ICA File No.: 811-9118
File No.: 33-98454
As filed with the Securities and Exchange Commission on
December 6, 1995
Custom footers, yo.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
DEM, Inc.
Exact Name of Registrant as Specified in Charter
The World Trade Center - Baltimore, 401 E. Pratt Street, 28th
Floor, Baltimore, MD 21202
Address of Principal Executive Offices (Number,
Street, City, State, Zip Code)
(800) 752-1013
Registrant's Telephone Number, including Area Code
CSC - Lawyer's Incorporating Service Company, 11 E. Chase Street,
Baltimore, MD 21202
Name and Address (Number, Street, City,
State, Zip Code of Agent for Service)
As soon as practicable after the effective date of this
registration statement
Approximate Date of Proposed Public Offering
If any securities being registered on this form will be offered
on a delayed or continuous basis in reliance on Rule 415 under
the Securities Act of 1933, other than securities offered in
connection with a dividend reinvestment plan, check the following
box.
It is proposed that this filing will become effective (check
appropriate box)
when declared effective pursuant to section 8(c)
If appropriate, check the following box:
this [post-effective] amendment designates a new
effective date for a previously filed [post-effective amendment]
[registration statement].
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Amount Proposed Proposed Amount of
Securities Being Maximum Maximum Registration
Being Registered Offering Aggregate Fee (2)
Registered Price Per Offering
Unit (1) Price (1)
<S> <C> <C> <C> <C>
Common Stock 1,000,000 $15.00 $15,000,000 $6,173
shares
</TABLE>
(1) Estimated solely for the purpose of calculating the
registration fee.
(2) Including $1,000 registration fee under the Investment
Company Act of 1940.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter
<PAGE>
become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall
become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
BA3DOCS1/0024440.03
2
<PAGE>
DEM, INC.
Form N-2
Cross-Reference Sheet
Part A
Item No. Caption Location in Prospectus
1. Outside Front Cover ......................
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Front Cover Page;
Inside Front
Cover Page Cover Page; Outside
Back Cover
Page
3. Fee Table and Synopsis Prospectus Summary;
Company
Expenses
4. Financial Highlights Not Applicable
5. Plan of Distribution Front Cover Page,
Prospectus
Summary; Plan of
Distribution
6. Selling Shareholders Not Applicable
7. Use of Proceeds Use of Proceeds
8. General Description of the Registrant Front
Cover Page; Prospectus
Summary; The Company;
Investment Objectives
and
Policies; Risk
Factors; Common
Stock
9. Management Management of the
Company;
Custodian, Transfer
Agent and
Dividend Paying Agent
and
Registrar
10. Capital Stock, Long-Term Debt and
Other Securities Common Stock; Dividends
and
Distributions;
Dividend Reinvestment
Plan
11. Defaults and Arrears on Senior
Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement of
Additional Information Further Information
Part B Statement of Additional
Item No. Information Caption
14. Cover Page Cover Page
15. Table of Contents Cover Page
16. General Information and History Not Applicable
17. Investment Objectives and Policies Investment
Objectives and
Policies; Brokerage
and
Portfolio
Transactions
18. Management Officers and Directors
19. Control Persons and Principal Holders of
Securities See Management of the
Company
in the Prospectus
20. Investment Advisory and Other Services See
Management of the Company
in the Prospectus;
Brokerage
and Portfolio
Transactions
21. Brokerage Allocation and Other
Practices Brokerage and Portfolio
Transactions
22. Tax Status Taxation
23. Financial Statements Report of Independent
Public
Accountants;
Statements of
Assets and
Liabilities
PART C
Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C to this
Registration Statement
3
<PAGE>
1,000,000 Shares Maximum
333,334 Shares Minimum
DEM, Inc.
Common Stock
DEM, Inc. (the "Company") is a newly organized, non-
diversified, closed-end management investment company. The
Company's principal investment objective is long-term growth
through capital appreciation through investment in companies
that it believes are positioned for growth. Both capital
appreciation and income will be considered in the selection
of investments, but primary emphasis will be on capital
appreciation. See "Investment Objectives and Policies."
The address of the Company is The World Trade Center -
Baltimore, 401 East Pratt Street, 28th Floor, Baltimore,
Maryland 21202, and its telephone number is (800) 752-1013.
The Company's investment adviser is Chapman Capital
Management, Inc. See "MANAGEMENT OF THE COMPANY."
Prior to this offering, there has been no public market
for the Company's shares of common stock ("Common Stock").
Shares of closed-end investment companies have in the past
frequently traded at discounts from their net asset values.
The risk associated with this characteristic of closed-end
investment companies may be greater for investors purchasing
shares in the initial public offering and expecting to sell
the shares soon after the completion thereof. An investment
in the Company involves certain other risks. See "Risk
Factors." The Common Stock has been conditionally approved
for initial inclusion on the Nasdaq SmallCap MarketSM under
the symbol "DEMI".
This Prospectus sets forth concisely the information
about the Company that a prospective investor ought to know
before investing and should be retained for future
reference. A Statement of Additional Information dated
December 6, 1995, containing additional information about
the Company, has been filed with the Securities and Exchange
Commission and is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Statement of
Additional Information, the table of contents of which
appears on page 24 of this Prospectus, may be obtained
without charge by calling (800) 752-1013.
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.
<TABLE>
<CAPTION>
Price to Sales Load Proceeds to
Public (1) Company (2)
<S> <C> <C> <C>
Per Share $15.00 $1.05 $13.95
Total Minimum $5,000,000 $350,000 $4,650,000
Total Maximum $15,000,000 $1,050,000 $13,950,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriter
against certain liabilities under the Securities Act of
1933.
(2) Before deducting organizational and offering
expenses payable by the Company, estimated to be
$117,100.
The shares of Common Stock offered by this Prospectus
are offered on a best efforts basis by the Underwriter
subject to prior sale, withdrawal, cancellation or
modification of the offer without notice, to delivery to and
acceptance by the Underwriter and to certain further
conditions.
4
<PAGE>
The termination date of the offering is on the earlier
to occur of the sale of the Total Maximum number of shares
of Common Stock or sixty days after the effective date of
this Prospectus (the "Termination Date") unless extended by
the Underwriter for an additional thirty days. This
offering is conditioned upon the sale of an aggregate
minimum of 333,334 shares of Common Stock. All funds will
be held by UMB Bank, N.A. as escrow agent and returned, with
interest, if the minimum of 333,334 shares is not sold by
the Termination Date.
December 6, 1995 The Chapman
Co.
Underwriter
5
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
the more detailed information included elsewhere in this
Prospectus. Cross references in this summary are to
headings in the body of the Prospectus
The Company. The Company is a newly organized, non-
diversified, closed-end management investment company. See
"THE COMPANY."
Investment Objectives and Policies. The principal
investment objective of the Company is long-term growth
through capital appreciation. Both capital appreciation and
income will be considered in the selection of investments,
but primary emphasis will be on capital appreciation. The
Company will retain maximum flexibility as to the types of
investments it may make and it will be permitted to invest
in portfolio companies with large and small market
capitalizations. The Company, however, intends to seek to
invest a substantial portion of its assets in securities of
domestic emerging companies with smaller market
capitalizations. There can be no assurance that the
Company's objectives will be achieved. The Company's
investment objectives and policies, other than those
specified under "INVESTMENT OBJECTIVES AND POLICIES --
Fundamental Policies" in the Statement of Additional
Information may be changed by the Board of Directors without
the approval of stockholders.
To achieve the Company's investment objectives, the
Company may invest in a wide variety of types of portfolio
companies and will seek to identify those companies it
believes are positioned for growth. While the Company
expects to invest in portfolio companies with large and
small market capitalization, the Company believes that
investing in small companies may offer the potential for
significant long-term capital appreciation. Most of the
Company's investments are expected to be in marketable
common stocks or marketable securities convertible into
common stock traded on an exchange or in the over-the-
counter markets. To the extent the Company invests in
companies with smaller market capitalization, the securities
of such companies may be traded in such over-the-counter
markets as the OTC Bulletin BoardSM and the Pink
SheetsSM.
While the primary objective of the Company is to seek long-
term growth through capital appreciation, the Company may
invest its assets in income producing securities such as non-
convertible preferred stock, bonds, debentures, notes, and
other similar securities if the Investment Adviser deems
such investments advisable.
The Company will not invest in foreign securities (including
American Depository Receipts) or restricted securities as
defined under Rule 144.
1
<PAGE>
The Offering. A maximum of 1,000,000 shares (the
"Maximum") and a minimum of 333,334 shares (the "Minimum")
of Common Stock will be offered on a best efforts basis at a
price of $15.00 by The Chapman Co., acting as the dealer
manager on an agency basis (the "Underwriter"). The
Termination Date of the offering is on the earlier to occur
of the sale of all of the shares of Common Stock offered
hereby or sixty days after the effective date of this
Prospectus unless extended by the Underwriter for an
additional thirty days. The offering is conditioned upon
the sale of an aggregate minimum of 333,334 shares of Common
Stock. The minimum purchase is 100 shares. See "PLAN OF
DISTRIBUTION."
Trading Market. The Common Stock has been
conditionally approved for initial inclusion on the Nasdaq
SmallCap MarketSM.
Stock Symbol. "DEMI."
Investment Adviser. Chapman Capital Management, Inc.
will act as the Company's investment adviser (the
"Investment Adviser" or "CCM"). The Investment Adviser is a
wholly-owned subsidiary of the Underwriter. The Investment
Adviser has been in the investment counseling business since
1988 and as of November 30, 1995 had approximately $200
million under management. The Company will pay the
Investment Adviser a fee for services provided to the
Company that will be computed monthly and paid monthly at
the annual rate of .90% of the value of the Company's
average weekly net assets during the immediately preceding
month. See "MANAGEMENT OF THE COMPANY -- Investment
Adviser."
Administrator. CCM will also act as the Company's
administrator. The Company will pay CCM a fee for services
provided to the Company that is computed monthly and paid
monthly at the annual rate of .15% of the value of the
Company's average weekly net assets during the immediately
preceding month. Fund/Plan Services, Inc. will act as the
Company's custody administrator and agent. The Company will
pay Fund/Plan Services, Inc. a fee for services provided to
the Company that is payable monthly in arrears computed as
of the last business day of the month at the annualized rate
of .02%, .015% and .01% of the first $30 million, the next
$70 million and any amount over $100 million, respectively,
of the Company's net assets, subject to a minimum monthly
fee of $400. See "MANAGEMENT OF THE COMPANY--
Administrator."
Custodian. UMB Bank, N.A., will act as the Company's
custodian. See "CUSTODIAN, TRANSFER AGENT, DIVIDEND-PAYING
AGENT, REGISTRAR AND PLAN AGENT."
2
<PAGE>
Transfer Agent, Dividend-Paying Agent, Registrar and Plan
Agent. Fund/Plan Services, Inc. will act as the Company's
transfer agent, dividend-paying agent, registrar and agent
under the Company's Dividend Reinvestment Plan. See
"CUSTODIAN, TRANSFER AGENT, DIVIDEND-PAYING AGENT, REGISTRAR
AND PLAN AGENT."
Dividends and Distributions. The Company intends to
pay quarterly dividends from its net investment income, if
any, (that is, income other than net realized capital gains)
and to distribute net realized capital gains, if any,
annually. All dividends or distributions with respect to
shares of Common Stock will be reinvested automatically in
additional shares through participation in the Company's
Dividend Reinvestment Plan, unless a shareholder elects to
receive cash. See "DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT PLAN."
Risk Factors. Investments in Small Companies and Thinly
Traded Issues. Although the Investment Adviser believes
that investing in small companies offers the potential for
significant long-term capital appreciation, it also presents
significant risks. The Company is designed for long-term
investors who have the financial ability to accept greater
investment risk in exchange for the potential of higher than
average, long-term capital appreciation. Small companies
may be subject to greater earnings fluctuation, lack of
established markets for products or services, more limited
financial resources and less depth of experienced management
than larger or more well established companies. Securities
of small companies generally have more limited marketability
and may be subject to greater price volatility than
securities of larger companies. Furthermore, such companies
are often traded on markets such as the OTC Bulletin BoardSM
and the Pink SheetsSM where the trading market is thinner
and the spread between bid and offer prices is larger than
on the major exchanges or Nasdaq system. The nature of
these trading markets may limit the flexibility of the
Company to divest of portfolio securities quickly and at a
reasonable price in response to market conditions. See
"RISK FACTORS -- Investment in Small Companies".
No Assurance of Public Market. The Company is a
newly-formed corporation; therefore, prior to this offering,
there has been no market for the shares of Common Stock.
Although an application has been made to include the shares
in the Nasdaq System there can be no assurance that a
trading market for the shares will develop after this
offering or that, if developed, such market will be
sustained. See "RISK FACTORS -- No Assurance of Public
Market".
Prior Experience of the Investment Adviser.
Although the Investment Adviser has acted as investment
manager for various balanced and equity portfolios, and
3
<PAGE>
is currently acting as an investment adviser for an open-end
diversified management investment company, it has not acted
as an adviser to a closed-end management investment company.
See "RISK FACTORS -- No Assurance of Public Market; -- Prior
Experience of the Investment Adviser".
Non-Diversified Status. The Company is classified
as a "non-diversified" investment company under the
Investment Company Act of 1940, as amended, which means that
the Company is not limited by that Act in the proportion of
its assets that may be invested in the securities of a
single issuer. However, the Company intends to comply with
the diversification requirements imposed by the U.S.
Internal Revenue Code of 1986, as amended, for qualification
as a regulated investment company. As a non-diversified
investment company, the Company may invest a greater
proportion of its assets in the securities of a smaller
number of issuers and, as a result, may be subject to
greater risk with respect to portfolio securities. See
"RISK FACTORS -- Non-Diversified Status".
Special Factors Relating to Closed-End Companies.
The Company is a non-diversified, closed-end investment
company designed for long-term investment and investors
should not consider it a trading vehicle. Shares of closed-
end investment companies frequently trade at a discount from
net asset value. The Company cannot predict whether its
shares will trade at, below or above net asset value. See
"RISK FACTORS -- Special Factors Relating to Closed-End
Companies"; "INVESTMENT OBJECTIVES AND POLICIES."
Anti-Takeover Provisions in Charter. Certain
provisions of the Company's Charter may have the effect of
inhibiting the Company's possible conversion to open-end
status and limiting the ability of other persons to acquire
control of the Company's Board of Directors. In certain
circumstances, these provisions might also inhibit the
ability of shareholders to sell their shares at a premium
over prevailing market prices. See "COMMON STOCK--Anti-
Takeover Provisions in the Charter"
COMPANY EXPENSES
The following table lists the costs and expenses
an investor will incur either directly or indirectly as a
shareholder of the Company, based on the sales load that
will be incurred at the time of purchase and an estimate of
the Company's operating expenses:
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) 7%
Dividend Reinvestment Plan Fees(1) 0%
4
<PAGE>
Minimum Maximum
Annual Expenses (as a percentage of net assets) (2)Offering
Offering
Management Fees .90% .90%
Other Expenses(3) 2.19%
.83%
Total Annual Expenses (estimated) 3.09%
1.73%
______________________
1. There is no charge to participants for reinvesting
dividends and capital gains distributions (the fees of
the Plan Agent (as defined below) are paid by the
Company). Participants are charged a pro rata share of
brokerage commissions on
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<PAGE>
all open market purchases. Currently, a $5.00 fee is
charged by the Plan Agent upon any cash withdrawal or
termination. This amount is in addition to any
brokerage commissions charged to participants upon any
cash withdrawal or termination of participation in the
Plan. See "DIVIDEND REINVESTMENT PLAN".
2. See "USE OF PROCEEDS" and "MANAGEMENT OF THE COMPANY".
3. Does not include expenses of the Company incurred
in connection with the offering and organization of the
Company estimated at $117,100. "Other Expenses," as
shown above, is based upon estimated amounts of
expenses for the Company's first fiscal year.
The following examples demonstrate the projected
dollar amount of total cumulative expenses that would be
incurred over various periods with respect to a hypothetical
investment in the Company. These amounts are based upon
payment by an investor of a 7% sales load and payment by the
Company of operating expenses (excluding organizational and
offering expenses) at the levels set forth in the table
above.
Example
Assuming the Minimum number of shares are sold, an
investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return and reinvestment of
all dividends and distributions at net asset value:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$101 $160 $221 $385
</TABLE>
6
<PAGE>
Example
Assuming the Maximum number of shares are sold, an
investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return and reinvestment of
all dividends and distributions at net asset value:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
$87 $121 $157 $258
</TABLE>
The purpose of the foregoing tables is to assist
the investor in understanding the various costs and expenses
that an investor in the Company will bear directly or
indirectly assuming the Maximum or Minimum number of shares,
respectively, is sold. "Other Expenses" are based on
estimated amounts for the current fiscal year. These
examples should not be considered representations of future
expenses of the Company and actual expenses may be greater
or less than those shown. Moreover, while the examples
assume a 5% annual return, the Company's performance will
vary and may result in a return greater or less than 5%. In
addition, while the example assumes reinvestment of all
dividends and distributions at net asset value, participants
in the Company's Dividend Reinvestment Plan may receive
shares purchased or issued at a price or value different
from net asset value. See "DIVIDENDS AND DISTRIBUTIONS";
"DIVIDEND REINVESTMENT PLAN."
7
<PAGE>
THE COMPANY
DEM, Inc. is a newly organized, non-diversified,
closed-end management investment company registered under
the Investment Company Act of 1940, as amended (the "1940
Act"). The Company's principal investment objective is long-
term growth through capital appreciation. Both capital
appreciation and income will be considered in the selection
of investments, but primary emphasis will be on capital
appreciation. See "INVESTMENT OBJECTIVES AND POLICIES".
The Company, which was incorporated under the laws of the
State of Maryland on October 20, 1995, is registered under
the 1940 Act. The Company has no operating history. The
Company's principal office is located at The World Trade
Center-Baltimore, 401 East Pratt Street, 28th Floor,
Baltimore, Maryland 21202. The Company's telephone number
is (800) 752-1013.
USE OF PROCEEDS
Assuming the Maximum and Minimum number of shares
of Common Stock is sold, the net proceeds of the offering
will be approximately $13,832,900 and $4,532,900,
respectively, after deducting the sales load and estimated
organizational and offering expenses of the Company.
The net proceeds of the offering will be invested
in accordance with the Company's investment objectives and
policies as soon as practicable after completion of this
offering; the Company currently anticipates being fully
invested within 90 days of the completion of this offering.
Pending such investment, the proceeds may be invested in
cash, high quality short-term debt securities, and/or high
quality money market instruments.
INVESTMENT OBJECTIVES AND POLICIES
The principal investment objective of the Company
is long-term growth through capital appreciation. Both
capital appreciation and income will be considered, but
primary emphasis will be on capital appreciation. While the
Company will retain maximum flexibility as to the types of
investments it may make and will be permitted to invest in
portfolio companies with large and small market
capitalizations, the Company intends to invest a substantial
portion of its assets in securities of domestic emerging
companies with smaller market capitalizations. Some of
these investments may involve the purchase of securities
directly from the portfolio company in an initial or other
public offering of the portfolio company.
To achieve the Company's investment objectives,
the Company may invest in a wide variety of types of
portfolio companies and will seek to identify those
8
<PAGE>
companies it believes are positioned for growth. While
the Company expects to invest in portfolio companies with
large and small market capitalization, the Company believes
that investing in small companies may offer the potential
for significant long-term capital appreciation. Most of the
Company's investments are expected to be in marketable
common stocks or marketable securities convertible into
common stock traded on an exchange or in the over-the-
counter markets. To the extent the Company invests in
companies with smaller market capitalization, the securities
of such companies may be traded in such over-the-counter
markets as OTC Bulletin BoardSM and the Pink SheetsSM.
While the primary objective of the Company is to
seek long-term growth through capital appreciation, the
Company may invest its assets in income producing securities
such as non-convertible preferred stock, bonds, debentures,
notes, and other similar securities if the Investment
Adviser deems such investments advisable.
The Company will not invest in foreign securities
(including American Depository Receipts) or restricted
securities as defined under Rule 144.
The Company's investment objectives and policies,
other than those specified in the Statement of Additional
Information under "INVESTMENT OBJECTIVES AND POLICIES --
Fundamental Policies," may be changed by the Board of
Directors without the approval of stockholders.
The Company retains the flexibility to respond
promptly to changes in market conditions. During times when
the Investment Adviser believes a temporary defensive
posture in the market is warranted, including times of
economic uncertainty, the Company may hold cash (U.S.
dollars) and/or invest any portion or all of its assets in
high quality short-term debt securities and money market
instruments. It is impossible to predict when or for how
long the Company will employ defensive strategies, and to
the extent it is so invested, the Company may not achieve
its investment objectives. The Company will also invest in
the instruments described above pending investment of the
net proceeds of the offering.
In addition to investments in marketable common
stocks, marketable securities convertible into common stock
and other securities consistent with the Company's
investment objectives, the Company may, but is not required
to, utilize various investment techniques for hedging, risk
management and other investment purposes. These investment
techniques may include, but are not limited to, lending of
portfolio securities and entering into repurchase
agreements.
The Company may seek to increase its income by
lending portfolio securities. Such securities loans will be
secured by collateral in cash, cash equivalents,
9
<PAGE>
U.S. government securities, or such other collateral as
may be permitted under the Company's investment program and
by regulatory agencies. Additionally, the Company may
enter, without limitation, into "repurchase agreements"
pertaining to the securities in which it may invest with
securities dealers or member banks of the Federal Reserve
System. Repurchase agreements facilitate portfolio
management and allow the Company to earn additional revenue.
If the Company enters into repurchase agreements, it will do
so in order to increase liquidity or as a temporary
investment while the Company is evaluating the acquisition
of suitable investments. See "INVESTMENT OBJECTIVES AND
POLICIES" in the Statement of Additional Information.
The following are some of the Company's
fundamental policies which it may not change without the
approval of the holders of a majority of its outstanding
voting securities. The Company will not invest in foreign
securities (including American Depository Receipts) or
restricted securities as defined in Rule 144. For more
information about the Company and its investment objectives
and policies, including fundamental policies, see
"INVESTMENT OBJECTIVES AND POLICIES" in the Statement of
Additional Information.
RISK FACTORS
Investors should consider the following risk
factors associated with an investment in the Company.
An investment in the Company's shares does not
constitute a complete investment program since it involves
the greater market risks inherent in seeking higher returns
and is not recommended for short-term or risk averse
investors. No assurance can be given that securities of
small emerging companies will appreciate, that a sufficient
number of appropriate investments will be available or that
the Company's particular investment choices will be
successful. The prices of securities in which the Company
may invest may also be more volatile than securities of
issuers with larger market capitalizations and the Company's
net asset value may therefore be subject to greater
fluctuation than other investment companies that invest in
equity securities.
Investment in Small Companies.
Because the Company intends to invest
substantially all of its assets in securities of emerging
companies with small market capitalizations, an investor
should be aware of certain special considerations and risk
factors relating to investments in such companies. No
assurance can be given that securities of small emerging
companies will appreciate, that a sufficient number of
appropriate investments will be available or that the
Company's particular investment choices will be successful.
Investors should also be aware of considerations and risks
relating to the Company's investment practices. An
investment in the Company should not itself be considered a
balanced investment
10
<PAGE>
program and is intended to provide diversification as part
of a more complete investment program. The Company is
intended for long-term investors not seeking current income,
who have the financial ability to accept greater investment
risk in exchange for the potential of higher than average,
long-term capital appreciation.
Investing in small capitalization stocks can
involve greater risk than is customarily associated with
investing in securities of larger, more established
companies. Small emerging companies may be subject to
greater earnings fluctuation, lack of established markets
for products or services, more limited financial resources
and less depth of experienced management. Securities of
small emerging companies generally have more limited
marketability and may be subject to greater price volatility
than securities of larger companies. They may be dependent
for management on one or a few key persons, and can be more
susceptible to losses and risks of bankruptcy. Transaction
and trading costs in smaller capitalization stocks may be
higher than those of larger capitalization companies,
primarily because of more limited volumes and fewer active
market markers. These risks are in addition to the risks
normally associated with any strategy seeking capital
appreciation by investing in a portfolio of equity
securities. Furthermore, such companies are often traded on
markets such as the OTC Bulletin BoardSM and the Pink
SheetsSM where the trading market is thinner and the spread
between bid and offer prices is often larger than on the
major exchanges or Nasdaq system. The nature of these
trading markets may limit the flexibility of the Company to
divest of portfolio securities quickly and at a reasonable
price in response to market conditions.
No Assurance of Public Market
The Company is a newly-formed corporation;
therefore, prior to this offering, there has been no market
for the shares of Common Stock. The Common Stock has been
conditionally approved for initial inclusion on the Nasdaq
SmallCap MarketSM under the symbol "DEMI". However, there
can be no assurance that a trading market for the shares
will develop after this offering or that, if developed, such
market will be sustained.
Prior Experience of the Investment Adviser
The Investment Adviser has acted as investment
manager for various balanced and equity portfolios.
Further, the Investment Adviser has acted and is currently
acting as an investment adviser and manager for The Chapman
Funds, Inc., an open-end, diversified management investment
company which offers two money market funds. However, the
Investment Adviser has not acted as an adviser to a closed-
end management investment company.
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Non-Diversified Status
The Company is classified as a non-diversified
investment company under the 1940 Act, which means that the
Company is not limited by that Act in the proportion of its
assets that may be invested in the securities of a single
issuer. However, the Company intends to comply with the
diversification requirements imposed by the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. As a non-
diversified investment company, the Company may invest a
greater proportion of its assets in the obligations of a
smaller number of issuers and, as a result, may be subject
to greater risk with respect to its portfolio securities.
Special Factors Relating to Closed-End Companies
The Company is a non-diversified, closed-end
investment company designed for long-term investment and
investors should not consider it as a trading vehicle.
Shares of closed-end investment companies frequently trade
at a discount from net asset value. The Company cannot
predict whether its shares will trade at, below or above net
asset value. See "INVESTMENT OBJECTIVES AND POLICIES."
MANAGEMENT OF THE COMPANY
Board of Directors
The business and affairs of the Company are
managed under the direction of the Company's Board of
Directors, and the day to day operations of the Company are
conducted through or under the direction of the officers of
the Company. The Company's Statement of Additional
Information contains information as to the identity and
background of the Company's directors and officers.
Investment Adviser
The Investment Adviser, 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 the Company in accordance with the
Company's investment objectives, policies, and restrictions
and under the supervision and control of the Company's Board
of Directors. The Investment Adviser was established in
1988 and is located at The World Trade Center - Baltimore,
401 East Pratt Street, 28th Floor, Baltimore, Maryland
21202. The Investment Adviser is a wholly-owned subsidiary
of The Chapman Co., the Underwriter. Nathan A. Chapman,
Jr., who is the controlling stockholder, President, Chief
Executive Officer and Chairman of the Underwriter, is
President and Chairman of the Board of Directors of the
Company and
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President, Chief Executive Officer and Chairman of the Board
of Directors of the Investment Adviser.
The Investment Adviser has sole investment
discretion for the Company and will make all decisions
affecting assets in the Company's portfolio under the
supervision of the Company's Board of Directors and in
accordance with the Company's stated policies. The
Investment Adviser will select investments for the Company
and will place purchase and sale orders on behalf of the
Company. The advisory fee payable to the Investment Adviser
will be payable monthly in arrears computed at the
annualized rate of .90% of the Company's average weekly net
assets during the preceding month.
The Investment Adviser has been in the investment
advisory business since 1988 and has served as the
investment adviser to The Chapman Funds, Inc., a registered
diversified open-end management investment company since
1988 which offers two money market funds. In addition, the
Investment Adviser serves as portfolio manager to private
accounts. The Investment Adviser currently has
approximately $200 million in assets under management.
Portfolio Management
Nathan A. Chapman, Jr. who has been the President
and Chief Executive Officer of the Investment Adviser since
1988, is primarily responsible for management of the
Company's assets. Mr. Chapman is the President and Chairman
of the Board of the Company. Mr. Chapman also is and has
been President and Chairman of the Board of Directors of The
Chapman Funds, Inc. since its inception in 1988. Mr.
Chapman founded The Chapman Co., which owns the Investment
Adviser, in 1987 and has been its President, Chief Executive
Officer and Chairman of the Board since its inception. The
Chapman Co. is a full-service brokerage and investment
banking firm. As Mr. Chapman is the chief executive officer
of a brokerage and investment banking firm, he will not
devote his full time to the management of the Company's
portfolio.
Administrator
The Investment Adviser also serves as the
Company's administrator (the "Administrator") pursuant to
the Advisory and Administrative Services Agreement. The
Administrator is located at The World Trade Center -
Baltimore, 401 East Pratt Street, 28th Floor, Baltimore,
Maryland 21202. Under the Advisory and Administrative
Services Agreement, the administration fee payable to the
Administrator will be payable monthly in arrears computed at
the amortized rate of .15% of the Company's average weekly
net assets during the preceding month.
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The Administrator will provide office facilities
and personnel adequate to perform the following services for
the Company: oversight of the determination and publication
of the Company's net asset value in accordance with the
Company's policy as adopted from time to time by the Board
of Directors; maintenance, and oversight of the maintenance,
of the books and records of the Company as required under
the 1940 Act; assistance in the preparation and filing of
the Company's U.S. federal, state and local income tax
returns; review of and arrangement for payment of the
Company's expenses; preparation of financial information for
the Company's proxy statements and quarterly, semi-annual
and annual reports to the shareholders; preparation of
certain of the Company's reports to the Securities and
Exchange Commission; preparation of various reports relating
to the business and affairs of the Company, including the
performance of the Company's service providers; consultation
with the Company's officers, accountants, legal counsel and
others; responding to or referring shareholder inquiries;
and assistance with such other services as generally may be
required to carry on the business and operations of the
Company properly. See "MANAGEMENT OF THE COMPANY --
Investment Adviser" for a discussion of the relationship
between the Company and Investment
Adviser/Administrator.
Fund/Plan Services, Inc. serves as the Company's
custody administrator and agent (the "Custody
Administrator") pursuant to the Custody Administration and
Agency Agreement. The Custody Administrator is located at 2
West Elm Street, Conshohocken, Pennsylvania 19428. Under
the Custody Administration and Agency Agreement, the fee
payable to the Custody Administrator will be payable monthly
in arrears computed as of the last business day of the month
at the annualized rate of .02%, .015% and .01% of the first
$30 million, the next $70 million and any amount over $100
million, respectively, of the Company's net assets, subject
to a minimum monthly fee of $400.
The Custody Administrator will provide the
following services for the Company: coordinate and process
portfolio trades; input and verify portfolio trades; monitor
pending and failed security trades; coordinate
communications between brokers and banks to resolve
operational problems; advise the Company of any corporate
action information, address and follow up on any dividend or
interest discrepancies; process the Company's expenses;
interface with the accounting services provider and the
transfer agent to research and resolve custody cash
problems; and provide daily and monthly reports.
Estimated Expenses
The Investment Adviser/Administrator is obligated
to pay expenses associated with providing the services
contemplated by the Advisory and Administrative
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Services Agreement. The Company pays all other
expenses incurred in the operation of the Company including,
among other things, expenses for legal and independent
public accountants' services, costs of printing proxies,
stock certificates and shareholder reports, charges of the
custodian, any sub-custodians and the transfer and dividend-
paying agent, expenses in connection with the Company's
Dividend Reinvestment Plan, Securities and Exchange
Commission fees, fees and expenses of unaffiliated
directors, accounting and pricing costs, membership fees in
trade associations, fidelity bond coverage for the Company's
officers and employees, directors' and officers' errors and
omissions insurance coverage, interest, brokerage costs and
stock exchange fees, taxes, stock exchange listing fees and
expenses, expenses of qualifying the Company's shares for
sale in various states and foreign jurisdictions, litigation
and other extraordinary or nonrecurring expenses and other
expenses properly payable by the Company.
In addition to the monthly fee payable under the
Custody Administration and Agency Agreement, the Company is
obligated to pay certain transactions charges and to
reimburse the Custody Administrator monthly for all out-of-
pocket expenses including telephone, postage,
telecommunications, special reports, record retention and
copying and sending materials to independent accountants for
off-site audits.
The Company may utilize The Chapman Co. in
connection with a purchase or sale of securities when the
Investment Adviser believes that, in accordance with the
considerations set forth above regarding portfolio
investments, the broker's charge for the transaction does
not exceed usual and customary levels. In the event that
the services of The Chapman Co. are utilized in connection
with a purchase or sale of securities to or by the Company,
its commissions, fees or other remuneration for effecting
such transaction will not exceed usual and customary
broker's commissions if the sale is effected on a securities
exchange or two percent of the sales price if the sale is
effected in connection with a secondary distribution of such
securities or one percent of the purchase or sale price of
such securities if the sale is otherwise effected unless a
larger commission is approved by the Securities and Exchange
Commission. The Chapman Co. is a full-service brokerage and
investment banking firm. As such, it provides financial and
advisory services pursuant to agreements to a variety of
emerging companies that fit within the Company's investment
objectives. As a result, the Company may invest in
companies that have such agreements with The Chapman Co. or
its affiliates.
Assuming a Minimum and Maximum number of shares
are sold, the Investment Adviser estimates that the
Company's annual operating expenses, including advisory,
administrative and custody fees, exclusive of amortization
of organization expenses, will be approximately $154,500 and
$259,500, respectively. No assurance can be given, in light
of the investment objectives and policies, however, that
actual annual operating expenses will not be substantially
more or less than this estimate.
