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ANNUAL REPORT
OCTOBER 31, 1999
[GRAPHIC]
U.S. TREASURY MONEY FUND
THE CHAPMAN FUNDS, INC.
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Dear Shareholders,
We are pleased to submit the annual report on The Chapman U.S.
Treasury Money Fund for the year ended October 31, 1999. The Fund seeks to
maximize the preservation of capital, liquidity and, consistent with these
goals, the highest possible current income. It will invest solely in U.S.
Treasury securities and repurchase agreements collateralized fully by such
securities. The Fund's strategy is to invest only in securities with
maturities of thirteen months or less, while maintaining a weighted average
maturity not to exceed 90 days.
This last year of the millennium showed continued economic growth
for the U.S. economy, with low unemployment and controlled inflation. Since
June, the Federal Reserve raised the Federal Funds rate by a total of 0.75%
in three moves, and raised the Discount Rate by 0.50% in two moves, in its
attempt to prevent the economy from overheating. Results were favorable for
equity investors but delivered mixed results for fixed income investors. The
fixed income market was volatile in 1999 in reaction to the economic growth
and anticipated Federal Reserve reaction. The yield on the 30-Year U.S.
Treasury Bond trended distinctly upward, with an increase by over 100 basis
points for the November 1998 through October 1999 time period, dropping its
price and, thus, return for the year. Within fixed income, the better
investment was short-term instruments due to the rising interest rates,
benefiting investors in the Chapman U.S. Treasury Money Fund.
The outlook for the next year begins with the Federal Reserve
maintaining a neutral bias and no change to short term interest rates in
December. However, Chairman Greenspan of the Federal Reserve, announced their
intention to consider asset inflation (stock market growth) in setting monetary
policy. Recent economic measures including a strong 3rd Quarter Gross Domestic
Product at 5.7%, low unemployment, and rising stock market with the Nasdaq
reaching successive new highs, lead many to anticipate a stronger Federal
Reserve tightening at their February 2000 meeting. Once the millennium computer
changeover occurs on January 1, 2000, attention will return to business as
usual. With the U.S. economy's fundamentals strong, consumers confident, and a
global economy recovering with increased demand for U.S. goods, the Federal
Reserve will be vigilant in its assessment of inflationary pressures. We
anticipate a year of continued economic growth, tempered by a monetary policy
that will tighten short-term rates to prevent inflation from getting a foothold.
Rated AAAm (m-moneymarket) by Standard and Poors, we believe the
Chapman U.S. Treasury Money Fund is an attractive strategic choice for fixed
income investors relative to the long bond.
Thank you for your continued support.
Sincerely,
/s/ NATHAN A. CHAPMAN, JR.
Nathan A. Chapman, Jr.
President
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THE CHAPMAN FUNDS, INC.
U.S. TREASURY MONEY FUND
Schedule Of Investments - October 31, 1999
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(Showing Percentage of Total Value of Net Assets)
<TABLE>
<CAPTION>
Principal Value
Amount (Note B)
-------------- ------------------
<S> <C> <C>
-----------------------------------------------------
U.S. GOVERNMENT - 50.9%
-----------------------------------------------------
$ 49,000,000 U.S. Treasury Bills 4.550%, Due 11/04/99 $ 48,981,706
10,000,000 U.S. Treasury Bills 4.400%, Due 11/12/99 9,986,556
42,000 U.S. Treasury Bills 4.870%, Due 02/10/00 41,464
------------------
59,009,726
------------------
-----------------------------------------------------
REPURCHASE AGREEMENTS - 49.6%
-----------------------------------------------------
25,562,000 Societe Generale, dated 10/29/99, 5.20% agreement
to repurchase at $25,573,077 on 11/01/99
(collateralized by U.S. Treasury Bonds, 7.875%, due
02/15/21, $26,658,438 market value) 25,562,000
16,000,000 Prudential Securities, dated 10/29/99, 5.17%
agreement to repurchase at $16,006,893 on 11/01/99
(collateralized by U.S. Treasury Notes, 4.00%, due
10/31/00, $16,647,758 market value) 16,000,000
16,000,000 Smith Barney, dated 10/29/99, 5.15% agreement to
repurchase at $16,006,867 on 11/01/99
(collateralized by U.S. Treasury Bills, due
05/25/00, $16,329,770 market value) 16,000,000
-------------------
57,562,000
-------------------
Total Investments (Cost $116,571,726)* -100.5 % 116,571,726
Other Assets less Liabilities - (0.5%) (530,970)
-------------------
Net Assets - 100.0% $ 116,040,756
===================
</TABLE>
*Cost for federal income tax purposes
See notes to financial statements
2
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THE CHAPMAN FUNDS, INC.
