CHAPMAN FUNDS INC, 485BPOS, 1998-03-02

CHAPMAN FUNDS INC
485BPOS, 1998-03-02

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<PAGE>

As filed with the Securities and Exchange Commission on March 2, 1998

Registration Nos. 33-25716
811-5697

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

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
---

X Post Effective Amendment No. 13
---
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT TO COMPANY ACT OF 1940

X Amendment No. 15
---
THE CHAPMAN FUNDS, INC.
-----------------------
(Exact Name of Registrant as Specified in Charter)

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

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

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)

[ ] on [date] pursuant to paragraph (b)

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

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

[ ] 75 days after filing pursuant to paragraph (a) (2)

[ ] on [date] pursuant to paragraph (a) (2) of Rule 485.

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

Registrant has previously registered an indefinite number of securities under
the Securities Act of 1933, as amended, pursuant to Section (a) (1) of Rule
24f-2 under the Investment Company Act of 1940, as amended. Registrant's Rule
24f-2 Notice for the fiscal year ended October 31, 1997 was filed with
Securities and Exchange Commission on January 27, 1998.

<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

Part A Prospectus Caption

Chapman US Treasury Money DEM Equity Fund, DEM Equity Fund, Investor
Fund; Chapman Institutional Institutional Shares Shares
Cash Management Fund
<S> <C> <C> <C> <C>
Item 1. Cover Page Cover Page Cover Page Cover Page

Item 2. Synopsis Fund Expenses Fund Expenses Fund Expenses

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

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

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

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

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

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

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

<PAGE>

N-1A Item No. Location

Part B Statement of Additional Information Caption

Chapman US Treasury Money DEM Equity Fund
Fund; Chapman Institutional
Cash Management Fund
<S> <C> <C> <C>
Item 10. Cover Page Cover Page Cover Page

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

Item 12. General Information and Not Applicable Not Applicable
History

Item 13. Investment Objectives Investment Program Investment Program
and Policies

Item 14. Management of the Management Management
Registrant

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

Item 16. Investment Advisory and Management; Experts Management; Experts
Other Services

Item 17. Brokerage Allocation Portfolio Transactions Portfolio Transactions

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

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

Item 20. Tax Status Dividends and Taxes Taxes

Item 21. Underwriters Management Management

Item 22. Calculation of Yield Yield
Performance Data

Item 23. Financial Statements Financial Statements Financial Statements

</TABLE>
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>

Prospectus Dated: March 2, 1998

THE CHAPMAN US TREASURY MONEY FUND
THE CHAPMAN INSTITUTIONAL CASH MANAGEMENT FUND

The Chapman US Treasury Money Fund and The Chapman Institutional Cash Management
Fund (each a "Fund" and collectively, the "Funds") are each a series of The
Chapman Funds, Inc., an open-end management investment company, known as a
series fund (the "Company"; the Funds and each other series of the Company are
herein referred to as a "Series"). 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 US Government and repurchase agreements collateralized fully
by direct obligations of the US 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 US 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 US
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 March 2, 1998 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 Chapman Co. at (800) 752-1013.

TABLE OF CONTENTS
-----------------

<S> <C>
Fund Expenses . . . . . . . . . . . . . . . . .2

Financial Highlights. . . . . . . . . . . . . .4

Investment Program. . . . . . . . . . . . . . .6

Management. . . . . . . . . . . . . . . . . . 10

Purchase of Shares. . . . . . . . . . . . . . 13

Exchanges . . . . . . . . . . . . . . . . . . 15

Redemption of Shares. . . . . . . . . . . . . 15

Net Asset Value . . . . . . . . . . . . . . . 16

Dividends and Taxes . . . . . . . . . . . . . 17

Yield . . . . . . . . . . . . . . . . . . . . 17

Other Information . . . . . . . . . . . . . . 18

</TABLE>

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 COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>

FUND EXPENSES

The following table illustrates the expenses and fees incurred by each Fund.
The Chapman US Treasury Money Fund expenses and fees set forth in the table are
for the period November 1, 1996 to October 31, 1997 and are expressed as a
percentage of fiscal 1997 average daily net assets. The Chapman Institutional
Cash Management Fund expenses and fees are estimated as there was no activity
for the period November 1, 1996 to October 31, 1997.

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) .67%* .15%*

Net Fund Expenses After Expense
Reimbursement .67%* .75%*
</TABLE>

*Effective January 1, 1998, the Advisor has agreed to continue 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, 1998. The Advisor's
obligation will be limited to the total of its advisory and administration
fees.

For the entire fiscal year 1997, the Advisor 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 of The Chapman US Treasury Money
Fund and The Chapman Institutional Cash Management Fund, respectively. The
actual expenses of The Chapman US Treasury Money Fund prior to reimbursement of
expenses was 0.93% of average daily net assets. The actual other expenses of
The Chapman US Treasury Money Fund for the year ended October 31, 1997 prior to
reimbursement of other expenses was .33% of average daily net assets. During
fiscal year 1991, The Chapman Institutional 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 Chapman
Institutional Cash Management Fund since that time.

2
<PAGE>

However, The Chapman Institutional Cash Management Fund is still authorized to
sell shares to investors meeting the qualifications of the Fund prospectus.

EXAMPLE

An investor would pay the following expenses on a $1,000 investment assuming a
5% annual return, reinvestment of all dividends and distributions at net asset
value and redemption at the end of the period:

The Chapman US Treasury The Chapman Institutional
Money Fund Cash Management Fund
---------- --------------------
<S> <C> <C>
1 YEAR $ 7 $ 8
3 YEARS $ 21 $ 24
5 YEARS $ 36 $ 42
10 YEARS $ 81 $ 93

</TABLE>

The foregoing expense tables are based upon met expenses of .65% and .75% of
average daily net assets for The Chapman U.S. Treasury Money Fund and The
Chapman Institutional Cash Management Fund, respectively, for the entire ten
year period. The purpose of the table is to assist the investor in
understanding the various costs and expenses that an investor in the Funds will
bear, directly or indirectly. "Other Expenses" are based on estimated amounts
for the current economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc. (the "NASD").
This example should not be considered a representation of future expenses of the
Funds and actual expenses may be greater or less than those shown. Moreover,
while the examples assume a 5% annual return, each Fund's performance will vary
and may result in a return greater or less than 5%.

3
<PAGE>

FINANCIAL HIGHLIGHTS

The following tables include selected data for a share outstanding throughout
each period and other performance information derived from the Company's
audited financial statements. They should be read in conjunction with the
audited financial statements, the notes thereto, and independent auditor's
report thereon appearing in the Company's Annual Report to Stockholders for
the year ended October 31, 1997.

4
<PAGE>

US TREASURY MONEY FUND FOR THE YEARS ENDED OCTOBER 31,
- --------------------------------------------------------
1997 1996 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:

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

INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . 0.0470 0.0464 0.0497 0.0294
-------- -------- -------- --------

DISTRIBUTIONS:
From net investment income . . . . . . . . . . 0.0470 0.0464 0.0497 0.0294
-------- -------- -------- --------

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

TOTAL RETURN 4.80% 4.74% 5.09% 3.04%

RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted). . . . . . $60,210 $55,129 $34,371 $20,011

RATIOS TO AVERAGE NET ASSETS:
Expenses ****. . . . . . . . . . . . . . . . . . . 0.67% 0.75% 0.75% 0.75%
Net investment income . . . . . . . . . . . . . . . 4.72% 4.63% 5.02% 2.94%
Expenses Prior to Reimbursement by Advisor. . . .. 0.93% 0.87% 0.97% 1.12%

Period
US TREASURY MONEY FUND FOR THE YEARS ENDED OCTOBER 31, June 1, 1989*
- ------------------------------------------------------- to
1993 1992 1991 1990 October 31, 1989
------ ------ ------ ------ -----------------
<S> <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
-------- -------- -------- -------- --------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . 0.0241 0.0315 0.0619 0.0705 0.0318
-------- -------- -------- -------- --------

DISTRIBUTIONS:
From net investment income. . . . . . . . . . 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
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------

TOTAL RETURN 2.44% 3.20% 6.37% 7.28% 3.22%**

RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted). . . . . . $23,515 $33,002 $12,229 $29,034 $37,330

RATIOS TO AVERAGE NET ASSETS:
Expenses ****. . . . . . . . . . . . . . . . . . . 0.75% 0.75% 0.75% 0.74% 0.27%**
Net investment income . . . . . . . . . . . . . . . 2.41% 3.15% 6.19% 6.97% 2.97%**
Expenses Prior to Reimbursement by Advisor . . . . 1.15% 1.02% 1.13% 1.05% 0.38%**

INSTITUTIONAL CASH MANAGEMENT FUND*** FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------------------------------
1997 1996 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:

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

INCOME FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . -- -- -- --
-------- -------- -------- --------

DISTRIBUTIONS:
From net investment income. . . . . . . . . . -- -- -- --
-------- -------- -------- --------

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

TOTAL RETURN -- -- -- --

RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000 omitted). . . . . . -- -- -- --

RATIOS TO AVERAGE NET ASSETS:
Expenses ****. . . . . . . . . . . . . . . . . . . -- -- -- --
Net investment income . . . . . . . . . . . . . . . -- -- -- --
Expenses Prior to Reimbursement by Advisor . . . . -- -- -- --

Period
INSTITUTIONAL CASH MANAGEMENT FUND*** FOR THE YEARS ENDED OCTOBER 31, June 1, 1989*
- ------------------------------------------------------- to
1993 1992 1991 1990 October 31, 1989
------ ------ ------ ------ ------------------
<S> <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.
**** As of January 1, 1998 Chapman Capital Management, Inc. (the "Advisor")
agreed to continue to bear all expenses (excluding income, excise and
other taxes and extraordinary expenses) in excess of .65% and .75% of
average daily net assets of The Chapman US Treasury Money Fund and The
Chapman Institutional Cash Management Fund, respectively.

5
<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 "1940 Act").

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 US dollar-denominated instruments that the Company's 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 1940 Act) 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.

6
<PAGE>

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 US Government or its agencies or instrumentalities.

US Treasury bills, notes and bonds are direct obligations of the US Government.
Treasury bills mature in one year or less. Treasury notes mature in one to ten
years. Treasury bonds mature after more than ten years. The Funds will invest
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 US
banks, savings banks and savings and loan associations having total assets of at
least $1 billion and in dollar-denominated instruments of US 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 US branches of foreign banks may be higher
yielding than obligations of US 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, US branches of foreign banks. Obligations of US branches of foreign
banks may be limited obligations of the US branches and may not necessarily be
insured by the Federal Deposit Insurance Corporation.

Obligations of US Government agencies and instrumentalities are not obligations
of the US Government, although in some cases payment of interest and principal
on these obligations is guaranteed by the US Government. Examples of these
securities include those issued by or

7
<PAGE>

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 US 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 US 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 US 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 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 1940 Act 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 US 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

8
<PAGE>

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 US
Government securities or with US 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 1940 Act, 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 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 1940 Act. 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 US
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

9
<PAGE>

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 US Treasury securities,
and repurchase agreements fully collateralized by US 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 US 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 US
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 US 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 US Treasury securities and repurchase agreements fully
collateralized by US 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 Funds are managed by the Company's Board of Directors. All of the
Directors are members of minority groups. The Board of Directors approves all
significant agreements between each Fund and other Series of the Company and
between each Fund and persons who furnish services to the Funds, including the
Funds' agreements with the Investment Advisor and the Distributor. The Board of
Directors delegates to the Company's officers and the Investment Advisor
responsibility for day-to-day operations of the Funds. All of the officers of
the Company are directors, officers or employees of the Investment Advisor
and/or the Distributor.

10
<PAGE>

THE INVESTMENT ADVISOR

The Investment Advisor, Chapman Capital Management, Inc., has been retained
under an investment advisory and administrative services agreement (the
"Advisory Agreement") to provide investment advice and, in general, to
conduct the management and investment program of each Fund in accordance with
each Fund's investment objectives, policies, and restrictions and under the
supervision and control of the Company's Board of Directors. The Investment
Advisor was established in 1988 and is located at The World Trade Center
- -Baltimore, 401 East Pratt Street, 28th Floor, Baltimore, Maryland 21202. As
of February 26, 1998, the Investment Advisor is a wholly-owned subsidiary of
Chapman Capital Holdings, Inc. Nathan A. Chapman, Jr., who is the
controlling stockholder, President and Chairman of the Board of Directors of
Chapman Capital Holdings, Inc., is President and Chairman of the Board of
Directors of the Company and President and Chairman of the Board of Directors
of the Investment Advisor.

The Investment Advisor has sole investment discretion for each Fund and makes
all decisions affecting assets in the Funds' portfolios under the supervision of
the Company's Board of Directors and in accordance with the Funds' stated
policies. The Investment Advisor selects investments for the Funds and places
purchase and sale orders on behalf of the Funds. The Investment 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.