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Costs incurred by the Company in connection with
its organization are $28,340 and will be amortized on a
straight-line basis over 60 months starting at the
commencement of operations. Offering expenses in a Minimum
and Maximum offering are estimated at $438,800 and
$1,138,800, respectively, will be payable upon completion of
the offering and will be charged to capital upon the
commencement of investment operations of the Company.
Principal Shareholder
As of the date of this Prospectus, the Investment
Adviser was the record and beneficial owner of 6,667 shares,
all of the outstanding shares of the Company's Common Stock,
and thus is deemed to "control" the Company as that term is
defined in the 1940 Act. The shares held by the Investment
Adviser are intended to enable the Company to meet the
initial capitalization requirement imposed under the 1940
Act. The Investment Adviser has undertaken that the shares
were purchased for investment purposes only and that they
will be sold only pursuant to a registration statement under
the Securities Act of 1933, as amended, or an applicable
exemption therefrom.
DIVIDENDS AND DISTRIBUTIONS
The Company expects to pay quarterly dividends of
net investment income (other than net realized gains) to the
holders of the Company's Common Stock. Under the Company's
current policy, which may be changed at any time by the
Company's Board of Directors, the Company's quarterly
dividends will be made at a level that reflects the past and
projected performance of the Company, which policy over time
will be expected to result in the distribution of all net
investment income of the Company. Net investment income of
the Company consists of all interest and dividend income
accrued on the Company's assets less all expenses of the
Company. Expenses of the Company are accrued each day. Net
realized capital gains, if any, will be distributed to the
stockholders at least once a year. For more information
concerning the tax treatment of distributions to
stockholders, see "TAXATION."
DIVIDEND REINVESTMENT PLAN
Under the Company's Dividend Reinvestment Plan
(the "Plan"), a stockholder whose shares of Common Stock are
registered in his own name will have all distributions from
the Company reinvested automatically by Fund/Plan Services,
Inc. (the "Plan Agent") as agent under the Plan, unless the
stockholder elects to receive cash. Distributions with
respect to shares registered in the name of a broker-dealer
or other nominee (that is, in "street name") will be
reinvested by the broker or nominee in
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<PAGE>
additional shares under the Plan, unless that service is not
provided by the broker or nominee or the stockholder elects
to receive distributions in cash. Investors who own Common
Stock registered in street name should consult their broker-
dealers for details regarding reinvestment. All
distributions to Company stockholders who do not participate
in the Plan will be paid by check mailed directly to the
record holder by or under the direction of Fund/Plan
Services, Inc. as dividend-paying agent.
If the Company declares a dividend or capital
gains distribution payable either in shares of Common Stock
or in cash, stockholders who are not Plan participants will
receive cash, and Plan participants will receive the
equivalent amount in shares of Common Stock. When the
market price of the Common Stock is equal to or exceeds the
net asset value per share of the Common Stock on the
Valuation Date (as defined below), Plan participants will be
issued shares of Common Stock valued at the net asset value
most recently determined as described in this Prospectus
under "Net Asset Value" or, if net asset value is less than
95% of the then current market price of the Common Stock,
then at 95% of the market value. The Valuation Date is the
dividend or capital gains distribution payment date or, if
that date is not a trading day, the immediately preceding
trading day.
If the market price of the Common Stock is less
than the net asset value of the Common Stock, or if the
Company declares a dividend or capital gains distribution
payable only in cash, a broker-dealer not affiliated with
the Company, as purchasing agent for Plan participants (the
"Purchasing Agent"), will buy Common Stock in the open
market, on the Nasdaq System or elsewhere, for the
participants' accounts. If, following the commencement of
the purchases and before the Purchasing Agent has completed
its purchases, the market price exceeds the net asset value
of the Common Stock, the average per share purchase price
paid by the Purchasing Agent may exceed the net asset value
of the Common Stock, resulting in the acquisition of fewer
shares than if the dividend or capital gains distribution
had been paid in Common Stock issued by the Company at net
asset value. Additionally, if the market price exceeds the
net asset value of shares before the Purchasing Agent has
completed its purchases, the Purchasing Agent is permitted
to cease purchasing shares and the Company may issue the
remaining shares at a price equal to the greater of (a) net
asset value or (b) 95% of the then current market price. In
a case where the Purchasing Agent has terminated open market
purchases and the Company has issued the remaining shares,
the number of shares received by the participant in respect
of the cash dividend or distribution will be based on the
weighted average of prices paid for shares purchased in the
open market and the price at which the Company issues the
remaining shares. The Plan Agent will apply all cash
received as a dividend or capital gains distribution to
purchase Common Stock on the open market as soon as
practicable after the payment date of the dividend or
capital gains distribution, but in no event later
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than 30 days after that date, except when necessary to
comply with applicable provisions of the federal securities
laws.
The Plan Agent will maintain all stockholder
accounts in the Plan and will furnish written confirmations
of all transactions in each account, including information
needed by a stockholder for personal and tax records. The
automatic reinvestment of dividends and capital gains will
not relieve Plan participants of any income tax that may be
payable on the dividends or capital gains distributions.
Common Stock in the account of each Plan participant will be
held by the Plan Agent on behalf of the Plan participant,
and each stockholder's proxy will include those shares
purchased pursuant to the Plan.
Plan participants are subject to no charge for
reinvesting dividends and capital gains distributions. The
Plan Agent's fees for handling the reinvestment of dividends
and capital gains distributions will be paid by the Company.
No brokerage charges apply with respect to shares of Common
Stock issued directly by the Company as a result of
dividends or capital gains distributions payable either in
Common Stock or in cash. Each Plan participant will,
however, bear a proportionate share of brokerage commissions
incurred with respect to open market purchases made in
connection with the reinvestment of dividends or capital
gains distributions. Plan participants may terminate their
participation in the Plan by written notice to the Plan
Agent; provided that any such notice received by the Plan
Agent less than ten days before the record date for any
dividend shall not be effective with respect to such
dividend or distribution. Currently, a $5.00 fee is charged
by the Plan Agent upon any cash withdrawal or
termination.
Experience under the Plan may indicate that
changes to it are desirable. The Company reserves the right
to amend or terminate the Plan as applied to any dividend or
capital gains distribution paid subsequent to written notice
of the change sent to participants at least 30 days before
the record date for the dividend or capital gains
distribution. The Plan also may be amended or terminated by
the Plan Agent, with the Company's prior written consent, on
at least 30 days' written notice to Plan participants. All
correspondence concerning the Plan should be directed by
mail to the Plan Agent, 2 West Elm Street, Conshohocken,
Pennsylvania 19428.
TAXATION
The following discussion reflects applicable tax
laws as of the date of this Prospectus.
Taxation of the Company
The Company intends to elect and qualify each year
to be treated as a regulated investment company (a "RIC")
for federal income tax purposes in accordance with
Subchapter M of the Internal Revenue Code of 1986, as
amended. In order to so
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qualify, the Company must satisfy certain tests regarding
the source of its income,diversification of its assets and
distribution of its income. If the Company otherwise
qualifies as a regulated investment company and distributes
to its stockholders at least 90% of its investment company
taxable income, then the Company will not be subject to
federal income tax on the income so distributed. However,
the Company would be subject to corporate income tax on any
undistributed income. In addition, the Company will be
subject to a nondeductible 4% excise tax on the amount by
which the amount it distributes in any calendar year is less
than a statutorily designated, required amount of its
regulated investment company income and its capital gain net
income (generally 98%).
The Company may acquire securities that do not pay
interest currently in an amount equal to their effective
interest rate, such as zero coupon, pay-in-kind, or delayed
interest securities. As the holder of such a security, the
Company is required to include in taxable income original
issue discount that accrued on the security for the taxable
year, even if the Company receives no payment on the
security during the year. Because the Company must
distribute annually substantially all of its investment
company taxable income, including any original issue
discount, in order to qualify as a RIC and to avoid
imposition of the 4% excise tax, the Company may be required
in a particular year to distribute dividends in an amount
that is greater than the total amount of cash the Company
actually receives as distributions on the securities it
owns. Those annual distributions will be made from the
Company's cash assets or from the proceeds of sales of
portfolio securities, if necessary. The Company may realize
capital gains or losses from those sales, which would
increase or decrease the Company's investment company
taxable income or net capital gain.
If in any year the Company should fail to qualify
under Subchapter M as a regulated investment company, the
Company would incur a regular corporate income tax upon its
taxable income for the year, and the entire amount of its
distribution would generally be characterized as ordinary
income.
Taxation of Stockholders
Distributions
In general, all distributions to stockholders
attributable to the Company's investment company taxable
income will be taxable as ordinary income whether paid in
cash or reinvested in additional shares of Common Stock
pursuant to the Dividend Reinvestment Plan.
Although the Company does not expect to realize
significant net capital gains, to the extent the Company
does realize net capital gains, it intends to distribute
such gains annually and designate them as capital gain
dividends. Long-term capital
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gains dividends are taxable to stockholders as long-term
capital gains, whether paid in cash or reinvested in
additional shares of Common Stock, regardless of how long a
stockholder has held Company shares.
Stockholders receiving distributions in the form
of additional shares of Common Stock purchased pursuant to
the Dividend Reinvestment Plan will be treated for federal
income tax purposes as having received the amount of cash
used to purchase such shares. In general, the basis of such
shares will equal the price paid by the Plan Agent for such
shares, including brokerage commissions. For additional
information, see "DIVIDEND REINVESTMENT PLAN."
Sales of Shares
In general, if a share of Common Stock is sold,
the seller will recognize gain or loss equal to the
difference between the amount realized on the sale and the
seller's adjusted basis in the share. Capital gain or loss
will be long-term capital gain or loss if the Common Stock
that was sold had been held for more than one year.
However, any loss recognized by a stockholder on Common
Stock held for six months or less will be treated as a long-
term capital loss to the extent of any long-term capital
gain distributions received by the stockholder and the
stockholder's share of undistributed net capital gain. In
addition, any loss realized on a sale of shares of Common
Stock will be disallowed to the extent the shares disposed
of are replaced within a period beginning 30 days before and
ending 30 days after the disposition of the shares. In such
a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any gain or loss realized upon
a sale of Common Stock by a stockholder who is not a dealer
in securities will generally be treated as capital gain or
loss.
Backup Withholding
The Company may be required to withhold federal
income tax at the rate of 31% of any dividend or redemption
payments made to certain stockholders if such stockholders
have not provided a correct taxpayer identification number
and certain required certifications to the Company, or if
the Secretary of the Treasury notifies the Company that the
taxpayer identification number provided by a stockholder is
not correct or that the stockholder has previously
underreported its interest and dividend income.
Stockholders can credit such withheld income taxes against
their income tax liabilities.
The foregoing discussion is a summary of certain
of the current federal income tax laws regarding the Company
and investors in the shares of Common Stock and does not
deal with all of the federal income tax consequences
applicable to the Company, or to all categories of
investors, some of which may be subject to special rules.
Prospective investors should consult their own tax advisers
regarding the federal, state,
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local, foreign and other tax consequences to them of
investments in the Company. For additional tax information,
see "TAXATION" in the Company's Statement of Additional
Information.
CUSTODIAN, TRANSFER AND DIVIDEND-
PAYING AGENT AND REGISTRAR
UMB Bank, N.A., located at 928 Grand Avenue,
Kansas City, Missouri 64105 will act as the custodian for
the Company's assets. Fund/Plan Services, Inc., located at
2 West Elm Street, Conshohocken, Pennsylvania 19428 will act
as the Company's dividend-paying agent, transfer agent and
registrar.
PLAN OF DISTRIBUTION
The Company is offering up to 1,000,000 shares of
Common Stock. The shares of Common Stock will be offered on
a "best-efforts" basis, by The Chapman Co., acting as the
dealer-manager on an agency basis (the "Underwriter"). The
offering has an aggregate minimum of 333,334 shares of
Common Stock. The Termination Date of the offering is on
the earlier to occur of the sale of all of the shares of
Common Stock or sixty days after the effective date of this
Prospectus unless extended by the Underwriter for an
additional thirty days. All funds will be held by UMB Bank,
N.A., as escrow agent and returned, with interest, if the
minimum of 333,334 shares is not sold by the Termination
Date of the offering.
Chapman Capital Management, Inc., the Company's
Administrator and Investment Adviser is a wholly-owned
subsidiary of the Underwriter. The principal business
address of the Underwriter is 401 E. Pratt Street, 28th
Floor, Baltimore, Maryland 21202.
The Common Stock will be offered to the public at
$15.00 per share. The Underwriter will be paid a management
fee of $.40 per share sold. In addition, the Underwriter
and any other broker-dealer participating in the selling
group will be paid a commission not in excess of $.65 per
share sold.
In the Placement Agency Agreement, the Company has
agreed to indemnify the Underwriter and its controlling
persons with respect to certain liabilities, including
liabilities under the Securities Act of 1933 Act, as
amended.
The Underwriter has informed the Company that it
does not intend to confirm sales to any accounts over which
it exercises discretionary authority.
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To the extent permitted under the 1940 Act and the
rules and regulations promulgated thereunder, the Company
anticipates that the Underwriter may from time to time act
as broker or dealer in connection with the execution of its
portfolio transactions after it has ceased to be the
Underwriter and, subject to certain restrictions under the
1940 Act, may act as broker while it is the Underwriter.
Prior to this offering, there has been no public
market for the shares of Common Stock. The Common Stock has
been conditionally approved for initial inclusion on the
Nasdaq SmallCap MarketSM under the symbol "DEMI".
The minimum investment requirement is 100 shares.
Investors should consult their brokers concerning the manner
and method of payment for shares of the Company.
The Underwriter may make a market in the Common
Stock after trading in the Common Stock has commenced on the
Nasdaq SmallCap MarketSM. The Underwriter, however, is not
obligated to conduct market-making activities and any such
activities may be discontinued at any time without notice,
at its sole discretion. No assurance can be given as to the
liquidity of, or the trading market for, the Common Stock as
a result of any such market-making activities.
COMMON STOCK
The Company is authorized to issue 500,000,000
shares of capital stock par value $.00001 per share, all of
which shares have been classified as Common Stock. All
shares of Common Stock have equal rights as to dividends and
voting privileges and, when issued, will be fully paid and
nonassessable. There are no conversion, preemptive or other
subscription rights. In the event of liquidation, each
share of Common Stock is
22
entitled to its proportion of the Company's assets after
debts and expenses. Shareholders are entitled to one vote
per share and do not have cumulative voting rights.
The Company has no present intention of offering
additional shares, except that additional shares may be
issued under the Plan. See "Dividends and Distributions;
Dividend Reinvestment Plan." Other offerings of shares, if
made, will require approval of the Company's Board of
Directors. Any additional offering will be subject to the
requirement of the 1940 Act that shares not be sold at a
price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in connection
with an offering to existing shareholders or with the
consent of a majority of the Company's outstanding shares.
Anti-Takeover Provisions in the Charter
The Company has provisions in its Charter and
Bylaws that could have the effect of limiting the ability of
other entities or persons to acquire control of the Company,
to cause it to engage in certain transactions or to modify
its structure. Commencing with the first annual meeting of
stockholders, the Board of Directors will be divided into
three classes having initial terms of one, two and three
years, respectively. At the annual meeting of stockholders
in each year thereafter, the term of one class will expire
and directors will be elected to serve in the class for
terms of three years. This provision could delay for up to
two years the replacement of a majority of the Board of
Directors. The Charter provides that the maximum number of
directors that may constitute the Company's entire board is
twelve. The maximum number of directors may be increased
only by the affirmative vote of at least 75% of the
Directors and of the holders of 75% of the shares of the
Company entitled to be cast on the matter, unless approved
by at least 75% of the Continuing Directors, as defined
below, in which case a majority of the votes entitled to be
cast by shareholders of the Company will be required to
approve such action. A director may be removed from office
with or without cause only upon the vote 75% of the shares
of the Company entitled to be cast on the matter.
In addition, conversion of the Company from a
closed-end to an open-end investment company requires the
affirmative vote of at least 75% of the directors and of the
holders of 75% of the shares of the Company entitled to be
cast on the matter, unless approved by at least 75% of the
Continuing Directors, as defined below, in which case a
majority of the votes entitled to be cast by shareholders of
the Company will be required to approve such conversion. If
the Company were to be converted into an open-end investment
company, it could be restricted in its ability to redeem its
shares (otherwise than in kind) because, in light of the
limited depth of the markets for certain securities in which
the Company may invest, there can be no assurance that the
Company could realize the then market value of the portfolio
securities the Company would be required to liquidate to
meet redemption requests.
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The affirmative votes of at least 75% of the
directors and the holders of at least 75% of the shares of
the Company are required to authorize any of the following
transactions:
(i) merger, consolidation or share exchange of the
Company with or into any other person;
(ii) issuance or transfer by the Company (in one or a
series of transactions in any 12-month period) of any
securities of the Company to any other person or entity for
cash, securities or other property (or combination thereof)
having an aggregate fair market value of $1,000,000 or more,
excluding sales of securities of the Company in connection
with a public offering, issuances of securities of the
Company pursuant to a dividend reinvestment plan adopted by
the Company or pursuant to a stock dividend and issuances of
securities of the Company upon the exercise of any stock
subscription rights distributed by the Company;
(iii) sale, lease, exchange, mortgage, pledge, transfer
or other disposition by the Company (in one or a series of
transactions in any 12-month period) to or with any person
of any assets of the Company having an aggregate fair market
value of $1,000,000 or more, except for portfolio
transactions effected by the Company in the ordinary course
of business and except with respect to repurchases or
redemptions of shares of the Company (transactions within
clauses (i) and (ii) and this clause (iii) each being known
individually as a "Business Combination");
(iv) any proposal as to the voluntary liquidation or
dissolution of the Company or any amendment to the Company's
Charter to terminate its existence; and
(v) any shareholder proposal as to specific investment
decisions made or to be made with respect to the Company's
assets.
However, in the case of a Business Combination, a
75% shareholder vote will not be required if the transaction
is approved by a vote of at least 75% of the Continuing
Directors. In such case, a majority of the votes entitled
to be cast by shareholders of the Company will be required
to approve such transaction if it is a transaction described
in clause (i) or a transaction described in clause (iii)
that involves a merger, consolidation or share transfer or a
transfer of substantially all of the Company's assets with
respect to which a shareholder vote is required under
applicable state law and no shareholder vote will be
required to approve such transaction if it is any other
Business Combination. In addition, a 75% shareholder vote
will not be required with respect to a transaction described
in clause (iv) above if it is approved by a vote of at least
75% of the Continuing Directors (as defined below), in which
case a majority of the votes entitled to be cast by
shareholders of the Company will be required to approve such
transaction.
A "Continuing Director" is any member of the Board
of Directors of the Company (i) who is not a person or
affiliate of a person who enters or proposes to enter into a
Business Combination with the Company (such person or
affiliate, an "Interested
24
<PAGE>
Party") and (ii) who has been a member of the Board of
Directors of the Company for a period of at least 12 months
(or since the commencement of the Company's operations, if
less than 12 months) or is a successor of a Continuing
Director recommended by a majority of the Continuing
Directors then on the Board of Directors of the Company.
The Company's Bylaws contain provisions the effect
of which is to prevent matters, including nominations of
directors, from being considered at shareholders' meetings
where the Company has not received sufficient prior notice
of the matters.
Reference is made to the Charter and Bylaws of the
Company, on file with the Securities and Exchange
Commission, for the full text of these provisions. See
"FURTHER INFORMATION." These provisions could have the
effect of depriving shareholders of an opportunity to sell
their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of
the Company in a tender offer or similar transaction. In
the opinion of the Board of Directors, however, these
provisions offer several possible advantages. They may
require persons seeking control of the Company to negotiate
with its management regarding the price to be paid
25
<PAGE>
for the shares required to obtain such control, they promote
continuity and stability and they enhance the Company's
ability to pursue long-term strategies that are consistent
with its investment objectives. The Board of Directors has
determined that the foregoing voting requirements, which are
generally greater than the minimum requirements under
Maryland law and the 1940 Act, are in the best interests of
shareholders generally.
STOCK PURCHASES AND TENDERS
The Company's Board of Directors may consider,
from time to time, but not more frequently than once every
two years, repurchases of Common Stock on the open market or
in private transactions or the making of tender offers for
Common Stock. The Company does not have a fundamental
policy with respect to the repurchase of Common Stock and
these repurchases are discretionary. There can be no
assurance that the Board of Directors will, in fact, decide
to effect repurchase of the Company's shares. See "STOCK
PURCHASES AND TENDERS" in the Statement of Additional
Information.
LEGAL MATTERS
Venable, Baetjer and Howard, LLP, Baltimore,
Maryland, as counsel for the Company, will render an opinion
as to certain legal matters regarding the due authorization
and valid issuance of the Common Stock being offered
pursuant to this Prospectus. In addition, Venable, Baetjer
and Howard, LLP serves as counsel to the Underwriter on an
on-going basis. The Underwriter has not been separately
represented in this offering. Venable, Baetjer and Howard,
LLP also serves as counsel to Chapman Capital Management,
Inc. on an on-going basis.
REPORTS TO SHAREHOLDERS
The Company will send semi-annual and audited
annual reports to shareholders, including a list of
investments held.
EXPERTS
The Statement of Assets and Liabilities of the
Company as of November 30, 1995 included in this Prospectus
and elsewhere in the Registration Statement has been audited
by Arthur Andersen LLP, independent public accountants as
indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm
as experts in auditing and accounting in giving said
report.
26
<PAGE>
FURTHER INFORMATION
This Prospectus and the Statement of Additional
Information do not contain all of the information set forth
in the Registration Statement that the Company has filed
with the Securities and Exchange Commission. The complete
Registration Statement may be obtained from the Securities
and Exchange Commission upon payment of the fee prescribed
by its Rules and Regulations.
As stated above, the Statement of Additional
Information contains further information about the Company.
The table of contents of the Statement of Additional
Information is as follows:
<TABLE>
<CAPTION>
Page
<S> <C>
Investment Objectives and Policies A-2
Net Asset Value A-4
Taxation A-5
Officers and Directors A-9
Brokerage and Portfolio Transactions A-12
Stock Purchases and Tenders A-13
Report of Independent Public Accountants A-16
Statement of Assets and Liabilities A-17
</TABLE>
No person has been authorized to give any information
or to make any representations not contained in this
Prospectus or the Statement of Additional Information and,
if given or made, the information or representations must
not be relied upon as having been authorized by the Company,
the Company's Investment Adviser or Underwriter. This
Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the
shares of Common Stock offered by this Prospectus, nor does
it constitute an offer to sell or a solicitation of an offer
to buy the shares of Common Stock by anyone in any
jurisdiction in which the offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder will, under any circumstances, create
any implication that there has been no change in the affairs
of the Company since the date of this Prospectus. If any
material change occurs while this Prospectus is required by
law to be delivered, however, this Prospectus will be
supplemented or amended accordingly.
27
<PAGE> Dividends and Distributions
15
Dividend Reinvestment Plan
15
No dealer, salesman, Taxation 17
or other person has been Custodian, Transfer and
authorized to give any Dividend-
information or to make any Paying Agent and
representation not Registrar 19
contained in this Plan of Distribution
Prospectus. If given or 19
made, such information or Common Stock 20
representation must not be Stock Purchases and Tenders
relied upon as having been 23
authorized by the Company Legal Matters 23
or any Underwriter. This Reports to Shareholders
Prospectus does not 23
constitute an offer to sell Experts 23
or the solicitation of an Further Information 24
offer to buy any security
other than the shares of [/TABLE]
Common Stock offered by _______________________
this Prospectus, nor does
it constitute an offer to Until December 31,
sell or the solicitation of 1995 (25 days after the
an offer to buy shares of date of this Prospectus),
Common Stock by anyone in all dealers effecting
any jurisdiction in which transactions in the Common
such offer or solicitation Stock, whether or not
would be unlawful. Neither participating in this
the delivery of this distribution, may be
Prospectus nor any sale required to deliver a
made hereunder shall, under Prospectus. This is in
any circumstances, create addition to the obligation
an implication that there of dealers to deliver a
has been no change in the Prospectus when acting as
facts as set forth in the Underwriters and with
Prospectus or in the respect to their unsold
affairs of the Company allotments or
since the date hereof. subscriptions.
[/R]
_______________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S>
<C>
Prospectus Summary 1,000,000 Shares Maximum
1
333,334 Shares
Company Expenses 4 Minimum
The Company 7
Use of Proceeds 7 DEM, Inc.
Investment Objectives and
Policies 7
Risk Factors 9
Management of the Company Common Stock
11
_____________
PROSPECTUS
_____________
___________________________
_
The Chapman Co.
Underwriter
December 6, 1995
<PAGE>
Statement of Additional Information Dated December 6,
1995
DEM, INC.
STATEMENT OF ADDITIONAL INFORMATION
DEM, Inc. (the "Company") is a newly organized, non-
diversified, closed-end management investment company. The
Company's primary investment objective is long-term growth
through capital appreciation. Both capital appreciation and
income will be considered in the selection of investments, but
primary emphasis will be on capital appreciation. To achieve the
Company's investment objectives, the Company may invest in a wide
variety of types of portfolio companies, and will seek to
identify those companies it believes are positioned for growth.
While the Company expects to invest in portfolio companies with
large and small market capitalization, the Company believes that
investing in small companies may offer the potential for
significant long-term capital appreciation.
This Statement of Additional Information is not a
prospectus, but should be read in conjunction with the Prospectus
for the Company dated December 6, 1995 (the "Prospectus"). This
Statement of Additional Information does not include all the
information that a prospective investor should consider before
purchasing the Company's shares of common stock, and investors
should obtain and read the Prospectus prior to purchasing shares.
A copy of the Prospectus may be obtained without charge, by
calling the Company at (800) 752-1013.
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Investment Objectives and Policies A-2
Net Asset Value A-4
Taxation A-5
Officers and Directors A-9
Brokerage and Portfolio Transactions A-12
Stock Purchases and Tenders A-13
Report of Independent Public Accountants A-16
Statement of Assets and Liabilities A-17
</TABLE>
The Prospectus and this Statement of Additional Information
omit certain of the information contained in the registration
statement filed with the Securities and Exchange Commission,
Washington, D.C. (the "SEC"). These items may be obtained from
the SEC upon payment of the fee prescribed, or inspected at the
SEC's office at no charge.
This Statement of Additional Information is dated December
6, 1995
A-1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The principal investment objective of the Company is
long-term growth through capital appreciation. Both capital
appreciation and income will be considered, but primary emphasis
will be on capital appreciation. While the Company will retain
maximum flexibility as to the types of investments it may make
and will be permitted to invest in portfolio companies with large
and small market capitalizations, the Company intends to seek to
invest a substantial portion of its assets in securities of
domestic emerging companies with smaller market capitalizations.
Some of these investments may involve the purchase of securities
directly from the portfolio company in an initial or other public
offering of the portfolio company.
To achieve the Company's investment objectives, the
Company may invest in a wide variety of types of portfolio
companies and will seek to identify those companies it believes
are positioned for growth. While the Company expects to invest
in portfolio companies with large and small market
capitalizations, the Company believes that investing in small
companies may offer the potential for significant long-term
capital appreciation. Most of the Company's investments are
expected to be in marketable common stocks or marketable
securities convertible into common stock traded on an exchange or
in the over-the-counter markets. To the extent the Company
invests in companies with smaller market capitalization, the
securities of such companies may be traded in such over-the-
counter markets as OTC Bulletin BoardSM and the Pink
SheetsSM.
While the primary objective of the Company is to seek
long-term growth through capital appreciation, the Company may
invest its assets in income producing securities such as non-
convertible preferred stock, bonds, debentures, notes, and other
similar securities if the Investment Adviser deems such
investments advisable.
The Company will not invest in foreign securities
(including American Depository Receipts) or restricted securities
as defined under Rule 144.
The Company is authorized to lend securities it holds
to brokers, dealers and other financial organizations, but it
will not lend securities to any affiliate of the Investment
Adviser, or Underwriter, unless the Company applies for and
receives specific authority to do so from the Securities and
Exchange Commission. The Company's loans of securities will be
collateralized by cash, letters of credit or U.S. Government
securities that will be maintained at all times in a segregated
account in an amount equal to the current market value of the
loaned securities. From time to time, the Company may pay a part
of the interest earned from the investment of collateral received
for securities loaned to the borrower and/or a third party that
is unaffiliated with the Company and that is acting as a
"finder."
By lending its securities, the Company can increase its
income by continuing to receive interest on the loaned
securities, by investing the cash collateral in short-term
instruments or by obtaining yield in the form of interest paid by
the borrower when U.S. Government
A-2
<PAGE>
securities are used as collateral. The portfolio will adhere to
the following conditions whenever it lends its securities: (1)
the Company must receive at least 100% cash collateral or
equivalent securities from the borrower, which amount of
collateral will be maintained by daily marking to market; (2) the
borrower must increase the collateral whenever the market value
of the securities loaned rises above the level of the collateral;
(3) the Company must be able to terminate the loan at any time;
(4) the Company must receive reasonable interest on the loan, as
well as any dividends, interest or other distributions on the
loaned securities, and any increase in market value; (5) the
Company may pay only reasonable custodian fees in connection with
the loan; and (6) voting rights on the loaned securities may pass
to the borrower, except that, if a material event adversely
affecting the investment in the loaned securities occurs, the
Company's Board of Directors must terminate the loan and regain
the Company's right to vote the securities.
The Company may enter, without limitation, into
"repurchase agreements" pertaining to the securities in which it
may invest with securities dealers or member banks of the Federal
Reserve System. A repurchase agreement arises when a buyer such
as the Company purchases a security and simultaneously agrees to
resell it to the vendor at an agreed-upon future date, normally
one day or a few days later. The resale price is greater than
the purchase price, reflecting an agreed-upon interest rate which
is effective for the period of time the buyer's money is invested
in the security and which is related to the current market rate
rather than the coupon rate on the purchased security. Such
agreements permit the Company to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Company requires continual
maintenance by its custodian for its account in the Federal
Reserve/Treasury Book Entry System of collateral in an amount
equal to, or in excess of, the resale price. In the event a
vendor defaulted on its repurchase obligation, the Company might
suffer a loss to the extent that the proceeds from the sale of
the collateral were less than the repurchase price. In the event
of a vendor's bankruptcy, the Company might be delayed in, or
prevented from, selling the collateral for the Company's benefit.
The Company's Board of Directors has established procedures,
which will be periodically reviewed by the Board, pursuant to
which the Investment Adviser will monitor the creditworthiness of
the dealers and banks with which the Company enters into
repurchase agreement transactions.
Fundamental Policies
The following investment restrictions are fundamental
and cannot be changed without the approval of holders of a
majority of the Company's outstanding voting shares, which, as
used here, means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are
present in person or represented by proxy or (ii) more than 50%
of the outstanding shares. The Company's investment policies
that are not designated fundamental policies may be changed by
the Company without shareholder approval. The percentage
limitations set forth below, as well as those described in the
Prospectus, are measured and applied only at the time an
investment is made or other relevant action is taken by the
Company. The investment policies adopted by the Company prohibit
the Company from:
A-3
<PAGE>
(1) Issuing senior securities, borrowing money or
pledging its assets, except that the Company may borrow from a
lender (i) for temporary or emergency purposes, (ii) for such
short-term credits as may be necessary for the clearance or
settlement of transactions, (iii) to finance repurchases of its
shares (see "Stock Purchases and Tenders") in amounts not
exceeding 10% (taken at the lower of cost or current value) of
its total assets (not including the amount borrowed), or (iv) to
pay any dividends required to be distributed in order for the
Company to maintain its qualification as a regulated investment
company under the Code or otherwise to avoid taxation under the
Code. Additional investments will not be made when borrowings
exceed 5% of the Company's total assets. The Company may pledge
its assets to secure such borrowings.
(2) Purchasing securities on margin.
(3) Underwriting the securities of other issuers,
except insofar as the Company may be deemed an underwriter in the
course of disposing of portfolio securities.
(4) Concentrating investments in particular
industries. The Company's policy is not to concentrate
investments, i.e., to limit its investments in any one industry,
so that it will make no additional investment in any industry if
such investment would result in its having over 25% of the value
of its assets at the time in such industry.
(5) Engaging in the purchase and sale of real estate
or real estate or mortgage-backed securities.
(6) Purchasing or selling commodities or commodities
contracts.
(7) Making loans to others, except through the
purchase of qualified (publicly distributed bonds, debentures or
other securities) debt obligations, the entry into repurchase
agreements and loans of portfolio securities consistent with the
Company's investment objectives and policies.
(8) Investing in foreign securities (including
American Depository Receipts).
(9) Investing in restricted securities as defined in
Rule 144.
Other Investment Policies
The policy of the Company is not to invest its funds
for the purpose of purchasing working control in companies except
when and if, in the judgment of the Investment Adviser, such
investment is deemed advisable. This policy of the Company,
which is established by the Board of Directors, is subject to
change without stockholder approval.
Portfolio Turnover. The policy of the Company with respect
to portfolio turnover will be to make such changes in its
portfolio as its Investment Adviser shall from time to time
A-4
<PAGE>
recommend. The Company cannot accurately predict its turnover
rate, but anticipates that its annual quarterly portfolio
turnover will not exceed 50%.
