund will be invested in eligible securities which are first tier securities (as
defined in Rule 2a-7). First tier securities include eligible securities rated
in the highest rating category for short-term debt obligations by two nationally
recognized statistical rating organizations or, if only one such rating
organization has issued a rating, by that rating organization. First tier
securities may also include unrated securities of comparable quality as
determined by the Company's Board of Directors. The Chapman Institutional Cash
Management Fund may invest up to 5% of its total assets in eligible securities
which are not first tier securities, but not more than the greater of 1% of its
total assets or $1,000,000 may be invested in eligible securities of any issuer
which are not first tier securities.

The Chapman Institutional Cash Management Fund will not invest more than 5%
of its total assets in securities (other than government securities) issued by a
single issuer, although it may do so for up to three business days. The
limitations in this paragraph and the preceding one apply to the securities
underlying a repurchase agreement, rather than to the counterparty to the
repurchase agreement.

Government Securities are marketable securities which are direct obligations
of or are guaranteed by the U.S. Government or its agencies or
instrumentalities.

US Treasury bills, notes and bonds are direct obligations of the U.S.
Government. Treasury bills mature in one year or less, Treasury notes mature
in one to ten years and Treasury bonds mature after more than ten years. The
Funds will invest

<PAGE>

in Treasury bills, notes and bonds having a maturity or remaining maturity of
one year or less.

Bank instruments are limited to certificates of deposit, banker's
acceptances and fixed time deposits. A certificate of deposit is a short-term
negotiable certificate issued by a bank, savings bank or savings and loan
association against deposited funds which is either interest-bearing or
purchased on a discount basis. Certificates of deposit may have variable
interest rates which are periodically adjusted prior to maturity based upon a
designated market rate.

A bankers' acceptance is a time draft drawn on a commercial bank usually by
a commercial borrower in connection with international commerce. The borrower is
liable for payment, as is the bank, which unconditionally guarantees to pay the
draft at face amount at maturity, usually within six months.

A fixed time deposit is an obligation of a bank, savings bank or savings and
loan association which is payable at a stated maturity date and bears a fixed
rate of interest. Although fixed time deposits do not have a market, there are
no contractual restrictions on the right to transfer a beneficial interest in
the deposit to a third party. The Chapman Institutional Cash Management Fund
will not invest more than 10% of its net assets in fixed time deposits having a
maturity of more than seven days and other securities which are not readily
marketable.

The Chapman Institutional Cash Management Fund will invest in instruments
of U.S. banks, savings banks and savings and loan associations having total
assets of at least $1 billion and in dollar-denominated instruments of U.S.
branches of foreign banks, if the foreign bank has total assets of at least
$1 billion or the equivalent in other currencies. Although obligations of
savings banks and savings and loan associations and U.S. branches of foreign
banks may be higher yielding than obligations of U.S. banks, investment in
these obligations may involve greater risk. These risks may include less
extensive regulation, supervision and examination of, and limited public
availability of information concerning, U.S. branches of foreign banks.
Obligations of U.S. branches of foreign banks may be limited obligations of
the U.S. branches and may not necessarily be insured by the Federal Deposit
Insurance Corporation.

Obligations of U.S. Government agencies and instrumentalities are not
obligations of the U.S. Government, although in some cases payment of interest
and principal on these obligations is guaranteed by the U.S. Government.
Examples of these securities include those issued by or guaranteed by the
Government National Mortgage Association, the Export-Import Bank, The Federal
Farm Credit System, the Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation, the Federal Intermediate Credit Banks, the Federal Land Banks, the
Federal National Mortgage Association and the Student Loan Marketing
Association.

There is no limitation on the portion of the assets of The Chapman
Institutional Cash Management Fund which may be invested in obligations of U.S.
banks. Not more than 5% of its total assets may be invested in obligations of
savings banks and savings and loan associations and not more than 25% of its
total assets may be invested in obligations of U.S. branches of foreign banks.

Commercial Instruments are short-term unsecured promissory notes issued by
corporations to finance their short-term credit needs, usually sold at a
discount with a maturity of less than nine months. The Fund may invest in
commercial instruments which are issued under Section 4(2) of the Securities Act
of 1933 and are restricted as to disposition. The Fund will not invest more than
10% of its net assets in such instruments and other securities which are not
readily marketable.

Floating and Variable Rate Obligations include obligations issued by or
guaranteed by agencies or instrumentalities of the U.S. Government,
certificates of deposit and commercial instruments. The rates on these
instruments vary with changes in a specified market rate or index, such as
the prime rate, and at specified intervals. Instruments of this type having
maturities exceeding 397 days

5
<PAGE>

may be purchased and will be treated as having a maturity of less than one
year if the conditions of Rule 2a-7 under the Investment Company Act of 1940
are satisfied.

The Chapman Institutional Cash Management Fund will purchase floating and
variable rate obligations of issuers which meet the requirements described
previously. Certain floating and variable rate obligations carry a demand
feature that would permit the holder to tender them back to the issuer or to a
remarketing agent prior to maturity, in most cases upon notice of seven days or
less. If the notice period exceeds seven days, the Board of Directors will
monitor on an ongoing basis the liquidity of the demand instrument. The Fund's
right to obtain payment at par on a demand instrument could be affected by
events occurring between the date the Fund elects to demand payment and the date
payment is due that may affect the ability of the issuer of the instrument to
make payment when due, except when such demand instruments permit same day
settlement. To facilitate settlement, these same day demand instruments may be
held in book entry form at a bank other than the Fund's custodian subject to a
sub-custodian agreement approved by the Company between that bank and the Fund's
custodian.

Repurchase Agreements involve the acquisition of an underlying U.S.
Government obligation, subject to an obligation of the seller to repurchase,
and the Fund to resell the instrument at an agreed time and price. The
Chapman US Treasury Money Fund will only enter into repurchase agreements
collateralized fully by US Treasury securities. The resale price will reflect
an agreed upon market rate effective for the period of time the Fund's money
will be invested in the security and may not be related to the coupon rate of
the purchased security. At the time a Fund enters into a repurchase
agreement, the value of the underlying security (reduced by the transaction
costs, including loss of interest, that the Fund reasonably could expect to
incur if the seller defaults) will at least be equal to the resale price
provided in the repurchase agreement, and, in the case of repurchase
agreements exceeding one day, the seller will agree that the value of the
underlying security, as similarly reduced, will on each day at least be equal
to the resale price provided in the repurchase agreement. The Advisor will
monitor compliance with this requirement on an on-going basis. Repurchase
agreements entered into by the Funds will generally have a term of not more
than seven days from purchase, although the underlying securities may have
longer terms.

The Funds will enter into repurchase agreements only with primary dealers in
U.S. Government securities or with U.S. banks with total assets of at least $1
billion. The Funds will consider on an ongoing basis the credit worthiness of
the institutions with which they enter into repurchase agreements. If the seller
under a repurchase agreement fails to repurchase the obligation in accordance
with the agreement, the Fund could experience losses that may include possible
decline in the value of the underlying security during the period the Fund seeks
to enforce its rights, additional expenses, possible loss of income or proceeds
of the repurchase, and possible delay in the disposition of the underlying
security pending court action. Repurchase agreements are considered to be loans
under the Investment Company Act of 1940, collateralized by the underlying
securities.

Reverse Repurchase Agreements involve the sale of portfolio securities and
an agreement to repurchase them from the buyer at a particular date and price.
The Chapman US Treasury Money Fund will not enter into reverse repurchase
agreements. The Chapman Institutional Cash Management Fund will use reverse
repurchase agreements only when necessary to meet unanticipated net redemptions
so as to avoid liquidating portfolio securities during adverse market conditions
when the income on the portfolio securities which would otherwise be liquidated
to meet redemptions is greater than the interest expense incurred as a result of
the reverse repurchase transactions.

When The Chapman Institutional Cash Management Fund enters into a reverse
repurchase agreement, its Custodian will establish a segregated account in
which it will maintain liquid assets in an amount at least equal to the
repurchase price marked to market daily (including accrued interest). The
Fund will subsequently

6
<PAGE>

monitor the account to ensure that such equivalent value is
maintained. The Fund pays interest on amounts obtained pursuant to reverse
repurchase agreements. Reverse repurchase agreements are considered to be
borrowings by the Fund and the use of reverse repurchase agreements is
considered a form of leveraging under the Investment Company Act of 1940.
Reverse repurchase agreements may involve the risk that the market value of the
securities sold may decline below the price at which the Fund is obligated to
repurchase. The Fund will enter into reverse repurchase agreements only with
primary dealers in U.S. Government securities.