The Investment Advisor has been in the investment advisory business since 1988
and has acted as investment advisor to the Funds since May 1989. Prior to May
1991, the Investment Advisor delegated its investment advisory and management
responsibilities to others. Since May 1991, the Investment Advisor has provided
these services to the Funds. The Investment Advisor has also served as the
investment advisor to a closed-end non-diversified investment company since 1995
and to the DEM Equity Fund, another Series of the Company, since 1997. In
addition, the Investment Advisor serves as portfolio manager to private
accounts. As of October 31, 1997, the Investment Advisor had approximately $430
million in assets under management.

THE DISTRIBUTOR

The Distributor, The Chapman Co., is a registered broker-dealer and a member
of the NASD. The Distributor is located at The World Trade
Center--Baltimore, 401 E. Pratt Street, 28th Floor, Baltimore, Maryland
21202. As of February 26, 1998, the Distributor is a wholly-owned subsidiary
of Chapman Holdings, Inc. Nathan A. Chapman, Jr., who is the controlling
shareholder, President, Chairman of the Board of Chapman Holdings, Inc., is
President and Chairman of the Board of Directors of the Company and
President and Chairman of the Board of Directors of the Company and the
Distributor.

The Distributor 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 Investment Advisor may make payments to
the

11
<PAGE>

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 Funds bear all other expenses
incurred in their 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 US Treasury Money Fund in fiscal year 1997
as The Chapman Cash Management Fund had no activity during the year. For the
entire 1997 fiscal year, the Advisor agreed to bear annual expenses (excluding
income, excise and other taxes and extraordinary expenses) of each Fund 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.
The actual expenses of The Chapman US Treasury Money Fund prior to reimbursement
of expenses was 0.93% of average daily net assets. The actual other expenses of
The Chapman US Treasury Money Fund for the year ended October 31, 1997 prior to
reimbursement of other expenses was .33% of average daily net assets.

Effective January 1, 1998, the Advisor has agreed to continue 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, 1998. The Advisor's obligation will be limited
to the total of its advisory and administration fees.

BROKERAGE

The Distributor may effect brokerage transactions for the Funds in compliance
with the requirements of the 1940 Act.

CUSTODIAN

UMB Bank, N.A., 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 (the
"Transfer Agent") for the Funds'

12
<PAGE>

shares 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 shareholders of record, including reports to stockholders and
proxy materials for meetings of stockholders; and (5) make periodic reports to
the Company.

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:

13
<PAGE>

(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.

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 US
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.

14
<PAGE>

- --------------------------------------------------------------------------------
Name and Principal Position With Position With
Business Address Underwriter Funds
- --------------------------------------------------------------------------------
Director, Senior Vice Secretary and
President, Secretary Assistant Treasurer
Earl U. Bravo, Sr. and Assistant
The Chapman Co. Treasurer
401 East Pratt Street
28th Floor
Baltimore, MD 21202
- --------------------------------------------------------------------------------
Treasurer and Treasurer and
M. Lynn Ballard Assistant Secretary Assistant Secretary
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, MD 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.

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.

15
<PAGE>

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.

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

16
<PAGE>

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.

17
<PAGE>

OTHER INFORMATION

CAPITAL STOCK

The Company was incorporated November 22, 1988 under the laws of the State of
Maryland under the name The Chapman Funds, Inc. It is a registered open-end,
diversified management investment company under the 1940 Act set up as a "series
fund" which is a mutual fund divided into separate portfolios, each of which is
treated as a separate entity for certain matters under the 1940 Act and for tax
and other purposes. A stockholder of one Series is not deemed to be a
stockholder of any other Series. The Company's charter authorizes the Board to
issue 10 billion full and fractional shares of common stock, par value $.001 per
share, of which 2 billion shares are designated The Chapman US Treasury Money
Fund shares, 2 billion shares are designated The Chapman Institutional Cash
Management Fund shares, 1 billion are designated as DEM Equity Fund Investor
Class shares and 1 billion are designated as DEM Equity Fund Institutional Class
shares. Under the Company's charter documents and Maryland law, the Board has
the power to classify or reclassify any unissued shares of the Company into one
or more additional classes by setting or changing in any one or more respects
their relative rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption. The Board may similarly
classify or reclassify any class of its shares into one or more series and,
without stockholder approval, may increase the number of authorized shares of
the Company. All shares of the Funds, 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 1940 Act.

On January 31, 1998 Maryland Teachers and State Employees' Supplemental
Retirement Agency owned 42%, the City of Philadelphia owned 19%, the State of
Mississippi owned 9%, Bank of New York as Trustee for Prince George's County
owned 8%, and Union Planters National Bank, the School District of Philadelphia,
Howard County, the Mayor and City Council of Baltimore, Alabama State
University, the Wisconsin Housing Economic Development Authority, Alpha Phi
Alpha Fraternity, Inc., Prince George's County, Central Mississippi Civic
Improvement Association, Inc., First Tennessee Bank, and the City of
Philadelphia Sheriff's Office owned the remaining shares of The Chapman US
Treasury Money Fund. There were no shares of The Chapman Institutional Cash
Management Fund outstanding on that date or during the period November 1, 1996
through October 31, 1997.

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

18
<PAGE>

information about other classes of the Company by contacting the Distributor at
the telephone number listed on the back of this Prospectus.

THE YEAR 2000 PROBLEM

Like other investment companies, financial and business organizations and
individuals around the world, each Fund could be adversely affected if the
computer systems used by its Investment Advisor and other service providers do
not properly process and calculate date-related information from and after
January 1, 2000. This is commonly known as the "Year 200 Problem." The Company
is taking steps that it believes are reasonably designed to address the Year
2000 Problem with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Funds' other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds.

STOCKHOLDER INQUIRIES

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

19
<PAGE>

THE CHAPMAN US TREASURY MONEY FUND
THE CHAPMAN INSTITUTIONAL CASH MANAGEMENT FUND
PROSPECTUS

March 2, 1998

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
(410) 625-9656

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
(800) 752-1013

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 US TREASURY MONEY FUND
THE CHAPMAN INSTITUTIONAL CASH MANAGEMENT FUND

WORLD TRADE CENTER - BALTIMORE
401 EAST PRATT STREET, 28TH FLOOR
BALTIMORE, MARYLAND 21202
TELEPHONE: (410) 625-9656, (800) 752-1013

Statement Of Additional Information, March 2, 1998

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 March 2, 1998 (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 B-2 Dividends B-13
Management B-4 Taxes B-14
Purchase of Shares B-10 Yield B-14
Exchanges B-10 Capital Stock B-15
Redemption of Shares B-11 Counsel to the Company B-15
Portfolio Transactions B-11 Experts B-16
Net Asset Value B-13 Financial Statements B-16

B-1
<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.

The Chapman US Treasury Money Fund and The Chapman Institutional Cash Management
Fund (each the "Fund" and collectively the "Funds") are each a series of The
Chapman Funds, Inc., an open-end management investment company, known as a
"series fund" (the "Company"; the Funds and each other series of the Company are
herein referred to as a "Series"). The Chapman US Treasury Money Fund invests
in US 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 US Government obligations,
bank instruments, commercial paper and repurchase agreements.

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, US 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 US 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 US branches of
foreign banks may not necessarily be insured by the FDIC. In addition, less
information may be publicly available about a US branch of a foreign bank than
about a domestic bank.

B-2
<PAGE>

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.

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.

B-3
<PAGE>

The investment objectives and policies of The Chapman US 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."

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

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.

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, as amended (the "1940 Act") are indicated by an asterisk.

- --------------------------------------------------------------------------------
Principal
Positions(s) Occupations (s)
Held with During
Name and Address Registrant Age Past 5 Years
- --------------------------------------------------------------------------------
* Nathan A. Chapman, Jr. Director 40 President and Director since 1986
401 E. Pratt St., 28th and of The Chapman Co. President and
Floor President Director of Chapman Capital
Baltimore, Maryland Management, Inc. since 1992.
21202 President and Director of DEM,
Inc. (a closed-end investment
company managed by the Investment
Advisor) since 1995. President
and Director of Chapman Holdings,
Inc., Chapman Capital Holdings,
Inc. and Chapman Insurance Agency
Incorporatedsince 1997.
- --------------------------------------------------------------------------------
James B. Lewis Director 50 City Administrator, City of Rio
401 E. Pratt St., 28th Rancho since March 1996. Chief
Floor Clerk - State Corporation
Baltimore, Maryland Commission of New Mexico from
21202 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 62 Principal, Marshall Enterprises
401 E. Pratt St., 28th since 1994. Director, Mayor's
Floor Office of Small Business
Baltimore, Maryland Assistance - City of Los Angeles
21202 1981 until 1994.
- --------------------------------------------------------------------------------
Lottie H. Shackelford Director 56 Executive Vice President of
401 E. Pratt St., 28th Global USA since 1994.
Floor Independent Consultant, City
Baltimore, Maryland Director of the City of Little
21202 Rock, Arkansas, 1978 to 1995.
Director of DEM, Inc. Director
of Chapman Holdings, Inc.
- --------------------------------------------------------------------------------

B-4
<PAGE>

- --------------------------------------------------------------------------------
* Levi Watkins, Jr., MD Director 53 Professor of Cardiac Surgery and
401 E. Pratt St., 28th Associate Dean of the Johns
Floor Hopkins University, School of
Baltimore, Maryland Medicine since July 1984.
21202
- --------------------------------------------------------------------------------
Ronald A. White Director 48 Senior Partner, Ronald A. White,
401 E. Pratt St., 28th P.C., since 1982, Director of
Floor DEM, Inc.
Baltimore, Maryland
21202
- --------------------------------------------------------------------------------
Dr. Benjamin Hooks Director 72 Senior Vice President of The
401 E. Pratt St., 28th Chapman Co. since May 1993.
Floor Executive Director of the NAACP
Baltimore, Maryland from 1977 to April 1993.
21202 Director of DEM, Inc.
- --------------------------------------------------------------------------------
David Rivers Director 54 Director of Community
401 E. Pratt St., 28th Development Medical University
Floor of South Carolina Environmental
Baltimore, Maryland Hazards Assessment Program since
21202 1994; President, Research
Planning and Management from
1991 to 1994.
- --------------------------------------------------------------------------------
* Valerie A. Chapman Vice - 36 Administrator of The Chapman Co.
401 E. Pratt St., 28th President since March 1988. She is
Floor married to Nathan A. Chapman,
Baltimore, Maryland Jr.
21202
- --------------------------------------------------------------------------------
Earl U. Bravo, Sr. Secretary 50 Chief Operating Officer since
401 E. Pratt St., 28th and 1992 and Secretary and Assistant
Floor Assistant Treasurer since 1997 of The
Baltimore, Maryland Treasurer Chapman Co. Vice President,
Secretary and Assistant Treasurer
of DEM, Inc. Senior Vice
President, Secretary, Assistant
Treasurer and Director of Chapman
Holdings, Inc. since 1997.
Secretary, Assistant Treasurer and
Director of Chapman Capital
Holdings, Inc. and Chapman
Insurance Agency Incorporated
since 1997.
- --------------------------------------------------------------------------------
M. Lynn Ballard Treasurer 55 Controller since 1988 and
401 E. Pratt St., 28th and Treasurer and Assistant
Floor Assistant Secretary since 1997 of The
Baltimore, Maryland Secretary Chapman Co. Treasurer since 1990,
Controller since December 1995
and Assistant Secretary since 1997
of Chapman Capital Management,
Inc. Treasurer and Assistant
Secretary of DEM, Inc. Treasurer,
Assistant Secretary and Controller
of Chapman Holdings, Inc., Chapman
Capital Holdings, Inc. and Chapman
Insurance Agency Incorporated
since 1997.
- --------------------------------------------------------------------------------

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

B-5
<PAGE>

COMPENSATION TABLE

- --------------------------------------------------------------------------------
Retirement or Total
Pension Estimated Compensation
Benefits Annual from Company
Aggregate Accrued as Part Benefits and Fund
Name of Person/ Compensation of Company upon Complex Paid
Position from Company Expenses Retirement to Directors
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, None None None None
Jr.
Director, Chairman,
President
- --------------------------------------------------------------------------------
James Lewis $4,000 None None $8,000
Director
- --------------------------------------------------------------------------------
Lottie Shackelford $4,000 None None $8,000
Director
- --------------------------------------------------------------------------------
Levi Watkins, Jr., None None None None
Md
Director

- --------------------------------------------------------------------------------
Ronald A. White
Director $3,000 None None $6,000
- --------------------------------------------------------------------------------
Dr. Benjamin Hooks $4,000 None None $5,000
Director
- --------------------------------------------------------------------------------
Wilfred Marshall $4,000 None None $4,000
Director
- --------------------------------------------------------------------------------
David Rivers $3,000 None None $3,000
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 1940 Act 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 1940 Act, because his brother, Donald Watkins, Esquire, is a
member of the Board of Directors of The Chapman Co.