NET ASSET VALUE
Net asset value will be calculated (a) no less
frequently than weekly, (b) on the last business day of each
month and (c) at any other times determined by the Company's
Board of Directors. Net asset value is calculated by dividing
the value of the Company's net assets (the value of its assets
less its liabilities, exclusive of capital stock and surplus) by
the total number of shares of Common Stock outstanding. All
securities for which market quotations are readily available are
valued at the closing price quoted for the securities prior to
the time of determination (but if bid and asked quotations are
available, at the mean between the last current bid and asked
prices, rather than the quoted closing price). Although the
Company will seek to take into account material changes in value
occurring after the close of a market and before the time the
Company's net asset value is determined, there can be no
assurance that it will be able to do so. Securities that are
traded over-the-counter are valued, if bid and asked quotations
are available, at the mean between the current bid and asked
prices. If bid and asked quotations are not available, then over-
the-counter securities will be valued as determined in good faith
by the Board of Directors. In making this determination the
Board will consider, among other things, publicly available
information regarding the issuer, market conditions and values
ascribed to comparable companies. In instances where the price
determined above is deemed not to represent fair market value,
the price is determined in such manner as the Board may
prescribe. Investments in short-term debt securities having a
maturity of 60 days or less are valued at amortized cost if their
term of maturity from the date of purchase was less than 60 days,
or by amortizing their value on the 61st day prior to maturity if
their term to maturity from the date of purchase when acquired by
the Company was more than 60 days, unless this is determined by
the Board of Directors not to represent fair value. All other
securities and assets are taken at fair value as determined in
good faith by the Board of Directors, although the actual
calculation may be done by others.
The Common Stock has been conditionally approved for
initial inclusion on the Nasdaq SmallCap MarketSM under the
symbol "DEMI". In recent periods, shares of closed-end
investment companies have generally traded at a discount from net
asset value, but in some cases have traded above net asset value.
Among the factors which may be expected to affect whether shares
of the Company trade above or below net asset value are portfolio
investment results and supply and demand for shares of the
Company. The Company cannot predict whether the Common Stock
will trade at, above or below net asset value.
TAXATION
The following discussion reflects certain applicable
tax laws as of the date of this Statement of Additional
Information. For additional tax information see "Taxation" in
the Company's Prospectus.
A-5
<PAGE>
Taxation of the Company
The Company intends to elect and qualify each year to
be treated as a regulated investment company for federal income
tax purposes in accordance with Subchapter M of the Internal
Revenue Code of 1986, as amended. In order to so qualify, the
Company must, among other things: (a) derive at least 90% of its
gross income from dividends, interest, payments with respect to
loans of securities and gains from the sale or other disposition
of securities or certain other related income; (b) derive less
than 30% of its gross income from the sale or other disposition
of securities and certain other investments held for less than
three months (the "short-short rule"); and (c) diversify its
holdings so that at the end of each fiscal quarter (i) at least
50% of the value of the Company's assets is represented by cash
or cash items, U.S. government securities, securities of other
regulated investment companies, and other securities which, with
respect to any one issuer, do not represent more than 5% of the
value of the Company's assets nor more than 10% of the
outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of the Company's assets is invested in the
securities of any one issuer (other than U.S. government
securities or the securities of other regulated investment
companies), or two or more issuers which the Company controls and
which are determined to be engaged in the same or similar trades
or businesses or related trades or businesses.
If the Company qualifies as a regulated investment
company and distributes to its stockholders at least 90% of its
investment company taxable income, then the Company will not be
subject to federal income tax on the income so distributed.
However, the Company would be subject to corporate income tax on
any undistributed income. In addition, the Company will be
subject to a nondeductible 4% excise tax on the amount by which
the income it distributes in any calendar year is less than a
statutorily designated, required amount. For purposes of the
excise tax, the required distribution for any calendar year
equals the sum of: (a) 98% of the Company's ordinary income for
such calendar year; (b) 98% of the Company's capital gain net
income for the one-year period ending on October 31 of that year;
and (c) 100% of the Company's undistributed ordinary income and
capital gain net income from prior years. For purposes of the
excise tax, any ordinary income or capital gain net income
retained by, and taxed in the hands of, the Company will be
treated as having been distributed. The Company may elect to
retain its net capital gain and pay corporate income tax thereon.
In such event, each stockholder of record on the last day of the
Company's taxable year would be required to include in income for
tax purposes his or her proportionate share of the Company's
undistributed net capital gain. Each stockholder would be
entitled to credit his or her proportionate share of the tax paid
by the Company against his federal income tax liabilities and to
claim refunds to the extent that the credit exceeds such
liabilities. In addition, the stockholder would be entitled to
increase the basis of his shares for federal income tax purposes
by an amount equal to 65% of his proportionate share of the
undistributed net capital gain.
The Company may elect to retain all or a portion of its
net capital gain, as described under "Taxation of Stockholders"
below.
A-6
<PAGE>
Any capital losses resulting from the disposition of
securities can only be used to offset capital gains and cannot be
used to reduce the Company's ordinary income. Such capital
losses may be carried forward by the Company for eight years.
The Company may acquire securities which do not pay
interest currently in an amount equal to their effective interest
rate, such as zero coupon, pay-in-kind, or delayed interest
securities. As the holder of such a security, the Company is
required to include in taxable income the original issue discount
that accrues on the security for the taxable year, even if the
Company receives no payment on the security during the year.
Because the Company must distribute annually substantially all of
its investment company taxable income, including any original
issue discount, in order to qualify as a regulated investment
company and to avoid imposition of the 4% excise tax, the Company
may be required in a particular year to distribute dividends in
an amount that is greater than the total amount of cash the
Company actually receives as distributions on the securities it
owns. Those distributions will be made from the Company's cash
assets or from the proceeds of sales of portfolio securities, if
necessary. The Company may realize capital gains or losses from
those sales, which would increase or decrease the Company's
investment company taxable income or net capital gain. In
addition, such gains may be realized on the disposition of
securities held for less than three months. Because of the short-
short rule, (as described above) and its possible effect on the
Company's qualification as a regulated investment company for tax
purposes, such gains could reduce the Company's ability to sell
other securities, or certain options, futures or forward
contracts, held for less than three months that it might wish to
sell in the ordinary course of its portfolio management.
The Company may also acquire securities at a market
discount. Market discount is generally equal to (other than in
the case of an obligation issued with original issue discount)
the excess of the stated redemption price of the obligation at
maturity over the purchase price at which it is acquired by a
subsequent purchaser. Market discount is treated as interest
income, rather than as capital gain, when recognized by the
purchaser.
The Company's taxable income will in part be determined
on the basis of reports made to the Company by the issuers of the
securities in which the Company invests. The tax treatment of
certain securities in which the Company may invest is not free
from doubt and it is possible that an Internal Revenue Service
examination of the issuers of such securities or of the Company
could result in adjustments to the income of the Company.
Taxation of Stockholders
Dividends distributed by the Company will not generally
be eligible for the dividends received deduction in the hands of
corporate stockholders, except to the extent that the Company's
taxable income consists of dividends received from domestic
corporations and certain other requirements are met.
A-7
<PAGE>
Dividends and other distributions by the Company are
generally taxable to the stockholders at the time the dividend or
distribution is made. However, any dividends declared by the
Company in October, November or December and made payable to
stockholders of record in such a month would be taxable to
stockholders as of December 31, provided that the dividend is
paid no later than the following January.
If a stockholder purchases shares of Common Stock at a
cost that reflects an anticipated dividend, such dividend will be
taxable even though it represents economically in whole or in
part a return of the purchase price. Investors should consider
the tax implications of buying shares shortly prior to a dividend
distribution.
The Company will, within 60 days after the close of its
taxable year, send written notices to stockholders regarding the
tax status of all distributions made during the year. The
foregoing discussion is a summary of certain of the current
federal income tax laws regarding the Company and investors in
the shares of Common Stock, and does not deal with all of the
federal income tax consequences applicable to the Company, or to
all categories of investors, some of which may be subject to
special rules. Prospective investors should consult their own
tax advisers regarding the federal, state, local, foreign and
other tax consequences to them of investments in the Company.
For additional information on taxation, see "Taxation"
in the Company's Prospectus.
A-8
<PAGE>
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICE DURING PAST FIVE
YEARS
<S> <C> <C> <C>
Nathan A. Chapman, 38 President, President, Chief
Jr.* Chairman of Executive Officer and
401 E. Pratt St., Board of Treasurer since 1986
28th Floor Directors and of The Chapman Co.
Baltimore, Maryland Director and President and
21202 Chief Executive
Officer of Chapman
Capital Management,
Inc. since 1988.
President and
Chairman of the Board
of The Chapman Funds,
Inc. since 1988.
Ronald A. 46 Director Senior Partner,
White Ronald A. White, P.C.
401 E. Pratt St., Director of The
28th Floor Chapman Funds, Inc.
Baltimore, Maryland
21202
Earl U. Bravo, Sr. 48 Vice President Chief Operating
401 E. Pratt St., and Secretary Officer of The
28th Floor Chapman Co. since
Baltimore, Maryland 1992. From March
21202 1990 until 1992,
President of Chapman
Capital Management,
Inc.
M. Lynn Ballard 53 Treasurer Controller of
401 E. Pratt St., 28t The Chapman Co. since
h 1988.
F
l
o
o
r
Baltimore, Maryland
2
1
2
0
2
Bonnie Gillette 43 Assistant Secretary of The
401 E. Pratt St., 28t Secretary Chapman Co. since
h 1987.
F
l
o
o
r
Baltimore, Maryland
2
1
2
0
2
A-9
<PAGE>
James B. Lewis 48 Director Chief Clerk-State
401 E. Pratt St., Corporation
28th Floor Commission since
Baltimore, Maryland April, 1995. Chief of
21202 Staff, Office of the
Governor from
January, 1991 to
April, 1995. New
Mexico State
Treasurer, December
1985 to January 1991.
County Treasurer,
Bernalillo County
1982-1985. Director
of The Chapman Funds,
Inc.
Lottie H. 54 Director
Independent
Shackelford Consultant, City
401 E. Pratt St., Director of the City
28th Floor of Little Rock,
Baltimore, Maryland Arkansas 1978 to
21202 1995, the City Mayor
of Little Rock,
Arkansas, 1987 to
1989; Vice Chair,
Democratic National
Committee, 1989, Co-
Chair, Democratic
National Committee,
1988.
Director of The
Chapman Funds, Inc.
[/R]
Robert L. 39 Director President since 1993
Wallace of the BITH Group,
401 E. Pratt St., Inc. Senior Vice
28th Floor President of ECS
Baltimore, Maryland Technology Inc. from
21202 1992-1993. Assistant
Vice President
Maryland National
Bank from 1990 to
1992. Author "Black
Wealth Through Black
Entrepreneurship"
</TABLE>
________________________
*Director is interested person of the Company as defined in
the 1940 Act.
The Company will pay each of its directors who is not
an affiliated person (as defined in the 1940 Act) of the
Investment Adviser a fee of $1,000 per Board meeting attended and
will reimburse any out-of-pocket expenses.
A-10
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
(Estimated for the year ended December 31, 1996)
Pension Total
Aggregate or Estimate Compensat
Compensat Retiremen d Annual ion
Name of ion from t Benefits from
Person/Position Company Benefits upon Company
Accrued Retireme and
as Part nt Complex
of Paid to
Company Directors
Expenses
<S> <C> <C> <C> <C>
NATHAN A. CHAPMAN, None None None None
JR.
Director,
Chairman,
President
RONALD A. WHITE $4,000 None None $4,000
Director
JAMES B. LEWIS $4,000 None None $4,000
Director
LOTTIE H. $4,000 None None $4,000
SHACKELFORD
Director
ROBERT L. WALLACE $4,000 None None $4,000
Director
EARL U. BRAVO, SR. None None None None
Vice President &
Secretary
M. LYNN BALLARD None None None None
Treasurer
BONNIE GILLETTE None None None None
Assistant
Secretary
</TABLE>
The Charter and Bylaws of the Company provide that the
Company will indemnify directors and officers and may indemnify
employees or agents of the Company against liabilities and
expenses incurred in connection with litigation in which they may
be involved because of their positions with the Company to the
fullest extent permitted by law. In addition, the Company's
Charter provides that the Company's directors and officers will
not be liable to shareholders for money damages, except in
limited instances. However, nothing in the Charter or the Bylaws
of the Company protects or indemnifies a director, officer,
employee or agent against any liability to which such person
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office. No insurance
obtained by the Company shall protect or purport to protect
officers or directors, the investment adviser or any principal
underwriter of the Company against any liability to the Company
or its shareholders to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of their obligations and duties.
Commencing with the first annual meeting of
shareholders, the Board of Directors will be divided into three
classes, having terms of one, two and three years, respectively.
At the annual meeting of shareholders in each year thereafter,
the term of one class will expire and
A-11
<PAGE>
directors will be elected to serve in that class for terms
of three years. See "COMMON STOCK -- Anti-Takeover Provisions in
the Charter" in the Company's Prospectus.
BROKERAGE AND PORTFOLIO TRANSACTIONS
General
In making portfolio investments, the Investment Adviser
seeks to obtain the best net price and the most favorable
execution of orders. The Investment Adviser may, in its
discretion, effect transactions in portfolio securities with
dealers who provide research advice or other services to the
Company or the Investment Adviser. The Investment Adviser is
authorized to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio
transaction for the Company which is in excess of the amount of
commission another broker or dealer would have charged for
effecting that transaction if the Investment Adviser determines
in good faith that such commission was reasonable in relation to
the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular
transaction or the Investment Adviser's overall responsibilities
to the Company. Such brokerage and research services might
consist of reports and statistics relating to specific companies
or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the
stock, bond and government securities markets and the economy.
The Company's portfolio securities ordinarily are purchased from
and sold to parties acting as either principal or agent. Newly
issued securities ordinarily are purchased directly from the
issuer or from an underwriter; other purchases and sales usually
are placed with those dealers from which the Investment Adviser
determines that the best price or execution will be obtained.
Usually no brokerage commissions, as such, are paid by the
Company for purchases and sales undertaken through principal
transactions, although the price paid usually includes an
undisclosed compensation to the dealer. The prices paid to
underwriters of newly issued securities typically include a
concession paid by the issuer to the underwriter, and purchasers
of after-market securities from dealers ordinarily are executed
at a price between the bid and asked price.
The Company may utilize The Chapman Co. in connection
with a purchase or sale of securities when the Investment Adviser
believes that, in accordance with the considerations set forth
above regarding portfolio investments, the broker's charge for
the transaction does not exceed usual and customary levels. In
the event that the services of The Chapman Co. are utilized in
connection with a purchase or sale of securities to or by the
Company, its commissions, fees or other remuneration for
effecting such transaction will not exceed usual and customary
broker's commissions if the sale is effected on a securities
exchange or two percent of the sales price if the sale is
effected in connection with a secondary distribution of such
securities or one percent of the purchase or sale price of such
securities if the sale is otherwise effected unless a larger
commission is approved by the Securities and Exchange
A-12
<PAGE>
Commission. The Chapman Co. is a full-service brokerage and
investment banking firm. As such, it provides financial and
advisory services pursuant to agreements to a variety of emerging
companies that fit within the Company's investment objectives.
As a result, the Company may invest in companies that have such
agreements with The Chapman Co. or its affiliates.
Research services furnished by broker-dealers through
which the Company effects securities transactions may be used by
the Investment Adviser in managing other investment accounts and,
conversely, research services furnished to the Investment Adviser
by broker-dealers in connection with other accounts the
Investment Adviser advises may be used by the Investment Adviser
in advising the Company. Although it is not possible to place a
dollar value on these services, the Investment Adviser is of the
view that the receipt of such services should not reduce the
overall costs of its research services.
Investment decisions for the Company are made
independently from those of other investment accounts managed by
the Investment Adviser. If those accounts are prepared to invest
in, or desire to dispose of such investments at the same time as
the Company, however, available investments or opportunities for
sales will be allocated equitably to each client of the
Investment Adviser. In some cases, this procedure may adversely
affect the size of the position obtained for or disposed of by
the Company or the price paid or received by the Company.
STOCK PURCHASES AND TENDERS
Although shares of closed-end investment companies
sometimes trade at premiums over net asset value, they frequently
trade at discounts. The Company cannot predict whether the
Common Stock will trade above, at or below net asset value. The
Company believes that, if the Common Stock trades at a discount
to net asset value, the share price will not adequately reflect
the value of the Company to investors and that investors'
financial interests will be furthered if the market price of the
Common Stock more closely reflects net asset value per share of
the Common Stock. For these reasons, the Company's Board of
Directors currently intends to consider from time to time
repurchases of Common Stock on the open market or in private
transactions or the making of tender offers for Common Stock.
The Company may repurchase shares of its Common Stock in the open
market or in privately negotiated transactions when the Company
can do so at prices below the current net asset value per share
on terms that the Board of Directors believes represent a
favorable investment opportunity. In addition, the Board of
Directors may consider, from time to time, but not more
frequently than once every two years, making an offer to each
Common Stock shareholder of record to purchase at net asset value
shares of Common Stock owned by the shareholder. The Company
does not have a fundamental policy with respect to the repurchase
of Common Stock and these repurchases are discretionary.
Before authorizing any repurchase of Common Stock or
tender offer to the Common Stock shareholders, the Company's
Board of Directors would consider all relevant factors, including
the market price of the Common Stock, its net asset value per
share, the
A-13
<PAGE>
liquidity of the Company's securities positions, the effect an
offer or repurchase might have on the Company or its shareholders
and relevant market conditions. Any offer would be made in
accordance with the requirements of the 1940 Act and the
Securities Exchange Act of 1934. Although the matter will be
subject to the review of the Board of Directors at the time, a
tender offer is not expected to be made if the anticipated
benefit to shareholders and the Company would not be commensurate
with the anticipated cost to the Company, or if the number of
shares expected to be tendered would not be material.
No assurance can be given that repurchases and/or
tenders will result in the Common Stock's trading at a price that
is close or equal to net asset value. The market price of the
Common Stock will, among other things, be determined by the
relative demand for, and supply of, the Common Stock in the
market, the Company's investment performance, the Company's
dividends and investor perception of the Company's overall
attractiveness as an investment as compared with other investment
alternatives. The Company's acquisition of Common Stock will
decrease the total assets of the Company and therefore have the
effect of increasing the Company's expense ratio. The Company
may borrow money to finance the repurchase of shares subject to
the limitations described in this Statement of Additional
Information. Any interest on the borrowings will reduce the
Company's net income. Because of the nature of the Company's
investment objectives, policies and securities holdings, the
Investment Adviser does not anticipate that, under normal market
conditions, (1) repurchases and tenders will have an adverse
effect on the Company's investment performance or (2) it will
have any material difficulty in disposing of securities to
consummate Common Stock repurchases and tenders.
When a tender offer is authorized to be made by the
Company's Board of Directors, it will be an offer to purchase at
a price equal to the net asset value of all (but not less than
all) of the shares owned by a Common Stock shareholder (or
attributed to the shareholder for federal income tax purposes
under the Code). A shareholder who tenders all Common Stock
shares owned or considered owned by him or her, as required, will
realize a taxable gain or loss depending upon such person's basis
in such shares.
The policy of the Company's Board of Directors with
respect to tender offers and to repurchases, which may be changed
by the Board of Directors, is that the Company will not accept
tenders or effect repurchases if (1) those transactions, if
consummated, would (a) result in the exclusion of the Common
Stock from the Nasdaq SmallCap MarketSM or (b) impair the
Company's status as a regulated investment company under the
Code; (2) the Company would not be able to liquidate securities
to repurchase Common Stock in an orderly manner that is
consistent with the Company's investment objectives and policies;
or (3) there is, in the Board's judgment, any material (a) legal
action or proceeding instituted or threatened challenging the
transactions or otherwise materially adversely affecting the
Company, (b) suspension of or limitation on prices for trading
securities generally on the Nasdaq SmallCap MarketSM or any
exchange on which securities held by the Company are traded,
(c) declaration of a banking moratorium by federal or state
authorities or any suspension of payment by banks in the United
A-14
<PAGE>
States, (d) limitation affecting the Company or issuers of
securities held by the Company imposed by federal, state or local
authorities on the extension of credit by lending institutions,
(e) commencement of war, armed hostilities or other international
or national calamity directly or indirectly involving the United
States or (f) other event or condition that would have a material
adverse effect on the Company or its shareholders if shares of
Common Stock were repurchased. The Board of Directors may modify
these conditions in light of experience.
If the Company liquidates securities in order to
repurchase shares of Common Stock, the Company may realize gains
and losses. Gains, if any, may be realized on securities held
for less than three months. Because the Company must derive less
than 30% of its gross income for any taxable year from the sale
or disposition of securities held for less than three months in
order to retain the Company's regulated investment company status
under the Code, gains realized by the Company upon a liquidation
of securities held for less than three months would reduce the
amount of gain on the sale of other securities held for less than
three months that the Company could realize in the ordinary
course of its investment operations, which may adversely affect
the Company's performance. The Company's turnover rate may or
may not be affected by the Company's repurchases of shares of
Common Stock pursuant to a tender offer.
A-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of DEM, Inc.:
We have audited the accompanying statement of assets and
liabilities of DEM, Inc. as of November 30, 1995. This financial
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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 are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities
referred to above presents fairly, in all material respects, the
assets and liabilities of DEM, Inc. as of November 30, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
November 30, 1995
A-16
<PAGE>
<TABLE>
<CAPTION>
DEM, INC.
STATEMENT OF ASSETS AND LIABILITIES
AS OF NOVEMBER 30, 1995
ASSETS
<S> <C>
Cash $ 100,005
Deferred organization costs (Note 1) 28,340
Deferred offering costs (Note 1) 82,678
Total assets $ 211,023
LIABILITIES
Accrued expenses (Note 1) $ 111,018
Net assets (applicable to 6,667 shares of Common Stock
issued and outstanding $.00001 par value, 500 million
shares authorized) (Note 1) 100,005
Total liabilities and net assets$ 211,023
Net asset value per share $ 15
</TABLE>
The accompanying notes are an integral part of this statement.
A-17
<PAGE>
DEM, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES:
General
DEM, Inc. (the Company) was incorporated on October 20, 1995, in
the state of Maryland and is registered as a close-ended
management investment company under the Investment Company Act of
1940, as amended. As of November 30, 1995, the Company has had
no operations other than organizational matters and the issuance
of 6,667 shares of common stock for $100,005 to Chapman Capital
Management, Inc. The Company's financial statements are prepared
in accordance with generally accepted accounting principles.
Organizational Costs
Costs incurred by the Company in connection with its organization
($28,340) have been deferred and will be amortized on a straight-
line basis from the date upon which the Company commences
operation of its investment activities over a five-year period.
Offering expenses incurred to-date of $82,678 that have been
deferred, will be charged to capital upon completion of the
offering, along with other offering expenses expected to be
incurred which is estimated to be approximately $6,130. Of the
total accrued expenses as of November 30, 1995, $15,048 was
payable to the Chapman Capital Management, Inc. and $52,091 was
payable to an officer for expenses paid on behalf of the Company.
If any of the initial shares of the Company are redeemed by
any shareholder thereof during the period of amortization of
organization costs, the redemption proceeds will be reduced by
the pro-rata amount of unamortized organization costs, based on
the number of initial shares being redeemed to the number of
initial shares outstanding.
Income Taxes
The Company intends to elect and qualify each year to be treated
as a regulated investment company (a RIC) for federal income tax
purposes in accordance with Subchapter M of the Internal Revenue
Code of 1986, as amended. In order to so qualify, the Company
must satisfy certain tests regarding the source of its income,
diversification of its assets and distribution of its income. If
the Company otherwise qualifies as a regulated investment company
and distributes to its stockholders at least 90% of its
investment company taxable income, then the Company
A-18
<PAGE>
will not be subject to federal income tax on the income so
distributed. However, the Company would be subject to a
corporate income tax on any undistributed income. In addition,
the Company will be subject to a nondeductible 4% excise tax on
the amount by which the amount it distributes in any calendar
year is less than a statutorily-designated, required amount of
its regulated investment company income and its capital gain net
income (generally 98%).
2. INVESTMENT ADVISORY, ADMINISTRATION AND OTHER SERVICES:
The investment adviser to the Company is Chapman Capital
Management, Inc. (the Adviser and CCM). Pursuant to an
Investment Advisory Agreement, the Adviser will receive an
advisory fee from the Company at an annual rate of 90% of the
average weekly net assets of the Company.
CCM serves as the Company's administrator and is compensated for
those services at an annual rate of .15% of the average weekly
net assets of the Company. The Chapman Co. will be the
Underwriter for the Company. As Underwriter, The Chapman Co.
will receive a 2.7% ($.40 per share sold) management fee. In
addition, the Underwriter and any other broker-dealer
participating in the selling group will be paid a commission not
to exceed 4.3% ($.65 per share sold).
A-19
<PAGE>
DEM, Inc.
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(1) Financial Statements
Part A - None
Part B - Report of Independent Public
Accountants
Statement of Assets and Liabilities
Notes to Statement of Assets and
Liabilities
(2) Exhibits:
(a) -- Charter.
(b) -- Bylaws.
(c) -- Not Applicable.
(d) -- (1) See Dividend Reinvestment
Plan.
(2) See Charter.
(e) -- Dividend Reinvestment Plan.
(f) -- Not Applicable.
(g) -- Advisory and Administrative
Services Agreement between the Company
and Chapman Capital Management, Inc.
(h) -- Placement Agency Agreement
between the Company and Chapman Capital
Management, Inc.
(i) -- Not Applicable.
(j) -- Custody Agreement between the
Company and UMB Bank, N.A.
(k) (1) Transfer Agency Services
Agreement between the Company and
Fund/Plan Services, Inc.
(2) Escrow Agreement between the
Company and UMB Bank, N.A.
(3) Custody Administration and
Agency Agreement between the Company and
Fund/Plan Services, Inc.
(l) -- Opinion and Consent of
Venable, Baetjer and Howard, LLP
(m) -- Not Applicable.
(n) -- Consent of Arthur Andersen
LLP, independent public accountants for
the Company.
(o) -- Not Applicable.
(p) -- Subscription Agreement between
the Company and Chapman Capital
Management, Inc.
C-1
<PAGE>
(q) -- Not Applicable.
(r) -- Not Applicable.
(s) -- Power of Attorney.
Item 25. Marketing Arrangements.
None.
Item 26. Other Expenses of Issuance and
Distribution.
The following table sets forth the estimated
expenses to be incurred in connection with the
organization of the Company and the offering described
in this Registration Statement:
<TABLE>
<S> <C>
Registration fees $ 6,173
Nasdaq System listing fee 6,000
NASD registration fee 2,000
Blue Sky fees and expenses 4,975
Printing and engraving expenses 3,000
Legal fees and expenses 85,000
Accounting fees and expenses 10,000
Total $117,148
</TABLE>
Item 27. Persons Controlled by or Under
Common Control with Registrant.
Upon conclusion of the initial public offering of
the Company's shares, it is anticipated that no person
will be controlled or under common control with the
Company.
Item 28. Number of Holders of Securities.
Common Stock, par value $.00001 per share: one
record holder as of the effective date of this
Registration Statement.
Item 29. Indemnification.
Section 2-418 of the General Corporation Law of
the State of Maryland, Article VIII of the Company's
Articles of Amendment and Restatement, Article 5.2 of
the Company's Bylaws and the Placement Agency Agreement
to be filed as Exhibit h provides for
indemnification.
C-2
<PAGE>
Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended
(the "Act"), may be permitted to directors, officers
and controlling persons of the Company, pursuant to
the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Securities and
Exchange Commission (the "SEC") such indemnification
is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities
(other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling
person of the Company 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 Company
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 Act and will be governed by the final
adjudication of such issue.
Item 30. Business and Other Connections of Investment
Adviser.
For information regarding the business of the
Investment Adviser see "Management of the Company" in
the Company's Prospectus.
Name and Position
with Investment Adviser Other Business
Nathan A. President, Chief Executive Officer
Chapman, Jr. and Treasurer of The Chapman Co.
Director, and President and Chief Executive
Chairman of the Officer of Chapman Capital
Board, President Management, Inc. President and
Chairman of the Board of The
Chapman Funds, Inc.
M. Lynn Ballard Controller of The Chapman Co. and
Treasurer Treasurer of The Chapman Funds,
Inc.
Bonnie Gillette Secretary of The Chapman Co. and
Secretary Secretary of The Chapman Funds,
Inc.
Samuel C. Gardener Attorney, Bell and Gardner, P.C.
Director
Theron Stokes Attorney, Alabama Education
Director Association
Alan J. Wade Attorney, Heiskell, Donelson,
Director Bearman, Adams, Williams & Kirsch
C-3
<PAGE>
Item 31. 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, as amended, and the rules
promulgated thereunder are maintained at the office of
the Investment Adviser at The World Trade Center-
Baltimore, 401 East Pratt Street, 28th Floor,
Baltimore, Maryland 21202.
Item 32. Management Services.
Not Applicable
Item 33. Undertakings.
(1) Registrant undertakes to suspend the
offering of the shares of the Common Stock covered
hereby until it amends its Prospectus contained herein
if (1) subsequent to the effective date of this
Registration Statement, its net asset value declines
more than 10 percent from its net asset value as of the
effective date of this Registration Statement, or
(2) its net asset value increases to an amount greater
than its net proceeds as stated in the Prospectus
contained herein.
(2) Not applicable.
(3) Not applicable.
(4)(a) Registrant undertakes to file,
during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(1) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933, as
amended;
(2) to reflect in the Prospectus any facts
or events after the effective date of this
Registration Statement (or the most recent post-
effective amendment hereof) which, individually or
in the aggregate, represent a fundamental change
in the information set forth in this Registration
Statement; and
(3) to include any material information with
respect to the plan of distribution not previously
disclosed in this Registration Statement or any
material change to such information in this
Registration Statement.
C-4
<PAGE>
(4)(b) Registrant undertakes that, for the
purpose of determining any liability under the
Securities Act of 1933, as amended, each
subsequent post-effective amendment shall be
deemed to be a new registration statement relating
to the securities offered therein, and the
offering of those securities at that time shall be
deemed to be the initial bona fide offering
thereof.
(4)(c) Registrant undertakes to remove
from registration by means of post-effective
amendment any of the securities being registered
which remain unsold at the termination of the
offering.
(5)(a) For the purpose of determining any
liability under the Securities Act of 1933, as
amended, the information omitted from the form of
Prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant
under Rule 497(h) under the 1933 Act shall be
deemed to be part of this Registration Statement
as of the time it was declared effective.
(5)(b) For the purpose of determining any
liability under the Securities Act of 1933, as
amended, each post-effective amendment that
contains a form of prospectus shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of
the securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) Registrant undertakes to send by first
class mail or other means designed to ensure
equally prompt delivery, within two business days
of receipt of a written or oral request, any
Statement of Additional Information.
C-5
<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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Baltimore, and State of Maryland, as of December 6, 1995.
DEM, INC.
By:/s/ NATHAN A. CHAPMAN, JR.
Nathan A. Chapman, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of
1993, this Registration Statement has been signed below by the
following in the capacities and on the date indicated.
Signatures Title Date
/s/ NATHAN A. CHAPMAN, President, Chairman December
JR. of the Board and 6, 1995
Nathan A. Chapman, Jr. Director (Principal
Executive Officer)
/s/ M. LYNN
Treasurer December 6,
BALLARD (Principal 1995
M. Lynn Ballard Financial and
Accounting Officer)
[/R]
The Entire Board of
Directors
James B. Lewis
Nathan A. Chapman, Lottie H.
Jr. Shackelford
Robert L. Wallace
Ronald A. White
December 6,
By:/s/ NATHAN A. 1995
CHAPMAN
Nathan A. Chapman,
Jr.
Attorney-in-
Fact[/R]
C-6
<PAGE>
DEM, INC.
EXHIBIT INDEX
Exhibit A Charter
Exhibit B Bylaws
Exhibit E Dividend Reinvestment Plan
Exhibit G Advisory and Administrative Services
Agreement
Exhibit H Placement Agency Agreement
Exhibit J Custody Agreement
Exhibit K(1) Escrow Agreement
Exhibit K(2) Custody Administration & Agency
Agreement
Exhibit K(3) Transfer Agency Services Agreement
Exhibit L Opinion of Venable, Baetjer and Howard, LLP
Exhibit N Consent of Arthur Andersen LLP
Exhibit P Subscription Agreement
Exhibit S(1) Directors' Power of Attorney
Exhibit S(2) Wallace Power of Attorney
BYLAWS
OF
DEM, INC.
BYLAW-ONE: NAME OF COMPANY, LOCATION OF OFFICES AND
SEAL.
Article 1.1. Name. The name of the Company is
DEM, INC.
Article 1.2. Principal Office. The principal
office of the Company in the State of Maryland shall be
located in Baltimore, Maryland. The Company may, in
addition, establish and maintain such other offices and
places of business within or outside the State of Maryland
as the Board of Directors may from time to time determine.
Article 1.3. Seal. The corporate seal of the
Company shall be circular in form and shall bear the name of
the Company, the year of its incorporation and the words
"Corporate Seal, Maryland." The form of the seal shall be
subject to alteration by the Board of Directors and the seal
may be used by causing it or a facsimile to be impressed or
affixed or printed or otherwise reproduced. Any Officer or
Director of the Company shall have authority to affix the
corporate seal of the Company to any document requiring the
same.