INVESTMENT LIMITATIONS

The Funds may not issue senior securities, borrow money or pledge or
mortgage their assets, except as described below. The Funds may borrow money
from banks for temporary purposes in amounts up to 25% of the current value of
their total assets. The Chapman Institutional Cash Management Fund may enter
into reverse repurchase agreements in accordance with its investment policies
for temporary purposes and in amounts that combined with bank borrowings do not
exceed 25% of the current value of its total assets. A Fund will not purchase
additional portfolio securities while borrowings and reverse repurchase
agreements exceed 5% of the Fund's total assets. The Funds may not lend money or
securities except to the extent that investments may be considered loans.

Because The Chapman US Treasury Fund will invest only in U.S. Treasury
securities, and repurchase agreements fully collateralized by U.S. Treasury
securities, it will not invest more than 25% of its assets in investments in
any industry. The Chapman Institutional Cash Management Fund may not invest
more than 5% of the current value of its total assets in any one issuer,
except the U.S. Government and its agencies and instrumentalities, and may
not invest more than 25% of the current value of its total assets in
securities of issuers conducting their principal business activities in the
same industry. The Chapman Institutional Cash Management Fund reserves
freedom of action to invest more than 25% of its assets in obligations of
domestic branches of domestic banks. There is no limit on the portion of the
Fund's assets which may be invested in obligations of U.S. banks. The Fund
may not invest more than 5% of its total assets in obligations of savings
banks and savings and loan associations and not more than 25% of its total
assets in obligations of U.S. branches of foreign banks.

Neither Fund may invest more than 10% of its net assets in securities that
are not readily marketable, including securities restricted as to disposition
under the Securities Act of 1933, repurchase agreements having maturities of
more than seven days, fixed time deposits subject to withdrawal penalties having
maturities of more than seven days and floating and variable rate obligations if
the demand feature has a notice period of more than seven days.

The Chapman US Treasury Money Fund's investment objectives and its policy of
limiting investments to U.S. Treasury securities and repurchase agreements fully
collateralized by U.S. Treasury securities, and the investment policies and
limitations of both Funds set forth in the preceding paragraphs under this
caption are fundamental policies that may be changed only with stockholder
approval.

Additional information concerning the Funds' investment activities is
provided in the Statement of Additional Information.

MANAGEMENT

BOARD OF DIRECTORS

The company is managed by its board of directors. All of the directors
are members of minority groups. The Board of Directors approves all
significant agreements between each Fund and persons who furnish services to
the Fund, including the Fund's agreements with the Advisor and the
Distributor. The Board of Directors delegates to the Company's officers and
the Advisor responsibility for day-to-day operations of the Funds. All of the
officers of the Company are directors, officers or employees of the Advisor
or the Distributor.

7
<PAGE>

THE ADVISOR

Chapman Capital Management, Inc. was registered as an investment advisor
under the Investment Advisers Act of 1940 in August 1988. The Advisor is
responsible for supervision and management of the Funds' operations and
formulation and implementation of the Funds' investment policies. It is also
responsible for administration of the Funds, including executive management,
office facilities and administrative services.

The Advisor has acted as investment advisor to the Funds since May 1989.
Prior to May 1991 the Advisor delegated its investment advisory and management
responsibilities to others. Since May 1991 the Advisor has provided these
services to the Funds. Since 1995, the Advisor has also managed a closed-end
fund, DEM, Inc.

The Advisor is a wholly-owned subsidiary of The Chapman Co., the Funds'
distributor. The Chapman Co. is the only minority controlled full service
securities firm headquartered in Maryland. It has qualified as a minority
business enterprise under various state and municipal regulations. Nathan A.
Chapman, Jr. owns 91% of the equity and has the right to cast 91% of the votes
entitled to be cast by stockholders of The Chapman Co. The Advisor's address is
World Trade Center--Baltimore, 401 East Pratt Street, 28th Floor, Baltimore,
Maryland 21202.

THE DISTRIBUTOR

The Chapman Co. is the exclusive distributor for each Fund. It is a
registered broker-dealer and a member of the National Association of Securities
Dealers, Inc. The Chapman Co. processes investor purchase and redemption orders,
responds to inquiries from stockholders of the Funds concerning their accounts
and the Funds' operations and communicates with the Company and the Transfer
Agent on behalf of the Funds' stockholders. The Distributor does not receive a
fee or reimbursement of expenses from the Funds or their stockholders in
connection with sales of the Funds' shares. The Advisor may make payments to the
Distributor and the Distributor may make payments to other broker-dealers in
connection with the sale of Fund shares.

EXPENSES

The Advisor bears all expenses in connection with the performance of its
advisory and administrative services. The Fund bears all other expenses incurred
in its operations. These include the Advisor's management and administration
fees, taxes, fees of its directors who are not officers, costs of directors
meetings, fees payable to the Securities and Exchange Commission, state
securities qualification fees, costs of preparing and printing prospectuses for
existing stockholders, fees and expenses of the Custodian and Transfer Agent,
certain insurance costs, costs of the Company's membership in the Investment
Company Institute, auditing and legal expenses, costs of stockholder reports and
meetings, and any extraordinary expenses. The Funds also pay for brokerage fees
and commissions in connection with the purchase and sale of portfolio
securities. Expenses which are not attributable solely to one of the Funds are
allocated between them in proportion to the net assets of each Fund. All
expenses were borne by the U.S. Treasury Money Fund in fiscal year 1996 as The
Cash Management Fund had no activity during the year. For the entire 1996 fiscal
year, the Advisor agreed to bear annual expenses (excluding income, excise and
other taxes and extraordinary expenses) of each Fund in excess of .75% of
average daily net assets. The actual expenses of The Chapman US Treasury Money
Fund prior to reimbursement of expenses was 0.87% of average daily net assets.
The actual other expenses of The Chapman US Treasury Money Fund for the year
ended October 31, 1996 prior to reimbursement of other expenses was .27% of
average daily net assets.

8
<PAGE>

Effective January 1, 1997, the Advisor has agreed to bear annual expenses
(excluding income, excise and other taxes and extraordinary expenses) in excess
of .65% and .75% of average daily net assets for the Chapman US Treasury Money
Fund and the Chapman Institutional Cash Management Fund, respectively, until
December 31, 1997. The Advisor's obligation will be limited to the total of its
advisory and administration fees.

BROKERAGE

The Chapman Co. may effect brokerage transactions for the Funds in
compliance with the requirements of the Investment Company Act of 1940.

PURCHASE OF SHARES

Shares of each Fund are sold without sales charge by the Distributor at net
asset value, normally $1 per share, on each day the New York Stock Exchange is
open for business. The Chapman US Treasury Money Fund is intended primarily for
state and local governments and their authorities and agencies. The Chapman
Institutional Cash Management Fund is intended primarily for corporations,
pension and endowment funds and other institutions. Fund shares may not be
purchased by individuals. The minimum initial investment for each Fund is
$1,000,000. There is no minimum for subsequent purchases. The initial investment
must be accompanied by an Application. The Company reserves the right to reject
any purchase order.

Each Fund's shares are sold at the net asset value per share of the Fund
next determined after an order is accepted by Chapman Capital Management,
Inc. ("The Transfer Agent") and federal funds are received by the Transfer
Agent. Stockholders begin earning dividends on the day following the day on
which the purchase order for the shares is effective; provided, however, that
if the investor notifies the Fund by 12:00 p.m. (Eastern Time) of its
intention to wire payment and such wire payment is received by the Transfer
Agent by 4:00 p.m. (Eastern Time) the same day, stockholders begin earning
dividends on the same day the shares are purchased.

Shares of each Fund may be purchased by telephone and bank wire as follows:

(a) For an initial investment, an account number should be obtained by
calling the Transfer Agent at (800) 752-1013. The following information will
be required: the name of the fund, the name and address in which the account
will be registered, tax identification number, the amount being wired and
the identity of the wiring bank.

(b) For additional investments, the Transfer Agent should be advised by
telephone of the name of the fund, the name of the account, account number,
the amount of the investment and the identity of the wiring bank.

(c) In either case, the investor's bank should wire federal funds to the
Transfer Agent. The name of the fund, the name of the account and account
number of the investor should be included in the wire. An investor's bank
may impose a charge for this service.

Shares may also be purchased by mail as follows:

(a) For initial investment, the Funds' Application must be completed and
signed.

(b) A check should be made payable to The Chapman Funds, Inc. (indicate
the name of the particular fund).

(c) The Application and the check should be sent to The Chapman Funds,
Inc. at the address set forth on the cover page of this Prospectus.

9
<PAGE>

Investors may purchase shares through registered broker-dealers.
Broker-dealers not affiliated with the Company or the Advisor may charge a fee
for processing orders on behalf of their customers. Shares may be purchased from
the Funds without payment of fees.