U.S. TREASURY MONEY FUND
Statement of Assets and Liabilities - October 31, 1999
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<TABLE>
<S> <C>
ASSETS:
Investments in securities (including repurchase
agreements of $57,562,000) at value
(amortized cost $116,571,726) (Note B) $116,571,726
Cash 561
Interest receivable 24,837
------------
Total assets 116,597,124
------------
LIABILITIES:
Accrued expenses 100,016
Distribution payable 456,352
------------
Total liabilities 556,368
------------
NET ASSETS $116,040,756
============
NET ASSETS CONSIST OF:
Capital stock $ 116,041
Paid-in-capital 115,924,715
------------
Net assets, for 116,040,756 common shares
outstanding $116,040,756
============
NET ASSET VALUE PER SHARE $ 1.00
============
</TABLE>
See notes to financial statements
3
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THE CHAPMAN FUNDS, INC.
U.S. TREASURY MONEY FUND
Statement of Operations - For the year ended October 31, 1999
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<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $ 4,185,250
-----------
EXPENSES:
Management and administrative fees 519,460
Custodian fees 30,757
Legal and auditing fees 36,873
Directors' fees 19,952
Rating fees 21,984
Transfer and dividend disbursing agent's fees 24,657
Insurance fees 8,402
Other 27,939
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Total expenses before reimbursement 690,024
Reimbursement of expenses (Note D) (127,238)
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Net expenses 562,786
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Net investment income 3,622,465
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Increase in net assets resulting from operations $ 3,622,465
===========
</TABLE>
See notes to financial statements
4
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THE CHAPMAN FUNDS, INC.
U.S. TREASURY MONEY FUND
Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
Year ended Year ended
October 31, 1999 October 31, 1998
--------------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 3,622,465 $ 2,312,977
------------- -------------
Increase in net assets from operations 3,622,465 2,312,977
------------- -------------
DIVIDENDS:
Dividends paid to shareholders from net investment
income ($0.0415 and $.0477 per share, respectively) (3,622,465) (2,312,977)
------------- -------------
CAPITAL SHARE TRANSACTIONS (AT $1 PER SHARE):
Proceeds from sales of shares 154,067,807 136,367,309
Shares issued in reinvestment of dividends from net
investment income 2,647,792 1,390,423
Shares redeemed (117,153,832) (121,488,853)
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Increase in net assets from capital share transactions 39,561,767 16,268,879
------------- -------------
Total increase in net assets 39,561,767 16,268,879
NET ASSETS:
Beginning of year 76,478,989 60,210,110
------------- -------------
End of year $ 116,040,756 $ 76,478,989
============= =============
</TABLE>
See notes to financial statements
5
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THE CHAPMAN FUNDS, INC.
U.S. TREASURY MONEY FUND
Financial Highlights
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THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH YEAR AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS. IT SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
NOTES THERETO.
<TABLE>
<CAPTION>
For the year ended October 31
-----------------------------
1999 1998 1997 1996 1995
------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- -------- -------- ------- --------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.0415 0.0477 0.0470 0.0464 0.0497
--------- -------- -------- ------- --------
Total from investment
operations 0.0415 0.0477 0.0470 0.0464 0.0497
--------- -------- -------- ------- --------
DISTRIBUTIONS:
From net investment income (0.0415) (0.0477) (0.0470) (0.0464) (0.0497)
--------- -------- -------- ------- --------
Total distributions (0.0415) (0.0477) (0.0470) (0.0464) (0.0497)
--------- -------- -------- ------- --------
Net asset value,
end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ========
TOTAL RETURN(1) 4.24% 4.88% 4.80% 4.74% 5.09%
RATIOS TO AVERAGE NET ASSETS:
Expenses(2) 0.65% 0.65% 0.67% 0.75% 0.75%
Expenses (prior to limitation) 0.80% 0.94% 0.93% 0.87% 0.97%
Net investment income 4.18% 4.75% 4.72% 4.63% 5.02%
SUPPLEMENTAL DATA:
Net Assets, end of year
(000 omitted) $ 116,041 $ 76,479 $ 60,210 $ 55,129 $ 34,371
</TABLE>
- -----------------------
(1) The total returns in the table represent the return that an investor would
have earned on an investment in the Fund (assuming investment in the Fund
the first day of the fiscal year and reinvestment of all distributions).
(2) Chapman Capital Management, Inc., the Fund's investment adviser, has agreed
to bear all expenses (excluding income, excise and other taxes and
extraordinary expenses) of the Fund in excess of .65% of average daily net
assets on an annual basis. Prior to January 1, 1997 the Fund's expenses
were limited to .75% of average daily net assets on annual basis.
See notes to financial statements
6
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THE CHAPMAN FUNDS, INC.
U.S. TREASURY MONEY FUND
Notes to Financial Statements - October 31, 1999
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NOTE A - GENERAL
The Chapman Funds, Inc. (the "Company"), is an open-end management investment
company registered under the Investment Company Act of 1940 (the "1940 Act").