BYLAW-TWO: STOCKHOLDERS.
Article 2.1. Place of Meetings. All meetings
of the Stockholders shall be held at such place within the
United States, whether within or outside the State of
Maryland, as the Board of Directors shall determine, which
shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
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Article 2.2. Annual Meeting. The annual
meeting of the Stockholders of the Company shall be held at
such place as the Board of Directors shall select on such
date, during the 31-day period ending four months after the
end of the Company's fiscal year, as may be fixed by the
Board of Directors each year, at which time the Stockholders
shall elect Directors by plurality vote, and transact such
other business as may properly come before the meeting. Any
business of the Company may be transacted at the annual
meeting without being specially designated in the notice
except as otherwise provided by statute, by the Articles of
Incorporation or by these Bylaws
Article 2.3. Special Meetings. Special
meetings of the Stockholders for any purpose or purposes,
unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by resolution of the Board of
Directors or by the President, and shall be called by the
Secretary at the request of a majority of the Board of
Directors or at the request, in writing, of Stockholders
owning at least 25% of the votes entitled to be cast at the
meeting upon payment by such Stockholders to the Company of
the reasonably estimated cost of preparing and mailing a
notice of the meeting (which estimated cost shall be
provided to such Stockholders by the Secretary of the
Company). Notwithstanding the foregoing, unless requested
by Stockholders entitled to cast a majority of the votes
entitled to be cast at the meeting, a special meeting of the
Stockholders need not be called at the request of
Stockholders to consider any matter that is substantially
the same as a matter voted on at any special meeting of the
Stockholders
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held during the preceding 12 months. A written request
shall state the purpose or purposes of the proposed meeting.
Article 2.4. Notice. Written notice of every
meeting of Stockholders, stating the purpose or purposes for
which the meeting is called, the time when and the place
where it is to be held, shall be served, either personally
or by mail, not less than ten nor more than ninety days
before the meeting, upon each Stockholder as of the record
date fixed for the meeting who is entitled to notice of or
to vote at such meeting. If mailed (i) such notice shall be
directed to a Stockholder at his address as it shall appear
on the books of the Company (unless he shall have filed with
the Transfer Agent of the Company a written request that
notices intended for him be mailed to some other address, in
which case it shall be mailed to the address designated in
such request) and (ii) such notice shall be deemed to have
been given as of the date when it is deposited in the United
States mail with first-class postage thereon prepaid.
Article 2.5. Notice of Stockholder Business.
At any annual or special meeting of the Stockholders, only
such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before
an annual or special meeting, the business must be
(i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the meeting by a
Stockholder.
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For business to be properly brought before an
annual or special meeting by a Stockholder, the Stockholder
must have given timely notice thereof in writing to the
Secretary of the Company. To be timely, any such notice
must be delivered to or mailed and received at the principal
executive offices of the Company not later than 60 days
prior to the date of the meeting; provided, however, that if
less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to Stockholders, any
such notice by a Stockholder to be timely must be so
received not later than the close of business on the
10th day following the day on which notice of the date of
the annual or special meeting was given or such public
disclosure was made.
Any such notice by a Stockholder shall set forth
as to each matter the Stockholder proposes to bring before
the annual or special meeting (i) a brief description of the
business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the
annual or special meeting, (ii) the name and address, as
they appear on the Company's books, of the Stockholder
proposing such business, (iii) the class and number of
shares of the capital stock of the Company which are
beneficially owned by the Stockholder, and (iv) any material
interest of the Stockholder in such business.
Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any annual or
special meeting except in accordance with the procedures set
forth in this Article 2.5. The chairman of the annual or
special meeting
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shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the
meeting in accordance with the provisions of this
Article 2.5, and, if he should so determine, he shall so
declare to the meeting that any such business not properly
brought before the meeting shall not be considered or
transacted.
Article 2.6. Quorum. The holders of a majority
of the stock issued and outstanding and entitled to vote,
present in person or represented by proxy, shall be
requisite and shall constitute a quorum at all meetings of
the Stockholders for the transaction of business except as
otherwise provided by statute, by the Articles of
Incorporation or by these Bylaws. If a quorum shall not be
present or represented, the Stockholders entitled to vote
thereat, present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, to a
date not more than 120 days after the original record date,
until a quorum shall be present or represented. At such
adjourned meeting, at which a quorum shall be present or
represented, any business which might have been transacted
at the original meeting may be transacted.
Article 2.7. Vote of the Meeting. When a
quorum is present or represented at any meeting, the vote of
the holders of a majority of the votes cast shall decide any
question brought before such meeting, unless the question is
one upon which, by express provisions of applicable
statutes, the Articles of Incorporation or of these Bylaws,
a different vote is required, in which case such express
provisions shall govern and control the decision of such
question.
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Article 2.8. Voting Rights of Stockholders.
Each Stockholder of record having the right to vote shall be
entitled at every meeting of the Stockholders of the Company
to one vote for each share of stock having voting power
standing in the name of such Stockholder on the books of the
Company on the record date fixed in accordance with
Article 6.5 of these Bylaws, with pro rata voting rights for
any fractional shares, and such votes may be cast either in
person or by written proxy.
Article 2.9. Organization. At every meeting of
the Stockholders, the Chairman of the Board, or in his
absence or inability to act, a chairman chosen by the
Stockholders, shall act as chairman of the meeting. The
Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as
secretary of the meeting and keep the minutes of the
meeting.
Article 2.10. Proxies. Every proxy must be
executed in writing by the Stockholder or by his duly
authorized attorney-in-fact. No proxy shall be valid after
the expiration of eleven months from the date of its
execution unless it shall have specified therein its
duration. Every proxy shall be revocable at the pleasure of
the person executing it or of his personal representatives
or assigns. Proxies shall be delivered prior to the meeting
to the Secretary of the Company or to the person acting as
Secretary of the meeting before being voted. A proxy with
respect to stock held in the name of two or more persons
shall be valid if executed by one of them unless, at or
prior to exercise of such proxy, the Company receives a
specific written notice to the contrary from any one
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of them. A proxy purporting to be executed by or on behalf
of a Stockholder shall be deemed valid unless challenged at
or prior to its exercise.
Article 2.11. Stock Ledger and List of
Stockholders. It shall be the duty of the Secretary or
Assistant Secretary of the Company to cause an original or
duplicate stock ledger to be maintained at the office of the
Company's Transfer Agent.
Article 2.12. Action without Meeting. Any
action to be taken by Stockholders may be taken without a
meeting if (1) all Stockholders entitled to vote on the
matter consent to the action in writing, (2) all
Stockholders entitled to notice of the meeting but not
entitled to vote at it sign a written waiver of any right to
dissent and (3) said consents and waivers are filed with the
records of the meetings of Stockholders. Such consent shall
be treated for all purposes as a vote at a meeting.
BYLAW-THREE: BOARD OF DIRECTORS.
Article 3.1. General Powers. Except as
otherwise provided in the Articles of Incorporation, the
business and affairs of the Company shall be managed under
the direction of the Board of Directors. All powers of the
Company may be exercised by or under authority of the Board
of Directors except as conferred on or reserved to the
Stockholders by law, by the Articles of Incorporation or by
these Bylaws.
Article 3.2. Board of Three to Twelve Directors.
The Board of Directors shall consist of not less than three
(3) nor more than twelve 12 Directors; provided that if
there are less than three stockholders, the number of
Directors may be the
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same number as the number of stockholders but not less than
one. Directors need not be Stockholders. The majority of
the entire Board of Directors shall have power from time to
time, and at any time when the Stockholders as such are not
assembled in a meeting, regular or special, to increase or
decrease the number of Directors. If the number of
Directors is increased, the additional Directors may be
elected by a majority of the Directors in office at the time
of the increase. If such additional Directors are not so
elected by the Directors in office at the time they increase
the number of places on the Board, then the additional
Directors shall be elected or reelected by the Stockholders
at their next annual meeting or at an earlier special
meeting called for that purpose.
Beginning with the first annual meeting of
Stockholders held after the initial public offering of the
shares of the Company (the "initial annual meeting"), the
Board of Directors shall be divided into three classes:
Class I, Class II and Class III. The terms of office of the
classes of Directors elected at the initial annual meeting
shall expire at the times of the annual meetings of the
Stockholders as follows: Class I on the next annual
meeting, Class II on the second next annual meeting and
Class III on the third next annual meeting, or thereafter in
each case when their respective successors are elected and
qualified. At each subsequent annual election, the
Directors chosen to succeed those whose terms are expiring
shall be identified as being of the same class as the
Directors whom they succeed, and shall be elected for a term
expiring at the time of the third succeeding annual meeting
of Stockholders, or thereafter in each case when their
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respective successors are elected and qualified. The number
of directorships shall be apportioned among the classes so
as to maintain the classes as nearly equal in number as
possible.
Article 3.3. Director Nominations.
(a) Only persons who are nominated in accordance
with the procedures set forth in this Article 3.3 shall be
eligible for election or reelection as Directors.
Nominations of persons for election or reelection to the
Board of Directors of the Company may be made at a meeting
of Stockholders by or at the direction of the Board of
Directors or by any Stockholder of the Company who is
entitled to vote for the election of such nominee at the
meeting and who complies with the notice procedures set
forth in this Article 3.3.
(b) Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made
pursuant to timely notice delivered in writing to the
Secretary of the Company. To be timely, any such notice by
a Stockholder must be delivered to or mailed and received at
the principal executive offices of the Company not later
than 60 days prior to the meeting; provided, however, that
if less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to Stockholders,
any such notice by a Stockholder to be timely must be so
received not later than the close of business on the 10th
day following the day on which notice of the date of the
meeting was given or such public disclosure was made.
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(c) Any such notice by a Stockholder shall set
forth (i) as to each person whom the Stockholder proposes to
nominate for election or reelection as a Director, (A) the
name, age, business address and residence address of such
person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the capital
stock of the Company which are beneficially owned by such
person and (D) any other information relating to such person
that is required to be disclosed in solicitations of proxies
for the election of Directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934 or any successor
regulation thereto (including without limitation such
person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if
elected and whether any person intends to seek reimbursement
from the Company of the expenses of any solicitation of
proxies should such person be elected a Director of the
Company); and (ii) as to the Stockholder giving the notice
(A) the name and address, as they appear on the Company's
books, of such Stockholder and (B) the class and number of
shares of the capital stock of the Company which are
beneficially owned by such Stockholder. At the request of
the Board of Directors any person nominated by the Board of
Directors for election as a Director shall furnish to the
Secretary of the Company that information required to be set
forth in a Stockholder's notice of nomination which pertains
to the nominee.
(d) If a notice by a Stockholder is required to
be given pursuant to this Article 3.3, no person shall be
entitled to receive reimbursement from the Company of the
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<PAGE>
expenses of a solicitation of proxies for the election as a
Director of a person named in such notice unless such notice
states that such reimbursement will be sought from the
Company. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures
prescribed by the Bylaws, and, if he should so determine, he
shall so declare to the meeting and the defective nomination
shall be disregarded for all purposes.
Article 3.4. Vacancies. Subject to the
provisions of the Investment Company Act of 1940, as
amended, if the office of any Director or Directors becomes
vacant for any reason (other than an increase in the number
of Directors), the Directors in office, although less than a
quorum, shall continue to act and may choose a successor or
successors by majority vote, who shall hold office until the
next election of Directors. A majority of the entire Board
of Directors in office at the time of the increase may fill
a vacancy which results from an increase in the number of
Directors.
Article 3.5. Removal. At any meeting of
Stockholders duly called and at which a quorum is present,
the Stockholders may, by the affirmative vote of the holders
of at least three-fourths of the votes entitled to be cast
thereon, remove any Director or Directors from office, with
or without cause, and may elect a successor or successors to
fill any resulting vacancies for the unexpired term of the
removed Director.
Article 3.6. Resignation. A Director may
resign at any time by giving written notice of his
resignation to the Board of Directors or the Chairman of the
Board or the Secretary of the Company. Any resignation
shall take effect at the time specified in it
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or, should the time when it is to become effective not be
specified in it, immediately upon its receipt. Acceptance
of a resignation shall not be necessary to make it effective
unless the resignation states otherwise.
Article 3.7. Place of Meetings. The Directors
may hold their meetings at the principal office of the
Company or at such other places, either within or outside
the State of Maryland, as they may from time to time
determine.
Article 3.8. Regular Meetings. Regular
meetings of the Board may be held at such date and time as
shall from time to time be determined by resolution of the
Board.
Article 3.9. Special Meetings. Special
meetings of the Board may be called by order of the Chairman
of the Board on one day's notice given to each Director
either in person or by mail, telephone, telegram, cable or
wireless to each Director at his residence or regular place
of business. Special meetings will be called by the
Chairman or Vice Chairman, if any, of the Board or Secretary
in a like manner on the written request of a majority of the
Directors.
Article 3.10. Quorum. At all meetings of the
Board, the presence of one-third of the number of Directors
then in office (but not less than two Directors) shall be
necessary to constitute a quorum and sufficient for the
transaction of business, and any act of a majority present
at a meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise
specifically provided by statute, by the Articles of
Incorporation or by these Bylaws. If a quorum shall not be
present at any
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meeting of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be
present.
Article 3.11. Organization. The Board of
Directors shall designate one of its members to serve as
Chairman of the Board. The Chairman of the Board shall be
Chief Executive Officer of the Corporation, shall preside at
all meetings of the stockholders and the Board of Directors
and shall have the same powers and duties as those of the
President. In the absence or inability of the Chairman of
the Board to act, another Director chosen by a majority of
the Directors present shall act as chairman of the meeting
and preside at the meeting. The Secretary (or, in his
absence or inability to act, any person appointed by the
chairman) shall act as secretary of the meeting and keep the
minutes of the meeting.
Article 3.12. Informal Action by Directors and
Committees. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee
thereof may, except as otherwise required by statute, be
taken without a meeting if a written consent to such action
is signed by all members of the Board, or of such committee,
as the case may be, and filed with the minutes of the
proceedings of the Board or committee. Subject to the
Investment Company Act of 1940, as amended, members of the
Board of Directors or a committee thereof may participate in
a meeting
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by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can
hear each other at the same time.
Article 3.13. Executive Committee. There may be
an Executive Committee of two or more Directors appointed by
the Board who may meet at stated times or on notice to all
by any of their own number. The Executive Committee shall
consult with and advise the Officers of the Company in the
management of its business and exercise such powers of the
Board of Directors as may be lawfully delegated by the Board
of Directors. Vacancies shall be filled by the Board of
Directors at any regular or special meeting. The Executive
Committee shall keep regular minutes of its proceedings and
report the same to the Board when required.
Article 3.14. Audit Committee. There shall be
an Audit Committee of two or more Directors who are not
"interested persons" of the Company (as defined in the
Investment Company Act of 1940, as amended) appointed by the
Board who may meet at stated times or on notice to all by
any of their own number. The Committee's duties shall
include reviewing both the audit and other work of the
Company's independent accountants, recommending to the Board
of Directors the independent accountants to be retained, and
reviewing generally the maintenance and safekeeping of the
Company's records and documents.
Article 3.15. Other Committees. The Board of
Directors may appoint other committees which shall in each
case consist of such number of members (but not less than
two) and shall have and may exercise, to the extent
permitted by law, such
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powers as the Board may determine in the resolution
appointing them. A majority of all members of any such
committee may determine its action, and fix the time and
place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power
at any time to change the members and, to the extent
permitted by law, to change the powers of any such
committee, to fill vacancies and to discharge any such
committee.
Article 3.16. Compensation of Directors. The
Board may, by resolution, determine what compensation and
reimbursement of expenses of attendance at meetings, if any,
shall be paid to Directors in connection with their service
on the Board. Nothing herein contained shall be construed
to preclude any Director from serving the Company in any
other capacity or from receiving compensation therefor.
BYLAW-FOUR: OFFICERS.
Article 4.1. Officers. The Officers of the
Company shall be fixed by the Board of Directors and shall
include a President, Secretary and Treasurer. Any two
offices may be held by the same person except the offices of
President and Vice President. A person who holds more than
one office in the Company may not act in more than one
capacity to execute, acknowledge or verify an instrument
required by law to be executed, acknowledged or verified by
more than one officer.
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Article 4.2. Appointment of Officers. The
Directors shall appoint the Officers, who need not be
members of the Board.
Article 4.3. Additional Officers. The Board
may appoint such other Officers and agents as it shall deem
necessary who shall exercise such powers and perform such
duties as shall be determined from time to time by the
Board.
Article 4.4. Salaries of Officers. The
salaries of all Officers of the Company shall be fixed by
the Board of Directors.
Article 4.5. Term, Removal, Vacancies. The
Officers of the Company shall serve at the pleasure of the
Board of Directors and hold office for one year and until
their successors are chosen and qualify in their stead. Any
Officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority
of the Directors. If the office of any Officer becomes
vacant for any reason, the vacancy shall be filled by the
Board of Directors.
Article 4.6. President. The President shall
have, subject to the control of the Board of Directors,
general charge of the business and affairs of the
Corporation, and may employ and discharge employees and
agents of the Corporation, except those appointed by the
Board, and he may delegate these powers.
Article 4.7. Vice President. Any Vice
President shall, in the absence or disability of the
President, perform the duties and exercise the powers of the
President and shall perform such other duties as the Board
of Directors shall prescribe.
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Article 4.8. Treasurer. The Treasurer shall
have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company and shall
deposit all moneys and other valuable effects in the name
and to the credit of the Company in such depositories as may
be designated by the Board of Directors. He shall disburse
the funds of the Company as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board and Directors at the
regular meetings of the Board, or whenever they may require
it, an account of the financial condition of the Company.
Any Assistant Treasurer may perform such duties of
the Treasurer as the Treasurer or the Board of Directors may
assign, and, in the absence of the Treasurer, may perform
all the duties of the Treasurer.
Article 4.9. Secretary. The Secretary shall
attend meetings of the Board and meetings of the
Stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose, and shall
perform like duties for the Executive Committee of the Board
when required. He shall give or cause to be given notice of
all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as
may be prescribed by the Board of Directors. He shall keep
in safe custody the seal of the Company and affix it to any
instrument when authorized by the Board of Directors.
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Any Assistant Secretary may perform such duties of
the Secretary as the Secretary or the Board of Directors may
assign, and, in the absence of the Secretary, may perform
all the duties of the Secretary.
Article 4.10. Subordinate Officers. The Board
of Directors from time to time may appoint such other
officers or agents as it may deem advisable, each of whom
shall serve at the pleasure of the Board of Directors and
have such title, hold office for such period, have such
authority and perform such duties as the Board of Directors
may determine. The Board of Directors from time to time may
delegate to one or more officers or agents the power to
appoint any such subordinate officers or agents and to
prescribe their respective rights, terms of office,
authorities and duties.
Article 4.11. Surety Bonds. The Board of
Directors may require any officer or agent of the Company to
execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange
Commission) to the Company in such sum and with such surety
or sureties as the Board of Directors may determine,
conditioned upon the faithful performance of his duties to
the Company, including responsibility for negligence and for
the accounting of any of the Company's property, funds or
securities that may come into his hands.
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BYLAW-FIVE: GENERAL PROVISIONS.
Article 5.1. Waiver of Notice. Whenever the
Stockholders or the Board of Directors are authorized by
statute, the provisions of the Articles of Incorporation or
these Bylaws to take any action at any meeting after notice,
such notice may be waived, in writing, before or after the
holding of the meeting, by the person or persons entitled to
such notice, or, in the case of a Stockholder, by his duly
authorized attorney-in-fact.
Article 5.2. Indemnity.
(a) The Company shall indemnify its directors to
the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Company shall indemnify its officers to the same extent as
its directors and to such further extent as is consistent
with law. The Company shall indemnify its directors and
officers who, while serving as directors or officers, also
serve at the request of the Company as a director, officer,
partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who
has ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of
such a person. This Article shall not protect any such
person against any liability to the Company or any
Stockholder thereof to which such person would otherwise be
subject by reason of willful
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misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct").
(b) Any current or former director or officer of
the Company seeking indemnification within the scope of this
Article shall be entitled to advances from the Company for
payment of the reasonable expenses incurred by him in
connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent
permissible under the Maryland General Corporation Law. The
person seeking indemnification shall provide to the Company
a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the
Company has been met and a written undertaking to repay any
such advance if it should ultimately be determined that the
standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met:
(i) the person seeking indemnification shall provide
security in form and amount acceptable to the Company for
his undertaking; (ii) the Company is insured against losses
arising by reason of the advance; or (iii) a majority of a
quorum of directors of the Company who are neither
"interested persons" as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to
the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available to
the Company at the time the advance is proposed to be made,
that there is
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reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
(c) At the request of any person claiming
indemnification under this Article, the Board of Directors
shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law,
whether the standards required by this Article have been
met. Indemnification shall be made only following: (i) a
final decision on the merits by a court or other body before
whom the proceeding was brought that the person to be
indemnified was not liable by reason of disabling conduct or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the
person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum
of disinterested non-party directors or (ii) an independent
legal counsel in a written opinion.
(d) Employees and agents who are not officers or
directors of the Company may be indemnified, and reasonable
expenses may be advanced to such employees or agents, as may
be provided by action of the Board of Directors or by
contract, subject to any limitations imposed by the
Investment Company Act of 1940.
(e) The Board of Directors may make further
provision consistent with law for indemnification and
advance of expenses to directors, officers, employees and
agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed
exclusive of any other right, with respect to
indemnification
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or otherwise, to which those seeking indemnification may be
entitled under any insurance or other agreement or
resolution of stockholders or disinterested directors or
otherwise.
(f) References in this Article are to the
Maryland General Corporation Law and to the Investment
Company Act of 1940, as from time to time amended. No
amendment of these Bylaws shall affect any right of any
person under this Article based on any event, omission or
proceeding prior to the amendment.
Article 5.3. Insurance. The Company may
purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the
Company or who, while a director, officer, employee or agent
of the Company, is or was serving at the request of the
Company as a director, officer, partner, trustee, employee
or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or
employee benefit plan, against any liability asserted
against and incurred by such person in any such capacity or
arising out of such person's position; provided that no
insurance may be purchased by the Company on behalf of any
person against any liability to the Company or to its
Stockholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct
of his office.
Article 5.4. Checks. All checks or demands for
money and notes of the Company shall be signed by such
officer or officers or such other person or persons as the
Board of Directors may from time to time designate.
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Article 5.5. Fiscal Year. The fiscal year of
the Company shall be determined by resolution of the Board
of Directors.
BYLAW-SIX: CERTIFICATES OF STOCK.
Article 6.1. Certificates of Stock. The
interest of each Stockholder of the Company shall be
evidenced by certificates for shares of stock in such form
as the Board of Directors may from time to time prescribe.
The certificates shall be numbered and entered in the books
of the Company as they are issued. They shall exhibit the
holder's name and the number of whole shares and no
certificate shall be valid unless it has been signed by the
President, Vice President or Chairman and the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant
Secretary and bears the corporate seal. Such seal may be a
facsimile, engraved or printed. Where any such certificate
is signed by a Transfer Agent or by a Registrar, the
signatures of any such officer may be facsimile, engraved or
printed. In case any of the officers of the Company whose
manual or facsimile signature appears on any stock
certificate delivered to a Transfer Agent of the Company
shall cease to be such Officer prior to the issuance of such
certificate, the Transfer Agent may nevertheless countersign
and deliver such certificate as though the person signing
the same or whose facsimile signature appears thereon had
not ceased to be such officer, unless written instructions
of the Company to the contrary are delivered to the Transfer
Agent.
Article 6.2. Lost, Stolen or Destroyed
Certificates. The Board of Directors, or the President
together with the Treasurer or Secretary, may direct a new
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certificate to be issued in place of any certificate
theretofore issued by the Company, alleged to have been
lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock
to be lost, stolen or destroyed, or by his legal
representative. When authorizing such issue of a new
certificate, the Board of Directors, or the President and
Treasurer or Secretary, may, in its or their discretion and
as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate, or
his legal representative, to advertise the same in such
manner as it or they shall require and/or give the Company a
bond in such sum and with such surety or sureties as it or
they may direct as indemnity against any claim that may be
made against the Company with respect to the certificate
alleged to have been lost, stolen or destroyed for such
newly issued certificate.
Article 6.3. Transfer of Stock. Shares of the
Company shall be transferable on the books of the Company by
the holder thereof in person or by his duly authorized
attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same
number of shares of the same class, duly endorsed or
accompanied by proper evidence of succession, assignment or
authority to transfer, with such proof of the authenticity
of the signature as the Company or its agents may reasonably
require. The shares of stock of the Company may be freely
transferred, and the Board of Directors may, from time to
time, adopt rules and regulations with reference to the
method of transfer of the shares of stock of the Company.
24
<PAGE>
Article 6.4. Registered Holder. The Company
shall be entitled to treat the holder of record of any share
or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the
part of any other person whether or not it shall have
express or other notice thereof, except as expressly
provided by statute.
Article 6.5. Record Date. The Board of
Directors may fix a time not less than 10 nor more than
90 days prior to the date of any meeting of Stockholders or
prior to the last day on which the consent or dissent of
Stockholders may be effectively expressed for any purpose
without a meeting, as the time as of which Stockholders
entitled to notice of, and to vote at, such a meeting or
whose consent or dissent is required or may be expressed for
any purpose, as the case may be, shall be determined; and
all such persons who were holders of record of voting stock
at such time, and no other, shall be entitled to notice of,
and to vote at, such meeting or to express their consent or
dissent, as the case may be. If no record date has been
fixed, the record date for the determination of Stockholders
entitled to notice of, or to vote at, a meeting of
Stockholders shall be the later of the close of business on
the day on which notice of the meeting is mailed or the
thirtieth day before the meeting, or, if notice is waived by
all Stockholders, at the close of business on the tenth day
next preceding the day on which the meeting is held. The
Board of Directors may also fix a time not exceeding 90 days
preceding the date fixed for the payment of any dividend or
the making of any distribution, or for the delivery of
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<PAGE>
evidences of rights, or evidences of interests arising out
of any change, conversion or exchange of capital stock, as a
record time for the determination of the Stockholder
entitled to receive any such dividend, distribution, rights
or interests.
Article 6.6. Stock Ledgers. The stock ledgers
of the Company, containing the names and addresses of the
Stockholders and the number of shares held by them
respectively, shall be kept at the principal offices of the
Company or at the offices of the Transfer Agent of the
Company or at such other location as may be authorized by
the Board of Directors from time to time.
Article 6.7. Transfer Agents and Registrars.
The Board of Directors may from time to time appoint or
remove Transfer Agents and/or Registrars of transfers (if
any) of shares of stock of the Company, and it may appoint
the same person as both Transfer Agent and Registrar. Upon
any such appointment being made, all certificates
representing shares of capital stock thereafter issued shall
be countersigned by one of such Transfer Agents or by one of
such Registrars of transfers (if any) or by both and shall
not be valid unless so countersigned. If the same person
shall be both Transfer Agent and Registrar, only one
countersignature by such person shall be required.
BYLAW-SEVEN: AMENDMENTS.
Article 7.1. General. Except as provided in the
next succeeding sentence and in the Articles of
Incorporation, all Bylaws of the Company, whether adopted by
the Board of Directors or the Stockholders, shall be subject
to amendment, alteration or repeal, and new Bylaws may be
made, by the affirmative vote of a majority
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<PAGE>
of either: (a) the holders of record of the outstanding
shares of stock of the Company entitled to vote, at any
annual or special meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed
amendment, alteration, repeal or new Bylaw; or (b) the
Directors, at any regular or special meeting, the notice or
waiver of notice of which shall have specified or summarized
the proposed amendment, alteration, repeal or new Bylaw.
The provisions of Articles 2.5, 3.2, 3.3, 7.1 and 8.1 of
these Bylaws shall be subject to amendment, alteration or
repeal by: (i) the affirmative vote of the holders of
record of 75% of the outstanding shares of stock of the
Company entitled to vote, at any annual or special meeting,
the notice or waiver of notice of which shall have specified
or summarized the proposed amendment, alteration or repeal
or (ii) the Board of Directors including the affirmative
vote of 75% of the Continuing Directors (as such term is
defined in Article EIGHTH of the Company's Articles of
Incorporation), at any regular or special meeting, the
notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration or repeal.
BYLAW-EIGHT: SPECIAL PROVISIONS.
Article 8.1. Actions Relating to Discount in
Price of the Company's Shares. In the event that at any
time after the second anniversary of the initial public
offering of shares of the Company's Common Stock such shares
publicly trade for a substantial period of time at a
substantial discount from the Company's then current net
asset value per share, the Board of Directors shall
consider, at its next regularly scheduled meeting, taking
various actions designed to eliminate the discount. The
actions
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<PAGE>
considered by the Board of Directors may include periodic
repurchases by the Company of its shares of Common Stock or
an amendment to the Company's Articles of Incorporation to
make the Company's Common Stock a "redeemable security" (as
such term is defined in the Investment Company Act of 1940),
subject in all events to compliance with all applicable
provisions of the Company's Articles of Incorporation, these
Bylaws, the Maryland General Corporation Law and the
Investment Company Act of 1940.
Dated: October 20, 1995
28
BYLAWS
OF
DEM, INC.
BYLAW-ONE: NAME OF COMPANY, LOCATION OF OFFICES AND
SEAL.
Article 1.1. Name. The name of the Company is
DEM, INC.
Article 1.2. Principal Office. The principal
office of the Company in the State of Maryland shall be
located in Baltimore, Maryland. The Company may, in
addition, establish and maintain such other offices and
places of business within or outside the State of Maryland
as the Board of Directors may from time to time determine.
Article 1.3. Seal. The corporate seal of the
Company shall be circular in form and shall bear the name of
the Company, the year of its incorporation and the words
"Corporate Seal, Maryland." The form of the seal shall be
subject to alteration by the Board of Directors and the seal
may be used by causing it or a facsimile to be impressed or
affixed or printed or otherwise reproduced. Any Officer or
Director of the Company shall have authority to affix the
corporate seal of the Company to any document requiring the
same.
BYLAW-TWO: STOCKHOLDERS.
Article 2.1. Place of Meetings. All meetings
of the Stockholders shall be held at such place within the
United States, whether within or outside the State of
Maryland, as the Board of Directors shall determine, which
shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
<PAGE>
Article 2.2. Annual Meeting. The annual
meeting of the Stockholders of the Company shall be held at
such place as the Board of Directors shall select on such
date, during the 31-day period ending four months after the
end of the Company's fiscal year, as may be fixed by the
Board of Directors each year, at which time the Stockholders
shall elect Directors by plurality vote, and transact such
other business as may properly come before the meeting. Any
business of the Company may be transacted at the annual
meeting without being specially designated in the notice
except as otherwise provided by statute, by the Articles of
Incorporation or by these Bylaws
Article 2.3. Special Meetings. Special
meetings of the Stockholders for any purpose or purposes,
unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called by resolution of the Board of
Directors or by the President, and shall be called by the
Secretary at the request of a majority of the Board of
Directors or at the request, in writing, of Stockholders
owning at least 25% of the votes entitled to be cast at the
meeting upon payment by such Stockholders to the Company of
the reasonably estimated cost of preparing and mailing a
notice of the meeting (which estimated cost shall be
provided to such Stockholders by the Secretary of the
Company). Notwithstanding the foregoing, unless requested
by Stockholders entitled to cast a majority of the votes
entitled to be cast at the meeting, a special meeting of the
Stockholders need not be called at the request of
Stockholders to consider any matter that is substantially
the same as a matter voted on at any special meeting of the
Stockholders
2
<PAGE>
held during the preceding 12 months. A written request
shall state the purpose or purposes of the proposed meeting.
Article 2.4. Notice. Written notice of every
meeting of Stockholders, stating the purpose or purposes for
which the meeting is called, the time when and the place
where it is to be held, shall be served, either personally
or by mail, not less than ten nor more than ninety days
before the meeting, upon each Stockholder as of the record
date fixed for the meeting who is entitled to notice of or
to vote at such meeting. If mailed (i) such notice shall be
directed to a Stockholder at his address as it shall appear
on the books of the Company (unless he shall have filed with
the Transfer Agent of the Company a written request that
notices intended for him be mailed to some other address, in
which case it shall be mailed to the address designated in
such request) and (ii) such notice shall be deemed to have
been given as of the date when it is deposited in the United
States mail with first-class postage thereon prepaid.
Article 2.5. Notice of Stockholder Business.
At any annual or special meeting of the Stockholders, only
such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before
an annual or special meeting, the business must be
(i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the meeting by a
Stockholder.
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<PAGE>
For business to be properly brought before an
annual or special meeting by a Stockholder, the Stockholder
must have given timely notice thereof in writing to the
Secretary of the Company. To be timely, any such notice
must be delivered to or mailed and received at the principal
executive offices of the Company not later than 60 days
prior to the date of the meeting; provided, however, that if
less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to Stockholders, any
such notice by a Stockholder to be timely must be so
received not later than the close of business on the
10th day following the day on which notice of the date of
the annual or special meeting was given or such public
disclosure was made.
Any such notice by a Stockholder shall set forth
as to each matter the Stockholder proposes to bring before
the annual or special meeting (i) a brief description of the
business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the
annual or special meeting, (ii) the name and address, as
they appear on the Company's books, of the Stockholder
proposing such business, (iii) the class and number of
shares of the capital stock of the Company which are
beneficially owned by the Stockholder, and (iv) any material
interest of the Stockholder in such business.
Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any annual or
special meeting except in accordance with the procedures set
forth in this Article 2.5. The chairman of the annual or
special meeting
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<PAGE>
shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the
meeting in accordance with the provisions of this
Article 2.5, and, if he should so determine, he shall so
declare to the meeting that any such business not properly
brought before the meeting shall not be considered or
transacted.
Article 2.6. Quorum. The holders of a majority
of the stock issued and outstanding and entitled to vote,
present in person or represented by proxy, shall be
requisite and shall constitute a quorum at all meetings of
the Stockholders for the transaction of business except as
otherwise provided by statute, by the Articles of
Incorporation or by these Bylaws. If a quorum shall not be
present or represented, the Stockholders entitled to vote
thereat, present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, to a
date not more than 120 days after the original record date,
until a quorum shall be present or represented. At such
adjourned meeting, at which a quorum shall be present or
represented, any business which might have been transacted
at the original meeting may be transacted.
Article 2.7. Vote of the Meeting. When a
quorum is present or represented at any meeting, the vote of
the holders of a majority of the votes cast shall decide any
question brought before such meeting, unless the question is
one upon which, by express provisions of applicable
statutes, the Articles of Incorporation or of these Bylaws,
a different vote is required, in which case such express
provisions shall govern and control the decision of such
question.
5
<PAGE>
Article 2.8. Voting Rights of Stockholders.
Each Stockholder of record having the right to vote shall be
entitled at every meeting of the Stockholders of the Company
to one vote for each share of stock having voting power
standing in the name of such Stockholder on the books of the
Company on the record date fixed in accordance with
Article 6.5 of these Bylaws, with pro rata voting rights for
any fractional shares, and such votes may be cast either in
person or by written proxy.
Article 2.9. Organization. At every meeting of
the Stockholders, the Chairman of the Board, or in his
absence or inability to act, a chairman chosen by the
Stockholders, shall act as chairman of the meeting. The
Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as
secretary of the meeting and keep the minutes of the
meeting.
Article 2.10. Proxies. Every proxy must be
executed in writing by the Stockholder or by his duly
authorized attorney-in-fact. No proxy shall be valid after
the expiration of eleven months from the date of its
execution unless it shall have specified therein its
duration. Every proxy shall be revocable at the pleasure of
the person executing it or of his personal representatives
or assigns. Proxies shall be delivered prior to the meeting
to the Secretary of the Company or to the person acting as
Secretary of the meeting before being voted. A proxy with
respect to stock held in the name of two or more persons
shall be valid if executed by one of them unless, at or
prior to exercise of such proxy, the Company receives a
specific written notice to the contrary from any one
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<PAGE>
of them. A proxy purporting to be executed by or on behalf
of a Stockholder shall be deemed valid unless challenged at
or prior to its exercise.
Article 2.11. Stock Ledger and List of
Stockholders. It shall be the duty of the Secretary or
Assistant Secretary of the Company to cause an original or
duplicate stock ledger to be maintained at the office of the
Company's Transfer Agent.
Article 2.12. Action without Meeting. Any
action to be taken by Stockholders may be taken without a
meeting if (1) all Stockholders entitled to vote on the
matter consent to the action in writing, (2) all
Stockholders entitled to notice of the meeting but not
entitled to vote at it sign a written waiver of any right to
dissent and (3) said consents and waivers are filed with the
records of the meetings of Stockholders. Such consent shall
be treated for all purposes as a vote at a meeting.
BYLAW-THREE: BOARD OF DIRECTORS.
Article 3.1. General Powers. Except as
otherwise provided in the Articles of Incorporation, the
business and affairs of the Company shall be managed under
the direction of the Board of Directors. All powers of the
Company may be exercised by or under authority of the Board
of Directors except as conferred on or reserved to the
Stockholders by law, by the Articles of Incorporation or by
these Bylaws.
Article 3.2. Board of Three to Twelve Directors.
The Board of Directors shall consist of not less than three
(3) nor more than twelve 12 Directors; provided that if
there are less than three stockholders, the number of
Directors may be the
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<PAGE>
same number as the number of stockholders but not less than
one. Directors need not be Stockholders. The majority of
the entire Board of Directors shall have power from time to
time, and at any time when the Stockholders as such are not
assembled in a meeting, regular or special, to increase or
decrease the number of Directors. If the number of
Directors is increased, the additional Directors may be
elected by a majority of the Directors in office at the time
of the increase. If such additional Directors are not so
elected by the Directors in office at the time they increase
the number of places on the Board, then the additional
Directors shall be elected or reelected by the Stockholders
at their next annual meeting or at an earlier special
meeting called for that purpose.
Beginning with the first annual meeting of
Stockholders held after the initial public offering of the
shares of the Company (the "initial annual meeting"), the
Board of Directors shall be divided into three classes:
Class I, Class II and Class III. The terms of office of the
classes of Directors elected at the initial annual meeting
shall expire at the times of the annual meetings of the
Stockholders as follows: Class I on the next annual
meeting, Class II on the second next annual meeting and
Class III on the third next annual meeting, or thereafter in
each case when their respective successors are elected and
qualified. At each subsequent annual election, the
Directors chosen to succeed those whose terms are expiring
shall be identified as being of the same class as the
Directors whom they succeed, and shall be elected for a term
expiring at the time of the third succeeding annual meeting
of Stockholders, or thereafter in each case when their
8
<PAGE>
respective successors are elected and qualified. The number
of directorships shall be apportioned among the classes so
as to maintain the classes as nearly equal in number as
possible.
Article 3.3. Director Nominations.
(a) Only persons who are nominated in accordance
with the procedures set forth in this Article 3.3 shall be
eligible for election or reelection as Directors.
Nominations of persons for election or reelection to the
Board of Directors of the Company may be made at a meeting
of Stockholders by or at the direction of the Board of
Directors or by any Stockholder of the Company who is
entitled to vote for the election of such nominee at the
meeting and who complies with the notice procedures set
forth in this Article 3.3.
(b) Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made
pursuant to timely notice delivered in writing to the
Secretary of the Company. To be timely, any such notice by
a Stockholder must be delivered to or mailed and received at
the principal executive offices of the Company not later
than 60 days prior to the meeting; provided, however, that
if less than 70 days' notice or prior public disclosure of
the date of the meeting is given or made to Stockholders,
any such notice by a Stockholder to be timely must be so
received not later than the close of business on the 10th
day following the day on which notice of the date of the
meeting was given or such public disclosure was made.
9
<PAGE>
(c) Any such notice by a Stockholder shall set
forth (i) as to each person whom the Stockholder proposes to
nominate for election or reelection as a Director, (A) the
name, age, business address and residence address of such
person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the capital
stock of the Company which are beneficially owned by such
person and (D) any other information relating to such person
that is required to be disclosed in solicitations of proxies
for the election of Directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934 or any successor
regulation thereto (including without limitation such
person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if
elected and whether any person intends to seek reimbursement
from the Company of the expenses of any solicitation of
proxies should such person be elected a Director of the
Company); and (ii) as to the Stockholder giving the notice
(A) the name and address, as they appear on the Company's
books, of such Stockholder and (B) the class and number of
shares of the capital stock of the Company which are
beneficially owned by such Stockholder. At the request of
the Board of Directors any person nominated by the Board of
Directors for election as a Director shall furnish to the
Secretary of the Company that information required to be set
forth in a Stockholder's notice of nomination which pertains
to the nominee.
(d) If a notice by a Stockholder is required to
be given pursuant to this Article 3.3, no person shall be
entitled to receive reimbursement from the Company of the
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<PAGE>
expenses of a solicitation of proxies for the election as a
Director of a person named in such notice unless such notice
states that such reimbursement will be sought from the
Company. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures
prescribed by the Bylaws, and, if he should so determine, he
shall so declare to the meeting and the defective nomination
shall be disregarded for all purposes.
Article 3.4. Vacancies. Subject to the
provisions of the Investment Company Act of 1940, as
amended, if the office of any Director or Directors becomes
vacant for any reason (other than an increase in the number
of Directors), the Directors in office, although less than a
quorum, shall continue to act and may choose a successor or
successors by majority vote, who shall hold office until the
next election of Directors. A majority of the entire Board
of Directors in office at the time of the increase may fill
a vacancy which results from an increase in the number of
Directors.
Article 3.5. Removal. At any meeting of
Stockholders duly called and at which a quorum is present,
the Stockholders may, by the affirmative vote of the holders
of at least three-fourths of the votes entitled to be cast
thereon, remove any Director or Directors from office, with
or without cause, and may elect a successor or successors to
fill any resulting vacancies for the unexpired term of the
removed Director.
Article 3.6. Resignation. A Director may
resign at any time by giving written notice of his
resignation to the Board of Directors or the Chairman of the
Board or the Secretary of the Company. Any resignation
shall take effect at the time specified in it
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<PAGE>
or, should the time when it is to become effective not be
specified in it, immediately upon its receipt. Acceptance
of a resignation shall not be necessary to make it effective
unless the resignation states otherwise.
Article 3.7. Place of Meetings. The Directors
may hold their meetings at the principal office of the
Company or at such other places, either within or outside
the State of Maryland, as they may from time to time
determine.
Article 3.8. Regular Meetings. Regular
meetings of the Board may be held at such date and time as
shall from time to time be determined by resolution of the
Board.
Article 3.9. Special Meetings. Special
meetings of the Board may be called by order of the Chairman
of the Board on one day's notice given to each Director
either in person or by mail, telephone, telegram, cable or
wireless to each Director at his residence or regular place
of business. Special meetings will be called by the
Chairman or Vice Chairman, if any, of the Board or Secretary
in a like manner on the written request of a majority of the
Directors.
Article 3.10. Quorum. At all meetings of the
Board, the presence of one-third of the number of Directors
then in office (but not less than two Directors) shall be
necessary to constitute a quorum and sufficient for the
transaction of business, and any act of a majority present
at a meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise
specifically provided by statute, by the Articles of
Incorporation or by these Bylaws. If a quorum shall not be
present at any
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meeting of Directors, the Directors present thereat may
adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be
present.
Article 3.11. Organization. The Board of
Directors shall designate one of its members to serve as
Chairman of the Board. The Chairman of the Board shall be
Chief Executive Officer of the Corporation, shall preside at
all meetings of the stockholders and the Board of Directors
and shall have the same powers and duties as those of the
President. In the absence or inability of the Chairman of
the Board to act, another Director chosen by a majority of
the Directors present shall act as chairman of the meeting
and preside at the meeting. The Secretary (or, in his
absence or inability to act, any person appointed by the
chairman) shall act as secretary of the meeting and keep the
minutes of the meeting.
Article 3.12. Informal Action by Directors and
Committees. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee
thereof may, except as otherwise required by statute, be
taken without a meeting if a written consent to such action
is signed by all members of the Board, or of such committee,
as the case may be, and filed with the minutes of the
proceedings of the Board or committee. Subject to the
Investment Company Act of 1940, as amended, members of the
Board of Directors or a committee thereof may participate in
a meeting
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by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can
hear each other at the same time.
Article 3.13. Executive Committee. There may be
an Executive Committee of two or more Directors appointed by
the Board who may meet at stated times or on notice to all
by any of their own number. The Executive Committee shall
consult with and advise the Officers of the Company in the
management of its business and exercise such powers of the
Board of Directors as may be lawfully delegated by the Board
of Directors. Vacancies shall be filled by the Board of
Directors at any regular or special meeting. The Executive
Committee shall keep regular minutes of its proceedings and
report the same to the Board when required.
Article 3.14. Audit Committee. There shall be
an Audit Committee of two or more Directors who are not
"interested persons" of the Company (as defined in the
Investment Company Act of 1940, as amended) appointed by the
Board who may meet at stated times or on notice to all by
any of their own number. The Committee's duties shall
include reviewing both the audit and other work of the
Company's independent accountants, recommending to the Board
of Directors the independent accountants to be retained, and
reviewing generally the maintenance and safekeeping of the
Company's records and documents.
Article 3.15. Other Committees. The Board of
Directors may appoint other committees which shall in each
case consist of such number of members (but not less than
two) and shall have and may exercise, to the extent
permitted by law, such
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powers as the Board may determine in the resolution
appointing them. A majority of all members of any such
committee may determine its action, and fix the time and
place of its meetings, unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power
at any time to change the members and, to the extent
permitted by law, to change the powers of any such
committee, to fill vacancies and to discharge any such
committee.
Article 3.16. Compensation of Directors. The
Board may, by resolution, determine what compensation and
reimbursement of expenses of attendance at meetings, if any,
shall be paid to Directors in connection with their service
on the Board. Nothing herein contained shall be construed
to preclude any Director from serving the Company in any
other capacity or from receiving compensation therefor.
BYLAW-FOUR: OFFICERS.
Article 4.1. Officers. The Officers of the
Company shall be fixed by the Board of Directors and shall
include a President, Secretary and Treasurer. Any two
offices may be held by the same person except the offices of
President and Vice President. A person who holds more than
one office in the Company may not act in more than one
capacity to execute, acknowledge or verify an instrument
required by law to be executed, acknowledged or verified by
more than one officer.
15
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Article 4.2. Appointment of Officers. The
Directors shall appoint the Officers, who need not be
members of the Board.
Article 4.3. Additional Officers. The Board
may appoint such other Officers and agents as it shall deem
necessary who shall exercise such powers and perform such
duties as shall be determined from time to time by the
Board.
Article 4.4. Salaries of Officers. The
salaries of all Officers of the Company shall be fixed by
the Board of Directors.
Article 4.5. Term, Removal, Vacancies. The
Officers of the Company shall serve at the pleasure of the
Board of Directors and hold office for one year and until
their successors are chosen and qualify in their stead. Any
Officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority
of the Directors. If the office of any Officer becomes
vacant for any reason, the vacancy shall be filled by the
Board of Directors.
Article 4.6. President. The President shall
have, subject to the control of the Board of Directors,
general charge of the business and affairs of the
Corporation, and may employ and discharge employees and
agents of the Corporation, except those appointed by the
Board, and he may delegate these powers.
Article 4.7. Vice President. Any Vice
President shall, in the absence or disability of the
President, perform the duties and exercise the powers of the
President and shall perform such other duties as the Board
of Directors shall prescribe.
16
<PAGE>
Article 4.8. Treasurer. The Treasurer shall
have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company and shall
deposit all moneys and other valuable effects in the name
and to the credit of the Company in such depositories as may
be designated by the Board of Directors. He shall disburse
the funds of the Company as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board and Directors at the
regular meetings of the Board, or whenever they may require
it, an account of the financial condition of the Company.
Any Assistant Treasurer may perform such duties of
the Treasurer as the Treasurer or the Board of Directors may
assign, and, in the absence of the Treasurer, may perform
all the duties of the Treasurer.
Article 4.9. Secretary. The Secretary shall
attend meetings of the Board and meetings of the
Stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose, and shall
perform like duties for the Executive Committee of the Board
when required. He shall give or cause to be given notice of
all meetings of Stockholders and special meetings of the
Board of Directors and shall perform such other duties as
may be prescribed by the Board of Directors. He shall keep
in safe custody the seal of the Company and affix it to any
instrument when authorized by the Board of Directors.
17
<PAGE>
Any Assistant Secretary may perform such duties of
the Secretary as the Secretary or the Board of Directors may
assign, and, in the absence of the Secretary, may perform
all the duties of the Secretary.
Article 4.10. Subordinate Officers. The Board
of Directors from time to time may appoint such other
officers or agents as it may deem advisable, each of whom
shall serve at the pleasure of the Board of Directors and
have such title, hold office for such period, have such
authority and perform such duties as the Board of Directors
may determine. The Board of Directors from time to time may
delegate to one or more officers or agents the power to
appoint any such subordinate officers or agents and to
prescribe their respective rights, terms of office,
authorities and duties.
Article 4.11. Surety Bonds. The Board of
Directors may require any officer or agent of the Company to
execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange
Commission) to the Company in such sum and with such surety
or sureties as the Board of Directors may determine,
conditioned upon the faithful performance of his duties to
the Company, including responsibility for negligence and for
the accounting of any of the Company's property, funds or
securities that may come into his hands.
18
<PAGE>
BYLAW-FIVE: GENERAL PROVISIONS.
Article 5.1. Waiver of Notice. Whenever the
Stockholders or the Board of Directors are authorized by
statute, the provisions of the Articles of Incorporation or
these Bylaws to take any action at any meeting after notice,
such notice may be waived, in writing, before or after the
holding of the meeting, by the person or persons entitled to
such notice, or, in the case of a Stockholder, by his duly
authorized attorney-in-fact.
Article 5.2. Indemnity.
(a) The Company shall indemnify its directors to
the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Company shall indemnify its officers to the same extent as
its directors and to such further extent as is consistent
with law. The Company shall indemnify its directors and
officers who, while serving as directors or officers, also
serve at the request of the Company as a director, officer,
partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who
has ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of
such a person. This Article shall not protect any such
person against any liability to the Company or any
Stockholder thereof to which such person would otherwise be
subject by reason of willful
19
<PAGE>
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct").
(b) Any current or former director or officer of
the Company seeking indemnification within the scope of this
Article shall be entitled to advances from the Company for
payment of the reasonable expenses incurred by him in
connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent
permissible under the Maryland General Corporation Law. The
person seeking indemnification shall provide to the Company
a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the
Company has been met and a written undertaking to repay any
such advance if it should ultimately be determined that the
standard of conduct has not been met. In addition, at least
one of the following additional conditions shall be met:
(i) the person seeking indemnification shall provide
security in form and amount acceptable to the Company for
his undertaking; (ii) the Company is insured against losses
arising by reason of the advance; or (iii) a majority of a
quorum of directors of the Company who are neither
"interested persons" as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to
the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available to
the Company at the time the advance is proposed to be made,
that there is
20
<PAGE>
reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
(c) At the request of any person claiming
indemnification under this Article, the Board of Directors
shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law,
whether the standards required by this Article have been
met. Indemnification shall be made only following: (i) a
final decision on the merits by a court or other body before
whom the proceeding was brought that the person to be
indemnified was not liable by reason of disabling conduct or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the
person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum
of disinterested non-party directors or (ii) an independent
legal counsel in a written opinion.
(d) Employees and agents who are not officers or
directors of the Company may be indemnified, and reasonable
expenses may be advanced to such employees or agents, as may
be provided by action of the Board of Directors or by
contract, subject to any limitations imposed by the
Investment Company Act of 1940.
(e) The Board of Directors may make further
provision consistent with law for indemnification and
advance of expenses to directors, officers, employees and
agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed
exclusive of any other right, with respect to
indemnification
21
<PAGE>
or otherwise, to which those seeking indemnification may be
entitled under any insurance or other agreement or
resolution of stockholders or disinterested directors or
otherwise.
(f) References in this Article are to the
Maryland General Corporation Law and to the Investment
Company Act of 1940, as from time to time amended. No
amendment of these Bylaws shall affect any right of any
person under this Article based on any event, omission or
proceeding prior to the amendment.
Article 5.3. Insurance. The Company may
purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the
Company or who, while a director, officer, employee or agent
of the Company, is or was serving at the request of the
Company as a director, officer, partner, trustee, employee
or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or
employee benefit plan, against any liability asserted
against and incurred by such person in any such capacity or
arising out of such person's position; provided that no
insurance may be purchased by the Company on behalf of any
person against any liability to the Company or to its
Stockholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct
of his office.
Article 5.4. Checks. All checks or demands for
money and notes of the Company shall be signed by such
officer or officers or such other person or persons as the
Board of Directors may from time to time designate.
22
<PAGE>
Article 5.5. Fiscal Year. The fiscal year of
the Company shall be determined by resolution of the Board
of Directors.
BYLAW-SIX: CERTIFICATES OF STOCK.
Article 6.1. Certificates of Stock. The
interest of each Stockholder of the Company shall be
evidenced by certificates for shares of stock in such form
as the Board of Directors may from time to time prescribe.
The certificates shall be numbered and entered in the books
of the Company as they are issued. They shall exhibit the
holder's name and the number of whole shares and no
certificate shall be valid unless it has been signed by the
President, Vice President or Chairman and the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant
Secretary and bears the corporate seal. Such seal may be a
facsimile, engraved or printed. Where any such certificate
is signed by a Transfer Agent or by a Registrar, the
signatures of any such officer may be facsimile, engraved or
printed. In case any of the officers of the Company whose
manual or facsimile signature appears on any stock
certificate delivered to a Transfer Agent of the Company
shall cease to be such Officer prior to the issuance of such
certificate, the Transfer Agent may nevertheless countersign
and deliver such certificate as though the person signing
the same or whose facsimile signature appears thereon had
not ceased to be such officer, unless written instructions
of the Company to the contrary are delivered to the Transfer
Agent.
Article 6.2. Lost, Stolen or Destroyed
Certificates. The Board of Directors, or the President
together with the Treasurer or Secretary, may direct a new
23
<PAGE>
certificate to be issued in place of any certificate
theretofore issued by the Company, alleged to have been
lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock
to be lost, stolen or destroyed, or by his legal
representative. When authorizing such issue of a new
certificate, the Board of Directors, or the President and
Treasurer or Secretary, may, in its or their discretion and
as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate, or
his legal representative, to advertise the same in such
manner as it or they shall require and/or give the Company a
bond in such sum and with such surety or sureties as it or
they may direct as indemnity against any claim that may be
made against the Company with respect to the certificate
alleged to have been lost, stolen or destroyed for such
newly issued certificate.
Article 6.3. Transfer of Stock. Shares of the
Company shall be transferable on the books of the Company by
the holder thereof in person or by his duly authorized
attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same
number of shares of the same class, duly endorsed or
accompanied by proper evidence of succession, assignment or
authority to transfer, with such proof of the authenticity
of the signature as the Company or its agents may reasonably
require. The shares of stock of the Company may be freely
transferred, and the Board of Directors may, from time to
time, adopt rules and regulations with reference to the
method of transfer of the shares of stock of the Company.
24
<PAGE>
Article 6.4. Registered Holder. The Company
shall be entitled to treat the holder of record of any share
or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the
part of any other person whether or not it shall have
express or other notice thereof, except as expressly
provided by statute.
Article 6.5. Record Date. The Board of
Directors may fix a time not less than 10 nor more than
90 days prior to the date of any meeting of Stockholders or
prior to the last day on which the consent or dissent of
Stockholders may be effectively expressed for any purpose
without a meeting, as the time as of which Stockholders
entitled to notice of, and to vote at, such a meeting or
whose consent or dissent is required or may be expressed for
any purpose, as the case may be, shall be determined; and
all such persons who were holders of record of voting stock
at such time, and no other, shall be entitled to notice of,
and to vote at, such meeting or to express their consent or
dissent, as the case may be. If no record date has been
fixed, the record date for the determination of Stockholders
entitled to notice of, or to vote at, a meeting of
Stockholders shall be the later of the close of business on
the day on which notice of the meeting is mailed or the
thirtieth day before the meeting, or, if notice is waived by
all Stockholders, at the close of business on the tenth day
next preceding the day on which the meeting is held. The
Board of Directors may also fix a time not exceeding 90 days
preceding the date fixed for the payment of any dividend or
the making of any distribution, or for the delivery of
25
<PAGE>
evidences of rights, or evidences of interests arising out
of any change, conversion or exchange of capital stock, as a
record time for the determination of the Stockholder
entitled to receive any such dividend, distribution, rights
or interests.
Article 6.6. Stock Ledgers. The stock ledgers
of the Company, containing the names and addresses of the
Stockholders and the number of shares held by them
respectively, shall be kept at the principal offices of the
Company or at the offices of the Transfer Agent of the
Company or at such other location as may be authorized by
the Board of Directors from time to time.
Article 6.7. Transfer Agents and Registrars.
The Board of Directors may from time to time appoint or
remove Transfer Agents and/or Registrars of transfers (if
any) of shares of stock of the Company, and it may appoint
the same person as both Transfer Agent and Registrar. Upon
any such appointment being made, all certificates
representing shares of capital stock thereafter issued shall
be countersigned by one of such Transfer Agents or by one of
such Registrars of transfers (if any) or by both and shall
not be valid unless so countersigned. If the same person
shall be both Transfer Agent and Registrar, only one
countersignature by such person shall be required.
BYLAW-SEVEN: AMENDMENTS.
Article 7.1. General. Except as provided in the
next succeeding sentence and in the Articles of
Incorporation, all Bylaws of the Company, whether adopted by
the Board of Directors or the Stockholders, shall be subject
to amendment, alteration or repeal, and new Bylaws may be
made, by the affirmative vote of a majority
26
<PAGE>
of either: (a) the holders of record of the outstanding
shares of stock of the Company entitled to vote, at any
annual or special meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed
amendment, alteration, repeal or new Bylaw; or (b) the
Directors, at any regular or special meeting, the notice or
waiver of notice of which shall have specified or summarized
the proposed amendment, alteration, repeal or new Bylaw.
The provisions of Articles 2.5, 3.2, 3.3, 7.1 and 8.1 of
these Bylaws shall be subject to amendment, alteration or
repeal by: (i) the affirmative vote of the holders of
record of 75% of the outstanding shares of stock of the
Company entitled to vote, at any annual or special meeting,
the notice or waiver of notice of which shall have specified
or summarized the proposed amendment, alteration or repeal
or (ii) the Board of Directors including the affirmative
vote of 75% of the Continuing Directors (as such term is
defined in Article EIGHTH of the Company's Articles of
Incorporation), at any regular or special meeting, the
notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration or repeal.
BYLAW-EIGHT: SPECIAL PROVISIONS.
Article 8.1. Actions Relating to Discount in
Price of the Company's Shares. In the event that at any
time after the second anniversary of the initial public
offering of shares of the Company's Common Stock such shares
publicly trade for a substantial period of time at a
substantial discount from the Company's then current net
asset value per share, the Board of Directors shall
consider, at its next regularly scheduled meeting, taking
various actions designed to eliminate the discount. The
actions
27
<PAGE>
considered by the Board of Directors may include periodic
repurchases by the Company of its shares of Common Stock or
an amendment to the Company's Articles of Incorporation to
make the Company's Common Stock a "redeemable security" (as
such term is defined in the Investment Company Act of 1940),
subject in all events to compliance with all applicable
provisions of the Company's Articles of Incorporation, these
Bylaws, the Maryland General Corporation Law and the
Investment Company Act of 1940.
Dated: October 20, 1995
28
DEM, INC.
TERMS AND CONDITIONS OF
DIVIDEND REINVESTMENT PLAN
1. Each holder of shares (a "Shareholder") of common
stock, par value .00001 per share (the "Common Stock"), in
DEM, Inc. (the "Fund") whose Fund shares are registered in
his or her own name will automatically be a participant
("Participant") in the Dividend Reinvestment Plan (the
"Plan"), unless any such Shareholder specifically elects to
receive all dividends and capital gains in cash paid by
check mailed directly to the Shareholder. A Shareholder
whose shares are registered in the name of a broker-dealer
or any nominee (the "Nominee") will be a Participant if (a)
such a service is provided by the Nominee and (b) the
Nominee makes an election on behalf of the Shareholder to
participate in the Plan. The Chapman Co. intends to make
such an election on behalf of Shareholders whose shares are
registered in its name, as Nominee, unless a Shareholder
specifically instructs his or her broker to pay dividends
and capital gains in cash. Fund/Plan Services, Inc. (the
"Agent") will act as agent for Participants and will open an
account under the Plan for each Participant in the same name
as such Participant's Common Stock is registered on the
books and records of the transfer agent for the Common
Stock.
2. Whenever the Fund declares a capital gains
distribution or an income dividend payable in shares of
Common Stock or cash, Participants will receive such
distribution or dividend in the manner described in
paragraph 3 below as determined on the date such
distribution or dividend becomes payable.
3. Whenever the market price of the Fund's Common
Stock is equal to or exceeds the net asset value per share
at the time shares of Common Stock are valued for the
purpose of determining the number of shares equivalent to
the cash dividend or capital gains distribution,
Participants will be issued shares of Common Stock valued at
the greater of (i) the net asset value per share most
recently determined or (ii) 95% of the then current market
price. Participants will receive any such distribution or
dividend entirely in shares of Common Stock, and the Agent
shall automatically receive such shares of Common Stock,
including fractions, for all Participants; accounts. If the
net asset value per share of the Common Stock at the time of
valuation exceeds the market price of the Common Stock, or
if the Fund should declare a dividend or capital gains
distribution payable only in cash, a broker-dealer not
affiliated with The Chapman Co. will, as purchasing agent
(the "Purchasing Agent") for the Participants, buy shares of
Common Stock in the open market, on the NASDAQ Small Cap
Market (the "NASDAQ") or elsewhere, for each Participant's
account. If, following the
<PAGE>
commencement of such purchases and before the Purchasing
Agent has completed its purchases, the market price exceeds
the net asset value per share, the average per share
purchase price paid by the Purchasing Agent may exceed the
net asset value of the Common Stock, resulting in the
acquisition of fewer shares of Common Stock than if the
dividend or capital gains distribution had been paid in
Common Stock issued by the Fund at net asset value per
share.
Additionally, if the market price exceeds the net asset
value of shares before the Purchasing Agent has completed
its purchases, the Purchasing Agent is permitted to cease
purchasing shares and the Fund may issue the remaining
shares at a price equal to the greater of (a) net asset
value or (b) 95% of the then current market price. In a
case where the Purchasing Agent has terminated open market
purchases and the Fund has issued the remaining shares, the
number of shares received by the Participant in respect of
the cash dividend or distribution will be based on the
weighted average of prices paid for shares purchased in the
open market and the price at which the Fund issues remaining
shares.
The Agent will apply all cash received as a dividend or
capital gains distribution to purchase shares of Common
Stock on the open market as soon as practicable after the
payment date of such dividend or capital gains distribution,
but in no event later than 30 days after such date, except
where necessary to comply with applicable provisions of the
Federal securities laws.
4. For all purposes of the Plan: (a) the market
price of the Fund's Common Stock on a particular date shall
be the last sale price on the NASDAQ at the close of the
previous trading day or, if there is no sale on the NASDAQ
on that date, then the mean between the closing bid and
asked quotations for such Common Stock on the NASDAQ on such
date and (b) net asset value per share of Common Stock on a
particular date shall be as determined by or on behalf of
the Fund.
5. The open market purchases provided for above may
be made on any securities exchange where the shares of
Common Stock of the Fund are traded in the over-the-counter
market or in negotiated transactions, and may be on such
terms as to price, delivery and otherwise as the Purchasing
Agent shall determine. Funds held by the Purchasing Agent
uninvested will not bear interest, and it is understood
that, in any event, the Purchasing Agent shall have no
liability in connection with any inability to purchase
shares of Common Stock within 30 days after the initial date
of such purchase as herein provided, or with the timing of
any purchases effected. The Purchasing Agent shall have not
2
<PAGE>
responsibility as to the value of the shares of Common Stock
of the Fund acquired for any Participant's account.
6. The Agent will hold shares of Common Stock
acquired pursuant to the Plan in noncertificated form in the
Participant's name. The Agent will forward to each
Participant any proxy solicitation material and will vote
any shares of Common Stock so held for each Participant only
in accordance with the proxy returned by any such
Participant to the Fund. Upon any Participant's written
request, the Agent will deliver to her or him, without
charge, a certificate or certificates for the full shares of
Common Stock.
7. The Agent will confirm to each Participant
acquisitions made for his or her account as soon as
practicable but not later than 60 days after the date
thereof. Although a Participant may from time to time have
an undivided fractional interest (computed to three decimal
places) in a share of Common Stock of the Fund, no
certificates for fractional shares will be issued. However,
dividends and distributions on fractional shares of Common
Stock will be credited to Participants' accounts. In the
event of termination of a Participant account under the
Plan, the Agent will adjust for any such undivided
fractional interest in cash at the market value of the
shares of Common Stock at the time of termination.
8. Any stock dividends or split shares distributed by
the Fund on shares of Common Stock held by the Agent for any
Participant will be credited to such Participant's account.
In the event that the Fund makes available to Participants
rights to purchase additional shares of Common Stock or
other securities, the Agent will sell such rights and apply
the proceeds of the sale to the purchase of additional
shares of Common Stock of the Fund for the account of
Participants.
9. The Agent's service fee for handling capital gains
distributions or income dividends will be paid by the Fund.
Participants will be charged a pro rata share of brokerage
commissions on all open market purchases.
10. Any Participant may withdraw shares from such
Participant's account or terminate such Participant's
account under the Plan by notifying the Agent in writing.
Such withdrawal or termination will be effective immediately
if notice is received by the Agent not less than 10 days
prior to any dividend or distribution record date; otherwise
such withdrawal or termination will be effective, with
respect to any subsequent dividend or distribution, on the
first trading day after the dividends paid for such record
date have been credited to the Participant's account. The
Plan may be terminated by the Agent or the Fund upon notice
in writing mailed to each Participant at least 30 days prior
to any
3
<PAGE>
record date for the payment of any dividend or distribution
by the Fund. Upon any withdrawal or termination, the Agent
will cause to be delivered to each Participant a certificate
or certificates for the appropriate number of full shares
and a cash adjustment for any fractional share (valued at
the market value of the shares at the time of withdrawal or
termination); provided, however, that any Participant may
elect by notice to the Agent in writing in advance of such
termination to have the Agent sell part or all of the shares
in question and remit the proceeds to such Participant, net
of any brokerage commissions. A $5.00 fee will be charged
by the Agent upon any cash withdrawal or termination, and
the Agent is authorized to sell a sufficient number of the
Participant's shares to cover such fee and any brokerage
commissions on such sale.