Federal funds are moneys held by a commercial bank on deposit in one of the
U.S. Federal Reserve branch banks. Dealers in the securities in which the Funds
will invest usually require immediate payment in federal funds. Since a payment
for the purchase of shares cannot be invested until it is converted into and
available in federal funds, it must be so available before a share purchase
order can be considered effective.

If payment is transmitted by check, an order will not be effective until
received by the Transfer Agent and converted to federal funds, normally within
one business day for checks drawn on a member of the Federal Reserve System. It
would take longer for most other checks. A request for redemption of shares
purchased by check will not be effective, and the redemption proceeds will not
be available, until the check has cleared, which may take up to 15 days. During
this period the shares will continue to accrue dividends.

All purchases of Fund shares will be credited to the stockholder in an
account maintained for the stockholder by the Transfer Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of a share). A
monthly statement of account will be mailed to the stockholder within five
business days after the end of each month.

The principal underwriter of the Funds is The Chapman Co.(the
"Underwriter"), located at 401 E. Pratt Street, 28th Floor, Baltimore, Maryland
21202. Listed below are persons affiliated with both the Funds and Underwriter.

POSITION POSITION
NAME AND PRINCIPAL WITH WITH
BUSINESS ADDRESS UNDERWRITER FUNDS
- --------------------------------------------------------------------

Nathan A. Chapman, Jr. Director, Director,
The Chapman Co. President President
401 East Pratt Street Chief Executive
28th Floor Officer, Treasurer
Baltimore, MD 21202

Bonnie Shay Gillette Secretary Secretary
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202

EXCHANGES

Shares of one fund may be exchanged for shares of the other fund. An
exchange may be made by telephone to the Transfer Agent at (800)752-1013 if the
exchange is to an existing account and both accounts are registered in the same
name. Information concerning exchanges in other circumstances is included in the
Statement of Additional Information and may be obtained by telephone from the
Distributor or the Transfer Agent. An exchange of shares will be effected at the
net asset value per share of each Fund, normally $1 per share, next determined
after receipt by the Transfer Agent of a request for exchange and any required
documentation.

During times of drastic economic or market changes, the exchange privilege
may be difficult to implement. A stockholder may prefer to use express mail or
commercial delivery.

10
<PAGE>

An exchange of shares is treated for federal income tax purposes as a
redemption of the exchanged shares and a purchase of the shares received. A
capital gain or loss may be realized on the transaction.

Exchanges will be required to meet the minimum initial investment
requirement of each Fund. There is no charge for an exchange. The Funds will
give stockholders at least 60 days' prior notice if the exchange privilege is
modified or terminated.

REDEMPTION OF SHARES

Investors may request redemption of shares at any time and the shares will
be redeemed at the next determined net asset value, normally $1 per share. No
charges are made when shares are redeemed.

Shares may be redeemed by telephone or by wiring instructions (which must
include the stockholder's name and account number) to the Transfer Agent.
Telephone requests should be made to the telephone number set forth on the cover
page of this Prospectus. Wire instructions should be sent to the Transfer Agent
by facsimile to the number provided by the Shareholder Servicing Representative.

Payment will be made by the Transfer Agent to the stockholder's bank account
at any commercial bank designated by the stockholder in the Application, or by
check payable to the stockholder and mailed to the address specified in the
Application. There is currently no charge to a stockholder for a wire transfer.

The Transfer Agent will, at the request of stockbrokers who are approved
by the Company and who act as agents for stockholders in effecting
redemptions, wire redemption proceeds to the broker's bank account for credit
to the stockholder if the stockholder has designated the broker's bank
account for receipt of such payment in the Application. Brokers may charge a
fee for this service.

Shares may also be redeemed by mail, and must be redeemed by mail when the
proceeds are not to be sent to the stockholder at the address set forth in the
Application, or wired to the stockholder's bank account designated in the
Application. Information concerning procedures for redeeming shares in these
circumstances is set forth in the Statement of Additional Information and can be
obtained by telephone from the Distributor or the Transfer Agent.

Redemptions of a Fund's shares will be made at the net asset value per share
of the Fund, normally $1 per share, next determined after receipt by the
Transfer Agent of a redemption request in proper form, including all required
documentation. Although each Fund attempts to maintain a constant net asset
value of $1 per share, if it should be unable to do so, the proceeds of
redemption may be more or less than the stockholder's cost.

For redemption requests received prior to 12:00 p.m. (Eastern time) on any
business day, the redemption proceeds normally will be available for payment to
the shareholder on the same day. For redemption requests received after 12:00
p.m. (Eastern time), redemption proceeds will be available for payment to the
shareholder on such next business day.

The Funds will not effect redemptions and will not mail redemption proceeds
until checks received in payment for shares purchased have cleared, which may
take up to 15 days. This provision will apply to certified and cashier's checks.
During this period shares will continue to accrue dividends.

11
<PAGE>

NET ASSET VALUE

The net asset value of shares of each Fund is determined each day as of the
close of trading on The New York Stock Exchange, presently 4:00 p.m. (Eastern
Time). The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for certain Federal and other holidays. Net asset
value per share of a Fund is calculated by adding the value of all securities,
cash and other assets of the Fund, subtracting the liabilities, and dividing the
result by the number of shares outstanding. Income and expenses (including
advisory and administration fees) are accrued daily and taken into account in
computing net asset value. Both Funds use the amortized cost method to value
portfolio securities and seek to maintain a constant net asset value of $1 per
share. The Funds may not be successful in maintaining a $1 net asset value at
all times.

DIVIDENDS AND TAXES

All of the net income of each Fund is declared as a dividend daily and paid
monthly. Stockholders will be credited with a dividend on the business day on
which the purchase order for the shares is effective, provided that the investor
notifies the Transfer Agent of its intention to invest by 12:00 p.m., and wire
payment is received by 4:00 p.m., and continues to earn dividends through the
day before the redemption order becomes effective, for redemption requests
received prior to 12:00 p.m. Dividends are paid in additional shares of the Fund
unless the investor has elected prior to the payment date to receive cash.

The Funds have qualified and intend to continue to qualify as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). If so qualified, the Funds will not be subject to
federal income taxes on income distributed to their stockholders.
Stockholders, unless exempt, will pay federal income taxes on dividends paid
by the Funds, regardless of whether the dividends are received in cash or
reinvested in additional shares and regardless of whether the dividends are
treated as ordinary income or capital gains. The Funds will notify
stockholders annually of the federal income tax consequences of distributions
made by the Funds.

Each Fund will be subject to a 4% nondeductible excise tax to the extent the
Fund does not meet certain distribution requirements by the end of each calendar
year. Each Fund intends to make sufficient distributions to avoid application of
this excise tax.

YIELD

From time to time the Funds may advertise or make available information as
to their "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" refers to the income generated by an investment in a Fund over a
seven-day period. The period covered will be included in advertisements or other
publications. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly except that, when annualized, the
income earned by the Funds is assumed to be reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.

OTHER INFORMATION

CAPITAL STOCK

The Company was incorporated in Maryland on November 22, 1988. It is an
open-end, diversified management investment company under the Investment
Company Act of 1940. The Company is authorized to issue The Chapman US
Treasury Money Fund shares and The Chapman Institutional Cash Management Fund
shares. The Company's Board of Directors has authority under Maryland Law to
increase the number of

12
<PAGE>

authorized shares and under the Company's charter to authorize additional
classes of stock without stockholder approval. All shares of each Fund, when
issued, will be fully paid and nonassessable.

All shares of the Company have equal voting rights and will be voted in the
aggregate, and not by class, except where class voting is required by law or the
matter affects only one class. There is no provision for cumulative voting.

The Company is not required under Maryland law to hold annual meetings of
stockholders for the election of directors and currently does not intend to do
so. Stockholders have the right to call for a meeting to consider the removal of
one or more of the Company's directors if the request is made in writing by the
holders of at least 10% of the Company's outstanding voting securities. The
Company will assist in calling the meeting as required under the Investment
Company Act of 1940.

On January 31, 1997 the City of Philadelphia owned 34%, the State of
Mississippi owned 17%, Bank of New York as Trustee for Prince Georges County
owned 14%, the School District of Philadelphia owned 7%, the State of Maryland
owned 7%, and Alabama State University, Invesco MIM, Howard County, the
Wisconsin Housing Economic Development Authority, the City of Baltimore, the
City of Chicago, the Birmingham Retirement and Relief System, Maryland Teachers
and State Employees' Supplemental Retirement Agency, the Birmingham Fund, Prince
Georges County, and Alpha Phi Alpha Fraternity, Inc. owned the remaining shares
of the Chapman U.S. Treasury Money Fund. There were no shares of The Chapman
Institutional Cash Management Fund outstanding on that date or during the period
November 1, 1995 through October 31, 1996.

Stockholders of record will receive unaudited semi-annual reports and an
annual report containing financial statements audited by independent auditors.