For so long as the Distribution Plan described in the Prospectus section
captioned "Management -- The Distributor" remains in effect, the Directors of
the Company who are not "interested persons" of the Company, as defined in the
1940 Act, will be selected and nominated by the Directors who are not
"interested persons" of the Company.

B-6
<PAGE>

THE INVESTMENT ADVISOR

The Investment Advisor, Chapman Capital Management, Inc., has been retained
under an investment advisory and administrative services agreement ("Advisory
and Administrative Services Agreement") to provide investment advice and, in
general, to conduct the management and investment program of each Fund in
accordance with each Fund's investment objectives, policies, and restrictions
and under the supervision and control of the Company's Board of Directors. The
Investment Advisor was established in 1988 and is located at The World Trade
Center - Baltimore, 401 East Pratt Street, 28th Floor, Baltimore, Maryland
21202.

As of February 26, 1998, the Investment Advisor is a wholly-owned subsidiary
of Chapman Capital Holdings, Inc., which is structured as a holding company
of the Investment Advisor. Nathan A. Chapman, Jr., who is the controlling
stockholder of Chapman Capital Holdings, Inc., is a controlling person (as
that term is defined under the 1940 Act) of Chapman Capital Holdings, Inc.
and, therefore, a controlling person of the Investment Advisor.

The table below sets forth the names of affiliated persons of the
Company who are also affiliated persons of the Investment Advisor:

- --------------------------------------------------------------------------------
Name and
Principal Business Position With Investment Position With Company
Address Advisor
- --------------------------------------------------------------------------------
Nathan A. Chapman, Jr. President and Director President and Director
401 E. Pratt St.
28th Floor
Baltimore, MD 21202
- --------------------------------------------------------------------------------
Earl U. Bravo, Sr. Director, Secretary and Secretary and Assistant
401 E. Pratt St. Assistant Treasurer Treasurer
28th Floor
Baltimore, MD 21202
- --------------------------------------------------------------------------------
M. Lynn Ballard Treasurer and Assistant Treasurer and Assistant
401 E. Pratt Street Secretary Secretary
28th Floor
Baltimore, MD 21202
- --------------------------------------------------------------------------------

The Investment Advisor has sole investment discretion for the Funds and makes
all decisions affecting assets in the Funds' portfolios under the supervision of
the Company's Board of Directors and in accordance with each Fund's stated
policies. The Investment Advisor selects investments for each Fund and places
purchase and sale orders on behalf of the Funds. The Investment 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, 1997, 1996, and 1995 the Advisor received management and
administrative fees of $253,201 and $50,640, $200,323 and $40,064, and $148,368
and $29,674 respectively, from The Chapman US Treasury Money Fund. The
Investment Advisor reimbursed expenses above .65% of average daily net assets
for The Chapman US Treasury Money Fund for the years ended October 31, 1997,
1996, and 1995 amounting to $134,280, $48,517, and $66,577, respectively.
During fiscal year 1991, The Chapman Institutional Cash Management Fund
liquidated its portfolio and distributed the proceeds to its shareholders.
There has been no activity, including subscriptions

B-7
<PAGE>

for purchases of shares, in The Chapman Institutional Cash Management Fund since
that time. However, The Chapman Institutional Cash Management Fund is still
authorized to sell shares to investors meeting the qualifications of the Fund
prospectus.

Effective January 1, 1998, the Investment Advisor has agreed to continue 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, 1998.

In connection with the provision of advisory services, the Investment Advisor
will obtain and provide investment research and will supervise each Fund's
investments each conduct a continuous program of investment, evaluation and, if
appropriate, sale and reinvestment of the Funds' assets. The Investment
Advisor will place orders for the purchase and sale of portfolio securities and
will solicit brokers to execute transactions, including The Chapman Co., in
accordance with the Company's policies and restrictions regarding brokerage
allocations. The Investment Advisor will furnish to the Company such
statistical information with respect to the investments which the Fund may hold
or contemplate purchasing as the Company may reasonably request. Further, the
Investment Advisor will supply office facilities, data processing services,
clerical, accounting and bookkeeping services, internal auditing services,
executive and other administrative services; provide stationery and office
supplies; prepare reports to the Fund's stockholders, tax returns and reports to
and filings with the SEC and state Blue Sky authorities; calculate the net asset
value of each Fund's shares; provide persons to serve as the Company's officers
and generally assist in all aspects of the Company's operations. The Investment
Advisor will pay for its own costs in providing the above listed services.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

The following table sets forth, to the Company's knowledge, the name, address
and percentage of the outstanding shares of the Fund owned beneficially by each
person who owned beneficially 5% or more of the outstanding common stock as of
January 31, 1998, the latest practicable date.

- --------------------------------------------------------------------------------
NAME OF BENEFICIAL OWNER ADDRESS %
- --------------------------------------------------------------------------------
<S> <C> <C>
Maryland Teachers and State 6 St. Paul Street, Suite 200 42%
Employees Supplemental Baltimore, MD 21202
Retirement Agency
- --------------------------------------------------------------------------------
City of Philadelphia 640 MSB, 1404 JFK Boulevard 19%
Philadelphia, PA 19102-1681
- --------------------------------------------------------------------------------
State of Mississippi PO Box 138 9%
Jackson, MS 39205
- --------------------------------------------------------------------------------
Bank of New York as Trustee for 101 Barclay Street, 21st Floor 8%
Prince Georges County, MD New York, NY 10286
- --------------------------------------------------------------------------------
</TABLE>

Because the Maryland Teachers and State Employees Supplemental Retirement Agency
owns 42% of the issued and outstanding common stock of The Chapman US Treasury
Money Fund, as of January 31, 1998, such stockholder is deemed to control the
Fund. Accordingly, such

B-8
<PAGE>

stockholder has significant power to affect the affairs of the Fund or to
determine or influence the outcome of matters submitted to a vote of the
stockholders of the Fund.

There were no shares of The Chapman Institutional Cash Management Fund
outstanding on that date or during the period November 1, 1996 through October
31, 1997.

DISTRIBUTOR

Net Compensation
Name of Underwriting on Redemption
Principal Discounts and and Brokerage Other
Underwriter Commissions Repurchases Commissions Compensation
----------- ----------- ----------- ----------- ------------

The Chapman None None None None
Co.

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.

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

B-9
<PAGE>

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 US funds and must be drawn in US dollars on a
US 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.

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.

B-10
<PAGE>

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

B-11
<PAGE>

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 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

B-12
<PAGE>

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.

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 US 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 US 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

B-13
<PAGE>

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, 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; and (b) 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, US 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 US
Government securities). These percentage limitations 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.

B-14
<PAGE>

On October 31, 1997 the Company's seven day yield was 4.71%. 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.

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 various Series, of any general assets not attributable to a
particular series that are available for distribution.

Subject to the provisions of the Company's charter, 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 Series 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.

B-15
<PAGE>

EXPERTS

Ernst & Young LLP, 2001 Market Street Philadelphia, Pennsylvania 19013, 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, as set forth in their report are
incorporated by reference herein. Such financial statements and financial
highlights 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, 1997 and
the Report of Independent Auditors are set forth in the Company's 1997 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.

B-16

<PAGE>
PART C. OTHER INFORMATION

Item 24. Financial Statement and Exhibits.

(a) Financial Statements:
Part A: Financial Highlights
Part B: None
Part C: None
See Registrant's 1997 Annual Report to
Stockholders previously filed.

(b) Exhibits:

Exhibit
Number Description

1(A) Articles of Incorporation of the Registrant(1)

1(B) Articles Supplementary of the Registrant dated July 2,
1997(2)

1(C) Articles of Amendment of the Registrant dated February 12,
1998

1(D) Articles Supplementary of the Registrant dated February 12,
1998

1(E) Articles Supplementary of the Registrant dated February 12,
1998

2 Amended and Restated Bylaws of the Registrant dated July 18,
1997(2)

4 Form of Stock Certificate(3)

5(A) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management (The Chapman US
Treasury Money Fund and The Chapman Institutional Cash
Management Fund)(2)

5(B) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (DEM Equity
Fund)

5(C) Amendment to Advisory and Administrative Services Agreement
between the Registrant and Chapman Capital Management, Inc.
(The Chapman US Treasury Money Fund and The Chapman
Institutional Cash Management Fund)

C-1
<PAGE>

6(A) Distribution Agreement between the Registrant and The
Chapman Co. (The Chapman US Treasury Money Fund and The
Chapman Institutional Cash Management Fund)(2)

6(B) Distribution Agreement between the Registrant and The
Chapman Co. (DEM Equity Fund)

6(C) Amendment to Distribution Agreement between Registrant and
The Chapman Co. (The Chapman US Treasury Money Fund and The
Chapman Institutional Cash Management Fund)

8(A) Custodian Agreement between the Registrant and UMB Bank,
N.A.(4)

8(B) Investment Company Services Agreement between the Registrant
and FPS Services, Inc.(2)

9(A) Stockholder Services Agreement between the Registrant and
Chapman Capital Management, Inc. (The Chapman US Treasury
Money Fund and The Chapman Institutional Cash Management
Fund)(4)

10 Opinion and consent of Venable, Baetjer and Howard, LLP(2)

11 Consent of independent auditors

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

15(A) Distribution Plan (DEM Equity Fund Investor Shares)

15(B) Distribution Plan (DEM Equity Fund Institutional Shares)

18 Multiple Class Plan (DEM Equity Fund)(2)

27.17 Financial Data Schedule (Not Applicable)

99 Power of Attorney(5)

(1) Incorporated by reference from the Company's Registration Statement on Form
N-1A (File Nos.: 33-25716; 811-5697) as filed with the Securities and
Exchange Commission on November 23, 1988.

(2) Incorporated by reference from the Company's Registration Statement on Form
N-1A (File Nos.: 33-25716; 811-5697) as filed with the Securities and
Exchange Commission on August 7,1997.

C-2
<PAGE>

(3) Incorporated by reference from Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form N-1A (File Nos.: 33-25716;
811-5697) as filed with the Securities and Exchange Commission on May 31,
1989.

(4) Incorporated by reference from Post-Effective Amendment No. 10 to the
Company's Registration Statement on Form N-1A (File Nos.: 33-25716;
811-5697) as filed with the Securities and Exchange Commission on February
28, 1995.

(5) Incorporated by reference from Post-Effective Amendment 12 to the Company's
Registration Statement on Form N-1A (File Nos.: 33-25716; 811-5697) as
filed with the Securities and Exchange Commission on February 28, 1997

Item 25. Persons Controlled by or under Common Control with the Registrant.

On January 31, 1998 Maryland Teachers and State Employees' Supplemental
Retirement Agency owned 42%, the City of Philadelphia owned 19%, the State of
Mississippi owned 9%, Bank of New York as Trustee for Prince George's County
owned 8%, and Union Planers National Bank, the School District of Philadelphia,
Howard County, the Mayor and City Council of Baltimore, Alabama State
University, the Wisconsin Housing Economic Development Authority, Alpha Phi
Alpha Fraternity, Inc., Prince George's County, Central Mississippi Civic
Improvement Association, Inc., First Tennessee Bank, and the City of
Philadelphia Sheriff's Office owned the remaining shares of the Chapman US
Treasury Money Fund. There were no shares of the Chapman Institutional Cash
Management Fund outstanding on that date or during the period November 1, 1996
through October 31, 1997.

Item 26. Number of Holders of Securities.

<TABLE>
<CAPTION>
Number of Record
On January 31, 1998 Title of Class Holders
<S> <C> <C>

The Chapman US
Treasury Money Fund 16
Common Stock

The Chapman
Institutional Cash
Management Fund 0
Common Stock

DEM Equity Fund
Institutional Shares 1

DEM Equity Fund
Investor Shares 1
</TABLE>

C-3
<PAGE>

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 Distributor, which provide for indemnification or limitation
of the liability of Directors and officers, the Investment 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.

Item 28. Business and Other Connections of Investment Advisor.

Name and
Principal Business Address Position with Investment Advisor Other Business
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. Director and President President and Director
401 E. Pratt St. since 1986 of The Chapman
28th Floor Co. and President and
Baltimore, MD 21202 Director of Chapman
Capital Management, Inc.
since 1988. President and
Director of DEM, Inc. (a
closed-end investment
company managed by the
Investment Advisor) since
1995. President and Director
of Chapman Holdings, Inc.,
Chapman Capital Holdings,
Inc. and Chapman Insurance
Agency Incorporated since
1997.