11. These terms and conditions may be amended or
supplemented by the Agent or the Fund at any time or times
but, except when necessary or appropriate to comply with
applicable law or the rules or policies of the Securities
and Exchange Commission or any other regulatory authority,
only by mailing to each Participant appropriate written
notice at least 90 days prior to the effective date thereof.
The amendment or supplement shall be deemed to be accepted
by each Participant unless, with respect to any such
Participant, prior to the effective date thereof, the Agent
receives written notice of the termination of that
Participant's account under the Plan. Any such amendment
may include an appointment by the Agent in its place and
stead of a successor Agent under these terms and conditions,
with full power and authority to perform all or any of the
acts to be performed by the Agent under these terms and
conditions. Upon any such appointment of an Agent for the
purpose of receiving dividends and distributions, the Fund
will be authorized to pay to such successor Agent, for
Participants' accounts, all dividends and distributions
payable on the shares of Common Stock held in each
Participant's name or under the Plan for retention or
application by such successor Agent as provided in these
terms and conditions.
12. The Agent shall at all times act in good faith and
agree to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this
agreement and to comply with applicable law, but assumes no
responsibility and shall not be liable for loss or damages
due to errors unless such error is caused by its or its
employees' gross negligence, bad faith or willful
misconduct.
13. The Participant shall have no right to draw checks
or drafts against such Participant's account or to give
instructions to the Plan Agent in respect of any shares or
cash held therein except as expressly provided herein.
4
<PAGE>
14. The Participant agrees to notify the Plan Agent
promptly in writing of any change of address. Notices to
the Participant may be given by the Plan Agent by letter
addressed to the Participant as shown on the records of the
Plan Agent.
15. This Agreement and the account established
hereunder for the Participant shall be governed by and
construed in accordance with the laws of the State of
Maryland and the Rules and Regulations of the Securities and
Exchange Commission, as they may be changed or amended from
time to time.
5
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BA3DOCS1\0024993.01
<PAGE>
ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
CUSTOM FOOTER !!!
DEM, INC.
The World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
November 30, 1995
Chapman Capital Management, Inc.
The World Trade Center - Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
Ladies and Gentlemen:
This will confirm the agreement between the
undersigned (the "Company") and you as follows:
1. General. The Company is a closed-end non-
diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940
Act"). The Company proposes to engage in the business of
investing and reinvesting its assets in the manner and in
accordance with the investment objectives, policies and
limitations specified in the Company's Prospectus and
Statement of Additional Information (collectively, the
"Prospectus"), included in the Company's Registration
Statement, as amended or supplemented from time to time (the
"Registration Statement"), filed under the 1940 Act, and the
Securities Act of 1933, as amended. Copies of the
Prospectus have been furnished to you. Any amendments or
supplements to the Prospectus shall be furnished to you
promptly.
2. Advisory Services. Subject to the
supervision and approval of the Company's Board of
Directors, you will provide investment management of the
Company's portfolio in accordance with the Company'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 Company's investments and
conduct a continuous program of investment, evaluation and,
if appropriate, sale and reinvestment of the Company's
assets. You 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. You will furnish to the Company such
statistical information with respect to the investments
which the Company may hold or contemplate purchasing as the
Company may reasonably request.
<PAGE>
3. Administrative Services. You 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 Company'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 Company's shares; provide persons to serve as the
Company's officers and generally assist in all aspects of
the Company'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 Axe-Houghton
Management, Inc. or other investment advisory or management
firms and officers or employees who are employed by both you
and the Company. The fees or other compensation of such
persons shall be paid by you and no obligation may be
incurred on the Company's behalf to any such person.
5. Fees. In consideration of the advisory
services rendered pursuant to this Agreement, the Company
will pay you on the first business day of each month a fee
at the annual rate of .90 % of the value of the Company's
average weekly net assets during the preceding month. In
consideration of the administrative services rendered
pursuant to this Agreement, the Company will pay you on the
first business day of each month a fee at the annual rate of
.15% of the value of the Company's average weekly net assets
during the preceding month. Net asset value shall be
computed in the manner, on such days and at such time or
times as described in the Company's 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.
6. 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
Company will be borne by the Company, except to the extent
specifically assumed by you. The expenses to be borne by
the Company 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
<PAGE>
(including, without limitation, telephone and personnel
expenses), costs of shareholders' 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 the Company (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 Company, the Company 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.
7. Liability. You shall exercise your best
judgment in rendering the services to be provided to the
Company. The Company agrees as an inducement to you and to
others who may assist you in providing services to the
Company 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 Company and the Company agrees to indemnify
and hold harmless you and such other persons against and
from any claims, liabilities, actions, suits, proceedings,
judgments or money 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 that nothing
herein shall be deemed to protect or purport to protect you
or any other such person against any liability to the
Company 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.
8. Other Accounts. The Company 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 Company 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 each company or account. It is
recognized that in some cases this procedure may adversely
affect the price paid or received by the Company or the size
of the position obtainable for or disposed of by the
Company.
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
<PAGE>
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.
9. Term. This Agreement shall continue with
respect to the Company until the expiration of two years
from the date of this Agreement and thereafter shall
continue automatically for successive annual periods ending
on the anniversary of the date of this Agreement, provided
such continuance with respect to the Company is specifically
approved at least annually by the Company's Board of
Directors or vote of the lesser of (a) 67% of the shares of
the Company represented at a meeting if holders of more than
50% of the outstanding shares of the Company are present in
person or by proxy or (b) more than 50% of the outstanding
shares of the Company, provided that in either event its
continuance also is approved by a majority of the Company's
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 Company without penalty, on 60 days' notice, by you or
by the Company's Board of Directors or by vote of the lesser
of (a) 67% of the shares of the Company represented at a
meeting if holders of more than 50% of the outstanding
shares of the Company are present in person or by proxy or
(b) more than 50% of the outstanding shares of the Company.
This Agreement will terminate automatically in the event of
its assignment (as defined in the 1940 Act).
10. "Chapman" Name. The Company 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" 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 Company's
investment adviser, the Company agrees that, at your
request, the Company will take all necessary action to
ensure that the name of the Company does not include
"Chapman" in any form or combination of words.
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,
DEM, INC.
By: /s/ NATHAN A.
CHAPMAN, JR.
Nathan A. Chapman,
Jr.,
Chairman and
President
<PAGE>
Accepted:
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
Nathan A. Chapman, Jr.,
President
1,000,000 Shares Maximum
333,334 Minimum
Common Stock
DEM, INC.
The World Trade Center - Baltimore
410 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
PLACEMENT AGENCY AGREEMENT
November 30, 1995
The Chapman Co.
The World Trade Center - Baltimore
410 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
Ladies and Gentlemen:
DEM, Inc. a Maryland corporation registered under
the Investment Company Act of 1940, as amended (the "Act")
as a closed-end investment company, (the "Corporation"),
proposes to cause to be issued, and sold through The Chapman
Co. (the "Placement Agent") on a "best efforts" basis, a
minimum of 333,334 and a maximum of 1,000,000 shares (the
"Shares") of common stock, $.00001 par value per share (the
"Common Stock") at a public offering price of $15.00 per
share (the "Offering").
SECTION 1. APPOINTMENT
The Corporation hereby appoints the Placement Agent,
and the Placement Agent hereby agrees, to act as underwriter
of the Shares for the period and on the terms set forth in
this Agreement. In connection therewith, the Corporation
has delivered to the Placement Agent copies of its Articles
of Incorporation and Bylaws, the Corporation's Registration
Statement and all amendments thereto filed pursuant to the
Securities Act of 1933, as amended (the "Securities Act") or
the Act (the "Registration Statement"), and the
Corporation's current Prospectus and Statement of Additional
Information (collectively, as currently in effect and as
amended or supplemented, the "Prospectus") and shall
promptly furnish the Placement Agent with all amendments of
or supplements to the foregoing.
SECTION 2. DISTRIBUTION SERVICES
Subject to the direction and control of the
Corporation's Board of Directors (the "Board"), the
Placement Agent shall serve as underwriter of the Shares.
<PAGE>
(a) As agent of and underwriter for the Corporation,
the Placement Agent shall offer, and solicit offers to
subscribe to, the Shares as shall then be effectively
registered under the Securities Act and applicable state
securities laws. All subscriptions for Shares obtained by
the Placement Agent shall be directed to the Corporation for
acceptance and shall not be binding on the Corporation until
accepted by it. The Placement Agent shall have no authority
to make binding subscriptions on behalf of the Corporation.
The Corporation reserves the right to sell Shares directly
to investors through subscriptions received by the
Corporation. The Placement Agent's rights hereunder shall
not apply to Shares issued in connection with the
reinvestment in Shares by the Corporation's stockholders of
dividends or other distributions or any other offering by
the Corporation of securities to its shareholders.
(b) The Placement Agent shall use its best efforts to
obtain subscriptions to Shares upon the terms and conditions
contained herein and in the Prospectus, including the
offering price. The Placement Agent shall send to the
Corporation promptly all subscriptions placed with the
Placement Agent. The Corporation shall furnish to the
Placement Agent from time to time, for use in connection
with the offering of Shares, such information with respect
to the Corporation and Shares as the Placement Agent may
reasonably request. The Corporation shall supply the
Placement Agent with such copies of the Prospectus as the
Placement Agent may request. The Placement Agent may use
its employees, agents and other persons who need not be its
employees, at its cost and expense, to assist it in carrying
out its obligations hereunder, but no such employee, agent
or other person shall be deemed to be an agent of the
Corporation or have any rights under this Agreement.
(c) The Corporation reserves the right to suspend the
offering of Shares at any time, in the absolute discretion
of the Board, and upon notice of such suspension the
Placement Agent shall cease to offer the Shares.
(d) The Corporation and the Placement Agent will
cooperate with each other in taking such action as may be
necessary to qualify Shares for sale under the securities
laws of such states as the Corporation may designate. The
Corporation shall pay all fees and expenses of registering
Shares under the Securities Act and of registering or
qualifying Shares and the Corporation's qualification under
applicable state securities laws. The Placement Agent shall
pay all expenses relating to its broker-dealer
qualification.
(e) The Corporation represents that its Registration
Statement and Prospectus under the Securities Act have been
or will be, as the case may be, carefully prepared in
conformity with the requirements of the Securities Act and
the rules and regulations of the Securities and Exchange
Commission (the "Commission") thereunder. The Corporation
represents and warrants that its Registration Statement and
Prospectus
2
<PAGE>
contain or will contain all statements required to be stated
therein in accordance with the Securities Act and the rules
and regulations of the Commission thereunder, and that all
statements of fact contained or to be contained therein are
or will be true and correct at the time indicated or on the
effective date as the case may be; and that the
Corporation's Registration Statement and Prospectus, when
they shall become effective or be authorized for use, will
not 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 Shares. The Corporation will from time to time
file such amendment or amendments to its Registration
Statement and Prospectus as, in the light of future
developments, shall, in the opinion of the Corporation's
counsel, be necessary in order to have such Registration
Statement and Prospectus at all times contain all material
facts required to be stated therein or necessary to make any
statements therein not misleading to a purchaser of Shares,
but, if the Corporation shall not file such amendment or
amendments within fifteen days after receipt of a written
request from the Placement Agent to do so, the Placement
Agent may, at its option, terminate this Agreement
immediately. The Corporation shall not file any amendment
to its Registration Statement and Prospectus without giving
the Placement Agent reasonable notice thereof in advance;
provided, however, that nothing in this Agreement shall in
any way limit the Corporation's right to file at any time
such amendments to its Registration Statement and
Prospectus, of whatever character, as it deems advisable,
such right being in all respects absolute and unconditional.
The Corporation represents and warrants that any amendment
to its Registration Statement and Prospectus hereafter filed
will, when it becomes effective, contain all statements
required to be stated therein in accordance with the Act and
the rules and regulations of the Commission thereunder, that
all statements of fact contained therein will, when the same
shall become effective, be true and correct and that no such
amendment, when it becomes effective, will include an untrue
statement of a material fact or will omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading to a purchaser of
Shares.
(f) The Corporation will indemnify, defend and hold
the Placement Agent, its several officers and directors, and
any person who controls the Placement Agent within the
meaning of Section 15 of the Securities Act (collectively,
the "Placement Agent Indemnitees"), 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 any Placement Agent
Indemnitee may incur, under the Securities Act, or under
common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in the
Corporation's Registration Statement and Prospectus under
the Securities Act or arising out of or based upon any
alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein
not misleading; provided, however, that in no event shall
anything contained in this paragraph (f) be so construed as
to protect the Placement Agent against any liability to the
Corporation or its
3
<PAGE>
security holders to which the Placement Agent would
otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations
and duties under this Section 2. This agreement to
indemnify the Placement Agent Indemnitees is expressly
conditioned upon the Corporation being notified of any
action brought against any Placement Agent Indemnitee, such
notification to be given by letter, facsimile transmission
or telegram to the Corporation and referring to the person
against whom such action is brought within ten days after
the summons or other first legal process shall have been
served on such person. The failure so to notify the
Corporation of any such action shall not relieve the
Corporation from any liability which it may have to any
Placement Agent Indemnitee otherwise than on account of the
indemnification provided for in this paragraph (f). The
Corporation will be entitled to assume the defense of any
suit brought to enforce any such claim, and to retain
counsel of good standing chosen by it and approved by the
Placement Agent. In the event the Corporation elects to
assume the defense of any such suit and retain counsel of
good standing approved by the Placement Agent, the
defendants in such suit shall bear the fees and expenses of
any additional counsel retained by any of them. In the
event the Corporation does not elect to assume the defense
of any such suit, or in case the Placement Agent does not
approve of counsel chosen by the Corporation or has been
advised that it may have available defenses or claims which
are not available to or conflict with those available to the
Corporation, the Corporation will reimburse any Placement
Agent Indemnitee named as defendant in such suit for the
fees and expenses of any counsel retained by such person.
The indemnification provisions contained in this
paragraph (f) and the Corporation's representations and
warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made
by or on behalf of any Placement Agent Indemnitee and shall
survive the sale of any Shares made pursuant to
subscriptions obtained by the Placement Agent. The
indemnification provisions of this paragraph (f) will inure
exclusively to the benefit of the Placement Agent
Indemnitees and their respective successors and assigns.
The Corporation agrees promptly to notify the Placement
Agent of the commencement of any litigation or proceeding
against the Corporation or any of its Directors or officers
in connection with the issue or sale of Shares.
(g) The Placement Agent agrees to indemnify, defend
and hold the Corporation, its several officers and
directors, and any person who controls the Corporation
within the meaning of Section 15 of the Securities Act
(collectively, the "Corporation Indemnitees"), 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 reasonable counsel fees incurred in
connection therewith) which any Corporation Indemnitee may
incur under the Act, or under common law or otherwise, but
only to the extent that such liability or expense incurred
by the Corporation Indemnitees resulting from such claims or
demands shall arise out of or be based upon any alleged
untrue statement of a material fact contained in information
4
<PAGE>
furnished in writing by the Placement Agent in its capacity
as distributor to the Corporation for use in the
Corporation's Registration Statement or Prospectus under the
Securities Act, or shall arise out of or be based upon any
alleged omission to state a material fact in connection with
such information required to be stated in the Registration
Statement or Prospectus or necessary to make such
information not misleading. The Placement Agent's agreement
to indemnify the Corporation Indemnitees is expressly
conditioned upon the Placement Agent being notified of any
action brought against a Corporation Indemnitee, such
notification to be given by letter, facsimile transmission
or telegram addressed and referring to the person against
whom such action is brought within ten days after the
summons or other first legal process shall have been served
on such person. The Placement Agent shall have a right to
control the defense of such action, with counsel of its own
choosing, satisfactory to the Corporation, if such action is
based solely upon such alleged misstatement or omission on
the Placement Agent's part, and in any other event the
Placement Agent and the Corporation Indemnitees named shall
each have the right to participate in the defense or
preparation of the defense of any such action. The failure
to so notify the Placement Agent of any such action shall
not relieve the Placement Agent from any liability which it
may have to any Corporation Indemnitee otherwise than on
account of the indemnification provisions in this
paragraph (g).
(h) The Corporation shall advise the Placement Agent
immediately: (i) of any request by the Commission for
amendments to the Corporation's Registration Statement or
Prospectus or for additional information; (ii) in the event
of the issuance by the Commission or any stop order
suspending the effectiveness of the Corporation's
Registration Statement or Prospectus or the initiation of
any proceedings for that purpose; (iii) of the happening of
any material event which makes untrue any statement made in
the Corporation's Registration Statement or Prospectus or
which requires the making of a change in either thereof in
order to make the statements therein not misleading; and
(iv) of all action of the Commission with respect to any
amendments to the Corporation's Registration Statement or
Prospectus which may from time to time be filed with the
Commission under the Act or the Securities Act.
SECTION 3. STANDARD OF CARE
The Placement Agent shall give the Corporation the
benefit of its best judgment and efforts in rendering its
services to the Corporation and shall not be liable for
error of judgment or mistake of law, for any loss arising
out of any investment, or in any event whatsoever, provided
that nothing herein shall be deemed to protect, or purport
to protect, the Placement Agent against any liability to the
Corporation or to the security holders of the Corporation to
which it would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the
performance of its duties hereunder, or by reason of
reckless disregard of its obligations and duties hereunder.
5
<PAGE>
SECTION 4. EXPENSES
The Corporation will pay all fees, costs and expenses
incident to the performance by the Corporation of its
obligations hereunder, including: (a) the preparation,
printing, filing and distribution of the Registration
Statement (including the exhibits thereto), all amendments
and supplements thereto and the Prospectus; (b) the
preparation, printing, and issuance of the Shares including
any stamp taxes and transfer agent and registrar fees
payable in connection with the original issuance of the
Shares; (c) the registrations or qualifications referred to
in Section (2)(d) and 2(e) hereof including fees and
disbursements of counsel for the Placement Agent relating to
such registrations or qualifications; (d) the fees and
expenses of the Corporation's accountants and the fees and
expenses of counsel for the Corporation; (e) the expenses of
delivery to the Placement Agent of copies of the Prospectus,
as may be requested for use in connection with the offering
and sale of the Shares; (f) any filings required to be made
by the Placement Agent with the National Association of
Securities Dealers, Inc.; (g) the fees and expenses incurred
with respect to the listing of the Shares on the NASDAQ
SmallCap Market.
SECTION 5. TERMS OF THE OFFERING
The Offering shall commence upon the effectiveness of
the Registration Statement. All subscription proceeds shall
be immediately deposited into an escrow account established
at United Missouri Bank, K.C. If a minimum of 333,334
Shares is not sold by 5:00 p.m. on that date which is sixty
days after the effective date of the Registration Statement,
unless extended at the option of the Placement Agent for
another thirty days, in which case that date which is ninety
days after the effective date of the Registration Statement
(the "Termination Date"), the Offering shall terminate and
all subscription proceeds shall be returned to prospective
investors, without discount and with interest.
As soon as practicable after the sale of 333,334 Shares
and subject to the terms and conditions of this Agreement, a
closing shall occur pursuant to which the Shares shall be
issued to subscribers against release of the Offering
proceeds held in escrow with respect to such subscribers'
subscriptions ("Initial Closing"). After the Initial
Closing, subscription proceeds will be held by the
Corporation pending a subsequent closing. Subject to the
terms and conditions of this Agreement subsequent closings
("Subsequent Closings") shall be held thereafter with
respect to additional sales of Shares on a monthly basis or
on such a more frequent basis as the Corporation and
Placement Agent shall agree until the earlier of the
Termination Date or termination of the Offering as provided
herein. Initial Closing or a Subsequent Closing is
hereinafter referred to sometimes as a Closing.
The public offering price will be $15.00 per share.
The minimum subscription will be for 100 shares. The
Placement Agent shall be paid a management fee equal to
6
<PAGE>
two point seven percent (2.7%) of the subscription proceeds
($.40 per share) from all sales of shares. The Placement
Agent will also be paid a selling concession of four point
three percent (4.3%) of the subscription proceeds ($.65 per
share) from all sales of the Shares all, or any portion, of
which the Placement Agent may reallow to other selling
agents. The Corporation shall have the right to accept or
reject in whole or in part subscriptions for the Shares.
SECTION 6. TERMINATION
This Agreement may be terminated at any time, without
the payment of any penalty, (i) by the Board of Directors of
the Corporation or by a vote of a majority of the
outstanding voting securities of the Corporation, on 10
days' written notice to the Placement Agent or (ii) by the
Placement Agent on 10 days' written notice to the
Corporation. This Agreement shall automatically terminate
in the event of its assignment.
SECTION 7. ACTIVITIES OF PLACEMENT AGENT
Except to the extent necessary to perform its
obligations under this Agreement, nothing herein shall be
deemed to limit or restrict the Placement Agent's right, or
the right of any of its officers, directors or employees
(whether or not they are a director, officer, employee or
other affiliated person of the Corporation) to engage in any
other business or to devote time and attention to the
management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of
any kind to any other company, corporation, firm, individual
or association.
SECTION 8. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties hereto and,
if required by the Act, by a vote of a majority of the
outstanding voting securities of the Corporation.
(b) If any part, term or provision of this Agreement
is held to be illegal, in conflict with any law or otherwise
invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced
as if the Agreement did not contain the particular part,
term or provision held to be illegal or invalid.
(c) Section headings in this Agreement are included
for convenience only and are not to be used to construe or
interpret this Agreement.
7
<PAGE>
(d) Notices, requests, instructions and communications
received by the parties at their respective principal places
of business, or at such other address as a party may have
designated in writing, shall be deemed to have been properly
given.
(e) This Agreement shall be governed by and shall be
construed in accordance with the laws of the State of
Maryland without reference to principles of conflict of law.
(f) The terms "vote of a majority of the outstanding
voting securities," "affiliated person," and "assignment"
shall have the meanings ascribed thereto in the Act.
(g) This Agreement has been and is made solely for the
benefit of the Dealer, the Soliciting Dealers, the
Corporation and their respective successors, executors,
administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no
other person will have any right or obligation hereunder.
The term "successors" shall not include any purchaser of the
Shares merely because of such purchase.
(h) The indemnification agreement contained in this
Agreement and the representations, warranties and covenants
in this Agreement shall remain in full force and effect
regardless of (i) any termination of this Agreement,
(ii) any investigation made by or on behalf of the Placement
Agent or controlling person thereof, or by or on behalf of
the Corporation or its directors or officers, and (iii) a
Closing under this Agreement.
(i) This Agreement embodies the entire agreement
between the Corporation and the Placement Agent relating to
the subject matter hereof and supersedes all prior
agreements, representations and understandings, if any,
relating to the subject matter hereof.
(j) Please confirm that the foregoing correctly sets
forth the agreement between the Corporation and the
Placement Agent.
Very truly yours,
DEM, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
Nathan A. Chapman, Jr.
Chairman and President
8
THE CHAPMAN CO.
By: /s/ NATHAN A. CHAPMAN, JR.
Nathan A. Chapman, Jr.
Chairman and President
9
-xv
CUSTODY AGREEMENT
Dated November 30, 1995
Between
UMB BANK, n.a.
and
DEM, Inc.
Prototype Custody Agreement
for a
Registered Investment Company
(for Fund/Plan Clients Only)
Table of Contents
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic
Subcustodian 3
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 5
(e) Purchases of Assets 5
(f) Sales of Assets 5
(g) Options 6
(h) Futures Contracts 6
(i) Segregated Accounts 7
(j) Depositary Receipts 7
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 7
(l) Interest Bearing Deposits 7
(m) Foreign Exchange Transactions Other than as
Principal 8
(n) Pledges or Loans of Securities 8
(o) Stock Dividends, Rights, Etc. 9
(p) Routine Dealings 9
(q) Collections 9
(r) Bank Accounts 9
(s) Dividends, Distributions and Redemptions 9
(t) Proceeds from Shares Sold 10
(u) Proxies and Notices; Compliance with the
Shareholders
Communication Act of 1985 10
(v) Books and Records 10
(w) Opinion of Fund's Independent Certified Public
Accountants 10
(x) Reports by Independent Certified Public
Accountants 10
(y) Bills and Others Disbursements 11
5. Subcustodians 11
(a) Domestic Subcustodians 11
(b) Foreign Subcustodians 11
(c) Interim Subcustodians 12
(d) Special Subcustodians 12
(e) Termination of a Subcustodian 12
(f) Certification Regarding Foreign Subcustodians 12
6. Standard of Care 12
(a) General Standard of Care 12
(b) Actions Prohibited by Applicable Law, Events
Beyond
Custodian's Control, Armed Conflict, Sovereign
Risk, Etc. 13
(c) Liability for Past Records 13
(d) Advice of Counsel 13
(e) Advice of the Fund and Others 13
(f) Instructions Appearing to be Genuine 13
(g) Exceptions from Liability 13
7. Liability of the Custodian for Actions of Others 14
(a) Domestic Subcustodians 14
(b) Liability for Acts and Omissions of Foreign
Subcustodians 14
(c) Securities Systems, Interim Subcustodians,
Special Subcustodians, Securities Depositories
and
Clearing Agencies 14
(d) Defaults or Insolvencies of Brokers, Banks, Etc. 14
(e) Reimbursement of Expenses 14
8. Indemnification 15
(a) Indemnification by Fund 15
(b) Indemnification by Custodian 15
9. Advances 15
10. Liens 16
11. Compensation 16
12. Powers of Attorney 16
13. Termination and Assignment 16
14. Notices 17
15. Miscellaneous 17
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this 30th day of November,
1995, between DEM, Inc., a corporation organized under the
laws of the State of Maryland with its principal place of
business located at The World Trade Center-Baltimore, 401 E.
Pratt Street, 28th Floor, Baltimore MD 21202 (hereinafter
"Fund"), and UMB Bank, n.a., a national banking association
with its principal place of business located at Kansas City,
Missouri (hereinafter "Custodian").
WITNESSETH:
WHEREAS, the Fund is registered as a closed-end
management investment company under the Investment Company
Act of 1940, as amended; and
WHEREAS, the Fund desires to appoint Custodian as its
custodian for the custody of Assets (as hereinafter defined)
owned by the Fund which Assets are to be held in such
accounts as the Fund may establish from time to time; and
WHEREAS, Custodian is willing to accept such
appointment on the terms and conditions hereof.
WHEREAS, the Fund represents that by separate agreement
between Fund/Plan Services, Inc. ("Fund/Plan") and the Fund,
Fund/Plan (a) has agreed to perform certain administrative
functions which may include the functions of administrator,
transfer agent and accounting services agent and (b) has
been appointed by the Fund to act as its agent in respect of
the transactions contemplated in this Agreement; and
WHEREAS, the Fund represents that (a) Fund/Plan has
agreed to act as Fund's agent in respect of the transactions
contemplated in this Agreement and (b) the Bank is
authorized and directed to rely upon and follow directions
and instructions given by Fund/Plan, the Fund's agent, in
respect of transactions contemplated in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto, intending to be
legally bound, mutually covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN.
The Fund hereby constitutes and appoints the Custodian
as custodian of Assets belonging to the Fund which have been
or may be from time to time deposited with the Custodian.
Custodian accepts such appointment as a custodian and agrees
to perform the
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duties and responsibilities of Custodian as set forth herein
on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms
shall have the meanings so indicated:
(a) "Security" or "Securities" shall mean stocks,
bonds, bills, rights, scrip, warrants, interim certificates
and all negotiable or nonnegotiable paper commonly known as
Securities and other instruments or obligations.
(b) "Assets" shall mean Securities, monies and
other property held by the Custodian for the benefit of the
Fund.
(c)(1) "Instructions", as used herein, shall
mean: (i) a tested telex, a written (including, without
limitation, facsimile transmission) request, direction,
instruction or certification signed or initialed by or on
behalf of the Fund by an Authorized Person; (ii) a
telephonic or other oral communication from a person the
Custodian reasonably believes to be an Authorized Person; or
(iii) a communication effected directly between an
electro-mechanical or electronic device or system
(including, without limitation, computers) on behalf of the
Fund. Instructions in the form of oral communications shall
be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of
such confirmation shall in no way affect any action taken by
the Custodian in reliance upon such oral Instructions prior
to the Custodian's receipt of such confirmation. The Fund
authorizes the Custodian to record any and all telephonic or
other oral Instructions communicated to the Custodian.
(c) (2) "Special Instructions", as used herein,
shall mean Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the
Fund or any other person designated by the Treasurer of the
Fund in writing, which countersignature or confirmation
shall be included on the same instrument containing the
Instructions or on a separate instrument relating thereto.
(c) (3) Instructions and Special Instructions
shall be delivered to the Custodian at the address and/or
telephone, facsimile transmission or telex number agreed
upon from time to time by the Custodian and the Fund.
(c) (4) Where appropriate, Instructions and
Special Instructions shall be continuing instructions.
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<PAGE>
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that
its execution does not violate any of the provisions of its
respective charter, articles of incorporation, articles of
association or bylaws and all required corporate action to
authorize the execution and delivery of this Agreement has
been taken.
The Fund has furnished the Custodian with copies,
properly certified or authenticated, with all amendments or
supplements thereto, of the following documents:
(a) Certificate of Incorporation (or equivalent
document) of the Fund as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date
hereof;
(c) Resolutions of the Board of Directors of the
Fund appointing the Custodian and approving the form of this
Agreement; and
(d) The Fund's current prospectus and statements
of additional information.
The Fund shall promptly furnish the Custodian with
copies of any updates, amendments or supplements to the
foregoing documents.
In addition, the Fund has delivered or will promptly
deliver to the Custodian, copies of the Resolution(s) of its
Board of Directors or Trustees and all amendments or
supplements thereto, properly certified or authenticated,
designating certain officers or employees of the Fund who
will have continuing authority to certify to the Custodian:
(a) the names, titles, signatures and scope of authority of
all persons authorized to give Instructions or any other
notice, request, direction, instruction, certificate or
instrument on behalf of the Fund, and (b) the names, titles
and signatures of those persons authorized to countersign or
confirm Special Instructions on behalf of the Fund (in both
cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and
certificates may be accepted and relied upon by the
Custodian as conclusive evidence of the facts set forth
therein and shall be considered to be in full force and
effect until delivery to the Custodian of a similar
Resolution or certificate to the contrary. Upon delivery of
a certificate which deletes or does not include the name(s)
of a person previously authorized to give Instructions or to
countersign or confirm Special Instructions, such persons
shall no longer be considered an Authorized Person
authorized to give Instructions or to countersign or confirm
Special Instructions. Unless the certificate specifically
requires that the approval of anyone else will first have
been obtained, the Custodian will be under no obligation to
inquire into the right of the person
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<PAGE>
giving such Instructions or Special Instructions to do so.
Notwithstanding any of the foregoing, no Instructions or
Special Instructions received by the Custodian from the Fund
will be deemed to authorize or permit any director, trustee,
officer, employee, or agent of the Fund to withdraw any of
the Assets of the Fund upon the mere receipt of such
authorization, Special Instructions or Instructions from
such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC
SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed
pursuant to Sections 5(b), (c), or (d) of this Agreement,
the Custodian shall have and perform the powers and duties
hereinafter set forth in this Section 4. For purposes of
this Section 4 all references to powers and duties of the
"Custodian" shall also refer to any Domestic Subcustodian
appointed pursuant to Section 5(a).
The Bank's performance of its duties hereunder and the
day-to-day operations of the Custody Account shall be in
accordance with written service standards furnished to the
Fund, care of the Fund's agent, Fund/Plan, by the Bank from
time to time. Such service standards, as amended from time
to time, are incorporated herein by reference.
(a) Safekeeping.
The Custodian will keep safely the Assets of the
Fund which are delivered to it from time to time. The
Custodian shall not be responsible for any property of the
Fund held or received by the Fund and not delivered to the
Custodian.
The Bank shall supply to the Fund, addressed care
of its agent, Fund/Plan, from time to time as mutually
agreed upon a written statement with respect to all of the
Property in the Custody Account. In the event that the
Fund, acting through its agent, Fund/Plan, does not inform
the Bank in writing of any exceptions or objections within
thirty (30) days after receipt of such statement, the Fund
shall be deemed to have approved such statement.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold
Securities of the Fund either: (i) by physical possession of
the share certificates or other instruments representing
such Securities in registered or bearer form; or (ii) in
book-entry form by a Securities System (as hereinafter
defined) in accordance with the provisions of sub-paragraph
(3) below.
(2) The Custodian may hold registrable portfolio
Securities which have been delivered to it in physical form,
by registering the same in the name of the
5
<PAGE>
Fund or its nominee, or in the name of the Custodian or its
nominee, for whose actions the Fund and Custodian,
respectively, shall be fully responsible. Upon the receipt
of Instructions, the Custodian shall hold such Securities in
street certificate form, so called, with or without any
indication of fiduciary capacity. However, unless it
receives Instructions to the contrary, the Custodian will
register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall
be held in an account of the Custodian containing only
assets of the Fund or only assets held by the Custodian as a
fiduciary, provided that the records of the Custodian shall
indicate at all times the Fund or other customer for which
such Securities are held in such accounts and the respective
interests therein.