STOCKHOLDER INQUIRIES

Investors may write or call the Distributor or the Transfer Agent at the
addresses and telephone numbers on the front cover of this Prospectus with any
questions relating to their investment.

CUSTODIAN

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

TRANSFER AGENT

Chapman Capital Management, Inc., 401 East Pratt Street,
28th Floor, Baltimore,
Maryland 21202, serves as transfer agent and dividend paying agent for the
Funds' shares.

<PAGE>

THE CHAPMAN FUNDS, INC.
PROSPECTUS

February 28, 1997

Investment Advisor, Transfer Agent and Dividend Paying Agent

CHAPMAN CAPITAL MANAGEMENT, INC.
World Trade Center-Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202

Custodian

UMB BANK, KC
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

No person is authorized to make any representations in connection with
this offering other than those included in this Prospectus or in supplemental
sales literature issued by the Fund or its Distributor.

<PAGE>

THE CHAPMAN FUNDS, INC.
World Trade Center--Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
Telephone: (410) 625-9656, (800) 752-1013

STATEMENT OF ADDITIONAL INFORMATION, February 28, 1997

The Chapman Funds, Inc. (the "Company"), is an open-end, diversified
management investment company which offers two money market funds. The
Chapman US Treasury Money Fund invests in U.S. Treasury obligations and
repurchase agreements fully collateralized by such obligations. The Chapman
Institutional Cash Management Fund invests in high quality short-term money
market securities, including U.S. Government obligations, bank instruments,
commercial paper and repurchase agreements.

This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Company's
prospectus dated February 28, 1997 (the "Prospectus"). This Statement of
Additional Information contains additional information to that set forth in
the Prospectus and should be read in conjunction with the Prospectus. A copy
of the Prospectus may be obtained without charge by writing the Funds'
Distributor, The Chapman Co., World Trade Center-Baltimore, 401 East Pratt
Street, 28th Floor, Baltimore, Maryland 21202, or calling at (410) 625-9656,
(800) 752-1013.

Table of Contents

Investment Program 2 Dividends 11
Management 3 Taxes 12
Purchase of Shares 8 Yield 12
Exchanges 9 Capital Stock 12
Redemption of Shares 9 Counsel to the Company 13
Portfolio Transactions 10 Experts 13
Net Asset Value 11 Financial Statements 13

<PAGE>

INVESTMENT PROGRAM

The following information supplements the discussion of the investment
policies of the Funds found under "Investment Program" in the Prospectus.
Except for the investment objectives and policies of The Chapman US Treasury
Money Fund and the matters specified under "Investment Limitations" in the
Prospectus and the Statement of Additional Information, all matters described
herein and in the Prospectus are not fundamental and may be changed without
the approval of stockholders.

ADDITIONAL INFORMATION ON INVESTMENTS

BANK OBLIGATIONS

Domestic banks organized under Federal law are supervised and examined by the
Comptroller of the Currency and are required to be members of the Federal
Reserve System and to be insured by the Federal Deposit Insurance Corporation
(the "FDIC"). Domestic banks organized under state law are supervised and
examined by state banking authorities but are members of the Federal Reserve
System only if they elect to join. In addition, state banks whose obligations
may be purchased by The Chapman Institutional Cash Management Fund are
insured by the FDIC (although such insurance may not be of benefit to the
Fund, depending upon the nature and principal amount of the obligation of
each bank held by the Fund) and are subject to Federal examination and to a
substantial body of Federal law and regulation. As a result of Federal and
state laws and regulations, U.S. banks, among other things, are generally
required to maintain specified levels of reserves, and are subject to other
supervision and regulation designed to promote financial soundness.

Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by Federal and state regulation as well as
governmental action in the country in which the foreign bank has its head
office. In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may or may not be required to: (1) pledge
to the regulator, by depositing assets with a designated bank within the
state, an amount of its assets equal to 5% of its total liabilities; and (2)
maintain assets within the state in an amount equal to a specified percentage
of the aggregate amount of liabilities of the foreign bank payable at or
through all of its agencies or branches within the state. The deposits of
U.S. branches of foreign banks may not necessarily be insured by the FDIC. In
addition, less information may be publicly available about a U.S. branch of a
foreign bank than about a domestic bank.

COMMERCIAL PAPER RATINGS

Moody's Investors Service, Inc. ("Moody's") describes its two highest
commercial paper ratings as follows: "P-1-the highest grade possessing
greater relative strength; P-2-second highest grade possessing less relative
strength than the highest grade." Standard & Poor's Corporation ("S&P")
describes its two highest commercial paper ratings as follows: "A-1-judged to
be the highest investment grade category possessing the highest relative
strength; A-2-investment grade category possessing less relative strength
than the highest rating."

If a portfolio security ceases to be a first tier security, as defined in
Rule 2a-7 of the Investment Company Act of 1940, (either because it no longer
has the highest rating from the requisite nationally recognized statistical
rating organization or the Board of Directors determines that it is no longer
of comparable quality to a first tier security), the security will be
disposed of unless it matures within five days or unless the Board of
directors determines that other action is in the best interests of the Fund
and its shareholders.

<PAGE>

INVESTMENT LIMITATIONS

In addition to the limitations described under "Investment Limitations" in the
Prospectus, each of the Funds may not:

(i) make short sales of securities, write put or call options or purchase
securities on margin;

(ii) underwrite securities of other issuers except to the extent that a
Fund's purchase of certain investments from an issuer or
an underwriter for the issue and subsequent disposition of such
investments in accordance with the Fund's investment program may be
deemed an underwriting;

(iii) lend portfolio securities except to the extent that a reverse
repurchase agreement may be deemed a loan of the securities which the
Fund is obligated to repurchase;

(iv) own more than 10% of the outstanding voting securities of any issuer;

(v) purchase or sell real estate or real estate mortgage loans (other than
securities secured by real estate or interests in real estate or
securities of issuers that invest in real estate or interests in real
estate);

(vi) purchase or sell commodities or commodity contracts including futures
contracts; or

(vii) purchase securities of other investment companies (except as part of
a merger, consolidation, reorganization or purchase of assets approved by
the Fund's stockholders).

If a percentage limitation set forth in the Prospectus or herein is satisfied
at the time of investment, a later increase or decrease in such percentage
resulting from a change in value of the Fund's portfolio securities will not
constitute a violation of the limitation.

The investment objectives and policies of The Chapman U.S. Treasury Money Fund
and the investment limitations described above and in the Prospectus are
fundamental policies and may be changed for a Fund only when permitted by law
and approved by the holders of a majority of the Fund's outstanding shares, as
described under "Capital Stock."

MANAGEMENT

DIRECTORS AND OFFICERS

The directors and executive officers of the Company are listed below.
Directors deemed to be "interested persons" of the Company for purposes of
the Investment Company Act of 1940 are indicated by an asterisk.

<TABLE>
<CAPTION>
PRINCIPAL
POSITIONS(S) OCCUPATIONS(S)
HELD WITH DURING
NAME AND ADDRESS REGISTRANT AGE PAST 5 YEARS
- ---------------------------------------------- ----------- --- ----------------------------------------------
<S> <C> <C> <C>
*Nathan A. Chapman, Jr. Director 39 President, Chief Executive Officer and
401 E. Pratt St., 28th Fl and Treasurer since 1986 of The Chapman Co. and
Baltimore, Maryland 21202 President President and Chief Executive Officer of
Chapman Capital Management, Inc., since 1988.
President, Chairman of the Board of Directors
and Director of DEM, Inc. (a closed-end
investment company managed by the Advisor)
since 1995.
</TABLE>
3

<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
POSITIONS(S) OCCUPATIONS(S)
HELD WITH DURING
NAME AND ADDRESS REGISTRANT AGE PAST 5 YEARS
- ---------------------------------------------- ----------- --- ----------------------------------------------
<S> <C> <C> <C>

James B. Lewis Director 49 City Administrator, City of Rio Rancho since
401 E. Pratt St., 28th Fl March 1996. Chief Clerk-State Baltimore,
Maryland 21202 Corporation Commission of New Mexico from
April 1995 until March 1996, Chief of Staff,
Office of the Governor of New Mexico from Jan.
1991 to April 1995. Director of DEM, Inc.

Wilfred Marshall Director 49 Principal, Marshall Enterprises since 1994.
401 E. Pratt St., 28th Fl Director, Mayor's Office of Small Business
Baltimore, Maryland 21202 Assistance--City of Los Angeles 1981 until
1994.

Lottie H. Shackelford Director 55 Executive Vice President of Global USA since
401 E. Pratt St., 28th Fl 1994. Independent Consultant, City Director of
Baltimore, Maryland 21202 the City of Little Rock, Arkansas, 1978 to
1995, Director of DEM, Inc.