The Company currently offers six series; U.S. Treasury Money Fund, Institutional
Cash Management Fund, DEM Equity Fund, DEM Index Fund, DEM Multi-Manager Equity
Fund, and DEM Multi-Manager Bond Fund. These financial statements pertain to the
U.S. Treasury Money Fund (the "Fund').
The Fund is a diversified series that seeks to earn as high a level of current
income as is consistent with preservation of capital and maintenance of
liquidity. The Fund invests solely in short-term direct obligations of the U.S.
Government and repurchase agreements collateralized fully by direct obligations
of the U.S. Government.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation - The Fund uses the amortized cost method, which approximates
market value, to value portfolio securities pursuant to Rule 2a-7 of the 1940
Act, provided the Fund complies with certain conditions. The amortized cost
valuation method involves valuing a security at its cost on the date of purchase
and thereafter assuming a constant amortization from date of purchase to date of
maturity of any discount or premium.
Repurchase Agreements - The Fund's custodian takes possession, through the
Federal Book Entry System, of the collateral pledged for investments in
repurchase agreements. The underlying collateral is valued daily to ensure that
the value, including accrued interest, is at least equal to the repurchase
price. In the event of default, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation, however,
the Fund might be delayed in, or prevented from, selling the collateral for its
benefit.
Distributions to Stockholders - Dividends to shareholders of the Fund are
declared daily from net investment income, which consists of accrued interest
and earned discount (including both original issue and market discount), less
amortization of premium and the accrued expenses applicable to the dividend
period.
Federal Income Taxes - No provision for federal income taxes has been made since
the Fund intends to qualify as a Regulated Investment Company under Subchapter M
of the Internal Revenue Code and distribute all of its taxable income.
Securities Transactions and Investment Income - Securities transactions are
recorded on the trade date. Interest income is recorded on the accrual basis.
Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE C - CAPITAL STOCK
The Company is authorized to issue 10 billion full and fractional shares of
common stock, par value $.001 per share, of which 1 billion shares are
designated as U.S. Treasury Money Fund shares.
NOTE D - MANAGEMENT ADVISORY AND ADMINISTRATIVE FEES
Chapman Capital Management, Inc. ("CCM") acts as the investment adviser and
administrator for the Fund. The investment advisory and administrative fees are
based on the average daily net assets of the Fund computed at annual rates of
.5% and .1%, respectively. At October 31, 1999, expenses payable to CCM for
advisory and administrative services were $50,595.
7
<PAGE>
THE CHAPMAN FUNDS, INC.
U.S. TREASURY MONEY FUND
Notes to Financial Statements - October 31, 1999 - Continued
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NOTE D - MANAGEMENT ADVISORY AND ADMINISTRATIVE FEES - Continued
CCM also serves as Transfer and Dividend Disbursing Agent for the Fund pursuant
to a Shareholder Services Agreement. For its services, CCM is compensated $18
per account subject to a monthly minimum of $1,500, excluding out-of-pocket
expenses. At October 31, 1999, expenses payable to CCM for transfer and dividend
disbursing agent services were $1,630.
CCM has agreed to bear all expenses (excluding income, excise and other taxes
and extraordinary expenses) of the Fund in excess of .65% of average daily net
assets on an annual basis, until December 31, 1999.
NOTE E - DIRECTORS' FEES AND RELATED PARTIES
Certain officers and directors of the Company are "affiliated persons", as
defined in the Investment Company Act of 1940, of the adviser. For the year
ended October 31, 1999, these "affiliated persons" did not receive any
compensation from the Company.
Those directors who are not officers of the Company receive $1,000 compensation
plus certain expenses from the Company for each Board of Directors meeting they
attend.
8
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
The Chapman Funds, Inc. - U.S. Treasury Money Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of The Chapman Funds, Inc. - U.S. Treasury Money
Fund as of October 31, 1999, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and financial highlights for each of the five
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1999, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Chapman Funds, Inc. - U.S. Treasury Money Fund at October 31, 1999, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and its financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 3, 1999
9
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THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY TO SHAREHOLDERS AND TO OTHERS
WHO HAVE RECEIVED A COPY OF THE U.S. TREASURY MONEY FUND PROSPECTUS
[GRAPHIC]
THE CHAPMAN FUNDS
A MEMBER OF THE CHAPMAN GROUP OF COMPANIES
INVESTMENT ADVISOR:
TRANSFER AND DIVIDEND PAYING AGENT:
AND ACCOUNTING AGENT:
CHAPMAN CAPITAL MANAGEMENT, INC.
WORLD TRADE CENTER - BALTIMORE
401 EAST PRATT STREET, 28TH FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
CUSTODIAN:
UMB BANK, N.A.
928 GRAND AVENUE
KANSAS CITY, MISSOURI 64141-6226
DISTRIBUTOR:
THE CHAPMAN COMPANY
WORLD TRADE CENTER - BALTIMORE
401 EAST PRATT STREET, 28TH FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
FOR SHAREHOLDER INQUIRIES CALL 1-800-752-1013