(3) The Custodian may deposit and/or maintain
domestic Securities owned by the Fund in, and the Fund
hereby approves use of: (a) The Depository Trust Company;
(b) The Participants Trust Company; and (c) any book-entry
system as provided in (i) Subpart O of Treasury Circular No.
300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular
Public Debt Series No. 27-76, 31 CFR 350.2, or (iii) the
book-entry regulations of federal agencies substantially in
the form of 31 CFR 306.115. Upon the receipt of Special
Instructions, the Custodian may deposit and/or maintain
domestic Securities owned by the Fund in any other domestic
clearing agency registered with the Securities and Exchange
Commission ("SEC") under Section 17A of the Securities
Exchange Act of 1934 (or as may otherwise be authorized by
the SEC to serve in the capacity of depository or clearing
agent for the Securities or other assets of investment
companies) which acts as a Securities depository. Each of
the foregoing shall be referred to in this Agreement as a
"Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities
System shall be in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(i) The Custodian may deposit the Securities
directly or through one or more agents or Subcustodians
which are also qualified to act as custodians for investment
companies.
(ii) The Custodian shall deposit and/or
maintain the Securities in a Securities System, provided
that such Securities are represented in an account
("Account") of the Custodian in the Securities System that
includes only assets held by the Custodian as a fiduciary,
custodian or otherwise for customers.
(iii) The books and records of the
Custodian shall at all times identify those Securities
belonging to the Fund which are maintained in a Securities
System.
(iv) The Custodian shall pay for Securities
purchased for the account of the Fund only upon (a) receipt
of advice from the Securities System that such
6
<PAGE>
Securities have been transferred to the Account of the
Custodian in accordance with the rules of the Securities
System, and (b) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer
Securities sold for the account of the Fund only upon (a)
receipt of advice from the Securities System that payment
for such Securities has been transferred to the Account of
the Custodian in accordance with the rules of the Securities
System, and (b) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the
Securities System relating to transfers of Securities for
the account of the Fund shall be maintained for the Fund by
the Custodian. The Custodian shall deliver to the Fund on
the next succeeding business day daily transaction reports
which shall include each day's transactions in the
Securities System for the account of the Fund. Such
transaction reports shall be delivered to the Fund or any
agent designated by the Fund pursuant to Instructions, by
computer or in such other manner as the Fund and Custodian
may agree.
(v) The Custodian shall, if requested
by the Fund pursuant to Instructions, provide the Fund with
reports obtained by the Custodian or any Subcustodian with
respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding
Securities deposited in the Securities System.
(vi) Upon receipt of Special Instructions,
the Custodian shall terminate the use of any Securities
System on behalf of the Fund as promptly as practicable and
shall take all actions reasonably practicable to safeguard
the Securities of the Fund maintained with such Securities
System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this
Agreement and except as provided in Section 3 hereof, the
Custodian, upon receipt of Special Instructions, will
undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with the
Fund's transactions and to transfer such Assets to such
broker, dealer, Subcustodian, bank, agent, Securities System
or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will
exchange portfolio Securities held by it for the Fund for
other Securities or cash paid in connection with any
reorganization, recapitalization, merger, consolidation, or
conversion of convertible Securities, and will deposit any
such Securities in accordance with the terms of any
reorganization or protective plan.
7
<PAGE>
Without Instructions, the Custodian is authorized
to exchange Securities held by it in temporary form for
Securities in definitive form, to surrender Securities for
transfer into a name or nominee name as permitted in Section
4(b)(2), to effect an exchange of shares in a stock split or
when the par value of the stock is changed, to sell any
fractional shares, and, upon receiving payment therefor, to
surrender bonds or other Securities held by it at maturity
or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with
Instructions, the Custodian shall, with respect to a
purchase of Securities, pay for such Securities out of
monies held for the Fund's account for which the purchase
was made, but only insofar as monies are available therein
for such purpose, and receive the portfolio Securities so
purchased. Unless the Custodian has received Special
Instructions to the contrary, such payment will be made only
upon receipt of Securities by the Custodian, a clearing
corporation of a national Securities exchange of which the
Custodian is a member, or a Securities System in accordance
with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, upon receipt of Instructions:
(i) in connection with a repurchase agreement, the Custodian
may release funds to a Securities System prior to the
receipt of advice from the Securities System that the
Securities underlying such repurchase agreement have been
transferred by book-entry into the Account maintained with
such Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System require
that the Securities System may make payment of such funds to
the other party to the repurchase agreement only upon
transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of
Interest Bearing Deposits, currency deposits, and other
deposits, foreign exchange transactions, futures contracts
or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m)
hereof, the Custodian may make payment therefor before
receipt of an advice of transaction; and (iii) in the case
of Securities as to which payment for the Security and
receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the
instrument representing the Security expected to take place
in different locations or through separate parties, such as
commercial paper which is indexed to foreign currency
exchange rates, derivatives and similar Securities, the
Custodian may make payment for such Securities prior to
delivery thereof in accordance with such generally accepted
trade practice or the terms of the instrument representing
such Security.
(2) Other Assets Purchased. Upon receipt of
Instructions and except as otherwise provided herein, the
Custodian shall pay for and receive other Assets for the
account of the Fund as provided in Instructions.
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<PAGE>
(f) Sales of Assets.
(1) Securities Sold. In accordance with
Instructions, the Custodian will, with respect to a sale,
deliver or cause to be delivered the Securities thus
designated as sold to the broker or other person specified
in the Instructions relating to such sale. Unless the
Custodian has received Special Instructions to the contrary,
such delivery shall be made only upon receipt of payment
therefor in the form of: (a) cash, certified check, bank
cashier's check, bank credit, or bank wire transfer; (b)
credit to the account of the Custodian with a clearing
corporation of a national Securities exchange of which the
Custodian is a member; or (c) credit to the Account of the
Custodian with a Securities System, in accordance with the
provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, Securities held in physical form may be delivered
and paid for in accordance with "street delivery custom" to
a broker or its clearing agent, against delivery to the
Custodian of a receipt for such Securities, provided that
the Custodian shall have taken reasonable steps to ensure
prompt collection of the payment for, or return of, such
Securities by the broker or its clearing agent, and provided
further that the Custodian shall not be responsible for the
selection of or the failure or inability to perform of such
broker or its clearing agent or for any related loss arising
from delivery or custody of such Securities prior to
receiving payment therefor.
(2) Other Assets Sold. Upon receipt of
Instructions and except as otherwise provided herein, the
Custodian shall receive payment for and deliver other Assets
for the account of the Fund as provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the
purchase of an option or sale of a covered call option, the
Custodian shall: (a) receive and retain confirmations or
other documents, if any, evidencing the purchase or writing
of the option by the Fund; (b) if the transaction involves
the sale of a covered call option, deposit and maintain in a
segregated account the Securities (either physically or by
book-entry in a Securities System) subject to the covered
call option written on behalf of the Fund; and (c) pay,
release and/or transfer such Securities, cash or other
Assets in accordance with any notices or other
communications evidencing the expiration, termination or
exercise of such options which are furnished to the
Custodian by the Options Clearing Corporation (the "OCC"),
the securities or options exchanges on which such options
were traded, or such other organization as may be
responsible for handling such option transactions.
(2) Upon receipt of Instructions relating to the
sale of a naked option (including stock index and commodity
options), the Custodian, the Fund and the broker-dealer
shall enter into an agreement to comply with the rules of
the OCC or of any registered national securities exchange or
similar organizations(s). Pursuant to that agreement and
the Fund's Instructions, the Custodian shall: (a) receive
and retain
9
<PAGE>
confirmations or other documents, if any, evidencing the
writing of the option; (b) deposit and maintain in a
segregated account, Securities (either physically or by
book-entry in a Securities System), cash and/or other
Assets; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications
evidencing the expiration, termination or exercise of such
option which are furnished to the Custodian by the OCC, the
securities or options exchanges on which such options were
traded, or such other organization as may be responsible for
handling such option transactions. The Fund and the
broker-dealer shall be responsible for determining the
quality and quantity of assets held in any segregated
account established in compliance with applicable margin
maintenance requirements and the performance of other terms
of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall
enter into a futures margin procedural agreement among the
Fund, the Custodian and the designated futures commission
merchant (a "Procedural Agreement"). Under the Procedural
Agreement the Custodian shall: (a) receive and retain
confirmations, if any, evidencing the purchase or sale of a
futures contract or an option on a futures contract by the
Fund; (b) deposit and maintain in a segregated account cash,
Securities and/or other Assets designated as initial,
maintenance or variation "margin" deposits intended to
secure the Fund's performance of its obligations under any
futures contracts purchased or sold, or any options on
futures contracts written by the Fund, in accordance with
the provisions of any Procedural Agreement designed to
comply with the provisions of the Commodity Futures Trading
Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar
organization(s), regarding such margin deposits; and (c)
release Assets from and/or transfer Assets into such margin
accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant
shall be responsible for determining the type and amount of
Assets held in the segregated account or paid to the
broker-dealer in compliance with applicable margin
maintenance requirements and the performance of any futures
contract or option on a futures contract in accordance with
its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall
establish and maintain on its books a segregated account or
accounts for and on behalf of the Fund, into which account
or accounts may be transferred Assets of the Fund, including
Securities maintained by the Custodian in a Securities
System pursuant to Paragraph (b)(3) of this Section 4, said
account or accounts to be maintained (i) for the purposes
set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by the Fund with the procedures
required by the SEC Investment Company Act Release Number
10666 or any
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subsequent release or releases relating to the maintenance
of segregated accounts by registered investment companies,
or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall
not be responsible for the determination of the type or
amount of Assets to be held in any segregated account
referred to in this paragraph, or for compliance by the Fund
with required procedures noted in (ii) above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall
surrender or cause to be surrendered Securities to the
depositary used for such Securities by an issuer of American
Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against
a written receipt therefor adequately describing such
Securities and written evidence satisfactory to the
organization surrendering the same that the depositary has
acknowledged receipt of instructions to issue ADRs with
respect to such Securities in the name of the Custodian or a
nominee of the Custodian, for delivery in accordance with
such instructions.
Upon receipt of Instructions, the Custodian shall
surrender or cause to be surrendered ADRs to the issuer
thereof, against a written receipt therefor adequately
describing the ADRs surrendered and written evidence
satisfactory to the organization surrendering the same that
the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such
instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall:
(a) deliver warrants, puts, calls, rights or similar
Securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or
sale, provided that the new Securities, cash or other
Assets, if any, acquired as a result of such actions are to
be delivered to the Custodian; and (b) deposit Securities
upon invitations for tenders thereof, provided that the
consideration for such Securities is to be paid or delivered
to the Custodian, or the tendered Securities are to be
returned to the Custodian.
Notwithstanding any provision of this Agreement to
the contrary, the Custodian shall take all necessary action,
unless otherwise directed to the contrary in Instructions,
to comply with the terms of all mandatory or compulsory
exchanges, calls, tenders, redemptions, or similar rights of
security ownership, and shall notify the Fund of such action
in writing by facsimile transmission or in such other manner
as the Fund and Custodian may agree in writing.
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<PAGE>
The Fund agrees that if it gives an Instruction
for the performance of an act on the last permissible date
of a period established by any optional offer or on the last
permissible date for the performance of such act, the Fund
shall hold the Bank harmless from any adverse consequences
in connection with acting upon or failing to act upon such
Instructions.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the
Custodian to purchase interest bearing fixed term and call
deposits (hereinafter referred to, collectively, as
"Interest Bearing Deposits") for the account of the Fund,
the Custodian shall purchase such Interest Bearing Deposits
in the name of the Fund with such banks or trust companies,
including the Custodian, any Subcustodian or any subsidiary
or affiliate of the Custodian (hereinafter referred to as
"Banking Institutions"), and in such amounts as the Fund may
direct pursuant to Instructions. Such Interest Bearing
Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to the
Fund for Interest Bearing Deposits issued by the Custodian
shall be that of a U.S. bank for a similar deposit. With
respect to Interest Bearing Deposits other than those issued
by the Custodian, (a) the Custodian shall be responsible for
the collection of income and the transmission of cash to and
from such accounts; and (b) the Custodian shall have no duty
with respect to the selection of the Banking Institution or
for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions Other than as
Principal.
(l) Upon receipt of Instructions, the Custodian
shall settle foreign exchange contracts or options to
purchase and sell foreign currencies for spot and future
delivery on behalf of and for the account of the Fund with
such currency brokers or Banking Institutions as the Fund
may determine and direct pursuant to Instructions. The Fund
accepts full responsibility for its use of third party
foreign exchange brokers and for execution of said foreign
exchange contracts and understands that the Fund shall be
responsible for any and all costs and interest charges which
may be incurred as a result of the failure or delay of its
third party broker to deliver foreign exchange. The
Custodian shall have no responsibility with respect to the
selection of the currency brokers or Banking Institutions
with which the Fund deals or, so long as the Custodian acts
in accordance with Instructions, for the failure of such
brokers or Banking Institutions to comply with the terms of
any contract or option.
(2) Notwithstanding anything to the contrary
contained herein, upon receipt of Instructions the Custodian
may, in connection with a foreign exchange contract, make
free outgoing payments of cash in the form of U.S. Dollars
or foreign currency
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<PAGE>
prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from the Fund,
the Custodian will release or cause to be released
Securities held in custody to the pledgees designated in
such Instructions by way of pledge or hypothecation to
secure loans incurred by the Fund with various lenders
including but not limited to United Missouri Bank, n.a.;
provided, however, that the Securities shall be released
only upon payment to the Custodian of the monies borrowed,
except that in cases where additional collateral is required
to secure existing borrowings, further Securities may be
released or delivered, or caused to be released or delivered
for that purpose upon receipt of Instructions. Upon receipt
of Instructions, the Custodian will pay, but only from funds
available for such purpose, any such loan upon re-delivery
to it of the Securities pledged or hypothecated therefor and
upon surrender of the note or notes evidencing such loan.
In lieu of delivering collateral to a pledgee, the
Custodian, on the receipt of Instructions, shall transfer
the pledged Securities to a segregated account for the
benefit of the pledgee.
(2) Upon receipt of Special Instructions, and
execution of a separate Securities Lending Agreement, the
Custodian will release Securities held in custody to the
borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to
the receipt of collateral, if any, for such borrowing,
provided that, in case of loans of Securities held by a
Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall
require that the Securities System deliver the Securities of
the Fund to the borrower thereof only upon receipt of the
collateral for such borrowing. The Custodian shall have no
responsibility or liability for any loss arising from the
delivery of Securities prior to the receipt of collateral.
Upon receipt of Instructions and the loaned Securities, the
Custodian will release the collateral to the borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock
dividends, rights, and other items of like nature and, upon
receipt of Instructions, take action with respect to the
same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all
routine and mechanical matters in accordance with industry
standards in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with
Securities or other property of the
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<PAGE>
Fund except as may be otherwise provided in this Agreement
or directed from time to time by Instructions from the Fund.
The Custodian may also make payments to itself or others
from the Assets for disbursements and out-of-pocket expenses
incidental to handling Securities or other similar items
relating to its duties under this Agreement, provided that
all such payments shall be accounted for to the Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and
payable to the Fund with respect to portfolio Securities and
other Assets; (b) promptly credit to the account of the Fund
all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder
upon Custodian's receipt of such income or payments or as
otherwise agreed in writing by the Custodian and the Fund;
(c) promptly endorse and deliver any instruments required to
effect such collection; and (d) promptly execute ownership
and other certificates and affidavits for all federal,
state, local and foreign tax purposes in connection with
receipt of income or other payments with respect to
portfolio Securities and other Assets, or in connection with
the transfer of such Securities or other Assets; provided,
however, that with respect to portfolio Securities
registered in so-called street name, or physical Securities
with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund.
The Custodian shall notify the Fund in writing by facsimile
transmission or in such other manner as the Fund and
Custodian may agree in writing if any amount payable with
respect to portfolio Securities or other Assets is not
received by the Custodian when due. The Custodian shall not
be responsible for the collection of amounts due and payable
with respect to portfolio Securities or other Assets that
are in default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open and
operate a bank account or accounts on the books of the
Custodian; provided that such bank account(s) shall be in
the name of the Custodian or a nominee thereof, for the
account of the Fund, and shall be subject only to draft or
order of the Custodian. The responsibilities of the
Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and Redemptions.
To enable the Fund to pay dividends or other
distributions to shareholders of the Fund and to make
payment to shareholders who have requested repurchase or
redemption of their shares of the Fund (collectively, the
"Shares"), the Custodian shall release cash or Securities
insofar as available. In the case of cash, the Custodian
shall,
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<PAGE>
upon the receipt of Instructions, transfer such funds by
check or wire transfer to any account at any bank or trust
company designated by the Fund in such Instructions. In the
case of Securities, the Custodian shall, upon the receipt of
Special Instructions, make such transfer to any entity or
account designated by the Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds representing
cash payments received for shares issued or sold from time
to time by the Fund, and shall credit such funds to the
account of the Fund. The Custodian shall notify the Fund of
Custodian's receipt of cash in payment for shares issued by
the Fund by facsimile transmission or in such other manner
as the Fund and the Custodian shall agree. Upon receipt of
Instructions, the Custodian shall: (a) deliver all federal
funds received by the Custodian in payment for shares as may
be set forth in such Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal
funds available to the Fund as of specified times agreed
upon from time to time by the Fund and the Custodian, in the
amount of checks received in payment for shares which are
deposited to the accounts of the Fund.
(u) Proxies and Notices; Compliance with the
Shareholders Communication Act of 1985.
The Custodian shall deliver or cause to be
delivered to the Fund all forms of proxies, all notices of
meetings, and any other notices or announcements affecting
or relating to Securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee
of either of them, and, upon receipt of Instructions, the
Custodian shall execute and deliver, or cause such
Subcustodian or nominee to execute and deliver, such proxies
or other authorizations as may be required. Except as
directed pursuant to Instructions, neither the Custodian nor
any Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or give
any consent or take any other action with respect thereto.
The Custodian will not release the identity of the
Fund to an issuer which requests such information pursuant
to the Shareholder Communications Act of 1985 for the
specific purpose of direct communications between such
issuer and the Fund unless the Fund directs the Custodian
otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records relating
to its activities under this Agreement as are required to be
maintained by Rule 31a-1 under the Investment Company Act of
1940 ("the 1940 Act") and to preserve them for the periods
prescribed in Rule 31a-2 under the 1940 Act. These records
shall be open for inspection by duly
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<PAGE>
authorized officers, employees or agents (including
independent public accountants) of the Fund during normal
business hours of the Custodian.
The Custodian shall provide accountings relating
to its activities under this Agreement as shall be agreed
upon by the Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public
Accountants.
The Custodian shall take all reasonable action as
the Fund may request to obtain from year to year favorable
opinions from the Fund's independent certified public
accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of the
Fund's periodic reports to the SEC and with respect to any
other requirements of the SEC.
(x) Reports by Independent Certified Public
Accountants.
At the request of the Fund, the Custodian shall
deliver to the Fund a written report prepared by the
Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's
accounting system, internal accounting control and
procedures for safeguarding cash, Securities and other
Assets, including cash, Securities and other Assets
deposited and/or maintained in a Securities System or with a
Subcustodian. Such report shall be of sufficient scope and
in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall
pay, or cause to be paid, all bills, statements, or other
obligations of the Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant
provisions of this Agreement, the Custodian may appoint one
or more Domestic Subcustodians, Foreign Subcustodians,
Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of the Fund. A
Domestic Subcustodian, in accordance with the provisions of
this Agreement, may also appoint a Foreign Subcustodian,
Special Subcustodian, or Interim Subcustodian to act on
behalf of the Fund. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special
Subcustodians and Interim Subcustodians shall be referred to
collectively as "Subcustodians".
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<PAGE>
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to
time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity, any of which
meet the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to
act for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding Assets of the Fund and
performing other functions of the Custodian within the
United States (a "Domestic Subcustodian"). The Fund shall
approve in writing the appointment of the proposed Domestic
Subcustodian; and the Custodian's appointment of any such
Domestic Subcustodian shall not be effective without such
prior written approval of the Fund. Each such duly approved
Domestic Subcustodian shall be listed on Appendix A attached
hereto, as it may be amended, from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a
Domestic Subcustodian to appoint, any bank, trust company or
other entity meeting the requirements of an "eligible
foreign custodian" under Section 17(f) of the 1940 Act and
the rules and regulations thereunder to act for the
Custodian on behalf of the Fund as a subcustodian or
sub-subcustodian (if appointed by a Domestic Subcustodian)
for purposes of holding Assets of the Fund and performing
other functions of the Custodian in countries other than the
United States of America (hereinafter referred to as a
"Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the
Custodian shall have obtained written confirmation from the
Fund of the approval of the Board of Directors or other
governing body of the Fund (which approval may be withheld
in the sole discretion of such Board of Directors or other
governing body or entity) with respect to (i) the identity
of any proposed Foreign Subcustodian (including branch
designation), (ii) the country or countries in which, and
the securities depositories or clearing agencies
(hereinafter "Securities Depositories and Clearing
Agencies"), if any, through which, the Custodian or any
proposed Foreign Subcustodian is authorized to hold
Securities and other Assets of the Fund, and (iii) the form
and terms of the subcustodian agreement to be entered into
with such proposed Foreign Subcustodian. Each such duly
approved Foreign Subcustodian and the countries where and
the Securities Depositories and Clearing Agencies through
which they may hold Securities and other Assets of the Fund
shall be listed on Appendix A attached hereto, as it may be
amended, from time to time. The Fund shall be responsible
for informing the Custodian sufficiently in advance of a
proposed investment which is to be held in a country in
which no Foreign Subcustodian is authorized to act, in order
that there shall be sufficient time for the Custodian, or
any Domestic Subcustodian, to effect the appropriate
arrangements with a proposed Foreign Subcustodian, including
obtaining approval as provided in this Section 5(b). In
connection with the appointment of any Foreign Subcustodian,
the Custodian shall, or
17
<PAGE>
shall cause the Domestic Subcustodian to, enter into a
subcustodian agreement with the Foreign Subcustodian in form
and substance approved by the Fund. The Custodian shall not
consent to the amendment of, and shall cause any Domestic
Subcustodian not to consent to the amendment of, any
agreement entered into with a Foreign Subcustodian, which
materially affects the Fund's rights under such agreement,
except upon prior written approval of the Fund pursuant to
Special Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event that
the Fund shall invest in an Asset to be held in a country in
which no Foreign Subcustodian is authorized to act, the
Custodian shall notify the Fund in writing by facsimile
transmission or in such other manner as the Fund and
Custodian shall agree in writing of the unavailability of an
approved Foreign Subcustodian in such country; and upon the
receipt of Special Instructions from the Fund, the Custodian
shall, or shall cause its Domestic Subcustodian to, appoint
or approve an entity (referred to herein as an "Interim
Subcustodian") designated in such Special Instructions to
hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the
Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such
Special Instructions to act for the Custodian on behalf of
the Fund as a subcustodian for purposes of: (i) effecting
third-party repurchase transactions with banks, brokers,
dealers or other entities through the use of a common
custodian or subcustodian; (ii) providing depository and
clearing agency services with respect to certain variable
rate demand note Securities, (iii) providing depository and
clearing agency services with respect to dollar denominated
Securities, and (iv) effecting any other transactions
designated by the Fund in such Special Instructions. Each
such designated subcustodian (hereinafter referred to as a
"Special Subcustodian") shall be listed on Appendix A
attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian,
the Custodian shall enter into a subcustodian agreement with
the Special Subcustodian in form and substance approved by
the Fund in Special Instructions. The Custodian shall not
amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement,
except upon prior approval pursuant to Special Instructions.
(e) Termination of a Subcustodian.
The Custodian may, at any time in its discretion
upon notification to the Fund, terminate any Subcustodian of
the Fund in accordance with the termination provisions under
the applicable subcustodian agreement, and upon the receipt
of Special
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<PAGE>
Instructions, the Custodian will terminate any Subcustodian
in accordance with the termination provisions under the
applicable subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
Upon request of the Fund, the Custodian shall
deliver to the Fund a certificate stating: (i) the identity
of each Foreign Subcustodian then acting on behalf of the
Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such
Foreign Subcustodian is then holding cash, Securities and
other Assets of the Fund; and (iii) such other information
as may be requested by the Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with
rules and regulations under the 1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to the Fund for all
losses, damages and reasonable costs and expenses suffered
or incurred by the Fund resulting from the gross negligence
or willful misfeasance of the Custodian; provided, however,
in no event shall the Custodian be liable for special,
indirect or consequential damages arising under or in
connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events
Beyond Custodian's Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic
Subcustodian incur liability hereunder if the Custodian or
any Subcustodian or Securities System, or any subcustodian,
Securities System, Securities Depository or Clearing Agency
utilized by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually,
a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this
Agreement provides shall be performed or omitted to be
performed, by reason of: (i) any provision of any present or
future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or
political subdivision thereof or of any court of competent
jurisdiction (and neither the Custodian nor any other Person
shall be obligated to take any action contrary thereto); or
(ii) any event beyond the control of the Custodian or other
Person such as armed conflict, riots, strikes, lockouts,
labor disputes, equipment or transmission failures, natural
disasters, or failure of the mails, transportation,
communications or power supply; or (iii) any "Sovereign
Risk." A "Sovereign Risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation,
seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment,
promulgation, imposition or enforcement by any such
governmental
19
<PAGE>
authority of currency restrictions, exchange controls,
taxes, levies or other charges affecting the Fund's Assets;
or acts of armed conflict, terrorism, insurrection or
revolution; or any other act or event beyond the Custodian's
or such other Person's control.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic
Subcustodian shall have any liability in respect of any
loss, damage or expense suffered by the Fund, insofar as
such loss, damage or expense arises from the performance of
the Custodian or any Domestic Subcustodian in reliance upon
records that were maintained for the Fund by entities other
than the Custodian or any Domestic Subcustodian prior to the
Custodian's employment hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall
be entitled to receive and act upon advice of counsel of its
own choosing on all matters. The Custodian and all Domestic
Subcustodians shall be without liability for any actions
taken or omitted in good faith pursuant to the advice of
counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may
rely upon the advice of the Fund and upon statements of the
Fund's accountants and other persons believed by it in good
faith to be expert in matters upon which they are consulted,
and neither the Custodian nor any Domestic Subcustodian
shall be liable for any actions taken or omitted, in good
faith, pursuant to such advice or statements.
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall
be fully protected and indemnified in acting as a custodian
hereunder upon any Resolutions of the Board of Directors or
Trustees, Instructions, Special Instructions, advice,
notice, request,
consent, certificate, instrument or paper appearing to it to
be genuine and to have been properly executed and shall,
unless otherwise specifically provided herein, be entitled
to receive as conclusive proof of any fact or matter
required to be ascertained from the Fund hereunder a
certificate signed by any officer of the Fund authorized to
countersign or confirm Special Instructions.
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<PAGE>
(g) Exceptions from Liability.
Without limiting the generality of any other
provisions hereof, neither the Custodian nor any Domestic
Subcustodian shall be under any duty or obligation to
inquire into, nor be liable for:
(i) the validity of the issue of any
Securities purchased by or for the Fund, the legality of the
purchase thereof or evidence of ownership required to be
received by the Fund, or the propriety of the decision to
purchase or amount paid therefor;
(ii) the legality of the sale of any
Securities by or for the Fund, or the propriety of the
amount for which the same were sold; or
(iii) any other expenditures,
encumbrances of Securities, borrowings or similar actions
with respect to the Fund's Assets; and may, until notified
to the contrary, presume that all Instructions or Special
Instructions received by it are not in conflict with or in
any way contrary to any provisions of the Fund's Declaration
of Trust, Partnership Agreement, Articles of Incorporation
or By-Laws or votes or proceedings of the shareholders,
trustees, partners or directors of the Fund, or the Fund's
currently effective Registration Statement on file with the
SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians
The Custodian shall be liable for the acts or
omissions of any Domestic Subcustodian to the same extent as
if such actions or omissions were performed by the Custodian
itself.
(b) Liability for Acts and Omissions of Foreign
Subcustodians.
The Custodian shall be liable to the Fund for any
loss or damage to the Fund caused by or resulting from the
acts or omissions of any Foreign Subcustodian to the extent
that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian
and such Foreign Subcustodian, the Foreign Subcustodian has
failed to perform in accordance with the standard of conduct
imposed under such subcustodian agreement and the Custodian
or Domestic Subcustodian recovers from the Foreign
Subcustodian under the applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians,
Special Subcustodians, Securities Depositories and Clearing
Agencies.
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<PAGE>
The Custodian shall not be liable to the Fund for
any loss, damage or expense suffered or incurred by the Fund
resulting from or occasioned by the actions or omissions of
a Securities System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and Clearing Agency
unless such loss, damage or expense is caused by, or results
from, the gross negligence or willful misfeasance of the
Custodian.
(d) Defaults or Insolvencies of Brokers, Banks,
Etc.
The Custodian shall not be liable for any loss,
damage or expense suffered or incurred by the Fund resulting
from or occasioned by the actions, omissions, neglects,
defaults or insolvency of any broker, bank, trust company
or any other person with whom the Custodian may deal (other
than any of such entities acting as a Subcustodian,
Securities System or Securities Depository and Clearing
Agency, for whose actions the liability of the Custodian is
set out elsewhere in this Agreement) unless such loss,
damage or expense is caused by, or results from, the gross
negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
The Fund agrees to reimburse the Custodian for all
out-of-pocket expenses incurred by the Custodian in
connection with this Agreement, but excluding salaries and
usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this
Agreement, the Fund agrees to indemnify and hold harmless
the Custodian and its nominees from all losses, damages and
expenses (including attorneys' fees) suffered or incurred by
the Custodian or its nominee caused by or arising from
actions taken by the Custodian, its employees or agents in
the performance of its duties and obligations under this
Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian
under any relevant subcustodian agreement; provided,
however, that such indemnity shall not apply to the extent
the Custodian is liable under Sections 6 or 7 hereof.
If the Fund requires the Custodian to take any
action with respect to Securities, which action involves the
payment of money or which may, in the opinion of the
Custodian, result in the Custodian or its nominee assigned
to the Fund being liable for the payment of money or
incurring liability of some other form, the Fund, as a
prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and
form satisfactory to it.
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<PAGE>
(b) Indemnification by Custodian.
Subject to the limitations set forth in this
Agreement and in addition to the obligations provided in
Sections 6 and 7, the Custodian agrees to indemnify and hold
harmless the Fund from all losses, damages and expenses
suffered or incurred by the Fund caused by the gross
negligence or willful misfeasance of the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the
Custodian or any Subcustodian, Securities System, or
Securities Depository or Clearing Agency acting either
directly or indirectly under agreement with the Custodian
(each of which for purposes of this Section 9 shall be
referred to as "Custodian"), makes any payment or transfer
of funds on behalf of the Fund as to which there would be,
at the close of business on the date of such payment or
transfer, insufficient funds held by the Custodian on behalf
of the Fund, the Custodian may, in its discretion without
further Instructions, provide an advance ("Advance") to the
Fund in an amount sufficient to allow the completion of the
transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the
Custodian is directed by Instructions to make any payment or
transfer of funds on behalf of the Fund as to which it is
subsequently determined that the Fund has overdrawn its cash
account with the Custodian as of the close of business on
the date of such payment or transfer, said overdraft shall
constitute an Advance. Any Advance shall be payable by the
Fund on demand by Custodian, unless otherwise agreed by the
Fund and the Custodian, and shall accrue interest from the
date of the Advance to the date of payment by the Fund to
the Custodian at a rate agreed upon in writing from time to
time by the Custodian and the Fund. It is understood that
any transaction in respect of which the Custodian shall have
made an Advance, including but not limited to a foreign
exchange contract or transaction in respect of which the
Custodian is not acting as a principal, is for the account
of and at the risk of the Fund, and not, by reason of such
Advance, deemed to be a transaction undertaken by the
Custodian for its own account and risk. The Custodian and
the Fund acknowledge that the purpose of Advances is to
finance temporarily the purchase or sale of Securities for
prompt delivery in accordance with the settlement terms of
such transactions or to meet emergency expenses not
reasonably foreseeable by the Fund. The Custodian shall
promptly notify the Fund of any Advance. Such notification
shall be sent by facsimile transmission or in such other
manner as the Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the
Custody Account to secure payment of fees and expenses for
the services rendered under this Agreement. If the Bank
advances cash or securities to the Fund for any purpose or
in the event that the
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<PAGE>
Bank or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in
connection with the performance of its duties hereunder,
except such as may arise from its or its nominee's negligent
action, negligent failure to act or willful misconduct, any
Property at any time held for the Custody Account shall be
security therefor and the Fund hereby grants a security
interest therein to the Bank. The Fund shall promptly
reimburse the Bank for any such advance of cash or
securities or any such taxes, charges, expenses,
assessments, claims or liabilities upon request for payment,
but should the Fund fail to so reimburse the Bank, the Bank
shall be entitled to dispose of such Property to the extent
necessary to obtain reimbursement. The Bank shall be
entitled to debit any account of the Fund with the Bank
including, without limitation, the Custody Account, in
connection with any such advance and any interest on such
advance as the Bank deems reasonable.
11. COMPENSATION.
Payment for the Bank's compensation for services
rendered hereunder shall be the responsibility of the Fund.