*Levi Watkins, Jr., MD Director 53 Professor of Cardiac Surgery and Associate
401 E. Pratt St., 28th Fl Dean of the Johns Hopkins University, School
Baltimore, Maryland 21202 of Medicine since July, 1984.

Ronald A. White Director 47 Senior Partner, Ronald A. White, P.C., since
401 E. Pratt St., 28th Fl 1982, Director of DEM, Inc.
Baltimore, Maryland 21202

Dr. Benjamin Hooks Director 72 Senior Vice President of The Chapman Co. since
401 E. Pratt St., 28th Fl May 1993. Executive Director of the NAACP from
Baltimore, Maryland 21202 1977 to April 1993.

Joseph Quash, MD Director 57 Capital Cardiology Consultants, P.C.,
401 E. Pratt St., 28th Fl President, Since 1976.
Baltimore, Maryland 21202

David Rivers Director 53 Director of Community Development Medical
401 E. Pratt St., 28th Fl University of South Carolina Environmental
Baltimore, Maryland 21202 Hazards Assessment Program since 1994;
President, Research Planning and Management
from 1991 to 1994.

*Valerie A. Chapman Vice- 35 Administrator of The Chapman Co. since March
401 E. Pratt St., 28th Fl President 1988. She is married to Nathan A. Chapman, Jr.
Baltimore, Maryland 21202

Bonnie Shay Gillette Secretary 44 Assistant Secretary of DEM, Inc. since
401 E. Pratt St., 28th Fl November 1995, Secretary of Chapman Capital
Baltimore, Maryland 21202 Management, Inc. since 1988 and
Secretary of The Chapman Co. since February
1987.

Lynn Ballard Treasurer 54 Controller of The Chapman Co. since February,
401 E. Pratt St., 28th Fl. 1988. Controller of Chapman Capital
Baltimore, Maryland 21202 Management, Inc. since December 1995.
Treasurer of DEM, Inc.

</TABLE>

The address of each director and officer is World Trade Center--Baltimore,
401 E. Pratt Street, 28th Floor, Baltimore, Maryland 21202.

<PAGE>

Directors of the Company who are not officers receive from the Company a fee
of $1,000 for each Board of Directors meeting attended and are reimbursed for
all out-of-pocket expenses relating to attendance at meetings. Officers of the
Company do not receive compensation from the Company.

COMPENSATION TABLE

<TABLE>
<CAPTION>
RETIREMENT
OR PENSION TOTAL
BENEFITS ESTIMATED COMPENSATION
AGGREGATE ACCRUED AS ANNUAL FROM COMPANY
COMPENSATION PART OF BENEFITS AND FUND
NAME OF PERSON/ FROM COMPANY UPON COMPLEX PAID
POSITION COMPANY EXPENSES RETIREMENT TO DIRECTORS
- ---------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
NATHAN A. CHAPMAN, JR. None None None None
Director, Chairman, President
JAMES LEWIS $ 4,181 None None $ 7,181
Director
LOTTIE SHACKELFORD $ 2,000 None None $ 4,000
Director
LEVI WATKINS, MD None None None None
Director
RONALD A. WHITE None None None $ 2,000
Director
DR. BENJAMIN HOOKS $ 1,000 None None $ 1,000
Director
WILFRED MARSHALL $ 2,000 None None $ 2,000
Director
DAVID RIVERS $ 1,000 None None $ 1,000
Director
JOSEPH QUASH, MD $ 2,000 None None $ 2,000
Director
</TABLE>

Under the Company's charter and Maryland law, directors and officers of the
Company are not liable to the Company or its stockholders except for receipt of
an improper personal benefit or active and deliberate dishonesty. The Company's
charter requires that it indemnify its directors and officers against
liabilities unless it is proven that a director or officer acted in bad faith or
with active and deliberate dishonesty or received an improper personal benefit.
These provisions are subject to the limitation under the Investment Company Act
of 1940 that no director or officer may be protected against liability to the
Company for willful misfeasance, bad faith, gross negligence or reckless
disregard for the duties of his office.

Levi Watkins, Jr., MD is an interested director of the Company, as defined
under the Investment Company Act of 1940, because his brother, Donald Watkins,
Esquire, is a member of the Board of Directors of The Chapman Co.

THE ADVISOR

Chapman Capital Management, Inc. acts as the investment advisor and
manager for each of the Funds pursuant to an Advisory Agreement dated May 16,
1989. The Advisor has agreed to provide investment management services with
respect to each

5
<PAGE>

Fund in accordance with its objectives and policies and, subject to the
supervision and direction of the Company's Board of Directors, manage the
Company's operations.

The City of Philadelphia owns 34% of the issued and outstanding Common Stock
of the Company. As a result, the City of Philadelphia has significant power to
affect the affairs of the Company or to determine or influence the outcome of
matters submitted to a vote of the shareholders including the election of
directors. The Advisory Agreement may be terminated by the Company or the
Advisor on 60 days' written notice, and will terminate immediately in the event
of its assignment.

The Advisory Agreement provides that the Advisor and other persons who
assist the Advisor in providing services to the Funds will not be liable for any
mistake in judgment or liability to the Company or its stockholders and the
Company will indemnify the Advisor and such other persons against liability
incurred by them in providing services to the Funds, except for willful
misfeasance, bad faith or gross negligence of the Advisor or such other persons
in the performance of duties or reckless disregard of obligations and duties.
The Advisory Agreement permits the Advisor to act as investment advisor for
others.

The Advisory Agreement provides that if the Advisor ceases to be the
Company's investment advisor the Company will change its name to a name which
does not include "Chapman" at the Advisor's request. The Advisory Agreement
authorizes the Advisor to permit others to use the name "Chapman."

The Advisor receives from each Fund an advisory fee at an annual rate of .5%
of each Fund's average daily net assets and an administration fee of .1% of each
Fund's average daily net assets. Both fees are calculated daily and paid
monthly. For the years ended October 31, 1996, 1995, and 1994, the Advisor
received management and administrative fees of $200,323 and $40,064, $148,368
and $29,674, and $101,941 and $20,388 respectively, from The Chapman US Treasury
Money Fund. The Advisor reimbursed expenses above .75% of average daily net
assets for the years ended October 31, 1996, 1995, and 1994 amounting to
$48,517, $66,577, and $75,473, respectively, for The Chapman US Treasury Money
Fund. Effective January 1, 1997, the Advisor has agreed to bear annual expenses
(excluding income, excise and other taxes and extraordinary expenses) in excess
of .65% and .75% of average daily net assets for the Chapman US Treasury Money
Fund and the Chapman Institutional Cash Management Fund, respectively, until
December 31, 1997. During fiscal year 1991, the Cash Management Fund liquidated
its portfolio and distributed the proceeds to its shareholders. There has been
no activity, including subscriptions for purchases of shares, in the Cash
Management Fund since that time. However, the Cash Management Fund is still
authorized to sell shares to investors meeting the qualifications of the Fund
prospectus.

The Advisor is a wholly-owned subsidiary of The Chapman Co., the Funds'
distributor. The Chapman Co. is the only minority controlled full service
securities firm headquartered in Maryland. It has qualified as a minority
business enterprise under various state and municipal regulations. Nathan A.
Chapman, Jr. owns approximately 92% of the equity securities of The Chapman Co.
on a fully diluted basis. The Advisor's address is World Trade Center
- -Baltimore, 401 East Pratt Street, 28th Floor, Baltimore, Maryland 21202. Listed
below are all persons affiliated with both the Advisor and the Funds.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION
BUSINESS ADDRESS WITH ADVISOR POSITION WITH FUNDS
- ------------------------------------------------- ------------ -------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. President President, Chairman of the Board of Directors and
401 E. Pratt St. and Chief Director
28th Floor Executive
Baltimore, MD 21202 Officer

</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION
BUSINESS ADDRESS WITH ADVISOR POSITION WITH FUNDS
- ------------------------------------------------- ------------ -------------------------------------------------
<S> <C> <C>
Bonnie Shay Gillette Secretary Secretary
401 E. Pratt St.
28th Floor
Baltimore, Maryland 21202

M. Lynn Ballard Treasurer Treasurer
401 E. Pratt Street
28th Floor
Baltimore, Maryland 21202

</TABLE>

PRINCIPAL HOLDERS OF SECURITIES

The following identifies beneficial holders of shares representing more than
5% of the outstanding common stock as of January 31, 1997

<TABLE>
<CAPTION>
PERCENTAGE
OF
BENEFICIAL OWNER ADDRESS OWNERSHIP
- -------------------------------------------------- -------------------------------------------------- ---------------
<S> <C> <C>
City of Philadelphia 640 MSB, 1404 JFK Boulevard
Philadelphia, PA 19102-1681 34%

State of Mississippi PO Box 138
Jackson, MS 39205 17%

Bank of New York as Trustee for Prince Georges 101 Barclay St., 21st Floor
County, MD New York, NY 10286 14%

School District of Philadelphia 21 Street and the Parkway 7%
Philadelphia, PA 19103

State of Maryland 80 Calvert Street 7%
Annapolis, MD 21401
</TABLE>

There were no shares of The Chapman Institutional Cash Management Fund
outstanding on that date or during the period November 1, 1995 through October
31, 1996.