</TABLE>

C-4
<PAGE>

M. Lynn Ballard Treasurer and Assistant Controller since 1988 and Treasurer and
401 E. Pratt Street Secretary Assistant Secretary since 1997 of The
28th Floor Chapman Co. Treasurer since 1990,
Baltimore, Maryland 21202 Controller since 1995 and Assistant
Secretary since 1997 of Chapman Capital
Management, Inc. Treasurer since
1995 and Assistant Secretary since
1997 of DEM, Inc. Treasurer, Assistant
Secretary and Controller of Chapman
Holdings, Inc., Chapman Capital Holdings,
Inc. and Chapman Insurance Agency
Incorporated since 1997.
- -----------------------------------------------------------------------------------------------------------------------
Theron Stokes Director Attorney for the Alabama Education
401 E. Pratt Street Association.
28th Floor
Baltimore, MD 21202

- ---------------------------------------------------------------------------------------------------------------------
Earl U. Bravo Director, Secretary Chief Operating Officer since 1992 and
401 E. Pratt Street And Assistant Treasurer Secretary and Assistant Treasurer since 1997
28th Floor of The Chapman Co. Vice President and
Baltimore, MD 21202 Secretary since 1995 and Assistant
Treasurer since 1997 of DEM, Inc.
Director of The Chapman Co. and Chapman
Capital Management, Inc. Senior Vice
President, Secretary, Assistant Secretary
and Director of Chapman Holdings, Inc. since
1997. Secretary, Assistant Treasurer and
Director of Chapman Capital Holdings, Inc.
and Chapman Insurance Agency Incorporated
since 1997.

</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

Name and With With
Principal Business Address Underwriter Registrant
- --------------------------------------------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. Director and President Director and President
The Chapman Co.
401 East Pratt Street
28th Floor
Baltimore, MD 21202

</TABLE>

C-5

<PAGE>

<TABLE>

<S> <C> <C>
- --------------------------------------------------------------------------------------
Donald V. Watkins, Director None
Esquire
401 East Pratt Street
28th Floor
Baltimore, Maryland 21202

- -----------------------------------------------------------------------------------------
Earl U. Bravo, Sr. Director, Senior Vice Secretary and Assistant
The Chapman Co. President, Secretary and Treasurer
401 East Pratt Street Assistant Treasurer
28th Floor
Baltimore, Maryland
21202

- --------------------------------------------------------------------------------------
M. Lynn Ballard Treasurer and Assistant Treasurer and Assistant
The Chapman Co. Secretary Secretary
401 East Pratt Street
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 or at the offices of FPS
Services, Inc., 3200 Horizon Drive, PO Box 61503, King of Prussia, Pennsylvania
19406.

Item 31. Management Services.

Not applicable.

Item 32. Undertakings.

Not applicable.

C-6
<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. 13 and amendment No. 15 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, 1998. The undersigned hereby
certifies that the within post-effective amendment No. 13 and amendment No. 15
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: /S/ NATHAN A. CHAPMAN JR.
------------------------------
Nathan A. Chapman, Jr.
President

Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment No. 13 to Registration Statement has been signed below
by the following persons in the capacities and on the date indicated.

Signature Title Date
<S> <C> <C>

/S/ NATHAN A. CHAPMAN, JR. Director and President February 25, 1998
- ---------------------------- (principal executive
Nathan A. Chapman, Jr. officer)

/S/ M. LYNN BALLARD Treasurer (principal February 25, 1998
- -------------------- financial and
M. Lynn Ballard accounting officer)

</TABLE>

Each of the Directors:

Nathan A. Chapman, Jr., Lottie H. Shackelford, Dr. Levi Watkins, Jr., James
B. Lewis, Ronald A. White, Dr. Benjamin Hooks, David Rivers, and Wilfred
Marshall.

By: /S/ NATHAN A. CHAPMAN, JR. February 25, 1998
--------------------------
Nathan A. Chapman, Jr.
as Attorney-in-Fact

C-7

<PAGE>
EXHIBIT INDEX

Exhibit
Number Description

1(C) Articles of Amendment of the Registrant dated February 12,
1998

1(D) Articles Supplementary of the Registrant dated February 12,
1998

1(E) Articles Supplementary of the Registrant dated February 12,
1998

5(B) Advisory and Administrative Services Agreement between the
Registrant and Chapman Capital Management, Inc. (DEM Equity
Fund)

6(B) Distribution Agreement between the Registrant and The
Chapman Co. (DEM Equity Fund)

6(C) Amendment to Distribution Agreement between Registrant and
The Chapman Co. (The Chapman US Treasury Money Fund and The
Chapman Institutional Cash Management Fund)

11 Consent of independent auditors

15(A) Distribution Plan (DEM Equity Fund Investor Shares)

15(B) Distribution Plan (DEM Equity Fund Institutional Shares)

<PAGE>

Exhibit 1(C)

ARTICLES OF AMENDMENT

THE CHAPMAN FUNDS, INC.

THE CHAPMAN FUNDS, INC., a Maryland corporation having its principal
office in the State of Maryland in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:

FIRST: The Charter of the Corporation is hereby amended by redesignating all of
the issued and unissued shares of Domestic Emerging Markets Equity Fund Investor
Class Common Stock and Domestic Emerging Markets Equity Fund Institutional Class
Common Stock of the Corporation to DEM Equity Fund Investor Class Common Stock
and DEM Equity Fund Institutional Class Common Stock, respectively.

SECOND: The foregoing amendment to the Charter of the Corporation was approved
by a majority of the entire Board of Directors; the foregoing amendment is
limited to a change expressly permitted by Section 2-605 of Title II of Subtitle
6 of the Maryland General Corporation Law to be made without action by the
stockholders of the Corporation; and the Corporation is registered as an
open-ended investment company under the Investment Company Act of 1940, as
amended.

IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary as of February 11, 1998.

The undersigned, Nathan A. Chapman, Jr., President of the Corporation,
hereby acknowledges in the name and on behalf of the Corporation the foregoing
Articles of Amendment to be its corporate act and further certifies to the best
of his knowledge, information and belief, that the matters and facts set forth
herein with respect to the authorization and approval hereof are true in all
material respects and that this statement is made under the penalties of
perjury.

WITNESS: THE CHAPMAN FUNDS, INC.

/S/ EARL U. BRAVO, SR. By: /S/ NATHAN A. CHAPMAN, JR.
Earl U. Bravo, Sr. Nathan A. Chapman, Jr.
Secretary President

<PAGE>

Exhibit 1(D)

ARTICLES SUPPLEMENTARY

THE CHAPMAN FUNDS, INC.

FIRST: The Board of Directors has reclassified (i) One Billion (1,000,000,000)
of the authorized but unissued shares of Common Stock of The Chapman US Treasury
Money Fund as One Billion (1,000,000,000) shares of DEM Quantitative Equity
Fund, Investor Class Common Stock and (ii) One Billion (1,000,000,000) of the
authorized but unissued shares of Common Stock of The Chapman Institutional Cash
Management Fund as One Billion (1,000,000,000) shares of DEM Quantitative Equity
Fund, Institutional Class Common Stock with the result that the authorized
shares of Common Stock of the Corporation are now classified as follows:

CLASS NUMBER OF SHARES
----- ----------------
<S> <C>
The Chapman US Treasury Money Fund 3,000,000,000

The Chapman Institutional Cash Management Fund 3,000,000,000

DEM Equity Fund, Investor Class 1,000,000,000

DEM Equity Fund, Institutional Class 1,000,000,000

DEM Quantitative Equity Fund, Investor Class 1,000,000,000

DEM Quantitative Equity Fund, Institutional Class 1,000,000,000
---------------

Total 10,000,000,000
</TABLE>

SECOND: The DEM Quantitative Equity Fund, Investor Class shares and the DEM
Quantitative Equity Fund, Institutional Class shares shall be subject to all of
the provisions of the Corporation's Charter relating to stock of the Corporation
generally, and shall have the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as set forth in Article IV of the Corporation's
Charter, subject to the following:

(a) The assets attributable to the DEM Quantitative Equity Fund,
Investor Class (the "Investor Class") shares and the assets attributable to
the DEM

<PAGE>

Quantitative Equity Fund, Institutional Class (the "Institutional Class")
shares will be invested in a common investment portfolio (the "Fund").

(b) The investment income, realized and unrealized capital gains and
losses, expenses and liabilities of the Fund that are not attributable to the
Investor Class or the Institutional Class, respectively, in accordance with law
and the relevant Corporation plan adopted pursuant to Rule 18f-3 of the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "Act"), as the plan may be amended form time to time, or
any successor or substitute plan (the " Rule 18f-3 Plan"), shall be allocated to
the Investor Class and the Institutional Class, respectively, on the basis of
the net asset value of that class in relation to the net asset value of the
Fund, or as otherwise determined by the Board of Directors in accordance with
law and the Rule 18f-3 Plan. Accordingly, the net asset values, the dividends
and distributions payable to stockholders, and the amounts distributable to
stockholders in the event of the liquidation of the Corporation or the
termination of the Fund may vary between the Investor Class and the
Institutional Class in such manner as may be determined by the Board of
Directors in accordance with law and the Rule 18f-3 Plan.

(c) Except as otherwise required by the Act, by the rules and
regulations of the SEC with respect thereto, or otherwise by law, the
stockholders of each of the Investor Class and the Institutional Class,
respectively, shall have (i) exclusive voting rights with respect to any matter
that only affects that class, including, without limitation, the provisions of
any distribution plan, as amended from time to time (a "Distribution Plan"),
adopted by the Corporation with respect to that class pursuant to SEC Rule 12b-1
under the Act, and (ii) no voting rights with respect to any Distribution Plan
that affects one or more other classes of Common Stock of the Corporation but
not that class, or with respect to any other matter that does not affect that
class.

(d) The proceeds of the redemption of shares of the Investor Class
and the Institutional Class may be reduced by the amount of any contingent
deferred sales charge, liquidation charge, or other charge (which charges may
vary among stockholders within and between the classes) payable on such
redemption pursuant to the terms of issuance of such shares, all in accordance
with the Act, applicable SEC rules and regulations thereunder, and applicable
rules and regulations of the National Association of Securities Dealers, Inc.
("NASD").

(e) At such times as may be determined by the Board of Directors (or
with the authorization of the Board of Directors, by the officers of the
Corporation) in accordance with the Act, applicable SEC rules and regulations
thereunder, and applicable rules and regulations of the NASD, and from time to
time reflected in the Corporation's registration statement (the "Corporation's
Registration Statement"), shares of the Investor Class and of the Institutional
Class, respectively, may be converted automatically into shares of the other
said class or into shares of another class of stock of the Corporation, or
certain shares of the particular class may be converted automatically into
shares of the

<PAGE>

other said class or into shares of another class of stock of the Corporation,
based on the relative net asset values of such classes at the time of
conversion, subject, however, to any conditions of conversion that may be
imposed by the Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) and reflected in the
Corporation's Registration Statement. The times, terms, and conditions of such
conversion may vary within and among the classes to the extent determined by the
Board of Directors (or with the authorization of the Board of Directors, by the
officers of the Corporation) and set forth in the Corporation's Registration
Statement.

THIRD: The shares classified and reclassified hereby have been classified and
reclassified by the Board of Directors under the authority contained in the
Charter of the Corporation.

IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary as of February 11, 1998.

The undersigned, Nathan A. Chapman, Jr., President of the Corporation,
hereby acknowledges in the name and on behalf of the Corporation the foregoing
Articles Supplementary to be its corporate act and further certifies to the best
of his knowledge, information and belief, that the matters and facts set forth
herein with respect to the authorization and approval hereof are true in all
material respects and that this statement is made under the penalties of
perjury.

WITNESS: THE CHAPMAN FUNDS, INC.

/S/ EARL U. BRAVO, SR. By: /S/ NATHAN A. CHAPMAN, JR.
Earl U. Bravo, Sr. Nathan A. Chapman, Jr.
Secretary President

<PAGE>

Exhibit 1(E)

ARTICLES SUPPLEMENTARY

THE CHAPMAN FUNDS, INC.

FIRST: The Board of Directors has reclassified (i) One Billion (1,000,000,000)
of the authorized but unissued shares of Common Stock of The Chapman US Treasury
Money Fund as One Billion (1,000,000,000) shares of DEM Multi-Manager Bond Fund,
Investor Class Common Stock and (ii) One Billion (1,000,000,000) of the
authorized but unissued shares of Common Stock of The Chapman Institutional Cash
Management Fund as One Billion (1,000,000,000) shares of DEM Multi-Manager Bond
Fund, Institutional Class Common Stock with the result that the authorized
shares of Common Stock of the Corporation are now classified as follows:

CLASS NUMBER OF SHARES
------ -----------------
<S> <C>
The Chapman US Treasury Money Fund 2,000,000,000

The Chapman Institutional Cash Management Fund 2,000,000,000

DEM Equity Fund, Investor Class 1,000,000,000

DEM Equity Fund, Institutional Class 1,000,000,000

DEM Quantitative Equity Fund, Investor Class 1,000,000,000

DEM Quantitative Equity Fund, Institutional Class 1,000,000,000

DEM Multi-Manager Bond Fund, Investor Class 1,000,000,000

DEM Multi-Manager Bond Fund, Institutional Class 1,000,000,000
--------------
Total 10,000,000,000

</TABLE>

SECOND: The DEM Multi-Manager Bond Fund, Investor Class shares and the DEM
Multi-Manager Bond Fund, Institutional Class shares shall be subject to all of
the provisions of the Corporation's Charter relating to stock of the Corporation
generally, and shall have the preferences, conversion and other rights, voting
powers, restrictions,

<PAGE>

limitations as to dividends, qualifications, and terms and conditions of
redemption as set forth in Article IV of the Corporation's Charter, subject to
the following:

(a) The assets attributable to the DEM Multi-Manager Bond Fund,
Investor Class (the "Investor Class") shares and the assets attributable to the
DEM Multi-Manager Bond Fund, Institutional Class (the "Institutional Class")
shares will be invested in a common investment portfolio (the "Fund").