DISTRIBUTOR

<TABLE>
<CAPTION>
NET COMPENSATION
UNDERWRITING ON
NAME OF DISCOUNTS REDEMPTION
PRINCIPAL AND AND BROKERAGE OTHER
UNDERWRITER COMMISSIONS REPURCHASES COMMISSIONS COMPENSATION
- ------------------------------------------------------ -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>

The Chapman Co. None None None None
</TABLE>

The Chapman Co. acts as exclusive underwriter for the Funds on a best
efforts basis. The Chapman Co. sells shares to investors without a sales charge.
It receives no commissions or expenses from the Company. It may pay commissions
to its sales representatives or to other broker-dealers for sales of Fund
shares.

CUSTODIAN

UMB Bank, KC, 928 Grand Avenue, Kansas City, Missouri 64141-6226, serves as
custodian of the Funds. Under the Custody Agreement, the Bank has agreed to: (i)
maintain a separate account or accounts in the name of each of the Funds; (ii)
receive, hold and deliver portfolio securities for the account of the Funds;
(iii) collect and receive all income and other payments and distributions on
account of the Funds' portfolio securities; (iv) disburse funds to purchase
portfolio securities, pay dividends and expenses and for other corporate
purposes; and (v) make periodic reports to the Board of Directors concerning the
Funds' operations.

7
<PAGE>

TRANSFER AGENT

Chapman Capital Management, Inc., 401 East Pratt Street, 28th Floor,
Baltimore, Maryland 21202, serves as transfer agent and dividend paying agent
pursuant to a Shareholder Services Agreement. Under the Agreement, the
Transfer Agent has agreed to: (1) purchase and redeem shares of the Funds for
stockholders; (2) maintain stockholder accounts; (3) distribute dividends in
accordance with stockholder elections; (4) transmit communications by the
Company to its stockholders of record, including reports to stockholders and
proxy materials for meetings of stockholders, and (5) make periodic reports
to the Company. For its services under the Agreement, the Transfer Agent will
be compensated $18.00 per account, with a monthly minimum of $1,500.00 per
Fund excluding out-of-pocket expenses.

CERTAIN EXPENSE LIMITATIONS

If expenses borne by any Fund in any fiscal year exceed expense limitations
imposed by applicable state securities regulations, the Advisor will reimburse
the Company for any such excess to the extent required by such regulations.
Reimbursement would be made no less frequently than the payment of fees to the
Advisor.

PURCHASE OF SHARES

Shares of each Fund may be purchased by telephone and bank wire and by mail
as described in the Prospectus.

Each Fund's shares are sold at the net asset value per share of the Fund
next determined after an order is accepted by Chapman Capital Management, Inc.
(the "Transfer Agent") and federal funds are received by the Transfer Agent.
Stockholders begin earning dividends on the day following the day on which the
purchase order for the shares is effective; provided, however, that if the
investor notifies the Fund by 12:00 p.m. (Eastern Time) of its intention to wire
payment and such wire payment is received by the Transfer Agent by 4:00 p.m.
(Eastern Time) the same day, stockholders begin earning dividends on the same
day the shares are purchased. Payments transmitted by check will normally be
converted to federal funds by the Transfer Agent, as agent for the investor,
within one business day for checks drawn on a member bank of the Federal Reserve
System, at which time the purchase would normally become effective. It will take
longer for most other checks. All checks are accepted subject to collection at
full face value in U.S. funds and must be drawn in U.S. dollars on a U.S. bank.
If purchases are made by check, redemption of such shares will not be effective,
and the redemption proceeds will not be available, until the check has cleared,
which may take up to 15 days. Shares will continue to accrue dividends during
this period.

EXCHANGES

Shares of one Fund may be exchanged at net asset value for shares of the
other Fund without charge. An exchange may be made by telephone as set forth in
the Prospectus. An exchange may also be made by mail and must be made by mail if
a new account must be opened or the accounts are not identically registered.

An exchange may be made by letter to The Chapman Funds at the address set
forth on the cover page of the Prospectus. The letter should be addressed to the
Fund whose shares are being exchanged and should include names and numbers for
both accounts and the amount being exchanged. The letter must be signed by all
registered owners. If the accounts are not identically registered, the
signatures must be guaranteed. If a shareholder does not have an account with
each Fund, the letter must be accompanied by an Application.

8
<PAGE>

An exchange of shares will be effected at the net asset value per share of
each Fund next determined after receipt by the Transfer Agent of a request for
exchange in proper form, including all stock certificates, stock powers,
appropriate signatures, signature guarantees and other documentation as may be
required by the Transfer Agent.

REDEMPTION OF SHARES

Shares of each Fund may be redeemed by telephone or wire as described in the
Prospectus. Shares may also be redeemed by mail, and must be redeemed by mail,
if the proceeds are to be sent to anyone other than the stockholder or to any
bank account or address not specified in the Application.

Written requests for redemption must be signed by the registered
stockholder. If the proceeds are paid to anyone other than the registered
stockholder or sent to any address other than the stockholder's registered
address or pre-designated bank account, signatures must be guaranteed.

The Transfer Agent will wire the redemption proceeds to a bank account at a
commercial bank designated by the stockholder in the redemption request, if the
stockholder so requests, or will mail a check to the address specified in the
redemption request, if any required signature guarantee is provided.

Signature guarantees must be by a national bank, a state bank or trust
company or a member firm of the New York, American, Boston, Midwest or Pacific
Stock Exchanges. Signature guarantees by a savings bank, savings and loan
association or notary public are not acceptable.

All requests for redemption should be sent to The Chapman Funds at the
address set forth on the cover page of the Prospectus.

For redemption requests received prior to 12:00 p.m. (Eastern Time) on any
business day, the redemption proceeds normally will be available for payment to
the shareholder on the same day. For redemption requests received after 12:00
p.m. (Eastern Time), redemption proceeds normally will be available for payment
to the shareholder on such next business day.

The Funds will attempt to make payment for all redemptions within one
business day, but in no event later than seven days after receipt of a
redemption request in proper form. The Funds reserve the right to suspend
redemptions or postpone the day of payment for more than seven days in any
periods during which the New York Stock Exchange is closed (other than for
customary weekend and holiday closings), or when trading on that Exchange is
restricted or any emergency exists, as determined by the Securities and Exchange
Commission, which may make disposal of investments or determination of net asset
value not reasonably practicable, or for such other periods as the Commission by
order may permit for the protection of investors.

If payment for shares is made by check, the Funds will not effect
redemptions and redemption proceeds will not be available until the check has
cleared, which may take up to 15 days. This provision will apply to certified
and cashier's checks. Shares will continue to accrue dividends during this
period.

PORTFOLIO TRANSACTIONS

The Advisor is responsible for decisions to buy or sell securities and the
selection of broker-dealers for the Funds subject to policies adopted by the
Company's Board of Directors. Portfolio securities may be purchased directly
from the issuer or from a dealer serving as market maker or may be purchased in
broker's transactions. If securities are sold prior to maturity, they may be
sold directly to an issuer or dealer or in broker's transactions. When
securities are purchased or sold directly from or to an issuer, no commissions
or discounts are

9
<PAGE>

paid. The price paid to or received from a dealer for a
security may include a spread between bid and asked prices. When securities are
purchased or sold in a broker's transaction, a commission will be paid.

The Company's policy for placing orders for purchases and sales of
securities for the Funds is to give primary consideration to obtaining the most
favorable price and efficient execution of transactions. Sales of Fund shares is
not a factor in allocating portfolio transactions.
The Chapman Co. may effect brokerage transactions for the Funds when it
is able to provide a net price and execution at least as favorable to the
Funds as those determined to be available from unaffiliated brokers or
dealers. The commissions paid to The Chapman Co. on transactions for the
Funds may not exceed those charged by The Chapman Co. to comparable
unaffiliated clients in similar transactions or the limits set forth in rules
adopted by the Securities and Exchange Commission. The Board of Directors of
the Company has adopted procedures, which it will review annually, intended
to ensure compliance with these limitations. The procedures require that The
Chapman Co. report each transaction to the Company and that the Board of
Directors determine at least quarterly that all transactions effected by The
Chapman Co. have been effected in accordance with the procedures. The Company
has paid no commissions to the Chapman Co. in any of the past three fiscal
years.

When comparable price and execution can be obtained from more than one
broker or dealer, consideration may be given to placing portfolio transactions
with those brokers or dealers who also furnish research and other services to
the Funds or the Advisor. These services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to investments, evaluations of portfolio
securities, and research related computer software or hardware. These services
may benefit the Advisor in the management of accounts of other clients and may
not benefit the Funds directly. While such services are useful and important in
supplementing its own research, the Advisor believes the value of such services
is not determinable and does not significantly reduce its expenses. The fees
payable to the Advisor will not be reduced by the value of such services.

The Advisor and its affiliates deal, trade and invest for their own accounts
in the types of securities in which the Funds may invest and may have
relationships with the issuers of securities purchased by a Fund.

Investment decisions for each Fund are made independently from those for
other accounts advised by the Advisor.

The Advisor's other accounts may also invest in the same securities as the
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of a Fund and the other Fund or account, the transaction
will be averaged as to price, and available instruments allocated as to amount,
in a manner believed to be equitable to the Fund and the other Fund or account.
In some instances, this procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund. To
the extent permitted by law, the securities to be sold or purchased for a Fund
may be aggregated with those to be sold or purchased for the other Fund or
accounts in order to obtain best execution.

NET ASSET VALUE

The net asset value of shares of each of the Funds is determined each day as
of the close of trading on the New York Stock Exchange, presently 4:00 p.m. The
New York Stock Exchange is scheduled to be open Monday through Friday except for
certain Federal and other holidays. Currently, those days include: New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

10
<PAGE>

As indicated under "Net Asset Value" in the Prospectus, the amortized cost
method is used to determine the value of each Fund's portfolio securities
pursuant to Rule 2a-7 under the Investment Company Act of 1940. The amortized
cost method involves valuing a security at its cost initially and thereafter
amortizing any discount or premium over the period until maturity, regardless of
the impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price a Fund would receive if the security were sold. During such periods, the
yield to investors in a Fund may differ somewhat from that obtained in a similar
entity which uses market value to value its portfolio instruments.

Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, each Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase securities having remaining
maturities (as defined in Rule 2a-7) of 397 days or less and invest only in
U.S. dollar denominated instruments that the Company's Board of Directors
determines present minimal credit risks, and which are eligible securities
(as defined in Rule 2a-7) at the time of acquisition. In addition, The
Chapman Institutional Cash Management Fund will invest at least 95% of its
total assets in eligible securities which are rated in the highest rating
category for short-term debt obligations as provided in Rule 2a-7, and will
not invest more than 5% of its total assets in securities (other than U.S.
Government securities) issued by any one issuer. Pursuant to Rule 2a-7, the
Board is required to establish procedures designed to stabilize, to the
extent reasonably possible, each Fund's price per share as computed for the
purpose of sales and redemptions at $1. Such procedures include review of
each Fund's portfolio holdings by the Board of Directors at appropriate
intervals to determine whether each Fund's net asset value calculated by
using available market quotations deviates from $1 per share based on
amortized cost. In the event the Board determines that a deviation exists
which may result in material dilution or other unfair results to investors or
existing stockholders, the Board will take such corrective action as it
regards as necessary and appropriate, including the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity, withholding dividends or establishing a
net asset value per share by using available market quotations.

DIVIDENDS

Daily dividends declared by each Fund include net investment income and net
realized short-term capital gain or loss. Net investment income consists of
interest accrued and discount earned on each Fund's securities (including
original issue and market discount) less amortization of market premium on
securities and accrued expenses of the Fund. It is not expected that either Fund
will realize net long-term capital gains or losses. As stated in the Prospectus,
it is intended that each Fund will maintain a net asset value per share at $1.

As a result of a significant expense or realized or unrealized loss incurred
by a Fund, it is possible that the Fund's net asset value per share may fall
below $1. Should a Fund incur or anticipate any unusual or unexpected
significant expense or loss which would affect disproportionately the income of
the Fund for a particular period, the Board of Directors would at that time
consider whether to adhere to the present dividend policy with respect to the
Fund or to revise it in order to ameliorate to the extent possible the
disproportionate effect of such expense or loss on the income of the Fund. Such
expense or loss may result in a stockholder's receiving no dividends for the
period in which it holds shares of the Fund and in its receiving upon redemption
a price per share lower than that which it paid.

TAXES

Qualification as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), requires, among other
things, that each Fund (a) derive at least 90% of its gross income from
interest,

11
<PAGE>

payments with respect to securities, loans and gains from the sale or other
disposition of or other income derived with respect to its business of
investing in securities; (b) derive less than 30% of its gross income from
the sale or other disposition of securities held for less than three months;
and (c) diversify its holdings so that, at the end of each fiscal quarter,
(i) at least 50% of the market value of the Fund's assets is represented by
cash, cash items, U.S. Government securities, securities of other regulated
investment companies and investments in other securities which with respect
of any one issuer, do not represent more than 5% of the value of the Fund's
assets or more than 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities). These
percentage limitations necessary for qualification under Subchapter M are
separate and apart from the percentage limitations in Section 5(b)(1) of the
1940 Act.

YIELD

The Company makes available yield quotations based upon the seven-day
period ended on the date of calculation for each Fund. In arriving at such
quotations, the Company first determines the net change during the period in
the value of a hypothetical pre-existing account having a balance of one
share at the beginning of the period (such net change being inclusive of the
value of any additional shares issued in connection with distributions of net
income as well as net income accrued on both the original share and any such
additional shares but exclusive of realized gains and losses from the sale of
securities and unrealized appreciation and depreciation), then divides such
net change by the value of the account at the beginning of the period to
obtain the base period return, and then multiplies the base period return by
365/7.

In addition, the Company may make available for the Funds "effective yield"
quotations, computed by adding 1 to the base period return (calculated as
above), raising the sum to a power equal to 365 divided by 7, and subtracting 1
from the result.

On October 31, 1996 the Company's seven day yield was 4.50%. Yield
quotations are based on historical earnings and are not intended to indicate
future performance.

CAPITAL STOCK

For additional information as to the organization and capital stock of the
Company, see "Other Information" in the Prospectus.

As used in the Prospectus and this Statement of Additional Information, the
term "majority," when referring to the approvals to be obtained from
stockholders in connection with matters affecting both of the Funds means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the outstanding shares are present in person
or by proxy or (ii) more than 50% of the Company's outstanding shares. The term
"majority," when referring to the approvals to be obtained from stockholders in
connection with matters affecting a particular Fund (for example, approval of an
investment advisory contract), means the vote of the lesser of (i) 67% of the
shares of that Fund represented at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy or (ii)
more than 50% of the outstanding shares of that Fund. Stockholders are entitled
to one vote for each full share held and a fractional vote for fractional shares
held.

Each share of a Fund is entitled to such dividends and distributions out of
the assets belonging to that Fund as are declared in the discretion of the
Company's Board of Directors. In determining a Fund's net asset value, each Fund
is charged with the direct expenses of that Fund and with a share of the general
expenses and liabilities of the Company, which are normally allocated in
proportion to the relative asset values of the respective Funds at the time of
allocation.

12
<PAGE>

In the event of the liquidation or dissolution of the Company, shares of a
Fund are entitled to receive the assets attributable to that Fund that are
available for distribution, and a proportionate distribution, based upon the
relative net assets of the Funds, of any general assets not attributable to a
Fund that are available for distribution.

Subject to the provisions of the Company's Articles of Incorporation,
determinations by the Board of Directors as to the direct and allocable
liabilities, and the allocable portion of any general assets of the Company,
with respect to a Fund are conclusive.

Stockholders of the Company are not entitled to any preemptive or conversion
rights.

COUNSEL TO THE COMPANY

The validity of the Company's shares will be passed upon for the Company by
Venable, Baetjer and Howard, LLP, Baltimore, Maryland. Venable, Baetjer and
Howard, LLP also acts as counsel to the Advisor and the Distributor.

EXPERTS

Ernst & Young LLP, One North Charles Street, Baltimore, Maryland 21201,
serves as the Company's independent auditors. Ernst & Young LLP will provide
audit services, tax advice and assistance in connection with filings with the
Securities and Exchange Commission.

The financial statements and financial highlights of the Company appearing
or incorporated by reference in the Company's Prospectus, this Statement of
Additional Information and the Registration Statement have been audited by Ernst
& Young LLP, independent auditors, to the extent indicated in their report
thereon also appearing elsewhere herein and in the Registration Statement or
incorporated by reference. Such financial statements have been included herein
or incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

FINANCIAL STATEMENTS

The financial statements of the Company for the year ended October 31, 1996
and the Report of Independent Auditors are set forth in the Company's 1996
Annual Report to Stockholders and are incorporated herein by reference. Also see
financial highlights on page 3 of the Company's Prospectus. To request a copy of
the Company's financial statements, at no charge, contact the administrator of
Chapman Capital Management at (800) 752-1013, or write Chapman Capital
Management, Inc., Attn.: Administrator, 401 E. Pratt Street, 28th Floor,
Baltimore, MD 21202.