<PAGE>

rules and regulations of the NASD, and from time to time reflected in the
Corporation's registration statement (the "Corporation's Registration
Statement"), shares of the Investor Class and of the Institutional Class,
respectively, may be converted automatically into shares of the other said
class or into shares of another class of stock of the Corporation, or certain
shares of the particular class may be converted automatically into shares of the
other said class or into shares of another class of stock of the Corporation,
based on the relative net asset values of such classes at the time of
conversion, subject, however, to any conditions of conversion that may be
imposed by the Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) and reflected in the
Corporation's Registration Statement. The times, terms, and conditions of such
conversion may vary within and among the classes to the extent determined by the
Board of Directors (or with the authorization of the Board of Directors, by the
officers of the Corporation) and set forth in the Corporation's Registration
Statement.

THIRD: The shares classified and reclassified hereby have been classified and
reclassified by the Board of Directors under the authority contained in the
Charter of the Corporation.

IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its President and witnessed by its
Secretary as of February 11, 1998.

WITNESS: THE CHAPMAN FUNDS, INC.

/S/ EARL U. BRAVO, SR. By: /s/ NATHAN A. CHAPMAN, JR.
Earl U. Bravo, Sr. Nathan A. Chapman, Jr.
Secretary President

<PAGE>

Exhibit 5(B)

ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT

THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND
The World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202

October 28, 1997

Chapman Capital Management, Inc.
The World Trade Center-Baltimore
401 East Pratt street
Suite 2800
Baltimore, Maryland 21202

Ladies and Gentlemen:

This will confirm the agreement between the undersigned (the
"Corporation") and you as follows:

1. GENERAL. The Corporation is an open-end management investment
company which has multiple investment portfolios including, the Domestic
Emerging Markets Equity Fund (the "Fund"). The Corporation proposes to engage
in the business of investing and reinvesting the assets of the Fund in the
manner and in accordance with the investment objectives, policies and
limitations specified in the Corporation's Prospectus and Statement of
Additional Information (the "Prospectus") included in the Corporation's
Registration Statement pertaining to the Fund, as amended and/or supplemented
from time to time (the "Registration Statement"), filed under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Securities Act of
1933, as amended. Copies of the Prospectus have been furnished to you. Any
amendments to the Prospectus shall be furnished to you promptly.

2. ADVISORY SERVICES. Subject to the supervision and approval of
the Corporation's Board of Directors, you will provide investment management of
the Fund's portfolio in accordance with the Fund's investment objectives,
policies and limitations as stated in the Prospectus as from time to time in
effect. In connection therewith, you will obtain and provide investment
research and will supervise the Fund's investments and conduct a continuous
program of investment, evaluation and, if appropriate, sale and reinvestment of
the Fund's assets. You will place orders for the purchase and sale of

<PAGE>

Chapman Capital Management, Inc.
October 28, 1997
Page 2

portfolio securities and will solicit brokers to execute transactions,
including The Chapman Co., in accordance with the policies and restrictions
regarding brokerage allocations of the Fund and the Corporation. You will
furnish to the Corporation such statistical information with respect to the
investments which the Corporation may hold or contemplate purchasing as the
Corporation may reasonably request.

3. ADMINISTRATIVE SERVICES. You will supply office facilities, data
processing services, clerical, internal auditing services, executive and other
administrative services; provide stationery and office supplies; prepare reports
to the Fund's stockholders, tax returns and reports to and filings with the
Securities and Exchange Commission and state Blue Sky authorities; calculate the
net asset value of the Fund's shares; provide persons to serve as the
Corporation's officers at the request of the Corporation's Board of Directors
and generally assist in all aspects of the Fund's operations.

4. ASSISTANCE. You may employ or contract with other persons to
assist you in the performance of this Agreement. Such persons may include other
investment advisory or management firms and officers or employees who are
employed by both you and the Corporation. The fees or other compensation of
such persons shall be paid by you and no obligation may be incurred on the
Corporation's behalf to any such person.

5. RECORD KEEPING AND OTHER INFORMATION. You will create and
maintain all records required of you pursuant to your duties hereunder in
accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. All such records will be the
property of the Corporation and will be available upon request of the
Corporation for inspection, copying and use by the Corporation and will be
surrendered to the Corporation upon the request of the Corporation. Where
applicable, such records will be maintained by you for the periods and in the
places required by Rule 31a-2 under the 1940 Act. Upon termination of this
Agreement, you will promptly surrender all such records to the Corporation or
such person as the Corporation may designate.

6. FEES. In consideration of the advisory services rendered
pursuant to this Agreement, the Corporation, on behalf of the Fund, will pay you
on the first business day of each month a fee at the annual rate of .9 of 1% of
the value of the Fund's average weekly net assets during the preceding month.
In consideration of the administrative services rendered pursuant to this
Agreement, the Fund will pay you on the first business day of each month a fee
at the annual rate of .15 of 1% of the value of the Fund's average weekly net
assets during the preceding month. Net asset value shall

<PAGE>

Chapman Capital Management, Inc.
October 28, 1997
Page 3

be computed in the manner, on such days and at such time or times as described
in the Prospectus from time to time. The fee for the period from the effective
date of the Registration Statement to the end of the first month thereafter
shall be pro-rated according to the proportion which such period bears to the
full monthly period, and upon any termination of this Agreement before the end
of any month, the fee for such part of a month shall be pro-rated according to
the proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.

7. EXPENSES:

(a) You will bear all expenses in connection with the
performance of your services under this Agreement. All other expenses to be
incurred in the operation of the Fund will be borne by the Fund, except to the
extent specifically assumed by you. The expenses to be borne by the Fund
include, without limitation, the following: organizational costs, taxes,
interest, brokerage fees and commissions and other expenses in any way related
to the execution, recording and settlement of portfolio security transactions,
fees of Directors who are not also your officers, Securities and Exchange
Commission fees, state Blue Sky qualification fees, charges of custodians,
transfer and dividend paying agents' premiums for directors and officers
liability insurance, costs of fidelity bonds, industry association fees, outside
auditing and legal expenses, costs of maintaining corporate existence, costs of
maintaining required books and accounts, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
stockholders' reports and meetings, costs of preparing, printing and mailing
share certificates, proxy statements and prospectuses, and any extraordinary
expenses.

(b) If in any fiscal year the aggregate expenses of a Fund
(including fees paid to you pursuant to this Agreement, but excluding interest
on borrowings, taxes, brokerage and, with the prior written consent of the
necessary state securities commissions, extraordinary expenses) exceed the
expense limitation of any state having jurisdiction over the Fund, the Fund may
deduct from the payment to be made to you under this Agreement, or you will
bear, such excess expense to the extent required by state law. Your obligation
pursuant hereto will be limited to the amount of your fees hereunder. Such
deduction or payment, if any, will be estimated, reconciled and effected or
paid, as the case may be, on a monthly basis.

8. LIABILITY. You shall exercise your best judgment in rendering
the services to be provided to the Fund. The Corporation, on behalf of the
Fund, agrees as an inducement to you and to others who may assist you in
providing services to the Fund that you and such other persons shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or the Corporation and the Fund and the

<PAGE>

Chapman Capital Management, Inc.
October 28, 1997
Page 4

Corporation agree to indemnify and hold harmless you and such other persons
against and from any claims, liabilities, actions, suits, proceedings, judgments
or damages (and expenses incurred in connection therewith, including the
reasonable cost of investigating or defending same, including, but not limited
to attorneys' fees) arising out of any such error of judgment or mistake of law
or loss; provided, however, that the Corporation's obligation with respect to
such claims, liabilities, actions, suits, proceedings, judgments or damages (and
expenses incurred in connection therewith, including the reasonable cost of
investigating or defending same, including, but not limited to attorneys' fees)
arising out of any such error of judgment or mistake of law or loss shall be
limited to the "assets belonging to" (as such expression is defined in the
Corporation's charter) the Fund and further provided that nothing herein shall
be deemed to protect or purport to protect you or any other such person against
any liability to the Corporation or to its security holders to which you or they
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties hereunder, or by reason of reckless
disregard of the obligations and duties hereunder.

9. OTHER ACCOUNTS. The Corporation understands that you and other
persons with whom you contract to provide the services hereunder may from time
to time act as investment adviser to one or more other investment companies and
fiduciary or other managed accounts, and the Corporation has no objection to
your or their so acting. When purchase or sale of securities of the same issuer
is suitable for the investment objectives of two or more companies or accounts
managed by you or such other persons which have available funds for investment,
the available securities will be allocated in a manner believed by you and such
other persons to be equitable to the Fund and any other account. It is
recognized that in some cases this procedure may adversely affect the price paid
or received by the Fund or the size of the position obtainable for or disposed
of by the Fund.

In addition, it is understood that you and the persons with whom you
contract to assist in the performance of your duties hereunder will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict your or their right to engage in and devote time and attention
to similar or other businesses.

10. TERM. This Agreement shall continue with respect to the Fund
until December 29, 1998 and thereafter shall continue automatically for
successive annual periods ending on the anniversary of such date, provided such
continuance with respect to the Fund is specifically approved at least annually
by the Corporation's Board of Directors or a vote of the lesser of (a) 67% of
the shares of the Fund represented at a meeting if holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy or (b) more
than 50% of the outstanding shares of the Fund, provided that in either event
its continuance also is approved by a majority of the Corporation's

<PAGE>

Chapman Capital Management, Inc.
October 28, 1997
Page 5

Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable with respect
to the Fund without penalty, on 60 days' notice, by you or by the Corporation's
Board of Directors or by vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Fund. This Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).

11. "CHAPMAN," "DOMESTIC EMERGING MARKETS" AND "DEM" NAMES. The
Corporation recognizes that from time to time your directors, officers and
employees may serve as directors, trustees, partners, officers and employees of
other corporations, business trusts, partnerships or other entities (including
other investment companies) and that such other entities may include the name
"Chapman," "Domestic Emerging Markets" and/or "DEM" as part of their name. You
or your affiliates may enter into investment advisory or other agreements with
such other entities. If you cease to act as the Fund's investment adviser, the
Corporation agrees that, at your request, the Corporation will take all
necessary action to change the name of the Fund to a name not including
"Chapman," "Domestic Emerging Markets" and/or "DEM" in any form or combination
of words.

<PAGE>
Chapman Capital Management, Inc.
October 28, 1997
Page 6

If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.

Very truly yours,

THE CHAPMAN FUNDS, INC., ON
BEHALF OF DOMESTICEMERGING
MARKETS EQUITY FUND

By: /S/ NATHAN A. CHAPMAN, JR.
Name: Nathan A. Chapman, Jr.,
Title: President

Accepted:

CHAPMAN CAPITAL MANAGEMENT, INC.

By: /S/ NATHAN A. CHAPMAN, JR.
Name: Nathan A. Chapman, Jr.
Title: President

<PAGE>

Exhibit 5(C)

ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
AMENDMENT

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

February 11, 1998

Chapman Capital Management, Inc.
The World Trade Center - Baltimore
401 East Pratt Street
Suite 2800
Baltimore, MD 21202

Ladies and Gentlemen:

This will confirm the amendment to the Advisory and Administrative
Services Agreement between the undersigned (the "Company") and you dated April
30, 1997 (the "Agreement") as follows:

1. The following Section 11 is hereby added to the Agreement:

11. RECORD KEEPING AND OTHER INFORMATION. You will create
and maintain all records required of you pursuant to your
duties hereunder in accordance with all applicable laws,
rules and regulations, including records required by Section
31(a) of the 1940 Act. All such records will be the
property of the Company and will be available upon request
of the Company for inspection, copying and use by the
Company and will be surrendered to the Company promptly upon
demand of the Company. Where applicable, such records will
be maintained by you for the periods and in the places
required by Rule 31a-2 under the 1940 Act. Upon termination
of this Agreement, you will promptly surrender all such
records to the Company or such person as the Company may
designate.

<PAGE>
Chapman Capital Management, Inc.
February 11, 1998
Page 2

If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.

Very truly yours,

THE CHAPMAN FUNDS, INC.

By: /S/ NATHAN A. CHAPMAN, JR.
Name: Nathan A. Chapman, Jr.
Title: President

Accepted:

CHAPMAN CAPITAL MANAGEMENT, INC.

By: /S/ NATHAN A. CHAPMAN, JR.
Name: Nathan A. Chapman, Jr.
Title: President

<PAGE>

Exhibit 6(B)

DISTRIBUTION AGREEMENT

THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND
The World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202

October 28, 1997

The Chapman Co.
The World Trade Center -- Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202

Ladies and Gentlemen:

This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, The Chapman Funds, Inc. an open-end,
diversified, management investment company organized as a corporation under the
laws of the State of Maryland (the "Corporation"), on behalf of Domestic
Emerging Markets Equity Fund, a series of the Corporation (the "Fund"), has
agreed that The Chapman Co. shall be, for the period of this Agreement, the
distributor of shares of Domestic Emerging Markets Equity Fund Investor Class
and Institutional Class Common Stock, par value $.001 per share ("Investor
Shares" and "Institutional Shares," respectively).

1. SERVICES AS DISTRIBUTOR

1.1 The Chapman Co. will act as agent for the distribution of
the Investor Shares and Institutional Shares covered by the post-effective
amendment to the Fund's registration statement on Form N-1A, under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940, as amended (the "1940 Act") pertaining to the Investor Shares and
the Institutional Shares of the Fund (the post-effective amendment to the
registration statement, together with the prospectuses (the "prospectus") and
statement of additional information (the "statement of additional information")
included as part thereof, any amendments or supplements thereto, or material
incorporated by reference into the prospectus or statement of additional
information, being referred to collectively in this Agreement as the
"registration statement").

<PAGE>
The Chapman Co.
October 28, 1997
Page 2

1.2 The Chapman Co. agrees to use appropriate efforts to solicit
orders for the sale of the Investor Shares and Institutional Shares at such
prices and on the terms and conditions set forth in the registration statement
and will undertake such advertising and promotion as it believes is reasonable
in connection with such solicitation.

1.3 All activities by The Chapman Co. as distributor of the
Investor Shares and Institutional Shares shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and regulations
made or adopted by the Securities and Exchange Commission (the "SEC") or by any
securities association registered under the Securities Exchange Act of 1934, as
amended.

1.4 The Chapman Co. agrees to (a) provide one or more persons
during normal business hours to respond to telephone questions concerning the
Fund and its performance and (b) perform such other services as are described in
the registration statement and in the Investor Class Distribution Plan (the
"Investor Class Plan") and in the Institutional Class Distribution Plan (the
"Institutional Class Plan"), each adopted by the Fund pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1") to be performed by The Chapman Co., without
limitation, distributing and receiving subscription order forms and receiving
written redemption requests.

1.5 (a) The Chapman Co. will be paid fees under the Investor
Class Plan to compensate The Chapman Co. or enable The Chapman Co. to compensate
other persons, ("Service Providers"), including any other distributor of
Investor Shares, for providing: (i) services primarily intended to result in
the sale of Investor Shares ("Investor Selling Services"), and (ii) stockholder
servicing, administrative and accounting services ("Investor Administrative
Services" and collectively with Investor Selling Services, "Investor Services").
Investor Selling Services may include, but are not limited to: the printing
and distribution to prospective investors in Investor Shares of prospectuses and
statements of additional information describing the Fund; the preparation,
including printing, and distribution of sales literature, reports and media
advertisements relating to the Investor Shares; providing telephone services
relating to the Fund; distributing Investor Shares; costs relating to the
formulation and implementation of marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising, and related travel and
entertainment expenses; and costs involved in obtaining whatever information,
analyses and reports with respect to marketing and promotional activities that
the Fund may, from time to time, deem advisable. In

<PAGE>
The Chapman Co.
October 28, 1997
Page 3

providing compensation for Investor Selling Services in accordance with the
Investor Class Plan, The Chapman Co. is expressly authorized (i) to make, or
cause to be made, payments reflecting an allocation of overhead and other office
expenses related to providing Investor Services; (ii) to make, or cause to be
made, payments, or to provide for the reimbursement of expenses of, persons who
provide support services in connection with the distribution of Investor Shares
including, but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, and providing any other Investor
Service; and (iii) to make, or cause to be made, payments to compensate selected
dealers or other authorized persons for providing any Investor Services.
Administrative Services may include, but are not limited to, (i) responding to
inquiries of prospective investors regarding the Fund; (ii) services to
stockholders not otherwise required to be provided by the Fund's custodian or
any co-administrator; (iii) establishing and maintaining accounts and records on
behalf of Fund stockholders; (iv) processing purchase, redemption and exchange
transactions in Investor Shares; and (v) other similar services not otherwise
required to be provided by the Fund's transfer agent or any co-administrator.
Payments under the Investor Class Plan are not tied exclusively to the selling
and administrative expenses actually incurred by The Chapman Co. or any Service
Provider, and the payments may exceed expenses actually incurred by The Chapman
Co. and/or a Service Provider. Furthermore, any portion of any fee paid to The
Chapman Co. or to any of its affiliates by the Fund or any of their past profits
or other revenue may be used in their sole discretion to provide services to
stockholders of the Fund or to foster distribution of Investor Shares.

(b) Pursuant to the Investor Class Plan, the Fund will pay
The Chapman Co. on the first business day of each quarter a fee for the previous
quarter calculated at an annual rate of up to .75% of the average daily net
assets of the Investor Shares of the Fund consisting of up to .50% as
compensation for Investor Selling Services and .25% as compensation for Investor
Administrative Services provided by The Chapman Co. to the Investor Shares
pursuant to this Agreement.

1.6 (a) The Chapman Co. will be paid fees under the
Institutional Class Plan to compensate The Chapman Co. or enable The Chapman Co.
to compensate other persons, including any other distributor of the
Institutional Shares or institutional stockholders of record of the
Institutional Shares, including but not limited to retirement plans,
broker-dealers, depository institutions, and other financial intermediaries
("Institutions"), who own Institutional Shares on behalf of their customers,
clients or (in the case of retirement plans) participants ("Customers") and
companies providing certain services to Customers (collectively with
Institutions, "Service

<PAGE>
The Chapman Co.
October 28, 1997
Page 4

Organizations"), for providing (i) services primarily intended to result in the
sale of the Institutional Shares ("Institutional Selling Services"), and (ii)
stockholder servicing, administrative and accounting services to Customers
("Institutional Administrative Services").

(b) The annual fee paid to The Chapman Co. with respect to
Institutional Selling Services will compensate The Chapman Co., or allow The
Chapman Co. to compensate Service Organizations, to cover certain expenses
primarily intended to result in the sale of the Institutional Shares, including,
but not limited to: (i) costs of payments made to employees that engage in the
distribution of the Institutional Shares; (ii) payments made to, and expenses
of, persons who provide support services in connection with the distribution of
the Institutional Shares, including, but not limited to, office space and
equipment, telephone facilities, processing stockholder transactions and
providing any other stockholder services not otherwise provided by the Fund's
transfer agent; (iii) costs relating to the formulation and implementation of
marketing and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; (iv) costs of printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective holders of the
Institutional Shares; (v) costs involved in preparing, printing and distributing
sales literature pertaining to the Fund, and (vi) costs involved in obtaining
whatever information, analyses and reports with respect to marketing and
promotional activities that the Fund may, from time to time, deem advisable.

(c) The annual fee paid to The Chapman Co. with respect to
Institutional Administrative Services will compensate The Chapman Co., or allow
The Chapman Co. to compensate Service Organizations, for personal service and/or
the maintenance of Customer accounts, including but not limited to (i)
responding to Customer inquiries, (ii) providing information on Customer
investments, and (iii) providing other stockholder liaison services and for
administrative and accounting services to Customers, including, but not limited
to: (a) aggregating and processing purchase and redemption requests from
Customers and placing net purchase and redemption orders with the Fund's
distributor or transfer agent; (b) providing Customers with a service that
invests the assets of their accounts in the Institutional Shares; (c) processing
dividend payments from the Fund on behalf of Customers; (d) providing
information periodically to Customers showing their positions in the
Institutional Shares; (e) arranging for bank wires; (f) providing sub-accounting
with respect to the Institutional Shares beneficially owned by Customers or the
information to the Fund necessary for

<PAGE>
The Chapman Co.
October 28, 1997
Page 5

sub-accounting; (g) forwarding stockholder communications from the Fund (for
example, proxies, stockholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers, if required
by law and, (h) providing other similar services to the extent permitted under
applicable statutes, rules and regulations. Payments under the Institutional
Class Plan are not tied exclusively to the selling and administrative expenses
actually incurred by The Chapman Co. or any Service Organization, and the
payments may exceed expenses actually incurred by The Chapman Co. or any Service
Organization. Furthermore, any portion of any fee paid to The Chapman Co. or to
any of its affiliates by the Fund or any of their past profits or other revenue
may be used in their sole discretion to provide services to stockholders of the
Fund or to foster distribution of the Institutional Shares.

(d) Pursuant to the Institutional Class Plan, the Fund will
pay The Chapman Co. on the first business day of each quarter a fee for the
previous quarter calculated at an annual rate of up to .25% of the average daily
net assets of the Institutional Shares of the Fund for Selling Services and
Administrative Services provided by The Chapman Co. or any Service Organizations
to the Institutional Shares pursuant to this Agreement.

1.7 The Chapman Co. acknowledges that, whenever in the judgment
of the Corporation's officers such action is warranted for any reason,
including, without limitation, market, economic or political conditions, those
officers may decline to accept any orders for, or make any sales of, the
Investor Shares or Institutional Shares until such time as those officers deem
it advisable to accept such orders and to make such sales.

1.8 The Chapman Co. will transmit any orders received by it for
purchase or redemption of the Investor Shares and Institutional Shares to
Fund/Plan Services, Inc. ("Fund/Plan"), the Fund's transfer and dividend
disbursing agent, or its successor of which The Chapman Co. is notified in
writing. The Fund will promptly advise The Chapman Co. of the determination to
cease accepting orders or selling Investor Shares or Institutional Shares or to
recommence accepting orders or selling Investor Shares or Institutional Shares.
The Fund (or its agent) will confirm orders for Investor Shares and
Institutional Shares placed through The Chapman Co. upon their receipt, or in
accordance with any exemptive order of the SEC, and will make appropriate book
entries pursuant to the instructions of The Chapman Co. The Chapman Co. agrees
to cause payment for Investor Shares and Institutional Shares and instructions
as to book entries to be delivered promptly to the Fund (or its agent).

<PAGE>
The Chapman Co.
October 28, 1997
Page 6

1.9 The outstanding Investor Shares and Institutional Shares are
subject to redemption as set forth in the prospectus. The price to be paid to
redeem the Investor Shares and Institutional Shares will be determined as set
forth in the prospectus.

1.10 The Chapman Co. will prepare and deliver reports to the
Treasurer of the Corporation on a regular, at least quarterly, basis, showing
the distribution expenses incurred pursuant to this Agreement, the Investor
Class Plan and the Institutional Class Plan adopted by the Fund pursuant to Rule
12b-1 and the purposes therefor, as well as any supplemental reports as the
Directors from time to time may reasonably request.

1.11 The Chapman Co. will create and maintain all records
required of it pursuant to its duties hereunder in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. All such records will be the property of the Corporation
and will be available upon request of the Corporation for inspection, copying
and use by the Corporation and will be surrendered to the Corporation promptly
upon demand of the Corporation. Where applicable, such records will be
maintained by The Chapman Co. for the periods and in the places required by Rule
31a-2 under the 1940 Act. Upon termination of this Agreement, The Chapman Co.
will promptly surrender all such records to the Corporation or such person as
the Corporation may designate.

2. DUTIES OF THE FUND

2.1 The Corporation, on behalf of the Fund, agrees at its own
expense to execute any and all documents, to furnish any and all information and
to take any other actions that may be reasonably necessary in connection with
the qualification of the Investor Shares and Institutional Shares for sale in
those states that The Chapman Co. may designate.

2.2 The Corporation shall furnish from time to time, for use in
connection with the sale of the Investor Shares and Institutional Shares, such
informational reports with respect to the Fund and the Investor Shares and
Institutional Shares as The Chapman Co. may reasonably request, all of which
shall be signed by one or more of the Corporation's duly authorized officers;
and the Corporation warrants that the statements contained in any such reports,
when so signed by one or more of the Corporation's officers, shall be true and
correct. The Corporation shall also furnish The Chapman Co. upon request with:
(a) annual audits of the Fund's books and accounts

<PAGE>
The Chapman Co.
October 28, 1997
Page 7

made by independent public accountants regularly retained by the Corporation,
(b) semiannual unaudited financial statements pertaining to the Fund, (c)
quarterly earnings statements prepared by the Corporation, (d) a monthly
itemized list of the securities held by the Fund, (e) monthly balance sheets as
soon as practicable after the end of each month and (f) from time to time such
additional information regarding the Fund's financial condition as The Chapman
Co. may reasonably request.