<PAGE>
PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENT AND EXHIBITS.

(a) Financial Statements:

See Registrant's 1996 Annual Report to Stockholders previously
filed and the Prospectus, Page 3.

(b) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>

1 Articles of Incorporation of the Registrant (previously filed)

2 By-laws of the Registrant (previously filed)

4 Form of Stock Certificate (previously filed)

5 Form of Advisory and Administrative Services Agreement between the Registrant and Chapman Capital
Management, Inc. (previously filed)

6 Form of Distribution Agreement between the Registrant and the Chapman Co. (previously filed)

8 Custodian Agreement between the Registrant and UMB Bank KC (previously filed)

9 Shareholder Services Agreement between the Registrant and Chapman Capital Management, Inc. (previously
filed)

10 Opinion and consent of Venable, Baetjer and Howard, LLP (previously filed)

11 Consent of independent auditors (filed herewith)

12 Financial Statements (See Item 24(a) above)

13 Power of Attorney (filed herewith)
</TABLE>

<PAGE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT.

On January 31, 1997 the City of Philadelphia owned 34%, the State of
Mississippi owned 17%, Bank of New York as Trustee for Prince Georges County
owned 14%, the School District of Philadelphia owned 7%, the State of
Maryland owned 7%, and Alabama State University, Invesco MIM, Howard County,
the Wisconsin Housing Economic Development Authority, the City of Baltimore,
the City of Chicago, the Birmingham Retirement and Relief System, Maryland
Teachers and State Employees' Supplemental Retirement Agency, the Birmingham
Fund, Prince Georges County, and Alpha Phi Alpha Fraternity, Inc. owned the
remaining shares of the Chapman U.S. Treasury Money Fund. There were no
shares of The Chapman Institutional Cash Management Fund outstanding on that
date or during the period November 1, 1995 through October 31, 1996.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

Number of Record
On January 31, 1997 Title of Class Holders
------------------- -------------- ----------------

The Chapman US
Treasury Money Fund 16
Common Stock

The Chapman
Institutional Cash
Management Fund 0
Common Stock

ITEM 27. INDEMNIFICATION.

Reference is made to Article VII of the Registrant's Articles of
Incorporation, Article IV of the Registrant's By-laws, Section 7 of the Advisory
and Administrative Services Agreement between the Registrant and Chapman Capital
Management, Inc. and Section 4 of the Distribution Agreement between the
Registrant and The Chapman Co., which provide for indemnification or limitation
of the liability of directors and officers, the advisor, the principal
underwriter and affiliates of the Registrant.

The Registrant has obtained director's and officer's liability insurance
which will insure directors and officers of the Registrant against liability to
the Registrant and its stockholders.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant understands that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

15
<PAGE>

Item 28. Business and Other Connections of Investment Advisor.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITION OTHER BUSINESS
- ------------------------------------------------- ----------- -------------------------------------------------
<S> <C> <C>

Nathan A. Chapman, Jr. Director President, Chief Executive Officer and Treasurer
401 E. Pratt St. 28th Floor and since 1986 of The Chapman Co. and President and
Baltimore, MD 21202 Chairman Chief Executive Officer of Chapman Capital
of the Management, Inc., since 1988. President, Chairman
Board of the Board of Directors and Director of DEM,
Inc. (a closed-end investment company managed by
the Advisor) since 1995.

Bonnie Shay Gillette Secretary Assistant Secretary of DEM, Inc. since November
401 E. Pratt St. 28th Floor 1995, Secretary of Chapman Capital Management,
Baltimore, Maryland 21202 Inc. since 1988 and Secretary of The Chapman Co.
since February 1987.

M. Lynn Ballard Treasurer Controller of The Chapman Co. since February,
401 E. Pratt Street 28th Floor 1988. Controller of Chapman Capital Management,
Baltimore, Maryland 21202 Inc. since December 1995. Treasurer of DEM, Inc.

Theron Stokes Director Attorney for the Alabama Education Association.
401 E. Pratt Street 28th Floor
Baltimore, MD 21202

Earl U. Bravo Director Chief Operating Officer of the Chapman Co. since
401 E. Pratt Street 28th Floor 1992. President of Chapman Capital Management,
Baltimore, MD 21202 Inc. from 1990 until 1992. Since November 1995,
Vice President and Secretary of DEM, Inc.
</TABLE>

ITEM 29. PRINCIPAL UNDERWRITER.

(a) The Chapman Co. currently acts as principal underwriter and exclusive
distributor for DEM, Inc.

(b) Directors and Officers

POSITIONS AND OFFICES

<TABLE>
<CAPTION>
NAME AND PRINCIPAL WITH WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
- --------------------------------------- ------------------- -------------
<S> <C> <C>

Nathan A. Chapman, Jr. Director, Director,
The Chapman Co. President President
401 East Pratt Street Chief Executive
28th Floor Office, Treasurer
Baltimore, MD 21202

Donald V. Watkins, Esquire Director None
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202

16
<PAGE>

Bonnie Shay Gillette Secretary Secretary
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202

Earl U. Bravo, Sr. Director, None
The Chapman Co. Senior Vice
401 East Pratt Street President
28th Floor Baltimore,
Maryland 21202

</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules thereunder will be
maintained at the offices of Chapman Capital Management, Inc., 401 East Pratt
Street, 28th Floor, Baltimore, Maryland 21202.

ITEM 31. MANAGEMENT SERVICES.

Not applicable.

ITEM 32. UNDERTAKINGS.

Not applicable.

17
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
post-effective amendment No. 10 and amendment No. 12 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore, State of Maryland, on February 28,
1997. The undersigned hereby certifies that the within post-effective
amendment No. 10 and amendment No. 12 meet all of the requirements for
effectiveness pursuant to paragraph (b) of Rule 485 promulgated under the
Securities Act of 1933.

THE CHAPMAN FUNDS, INC.

BY:
-----------------------------------------
Nathan A. Chapman, Jr.
PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment No. 10 to Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.

SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------

- --------------------------
Nathan A. Chapman, Jr. Director and President February 28, 1997
(principal executive officer)

- ---------------------------
Lynn Ballard Treasurer (principal February 28, 1997
financial and
accounting officer)

Each of the Directors: Nathan A. Chapman, Jr., Lottie H. Shackelford, Dr.
Levi Watkins, Jr., James B. Lewis, Ronald A. White, Dr. Benjamin Hooks, Dr.
Joseph Quash, David Rivers, and Wilfred Marshall.

By: February 28, 1997
--------------------------------------
Nathan A. Chapman, Jr.
as Attorney-in-Fact

18
<PAGE>
EXHIBITS

EXHIBIT PAGE #
- ----------- ------

11 Consent of independent auditor. 37

13 Power of Attorney

<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and "Experts" and "Financial Statements" in the
Statement of Additional Information and to the incorporation by reference in
this Post-Effective Amendment Number 10 to Registration Statement Number
33-25716 (Form N1-A) of our report dated November 22, 1996, on the financial
statements and financial highlights of the Chapman Funds, Inc. for the year
ended October 31,1996, included in the 1996 Annual Report to Shareholders.

Baltimore, Maryland
February 24, 1997

<PAGE>

THE CHAPMAN FUNDS, INC.
POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that the undersigned Director(s) of the
Chapman Funds, Inc., a Maryland corporation, hereby constitute and appoint
NATHAN A. CHAPMAN, JR., and M. LYNN BALLARD and either of them, the true and
lawful agents and attorney-in-fact of the undersigned with full power and
authority in either said agent and attorney-in-fact, to sign for the undersigned
and in their respective names as Directors and Executive Officers of the Chapman
Funds, Inc., the Registration Statement on Form N-1A (Registration Statement
Nos. 33-25716 and 811-5697) filed with the Securities and Exchange Commission
(the "Registration Statement"), and any and all further amendments or
supplements (including post effective amendments) to said Registration
Statement, hereby ratifying and confirming all acts taken by such agent and
attorney-in-fact, as herein authorized.

- ----------------------------- --------------------------------
Nathan A. Chapman, Jr. Lynn Ballard
Director and President Treasurer (Principal Financial
(Principal Executive Officer) & Accounting Officer)

- ----------------------------- --------------------------------
David Rivers Ronald White
Director Director

- ----------------------------- --------------------------------
Wilfred Marshall Benjamin Hooks
Director Director

- ----------------------------- --------------------------------
James Lewis Joseph Quash
Director Director

- ----------------------------- --------------------------------
Lottie Shackelford Levi Watkins, Jr., MD
Director Director