3. REPRESENTATIONS AND WARRANTIES

The Corporation, on behalf of the Fund, represents to The Chapman Co.
that the registration statement has been or will be carefully prepared in
conformity with the requirements of the 1933 Act, the 1940 Act and the rules and
regulations of the SEC thereunder. The Fund represents and warrants to The
Chapman Co. that any registration statement pertaining to the Investor Shares
and/or Institutional Shares, or prospectus and statement of additional
information contained therein, when such registration statement becomes
effective, will include all statements required to be contained therein in
conformity with the 1933 Act, the 1940 Act and the rules and regulations of the
SEC; that all statements of fact contained in any registration statement with
respect to the Investor Shares and/or Institutional Shares, prospectus or
statement of additional information will be true and correct when such
registration statement becomes effective; and that neither any registration
statement nor any prospectus or statement of additional information with respect
to the Investor Shares and/or Institutional Shares when such registration
statement becomes effective will include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading to a purchaser of the Investor Shares
and/or Institutional Shares. The Chapman Co. may, but shall not be obligated
to, propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus or statement of
additional information as, in the light of future developments, may, in the
opinion of The Chapman Co.'s counsel, be necessary or advisable. If the
Corporation shall not propose such amendment or amendments and/or supplement or
supplements within fifteen (15) days after receipt by the Corporation of a
written request from The Chapman Co. to do so, The Chapman Co. may, at its
option, terminate this Agreement. The Corporation shall not file any amendment
to any registration statement or supplement to any prospectus or statement of
additional information without giving The Chapman Co. reasonable notice thereof
in advance; provided, however, that nothing contained in this Agreement shall in
any way limit the Corporation's right to file at any time such amendments to any
registration statement and/or supplements to any prospectus or statement of
additional information with respect

<PAGE>
The Chapman Co.
October 28, 1997
Page 8

to the Investor Shares and/or Institutional Shares, of whatever character, as
the Corporation may deem advisable, such right being in all respects absolute
and unconditional.

4. INDEMNIFICATION

4.1 The Corporation, on behalf of the Fund, agrees to indemnify,
defend and hold The Chapman Co., its several officers and directors, and any
person who controls The Chapman Co. within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection therewith)
which The Chapman Co., its officers and directors, or any such controlling
person, may incur under the 1933 Act, the 1940 Act or common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement, any prospectus or any
statement of additional information with respect to the Investor Shares and/or
Institutional Shares, or arising out of or based upon any omission or alleged
omission to state a material fact required to be stated in any registration
statement, any prospectus or any statement of additional information with
respect to the Investor Shares and/or Institutional Shares, or necessary to make
the statements in any of them not misleading; provided, however, that the
Corporation's agreement, on behalf of the Fund, to indemnify The Chapman Co.,
its officers, or directors, and any such controlling person, and any claims,
demands, liabilities or expenses arising out of or based upon such indemnity
shall be limited to the "assets belonging to" (as such expression is defined in
the Corporation's charter) the Fund; and further provided that the Corporation's
agreement, on behalf of the Fund, to indemnify The Chapman Co., its officers or
directors, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of or based upon any
statements or representations made by The Chapman Co. or its representatives or
agents other than such statements and representations as are contained in any
registration statement, prospectus or statement of additional information with
respect to the Investor Shares and/or Institutional Shares and in such financial
and other statements as are furnished to The Chapman Co. pursuant to paragraph
2.2 hereof; and further provided that the Corporation's agreement, on behalf of
the Fund, to indemnify The Chapman Co. and the Corporation's representations and
warranties, on behalf of the Fund, hereinbefore set forth in paragraph 3 shall
not be deemed to cover any liability to the Fund or its stockholders to which
The Chapman Co. would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of The
Chapman Co.'s reckless disregard of its obligations and duties

<PAGE>
The Chapman Co.
October 28, 1997
Page 9

under this Agreement. The Corporation's agreement, on behalf of the Fund, to
indemnify The Chapman Co., its officers and directors, and any such controlling
person, as aforesaid, is expressly conditioned upon the Corporation's being
notified of any action brought against The Chapman Co., its officers or
directors, or any such controlling person, such notification to be given by
letter or by telegram addressed to the Corporation at its principal office in
Baltimore, Maryland and sent to the Corporation by the person against whom such
action is brought, within ten (10) days after the summons or other first legal
process shall have been served. The failure to so notify the Corporation of any
such action shall not relieve the Corporation from any liability that the
Corporation may have to the person against whom such action is brought by reason
of any such untrue or alleged untrue statement or omission or alleged omission
otherwise than on account of the Corporation's indemnity agreement, on behalf of
the Fund, contained in this paragraph 4.1. The Corporation's indemnification
agreement, on behalf of the Fund, contained in this paragraph 4.1 and the
Corporation's representations and warranties, on behalf of the Fund, in this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of The Chapman Co., its officers and
directors, or any controlling person, and shall survive the delivery of any of
the Corporation's shares. This agreement of indemnity will inure exclusively to
The Chapman Co.'s benefit, to the benefit of its several officers and directors,
and their respective estates, and to the benefit of the controlling persons and
their successors. The Corporation, on behalf of the Fund, agrees to notify The
Chapman Co. promptly of the commencement of any litigation or proceedings
against the Corporation or any of its officers or directors in connection with
the issuance and sale of any of the Investor Shares and/or Institutional Shares.

4.2 The Chapman Co. agrees to indemnify, defend and hold the
Corporation, its several officers and directors, and any person who controls the
Corporation or the Fund within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the costs of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) that the
Corporation, its officers or directors or any such controlling person may incur
under the 1933 Act, the 1940 Act or common law or otherwise, but only to the
extent that such liability or expense incurred by the Corporation, its officers
or directors or such controlling person resulting from such claims or demands
shall arise out of or be based upon (a) any unauthorized sales literature,
advertisements, information, statements or representations or (b) any untrue or
alleged untrue statement of a material fact contained in information furnished
in writing by The Chapman Co. to the Corporation specifically for use in the
registration statement

<PAGE>
The Chapman Co.
October 28, 1997
Page 10

and used in the answers to any of the items of the registration statement or in
the corresponding statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission or alleged
omission to state a material fact in connection with such information furnished
in writing by The Chapman Co. to the Corporation and required to be stated in
such answers or necessary to make such information not misleading. The Chapman
Co.'s agreement to indemnify the Corporation, its officers and directors, and
any such controlling person, as aforesaid, is expressly conditioned upon The
Chapman Co.'s being notified of any action brought against the Corporation, its
officers or directors, or any such controlling person, such notification to be
given by letter or telegram addressed to The Chapman Co. at its principal office
in Baltimore, Maryland and sent to The Chapman Co. by the person against whom
such action is brought, within ten (10) days after the summons or other first
legal process shall have been served. The failure to so notify The Chapman Co.
of any such action shall not relieve The Chapman Co. from any liability that The
Chapman Co. may have to the Corporation, its officers or directors, or to such
controlling person by reason of any such untrue or alleged untrue statement or
omission or alleged omission otherwise than on account of The Chapman Co.'s
indemnity agreement contained in this paragraph 4.2. The Chapman Co. agrees to
notify the Corporation promptly of the commencement of any litigation or
proceedings against The Chapman Co. or any of its officers or directors in
connection with the issuance and sale of any of the Investor Shares and/or
Institutional Shares.

4.3 In case any action shall be brought against any indemnified
party under paragraph 4.1 or 4.2, and it shall timely notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish to do so, to assume the
defense thereof with counsel satisfactory to such indemnified party. If the
indemnifying party opts to assume the defense of such action, the indemnifying
party will not be liable to the indemnified party for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than (a) reasonable costs of investigation or the
furnishing of documents or witnesses and (b) all reasonable fees and expenses of
separate counsel to such indemnified party if (i) the indemnifying party and the
indemnified party shall have agreed to the retention of such counsel or (ii) the
indemnified party shall have concluded reasonably that representation of the
indemnifying party and the indemnified party by the same counsel would be
inappropriate due to actual or potential differing interests between them in the
conduct of the defense of such action.

<PAGE>
The Chapman Co.
October 28, 1997
Page 11

5. EFFECTIVENESS OF REGISTRATION

None of the Investor Shares or Institutional Shares shall be offered
by either The Chapman Co. or the Corporation under any of the provisions of this
Agreement and no orders for the purchase or sale of the Investor Shares or
Institutional Shares shall be accepted by the Corporation if and so long as the
effectiveness of the registration statement shall be suspended under any of the
provisions of the 1933 Act or if and so long as the prospectus is not on file
with the SEC; provided, however, that nothing contained in this paragraph 5
shall in any way restrict or have an application to or bearing upon the
Corporation's obligation to repurchase its shares from any stockholder in
accordance with the provisions of the prospectus or statement of additional
information.

6. NOTICE TO THE CHAPMAN CO.

The Corporation, on behalf of the Fund, agrees to advise The Chapman
Co. immediately in writing:

(a) of any request by the SEC for amendments to the
registration statement, prospectus or statement of additional information
then in effect with respect to the Investor Shares and/or Institutional
Shares or for additional information;

(b) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the registration statement,
prospectus or statement of additional information then in effect with
respect to the Investor Shares and/or Institutional Shares or the
initiation of any proceeding for that purpose;

(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement, prospectus
or statement of additional information then in effect with respect to the
Investor Shares and/or Institutional Shares or that requires the making of
a change in such registration statement, prospectus or statement of
additional information in order to make the statements therein not
misleading; and

(d) of all actions of the SEC with respect to any amendment
to any registration statement, prospectus or statement of additional
information with respect to the Investor Shares or Institutional Shares
which may from time to time be filed with the SEC.

<PAGE>
The Chapman Co.
October 28, 1997
Page 12

7. TERM OF AGREEMENT

This Agreement shall continue until December 29, 1998 with respect to
each of the Investor Shares and Institutional Shares, and thereafter shall
continue automatically for successive annual periods ending on the anniversary
of such date, provided such continuance is specifically approved at least
annually by (a) a vote of a majority of the Corporation's Board of Directors or
(b) a vote of a majority (as defined in the 1940 Act) of each of the outstanding
Investor Shares and Institutional Shares, respectively, provided that the
continuance is also approved by a vote of a majority of the Corporation's
Directors who are not interested persons (as defined in the 1940 Act) of the
Corporation and who have no direct or indirect financial interest in the
operation of the Investor Class Plan or the Institutional Class Plan, in this
Agreement or in any agreement related to the Investor Class Plan or
Institutional Class Plan ("Qualified Directors"), by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable with respect to the Investor Shares or the Institutional Shares
without penalty (a) on sixty (60) days' written notice, by a vote of a majority
of the Fund's Qualified Directors or by vote of a majority (as defined in the
1940 Act) of the outstanding Investor Shares or Institutional Shares, as
applicable, or (b) on ninety (90) days' written notice by The Chapman Co. This
Agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).

8. AMENDMENTS

This Agreement may not be amended to increase materially the amount of
the fee with respect to the Investor Shares and/or Institutional Shares
described in Section 1.5 above without approval of at least a majority (as
defined in the 1940 Act) of the outstanding Investor Shares and/or Institutional
Shares, respectively. In addition, all material amendments to this Agreement
must be approved by a vote of the Corporation's Board of Directors, and by a
vote of a majority of the Qualified Directors, cast in person at a meeting
called for the purpose of voting on the approval.

<PAGE>
The Chapman Co.
October 28, 1997
Page 13

Please confirm that the foregoing is in accordance with your understanding
by indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us.

Very truly yours,

THE CHAPMAN FUNDS, INC., ON BEHALF OF
DOMESTIC EMERGING MARKETS EQUITY FUND

By: /S/ NATHAN A. CHAPMAN, JR.
----------------------------
Name: Nathan A. Chapman, Jr.
Title: President

Accepted:

THE CHAPMAN CO.

By: /S/ NATHAN A. CHAPMAN, JR.
-----------------------------
Name: Nathan A. Chapman, Jr.
Title: President

<PAGE>

Exhibit 6(C)

DISTRIBUTION AGREEMENT
AMENDMENT

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

WHEREAS, The Chapman Funds, Inc., a Maryland corporation (the
"Company") and the Chapman Co., a Maryland corporation, (the "Distributor") each
desire to amend their agreement regarding the distribution of the shares of its
two investment portfolios: The Chapman US Treasury Money Fund and The Chapman
Institutional Cash Management Fund dated April 30, 1997 (the "Distribution
Agreement").

NOW THEREFORE, in consideration of the agreement hereinafter
contained, it is agreed to amend the Distribution Agreement by adding Section
1.11 as follows:

1.11 The Distributor shall create and maintain all records
required of it pursuant to its duties hereunder in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. All such records will be the property of the Company and
shall be available upon request of the Company for inspection, copying and use
by the Company and shall be surrendered to the Company promptly upon demand of
the Company. Where applicable, such records shall be maintained by the
Distributor for the periods and in the places required by Rule 31a-2 under the
1940 Act. Upon termination of this Agreement, the Distributor shall promptly
surrender all such records to the Company or such person as the Company may
designate.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the 11th of February, 1998.

THE CHAPMAN FUNDS, INC., ON BEHALF OF THE CHAPMAN
US TREASURY MONEY FUND

By: /S/ NATHAN A. CHAPMAN, JR.
Name: Nathan A. Chapman, Jr.
Title: President

THE CHAPMAN CO.

By: /S/ NATHAN A. CHAPMAN, JR.
Name: Nathan A. Chapman, Jr.
Title: President

<PAGE>

Exhibit 11

CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

We consent to the references 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 13 to Registration Statement Number
33-25716 (Form N1-A) of our report dated November 17, 1997, on the
financial statements and financial highlights of the Chapman Funds, Inc. for the
year ended October 31, 1997, included in the 1997 Annual Report to Shareholders.

Baltimore, Maryland
February 23, 1998

<PAGE>

Exhibit 15(A)

THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND INVESTOR CLASS
STOCKHOLDER SERVICING AND DISTRIBUTION PLAN

This Stockholder Servicing and Distribution Plan ("Plan") is adopted
by The Chapman Funds, Inc., a corporation organized under the laws of State of
Maryland (the "Fund"), with respect to the Domestic Emerging Markets Equity Fund
Investor Class Common Stock, par value $.001 per share, of the Fund (the
"Shares") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act
of 1940, as amended (the "1940 Act"), subject to the following terms and
conditions:

SECTION 1. SERVICES PAYABLE UNDER THE PLAN.

(a) The Chapman Co. will be paid fees under the Plan to compensate The
Chapman Co. or enable The Chapman Co. to compensate other persons, ("Service
Providers"), including any other distributor of the Shares, for providing: (i)
services primarily intended to result in the sale of the Shares ("Selling
Services") and (ii) stockholder servicing, administrative and accounting
services ("Administrative Services" and collectively with Selling Services,
"Services"). Selling Services may include, but are not limited to: the
printing and distribution to prospective investors in the Shares of prospectuses
and statements of additional information describing the Fund; the preparation,
including printing, and distribution of sales literature, reports and media
advertisements relating to the Shares; providing telephone services relating to
the Fund; distributing the Shares; costs relating to the formulation and
implementation of marketing and promotional activities, including, but not
limited to, direct mail promotions and television, radio, newspaper, magazine
and other mass media advertising, and related travel and entertainment expenses;
and costs involved in obtaining whatever information, analyses and reports with
respect to marketing and promotional activities that the Fund may, from time to
time, deem advisable. In providing compensation for Selling Services in
accordance with the Plan, The Chapman Co. is expressly authorized (i) to make,
or cause to be made, payments reflecting an allocation of overhead and other
office expenses related to providing Services; (ii) to make, or cause to be
made, payments, or to provide for the reimbursement of expenses of, persons who
provide support services in connection with the distribution of the Shares
including, but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, and providing any other Service;
and (iii) to make, or cause to be made, payments to compensate selected dealers
or other authorized persons for providing any Services. Administrative Services
may include, but are not limited to, (i) responding to inquiries of prospective
investors regarding the Fund; (ii) services to stockholders not otherwise
required to be provided by the Fund's custodian or any co-administrator; (iii)
establishing and maintaining accounts and records on behalf of Fund
stockholders; (iv) processing purchase, redemption and exchange transactions in
Shares; and (v) other similar services not otherwise required to be provided by
the Fund's transfer agent or any co-administrator. Payments under the Plan are
not tied exclusively to the selling and administrative expenses actually
incurred by The Chapman Co. or any Service Provider, and the payments may exceed
expenses actually incurred by The Chapman Co. and/or a Service Provider.
Furthermore, any portion of any fee paid to The Chapman Co. or to any of its
affiliates by the Fund or any of their past profits or other revenue

<PAGE>

may be used in their sole discretion to provide services to stockholders of the
Fund or to foster distribution of the Shares.

SECTION 2. AMOUNT OF PAYMENTS.

The Fund will pay The Chapman Co. on the first business day of each
quarter a fee for the previous quarter calculated at an annual rate of up to
.75% of the average daily net assets of the Shares consisting of up to .50% as
compensation for Selling Services and .25% as compensation for Administrative
Services provided by The Chapman Co. or any Service Providers to the Shares
pursuant to this Agreement.

SECTION 3. APPROVAL OF PLAN.

Neither this Plan nor any related agreements will take effect until
approved by a majority of (a) the full Board of Directors of the Fund and
(b) those Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreements related to it (the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on this Plan and the related
agreements.

SECTION 4. CONTINUANCE OF PLAN.

This Plan will continue in effect with respect to the Shares from year
to year so long as its continuance is specifically approved annually by vote of
the Fund's Board of Directors in the manner described in Section 3(a) and 3(b)
above. The Fund's Board of Directors will evaluate the appropriateness of this
Plan and its payment terms on a continuing basis and in doing so will consider
all relevant factors, including the types and extent of Selling Services and
Administrative Services provided by The Chapman Co. and/or Service Providers and
amounts The Chapman Co. and/or Service Providers receive under this Plan.

SECTION 5. TERMINATION.

This Plan may be terminated at any time with respect to the Shares by
vote of a majority of the Independent Directors or by a vote of a majority of
the outstanding voting Shares.

SECTION 6. AMENDMENTS.

This Plan may not be amended to increase materially the amount of the
fees described in Section 1 above with respect to the Shares without approval of
at least a majority of the outstanding voting Shares. In addition, all material
amendments to this Plan must be approved in the manner described in Section 3(a)
and 3(b) above.

SECTION 7. SELECTION OF CERTAIN DIRECTORS.

While this Plan is in effect with respect to the Fund, the selection
and nomination of the Fund's Directors who are not interested persons of the
Fund will be committed to the discretion of the Directors then in office who are
not interested persons of the Fund.

2
<PAGE>

SECTION 8. WRITTEN REPORTS.

In each year during which this Plan remains in effect with respect to
the Fund, any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the Plan or any related agreement will prepare
and furnish to the Fund's Board of Directors, and the Board will review, at
least quarterly, written reports, complying with the requirements of the Rule,
which set out the amounts expended under this Plan and the purposes for which
those expenditures were made.

SECTION 9. PRESERVATION OF MATERIALS.

The Fund will preserve copies of this Plan, any agreement relating to
this Plan and any report made pursuant to Section 8 above, for a period of not
less than six years (the first two years in an easily accessible place) from the
date of this Plan, the agreement or the report.

SECTION 10. MEANING OF CERTAIN TERMS.

As used in this Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meanings that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Fund under the 1940 Act
by the Securities and Exchange Commission.

SECTION 11. DATE OF EFFECTIVENESS.

This Plan will become effective as of the date the Fund first
commences its investment operations.

IN WITNESS WHEREOF, the Fund has executed this Plan as of the 28th day
of October, 1997.

THE CHAPMAN FUNDS, INC.

By: /S/ NATHAN A. CHAPMAN, JR.
-----------------------------
Name: Nathan A. Chapman, Jr.
Title: President

<PAGE>

Exhibit 15(B)

THE CHAPMAN FUNDS, INC.
DOMESTIC EMERGING MARKETS EQUITY FUND INSTITUTIONAL CLASS
STOCKHOLDER SERVICING AND DISTRIBUTION PLAN

This Stockholder Servicing and Distribution Plan (the "Plan") is
adopted by The Chapman Funds, Inc., a corporation organized under the laws of
State of Maryland (the "Fund"), with respect to the Domestic Emerging Markets
Equity Fund Institutional Class Common Stock, par value $.001 per share, of the
Fund (the "Shares") pursuant to Rule 12b-1 (the "Rule") under the Investment
Company Act of 1940, as amended (the "1940 Act"), subject to the following terms
and conditions:

SECTION 1. SERVICES UNDER THE PLAN.

(a) The Chapman Co., a corporation organized under the laws of the
State of Maryland (the "Distributor"), will be paid fees under the Plan to
compensate the Distributor or enable the Distributor to compensate other
persons, including any other distributor of the Institutional Shares or
institutional stockholders of record of the Shares, including but not limited to
retirement plans, broker-dealers, depository institutions, and other financial
intermediaries ("Institutions"), who own Shares on behalf of their customers,
clients or (in the case of retirement plans) participants ("Customers") and
companies providing certain services to Customers (collectively with
Institutions, "Service Organizations"), for providing (a) services primarily
intended to result in the sale of the Shares ("Selling Services") and (b)
stockholder servicing, administrative and accounting services to Customers
("Administrative Services").

The annual fee paid to the Distributor with respect to Selling
Services will compensate the Distributor, or allow the Distributor to compensate
Service Organizations, to cover certain expenses primarily intended to result in
the sale of the Shares, including, but not limited to: (i) costs of payments
made to employees that engage in the distribution of the Shares; (ii) payments
made to, and expenses of, persons who provide support services in connection
with the distribution of the Shares, including, but not limited to, office space
and equipment, telephone facilities, processing stockholder transactions and
providing any other stockholder services not otherwise provided by the Fund's
transfer agent; (iii) costs relating to the formulation and implementation of
marketing and promotional activities, including, but not limited to, direct mail
promotions and television, radio, newspaper, magazine and other mass media
advertising; (iv) costs of printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective holders of the
Shares; (v) costs involved in preparing, printing and distributing sales
literature pertaining to the Fund and (vi) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities that the Fund may, from time to time, deem advisable.

The annual fee paid to the Distributor with respect to Administrative
Services will compensate the Distributor, or allow the Distributor to compensate
Service Organizations, for personal service and/or the maintenance of Customer
accounts, including but not limited to (i) responding to Customer inquiries,
(ii) providing information on Customer investments and (iii) providing other
stockholder liaison services and for administrative and accounting services to
Customers, including, but not limited to: (a) aggregating and processing
purchase and

<PAGE>

redemption requests from Customers and placing net purchase and redemption
orders with the Fund's distributor or transfer agent; (b) providing Customers
with a service that invests the assets of their accounts in the Shares; (c)
processing dividend payments from the Fund on behalf of Customers; (d) providing
information periodically to Customers showing their positions in the Shares; (e)
arranging for bank wires; (f) providing sub-accounting with respect to the
Shares beneficially owned by Customers or the information to the Fund necessary
for sub-accounting; (g) forwarding stockholder communications from the Fund (for
example, proxies, stockholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers, if required
by law and (h) providing other similar services to the extent permitted under
applicable statutes, rules and regulations. Payments under this Plan are not
tied exclusively to the selling and administrative expenses actually incurred by
the Distributor or any Service Organization, and the payments may exceed
expenses actually incurred by the Distributor or any Service Organization.
Furthermore, any portion of any fee paid to the Distributor or to any of its
affiliates by the Fund or any of their past profits or other revenue may be used
in their sole discretion to provide services to stockholders of the Fund or to
foster distribution of the Shares.

(b) Any officer of the Fund is authorized to execute and deliver, in
the name and on behalf of the Fund, written agreements, in any form duly
approved by the Board of Directors of the Fund, with Service Organizations
providing for the payment to such Service Organizations of fees for providing
Selling Services and Administrative Services.

SECTION 2. AMOUNT OF PAYMENTS.

The Fund will pay the Distributor on the first business day of each
quarter a fee for the previous quarter calculated at an annual rate of up to
.25% of the average daily net assets of the Shares for Selling Services and
Administrative Services provided by the Distributor or any Service Organizations
to the Shares.

SECTION 3. APPROVAL OF PLAN.

SECTION 4. CONTINUANCE OF PLAN.

This Plan will continue in effect with respect to the Shares from year
to year so long as its continuance is specifically approved annually by vote of
the Fund's Board of Directors in the manner described in Section 3(a) and 3(b)
above. The Fund's Board of Directors will evaluate the appropriateness of this
Plan and its payment terms on a continuing basis and in doing so will consider
all relevant factors, including the types and extent of Selling Services and
Administrative Services provided by the Distributor and/or Service Organizations
and amounts the Distributor and/or Service Organizations receive under this
Plan.

2
<PAGE>

SECTION 5. TERMINATION.

This Plan may be terminated at any time with respect to the Shares by
vote of a majority of the Independent Directors or by a vote of a majority of
the outstanding voting Shares.

SECTION 6. AMENDMENTS.

SECTION 7. SELECTION OF CERTAIN DIRECTORS.

SECTION 8. WRITTEN REPORTS.

SECTION 9. PRESERVATION OF MATERIALS.

SECTION 10. MEANING OF CERTAIN TERMS.

3
<PAGE>

SECTION 11. DATE OF EFFECTIVENESS.

This Plan will become effective as of the date the Fund first
commences its investment operations.

IN WITNESS WHEREOF, the Fund has executed this Plan as of the 28th day
of October, 1997.

THE CHAPMAN FUNDS, INC.

By: /S/ NATHAN A. CHAPMAN, JR.
---------------------------
Name: Nathan A. Chapman, Jr.
Title: President