The Fund represents that by separate agreement it has
appointed Fund/Plan as its agent, and that Fund/Plan, as
agent for the Fund, has agreed to pay the compensation
payable in respect of such services promptly upon receipt of
statements therefore. The Fund shall pay to Fund/Plan fees
for services (including the Bank's custodian services) in
accordance with the terms of an agreement between Fund/Plan
and the Fund. The Fund hereby directs the Bank to (i) send
all statements for compensation to its attention care of
Fund/Plan at the following address: Fund/Plan Services,
Inc., 2 W. Elm Street, Conshohocken, PA 19428, Attention:
Mr. Elmer Gardner, Senior Vice President, and (ii) accept
all payments made by Fund/Plan in the Fund's name as if such
payments were made directly by the Fund. The Custodian's
compensation for services rendered hereunder is set forth in
an agreement between the Bank and Fund/Plan. Should
Fun/Plan fail to pay or remit such compensation to the Bank,
the Bank will be entitled to debit the Custody Account
directly for such compensation. In the absence of
sufficient cash in the Custody Account to cover
compensation, the Fund shall promptly pay the bank for the
unpaid compensation due hereunder. In the absence of prompt
payments for the Fund of the unpaid compensation, the Bank
shall be entitled to exercise, in addition to all other
rights existing in law or equity, the rights set forth in
Section 10 hereof.
12. POWERS OF ATTORNEY.
Upon request, the Fund shall deliver to the
Custodian such proxies, powers of attorney or other
instruments as may be reasonable and necessary or desirable
in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.
24
<PAGE>
13. TERMINATION AND ASSIGNMENT.
The Fund or the Custodian may terminate this
Agreement by notice in writing, delivered or mailed, postage
prepaid (certified mail, return receipt requested) to the
other not less than 90 days prior to the date upon which
such termination shall take effect. Upon termination of
this Agreement, the Fund shall pay to the Custodian such
fees as may be due the Custodian hereunder as well as its
reimbursable disbursements, costs and expenses paid or
incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all
Assets held by it hereunder to the Fund or as otherwise
designated by the Fund by Special Instructions. Upon such
delivery, the Custodian shall have no further obligations or
liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior
to the effective date of termination.
This Agreement may not be assigned by the
Custodian or the Fund without the respective consent of the
other, duly authorized by a resolution by its Board of
Directors or Trustees.
14. NOTICES.
Notices, requests, instructions and other writings
delivered to the Fund at The World Trade Center-Baltimore,
401 E. Pratt Street, 28th Floor, Baltimore, Maryland 21202,
postage prepaid, or to such other address as the Fund may
have designated to the Custodian in writing, shall be deemed
to have been properly delivered or given to the Fund.
The Fund shall give prior notice to the Bank of
any change in its place of incorporation or organization,
mailing address, or sponsors, any significant change in
management, investment objectives, fees or redemption rights
and any change to the appointment of Fund/Plan as its agent.
Notices, requests, instructions and other writings
delivered to the Securities Administration Department of the
Custodian at its office at 928 Grand Avenue, Kansas City,
Missouri, or mailed postage prepaid, to the Custodian's
Securities Administration Department, Post Office Box 226,
Kansas City, Missouri 64141, or to such other addresses as
the Custodian may have designated to the Fund in writing,
shall be deemed to have been properly delivered or given to
the Custodian hereunder; provided, however, that procedures
for the delivery of Instructions and Special Instructions
shall be governed by Section 2(c) hereof.
25
<PAGE>
15. MISCELLANEOUS.
(a) This Agreement is executed and delivered in
the State of Missouri and shall be governed by the laws of
such state.
(b) All of the terms and provisions of this
Agreement shall be binding upon, and inure to the benefit
of, and be enforceable by the respective successors and
assigns of the parties hereto.
(c) No provisions of this Agreement may be
amended, modified or waived, in any manner except in
writing, properly executed by both parties hereto; provided,
however, Appendix A may be amended from time to time as
Domestic Subcustodians, Foreign Subcustodians, Special
Subcustodians, and Securities Depositories and Clearing
Agencies are approved or terminated according to the terms
of this Agreement.
(d) The captions in this Agreement are included
for convenience of reference only, and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
(e) This Agreement shall be effective as of the
date of execution hereof.
(f) This Agreement may be executed simultaneously
in two or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and
the same instrument.
(g) The following terms are defined terms within
the meaning of this Agreement, and the definitions thereof
are found in the following sections of the Agreement:
Term Section
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3(d) (b)
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
26
<PAGE>
Interest Bearing Deposit 4(1)
Liens 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)(iii)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this
Agreement is held to be illegal, in conflict with any law or
otherwise invalid by any court of competent jurisdiction,
the remaining portion or portions shall be considered
severable and shall not be affected, and the rights and
obligations of the parties shall be construed and enforced
as if this Agreement did not contain the particular part,
term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire
understanding and agreement of the parties hereto with
respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any
custodian agreement heretofore in effect between the Fund
and the Custodian.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Custody Agreement to be executed by their duly respective
authorized officers.
DEM, Inc. UMB Bank, n.a.
By: /s/ NATHAN A. CHAPMAN, JR. By: /s/ RALPH R.
SANTORO
Name: Nathan A. Chapman, Jr. Name: Ralph R.
Santoro
Title: President Title:
Vice President
Date: December 1, 1995 Date:
November 30, 1995
28
<PAGE>
APPENDIX A
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS AND CLEARING AGENCIES
Euroclear
DEM, Inc. UMB Bank, n.a.
By: /s/ NATHAN A. CHAPMAN, JR. By: /s/ RALPH R.
SANTORO
Name: Nathan A. Chapman, Jr. Name: Ralph R.
Santoro
Title: President Title:
Vice President
Date: December 1, 1995 Date:
November 30, 1995
29
8
8
BA3DOCS1\26809
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Agreement") is made and
entered into this 30th day of November, 1995, by and between DEM,
INC. a corporation organized under the laws of the state of
Maryland (the "Company"), THE CHAPMAN COMPANY, a corporation
organized under the laws of the state of Maryland (the
"Underwriter") and UMB BANK, N.A., a national banking association
organized and existing under the laws of the United States of
America (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, the Company is a corporation and registered
investment company under the Investment Company Act of 1940, as
amended (the "Act"), formed under the laws of the state of
Maryland;
WHEREAS, the Company desires to offer for sale a
minimum of 333,334 and a maximum of 1,000,000 shares of its
common stock, $.00001 par value per share, (the "Shares");
WHEREAS, the Company has filed a Registration Statement
on Form N-2 (the "Registration Statement") under the Securities
Act of 1933, as amended, and the Act and has made filings with
certain state securities commissions under applicable state "blue
sky" laws relating to the issuance and sale of the Shares;
WHEREAS, in compliance with the terms of the proposed
offering set forth in the Prospectus and Statement of Additional
Information contained in the Registration Statement as in effect
from time to time (collectively the "Prospectus"), the Company
will establish a segregated escrow account with the Escrow Agent
(the "Escrow Account") into which subscription application
payments (the "Subscription Proceeds" or "Subscriptions")
submitted by subscribers to purchase Shares (the "Applicants")
will be deposited;
WHEREAS, the offering period for Subscriptions will
begin on the initial date of offering of the Shares to the
public, which date will be certified in writing to the Escrow
Agent by the Underwriter, and will terminate sixty (60) days
thereafter, unless the Underwriter, at its sole discretion, shall
decide to extend the termination date of the offering for an
additional period of up to thirty (30) days, (the initial
offering period and any extension thereof hereinafter referred to
as the "Offering Period");
WHEREAS, upon the receipt by the Escrow Agent of not
less than the minimum amount of Subscription Proceeds the Escrow
Agent shall notify the Underwriter and deliver the
<PAGE>
Subscription Proceeds to the order of the Company. The Escrow
Agent shall continue to receive and deliver any Subscription
Proceeds to the Company until the end of the Offering Period, on
which date the Escrow Account shall terminate (the "Closing
Date"); and
WHEREAS, the Escrow Agent has agreed to act as escrow
agent in connection with and under this Agreement.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements herein contained, the parties
hereto hereby agree as follows:
l. Until the Closing Date, the Escrow Agent shall act as
escrow agent hereunder and agrees to receive and hold the
Subscriptions in accordance with this Agreement.
2. All Subscriptions received and not rejected by the
Underwriter on behalf of the Company pursuant to the
Prospectus during the Offering Period shall be transmitted
directly to the Escrow Agent by 12:00 p.m. (noon) of the next
business day after the receipt thereof by the Underwriter,
and shall be deposited by the Escrow Agent in the Escrow
Account. In addition, the Underwriter shall deliver to the
Escrow Agent names, addresses and a Form W-9 for each
Applicant and such other information regarding any Applicant
as the Escrow Agent may from time to time request in writing.
The Escrow Agent shall provide the Underwriter a statement of
the assets held and transactions of the Escrow Account as the
Underwriter shall from time to time request in writing. In
the event that any Subscription is delivered to the Escrow
Agent prior to the receipt of such by the Underwriter, the
Escrow Agent shall deliver the same to the Underwriter.
3. Notwithstanding the provisions of Paragraph 2 hereof,
if at any time the Underwriter shall provide written notice
to the Escrow Agent that any Subscription is invalid or
unacceptable, in whole or in part, or that any Subscription
deposited with the Escrow Agent cannot be lawfully accepted,
in whole or in part, the Escrow Agent shall promptly (within
not more than ten (10) days) deliver to the Applicant
submitting such Subscription, without deduction but with
income thereon as earned, if any, the Subscription Proceeds
(or portion thereof) which has been rejected.
4. Upon acceptance of any Subscription and the deposit of
the related Subscription Proceeds into the Escrow Account,
the Underwriter shall provide prompt written notice to the
Applicant of such acceptance.
5. Promptly upon the Escrow Agent's receipt of
Subscription Proceeds from the Underwriter, the Escrow Agent
shall proceed to collect upon such payment instrument(s).
All such collection efforts shall be subject to the Escrow
Agent's usual collection procedures; provided, however, that
if any payment instrument at any time delivered to Escrow
Agent hereunder shall be returned to Escrow Agent as being
uncollectable, Escrow
<PAGE>
Agent shall attempt a second time to collect such item before
returning such item to Underwriter as uncollectable. Subject
to the foregoing, Escrow Agent shall promptly give written
notice to Underwriter of any uncollected item delivered to
Escrow Agent under this Agreement. Escrow Agent shall not be
required or have a duty to take legal action to enforce
payment of any uncollected item delivered to it under this
Agreement. The Escrow Agent shall have no duty or obligation
to collect (except for collection in the ordinary course of
its banking business) any amounts at any time due in respect
of any Subscriptions, and shall not be responsible for any
defaults thereunder or hereunder by any other party, or for
the application of any funds received by it from the
Applicants after payment of such funds by it to the Company
as herein provided. In the event that Escrow Agent shall
have disbursed Subscription Proceeds to the Company or
returned such monies to the Applicant in accordance with this
Agreement with respect to any payment instrument and
subsequently it shall be determined that such item shall be
uncollectable, the Company shall upon Escrow Agent's demand
reimburse it for the amount so disbursed.
6. Escrow Agent shall invest all Subscription Proceeds
deposited with it hereunder, and earnings thereon, if any, in
obligations of the United States Government or any agency
thereof or in bank money market deposits or funds as the
Company shall from time to time direct in writing, without
liability or responsibility to the Escrow Agent therefor.
7.The Underwriter agrees to certify in writing to the
Escrow Agent the initial date of offering of the Shares to
the public. The Offering Period may be extended for a period
of up to thirty (30) days at the sole discretion of the
Underwriter, and such extension shall be effective upon
receipt by the Escrow Agent of a written notice of the
Underwriter, provided the receipt of such notice is prior to
the termination of the Escrow Account.
8. If Subscriptions for not less than Five Million
Dollars ($5,000,000.00) of Shares are received andaccepted by
the Underwriter and not less than Five Million Dollars
($5,000,000.00) in Subscription Proceeds have been delivered
to the Escrow Agent, have cleared the banking system and are
on deposit in available funds with the Escrow Agent , the
Escrow Agent will notify the Underwriter and pay over to the
order of the Company all of the Subscription Proceeds then on
deposit in the Escrow Account, together with all interest or
other income, if any, earned on the Subscription Proceeds
held hereunder. Following such payment the Escrow Agent
shall continue to receive Subscription Proceeds as provided
in Paragraph 2 hereof, and upon receipt of available funds on
or before the Closing Date, shall deliver such Subscription
Proceeds, from time to time, to the order of the Company. On
the Closing Date all duties and responsibilities of the
Escrow Agent shall cease and terminate, including without
limitation, the obligation to receive Subscription Proceeds
and deliver same to the Company.
9. If Subscription Proceeeds for not less than the Five
Million Dollars ($5,000,000.00) of Shares have not been
received by the Escrow Agent in available funds
<PAGE>
by 5:00 p.m. Central Time on the final day of the Offering
Period, Subscription Proceeds held hereunder by the Escrow
Agent will be returned by the Escrow Agent to the Applicants
with interest thereon as earned, if any, promptly following
the expiration of the Offering Period.
10. Prior to delivery to it of the Subscription Proceeds,
the Company shall have no title, right, claim, lien or any
other interest in the funds held in escrow hereunder, and
such funds shall under no circumstances be available to the
Company or its creditors for payment or reimbursement for
liabilities or indebtedness.
11. It is understood and agreed, further, that the Escrow
Agent shall:
A. be under no duty to deliver any
Subscription, or to pay and transfer any monies
hereunder, unless the same shall have been first
received by the Escrow Agent pursuant to the provisions
of this Agreement;
B. be under no duty to enforce payment of
any Subscription which is to be paid to and held by it
hereunder;
C. be under no duty to accept any
information from any person or entity other than the
Underwriter and the Company, or their designated
agents, and then only to the extent and in the manner
expressly provided for in this Agreement;
D. act hereunder as a depository only and
be protected in acting upon any Subscription and the
information contained therein without responsibility to
determine the validity or sufficiency of the same, and
be protected in acting upon any other notice, opinion,
request, certificate, approval, consent or other paper
delivered to it and represented to it to be genuine and
to be signed by the proper party or parties;
E. be deemed conclusively to have given and
delivered any notice required to be given or delivered
hereunder if the same is in writing, signed by any one
of its authorized officers and (1) mailed, by
registered or certified mail, postage prepaid, or (2)
by hand delivery, in a sealed wrapper, addressed to the
Underwriter (with a copy mailed to the Company at the
address set forth in Paragraph 11 hereof) and manually
receipted for by the Underwriter;
F. be indemnified and held harmless by the
Company and the Underwriter, jointly and severally,
against any claim made against it by reason of its
acting or failing to act in connection with any of the
transactions contemplated hereby and against any loss,
liability, cost, suit or expense, including the expense
of defending itself against any claim of liability it
may sustain in carrying out the
<PAGE>
terms of this Agreement except such claims which
are occasioned by its gross negligence or willful
misconduct;
G. have no liability or duty to inquire
into the terms and conditions of the Prospectus,
Subscription Agreement, Subscription or any of the
exhibits annexed thereto, and that its duties and
responsibilities shall be limited to those expressly
set forth under this Agreement and are purely
ministerial in nature;
H. be permitted to consult with counsel of
its choice, including in-house counsel, and shall not
be liable for any action taken, suffered or omitted by
it in good faith in accordance with the advice of such
counsel, provided, however, that nothing contained in
this Subparagraph H, nor any action taken by the Escrow
Agent, or of any such counsel, shall relieve the Escrow
Agent from liability for any claims which are
occasioned by its gross negligence or willful
misconduct, all as provided in Subparagraph F above;
I. not be bound by any amendment or
revocation of this Agreement, unless the same shall be
in writing and signed by all of the parties to this
Agreement;
J. be entitled to refrain from taking any
action other than to keep all property held by it in
escrow hereunder until it shall be directed otherwise
in writing by the Underwriter and the Company, or by a
final judgment by a court of competent jurisdiction,
provided that it shall be uncertain as to its duties
and rights hereunder (including, without limitation,
the receipt of conflicting instructions or directions
from any of the parties hereto);
K. have no liability for following the
instructions herein contained or expressly provided
for, or written instructions given, by the Underwriter
or the Company;
L. have the right, at any time, to resign
hereunder by giving written notice of its resignation
to the Underwriter at its address as set forth in
Paragraph 11 hereof, at least thirty (30) days before
the date specified for such resignation to take effect,
and upon the effective date of such resignation:
(l) all cash and other funds and all
other property then held by the Escrow Agent
hereunder shall be delivered by it to such successor
Escrow Agent as may be designated in writing by the
Sponsor, whereupon the Escrow Agent's obligations
hereunder shall cease and terminate;
(2) if no such successor Escrow Agent has
been designated by such date, all obligations of the
Escrow Agent hereunder shall, nevertheless, cease
and
<PAGE>
terminate, and the Escrow Agent's sole
responsibility thereafter shall be to keep all
property then held by it and to deliver the same to
a person designated in writing by the Underwriter or
in accordance with the directions of a final order
or judgment of a court of competent jurisdiction;
yet, if no such designation, order or judgment is
received by Escrow Agent within thirty (30) days
after its giving such resignation notice, it is
unconditionally and irrevocably authorized and
empowered to petition a court of competent
jurisdiction for directions.
M. be reimbursed by the Company at the
termination of the escrow for all reasonable costs,
fees, charges, expenses, disbursements and advances
(including, but not limited to, acceptance and
administration fees and expenses as provided in Exhibit
B hereto, as well as legal, consultant and advisor fees
and charges) incurred or made by it in accordance with
any provision of this Agreement, or as a result of the
acceptance of this Agreement.
12. All deliveries and notices to the Escrow Agent shall be
effective upon receipt by the Escrow Agent and shall be in
writing and sent or delivered to:
UMB BANK, N.A.
ATTN: Corporate Trust Division
928 Grand Avenue
P. O. Box 419226
Kansas City, MO 64141-6226
Any notice given on behalf of the Company or the
Underwriter shall be signed by one or more of the officers of
the Company or the Underwriter, as the case may be, and shall
be sufficient for all purposes hereunder.
All deliveries and notices hereunder to the Company and
the Underwriter shall be in writing and shall be sent or
delivered to:
The Company at:
DEM, Inc.
ATTN: Nathan A. Chapman, Jr.
The World Trade Center - Baltimore
401 E. Pratt Street, 28th Floor
Baltimore, MD 21202
<PAGE>
The Underwriter at:
The Chapman Company
ATTN: Nathan A. Chapman, Jr.
The World Trade Center - Baltimore
401 E. Pratt Street, 28th Floor
Baltimore, MD 21202
A copy of each delivery, notice and/or report, whether
given by the Underwriter, the Company or the Escrow Agent,
shall be simultaneously sent or delivered to each of the
other parties to this Agreement.
13. Nothing in this Agreement is intended to or shall
confer upon anyone other than the parties hereto any legal or
equitable right, remedy or claim. This Agreement shall be
construed in accordance with the laws of the State of
Missouri and may be amended or resolved only by a writing
executed by the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by or
on behalf of each of the parties hereto as of the day and
year first above written.
DEM, INC., the Company
By:/s/ NATHAN A. CHAPMAN, JR.
Title:
President___________________
THE CHAPMAN COMPANY,
the Underwriter
By:/s/ NATHAN A. CHAPMAN, JR.
Title: President__________________
UMB BANK, N.A., Escrow Agent
By: /s/ FRANK BRAMWELL_______
Title: Vice
President_______________
fdds0005
<PAGE>
EXHIBIT B
Acceptance and Annual Fee - review
escrow agreement and establish and
maintain account $1,000.00
Transaction Fees
(a) per subscriber deposit
2.00
(b) per subscriber interest payment
3.00
(c) per subscriber return of
subscription amount if
minimum amount not sold
2.00
(d) per subscriber subscription rejection
10.00
(e) per returned check
10.00
(f) per Form 1099 (Int., B or Misc.)
1.00
In addition to the specified fees, all expenses related to the
administration of the Agreement and the Escrow Account (other
than normal overhead expenses of the regular staff) such as, but
not limited to, travel, postage, shipping, courier, telephone,
facsimile, supplies, legal fees, accounting fees, etc., will be
reimbursable. The acceptance and annual fee will be payable by
DEM, Inc. at the termination of the escrow. Other fees and
expenses will be billed as incurred or at the termination of the
escrow.
CUSTODY ADMINISTRATION AND AGENCY AGREEMENT
This Agreement, dated as of the 30th day of
November, 1995 made by and between DEM, Inc. (the
"Company"), a corporation duly organized under the laws of
the state of Maryland and operating as a closed-end
management investment company registered under the
Investment Company Act of 1940, as amended, and Fund/Plan
Services, Inc. ("Fund/Plan"), a corporation duly organized
and existing under the laws of the State of Delaware
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Company desires to retain Fund/Plan
to perform certain custody administration services on behalf
of the Company; and
WHEREAS, the Company desires that Fund/Plan act as
its agent for the specific purpose of taking receipt of, and
making payment for, custody services performed on the
Company's behalf by UMB Bank, N.A. pursuant to an agreement
between UMB Bank, N.A. and the Company; and
WHEREAS, Fund/Plan is willing to serve in such
capacity and perform such functions upon the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the premises
and mutual covenants contained herein and for good and
valuable consideration, the receipt and sufficiency of which
hereby acknowledged, the Parties hereto, intending to be
legally bound, do hereby agree as follows:
<PAGE>
APPOINTMENT OF FUND/PLAN AS AGENT
Section 1. The Company hereby appoints Fund/Plan
as an agent of the Company, and Fund/Plan hereby accepts
such appointment, for the limited purpose of: (i) accepting
invoices charged to the Company for custody services
performed by UMB Bank, N.A. on the Company's behalf, and
(ii) remitting payment to UMB Bank, N.A. for such services
performed in amounts as set forth in Schedule "A" attached
hereto.
CUSTODY ADMINISTRATION SERVICES
Section 2. As Custody Administrator, Fund/Plan
shall:
a) coordinate and process portfolio trades
through terminal links with UMB Bank, N.A.
b) input and verify portfolio trades
c) monitor pending and failed security trades
d) coordinate communications between brokers and
banks to resolve any operational problems
e) advise the Company of any corporate action
information, address and follow up on any
dividend or interest discrepancies
f) process the Company's expenses
g) interface with the accounting services
provider and the transfer agent to research
and resolve custody cash problems
h) provide daily and monthly reports
2
<PAGE>
TERM and FEES
Section 3.
(a) The term of this Agreement shall be for a
period of two (2) years commencing on the date on which the
Company's registration statement is declared effective by
the U.S. Securities and Exchange Commission ("Effective
Date") and shall continue thereafter on a year to year term
subject to termination by either Party as set forth below.
(b) After the initial term of this Agreement, the
Company or Fund/Plan may give written notice to the other of
the termination of this Agreement, such termination to take
effect at the time specified in the notice, which date shall
not be less than one hundred twenty (120) days after the
date of receipt of such notice. Upon the effective
termination date, the Company shall pay to Fund/Plan such
compensation as may be due as of the date of termination and
shall likewise reimburse Fund/Plan for any out-of-pocket
expenses and disbursements reasonably incurred by Fund/Plan
to such date.
(c) If a successor to any of Fund/Plan's duties
or responsibilities under this Agreement is designated by
the Company by written notice to Fund/Plan in connection
with the termination of this Agreement, Fund/Plan shall
promptly upon such termination and at the expense of the
Company, transfer all required records and shall cooperate
in the transfer of such duties and responsibilities.
(d) The Company agrees to pay Fund/Plan
compensation for its
services and to reimburse it for expenses at the rates and
amounts as set forth in Schedule
3
<PAGE>
"A" attached hereto, and as shall be set forth in any
amendments to such Schedule "A" approved by the Company and
Fund/Plan. The Company agrees and understands that
Fund/Plan's compensation be comprised of two components,
payable on a monthly basis, as follows:
(i) a fixed fee for each series of shares of
the Company ("Series"), together with an asset based fee
which the Company hereby authorizes Fund/Plan to collect by
debiting the Company's custody account for invoices which
are rendered for the services performed for the applicable
function. The invoices for the services performed will be
sent to the Company after such debiting with the indication
that payment has been made; and
(ii) reimbursement of any out-of-pocket
expenses paid by Fund/Plan on behalf of the Company, which
out-of-pocket expenses will be billed to the Company within
the first ten calendar days of the month following the month
in which such out-of-pocket expenses were incurred. The
Company agrees to reimburse Fund/Plan for such expenses
within ten calendar days of receipt of such bill.
For the purpose of determining fees payable to
Fund/Plan, the value of a Series' net assets shall be
computed at the times and in the manner specified in the
Company's Prospectus and Statement of Additional Information
then in effect.
During the term of this Agreement, should the
Company seek services or functions in addition to those
stated, a written amendment to this Agreement specifying
4
<PAGE>
the additional services and corresponding compensation shall
be executed by both Fund/Plan and the Company.
GENERAL PROVISIONS
Section 4.
(a) Fund/Plan, its directors, officers,
employees, shareholders and agents shall only be liable for
any error of judgment or mistake of law or for any loss
suffered by the Company in connection with the performance
of this Agreement that results from willful misfeasance, bad
faith, gross negligence or reckless disregard on the part of
Fund/Plan in the performance of its obligations and duties
under this Agreement.
(b) Any person, even though also a director,
officer, employee, shareholder or agent of Fund/Plan, who
may be or become an officer, trustee, employee, or agent of
the Company, shall be deemed, when rendering services to
such entity or acting on any business of the Company (other
than services or business in connection with Fund/Plan's
duties hereunder), to be rendering such services to or
acting solely for the Company and not as a director,
officer, employee, shareholder or agent of, or one under the
control or direction of Fund/Plan even though that person is
being paid salary by Fund/Plan.
(c) Notwithstanding any other provision of this
Agreement, the Company shall indemnify and hold harmless
Fund/Plan, its directors, officers, employees, shareholders
and agents from and against any and all claims, demands,
5
<PAGE>
expenses and liabilities (whether with or without basis in
fact or law) of any and every nature which Fund/Plan may
sustain or incur or which may be asserted against Fund/Plan
by any person by reason of, or as a result of (i) any action
taken or omitted to be taken by Fund/Plan in good faith
hereunder or (ii) any action taken or omitted to be taken by
Fund/Plan in connection with its appointment under this
Agreement, which action or omission was taken in good faith
in reliance upon any law, act, regulation or interpretation
of the same even though the same may thereafter have been
altered, changed, amended, or repealed. Indemnification
under this subparagraph, however, shall not apply to actions
or omissions of Fund/Plan or its directors, officers,
employees, shareholders, or agents in cases of its or their
willful misfeasance, bad faith, gross negligence or reckless
disregard of its or their duties hereunder.
(d) Fund/Plan shall give written notice to the
Company within thirty (30) business days of receipt by
Fund/Plan of a written assertion or claim of any threatened
or pending legal proceeding which may be subject to this
indemnification. The failure to notify the Company of such
written assertion or claim shall not, however, operate in
any manner whatsoever to relieve the Company of any
liability arising under this Section or otherwise, except to
the extent that failure to give notice prejudices the
Company.
(e) For any legal proceeding giving rise to this
indemnification, the Company shall be entitled to defend or
prosecute any claim in the name of Fund/Plan at its own
expense and through counsel of its own choosing if it gives
written notice to
6
<PAGE>
Fund/Plan within thirty (30) business days of receiving
notice of such claim. Notwithstanding the foregoing,
Fund/Plan may participate in the litigation at its own
expense through counsel of its own choosing. In the event
the Company chooses to defend or prosecute such claim, the
parties shall cooperate in the defense or prosecution
thereof and shall furnish such records and other information
as are reasonably necessary.
(f) The Company shall not settle any claim under
(d) and (e) above without Fund/Plan's express written
consent, which consent shall not be unreasonably withheld.
Fund/Plan shall not settle any such claim under (d) and (e)
above without the Company's express written consent which
likewise shall not be unreasonably withheld.
Section 5. This Agreement may be amended from
time to time by a supplemental agreement executed by the
Company and Fund/Plan.
Section 6. Except as otherwise provided in this
Agreement, any notice or other communication required by or
permitted to be given in connection with this Agreement
shall be in writing, and shall be delivered in person or
sent by first class mail, postage prepaid, to the respective
parties as follows:
If to DEM, Inc.: Fund/Plan:
DEM, Inc. Fund/Plan Services, Inc.
The World Trade Center - Baltimore 2 West Elm
Street
401 East Pratt Street, 28th Floor Conshohocken, PA
19428
Attention: Nathan A. Chapman, Jr. Attention:
Kenneth J. Kempf,
President President
7
<PAGE>
Section 7. The Company represents and warrants to
Fund/Plan that the execution and delivery of this Agreement
by the undersigned officers of the Company has been duly and
validly authorized by resolution of the Board of Directors
of the Company.
Section 8. This Agreement may be executed in two
or more counterparts, each of which when so executed shall
be deemed to be an original, but such counterparts shall
together constitute but one and the same instrument.
Section 9. This Agreement shall extend to and
shall be binding upon the Parties and their respective
successors and assigns; provided, however, that this
Agreement shall not be assignable by the Company without the
written consent of Fund/Plan or by Fund/Plan without the
written consent of the Company, authorized or approved by a
resolution of their respective Board of Directors.
Section 10. This Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania and the venue
of any action arising under this Agreement shall be
Montgomery County, Commonwealth of Pennsylvania.
Section 11. No provision of this Agreement may be
amended or modified, in any manner except in writing,
properly authorized and executed by Fund/Plan and the
Company.
Section 12. If any part, term or provision of
this Agreement is held by any court to be illegal, in
conflict with any law or otherwise invalid, the remaining
portion or portions shall be considered severable and not be
affected, and the rights and obligations
8
<PAGE>
of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or
provision held to be illegal or invalid provided that the
basic Agreement is not thereby substantially impaired.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement, consisting in its entirety of six
typewritten pages, together with Schedule "A" to be signed
by their duly authorized officers, as of the day and year
first above written.
DEM, Inc. Fund/Plan Services, Inc.
/s/ NATHAN A. CHAPMAN, JR. /s/ KENNETH J. KEMPF
By: Nathan A. Chapman, Jr., President
By: Kenneth J. Kempf, President
9
<PAGE>
SCHEDULE "A"
CUSTODY AGENCY AND ADMINISTRATION FEE SCHEDULE
FOR
DEM, INC.
I. Annual Custody Fee Schedule per portfolio (1/12th
payable monthly): Subject to a minimum monthly fee of
$400, Custody Agency and Administration Fees shall be
calculated as of the last business day of the month and
payable monthly, in arrears, at the following annual
rates:
.0002 On the First $ 30
Million of Net Assets
.00015 On the Next $ 70 Million of
Net Assets
.0001 Over $100 Million of
Net Assets
II. Custody Domestic Securities Transactions Charge
Book Entry DTC, Federal Book Entry
$14.00
NOW Accounts $ 2.00
Physical Securities, Physical GNMA's, Options,
RIC's $24.50
Mortgage Backed Securities - Principal Pay Down
Per Pool $11.00
Wire Charge $
8.00
* A transaction includes Buys, Sells, Maturities
or free security movement.
III. When Issued, Securities Lending, Options, Futures:
Should any of these investment vehicles require a
separate segregated custody account, a fee of $250
per account per month will apply.
OUT-OF-POCKET EXPENSES
DEM, Inc. will reimburse Fund/Plan monthly for all out-of-
pocket expenses, including telephone, postage,
telecommunications, special reports, record retention and
copying and sending materials to independent accountants for
off-site audits.
ADDITIONAL SERVICES
To the extent DEM, Inc. commences using investment
techniques such as Futures, Security Lending, Short Sales,
Interest Rate Swaps, Futures, Leveraging, Precious Metals
and foreign securities, additional fees will apply.
Activities of a non-recurring nature such as fund
consolidations, mergers, or reorganizations will be subject
to negotiation. To the extent DEM, Inc. should decide to
10
<PAGE>
issue multiple/separate classes of shares, additional fees
will apply. Any enhanced services, programming requests or
reports will be quoted upon request.
11
Transfer Agency Services Agreement between DEM, Inc. and
Fund/Plan Services, Inc.
J:\WDATA\ADMIN\DEM\TRANSFER.AGR; Draft dated: November 15, 1995Page 1 of 14
TRANSFER AGENCY SERVICES AGREEMENT
This Agreement, dated as of the 30th day of November,
1995, made by and between DEM, Inc. (the "Company") a corporation
operating as a closed-end management investment company
registered under the Investment Company Act of 1940, as amended
(the "Act"), duly organized and existing under the laws of the
State of Maryland and Fund/Plan Services, Inc. ("Fund/Plan"), a
corporation duly organized and existing under the laws of the
State of Delaware (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Company desires to appoint Fund/Plan as
its Registrar, Transfer Agent and Dividend Disbursing Agent as
set forth in this Transfer Agency Services Agreement (the
"Agreement") and in Schedule "A" attached hereto, and to perform
certain other functions in connection with these duties; and
WHEREAS, Fund/Plan is registered with the Securities
and Exchange Commission as a Transfer Agent as required under
Section 17A(c) of the Securities Exchange Act of 1934, as
amended; and
WHEREAS, Fund/Plan is willing to serve in such capacity
and perform such functions upon the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the premises and
mutual covenants contained herein, the Parties hereto, intending
to be legally bound, do hereby agree as follows:
Section 1. The terms as defined in this Section
wherever used in this Agreement, or in any amendment or
supplement hereto, shall have the meanings herein specified
unless the context otherwise requires.
<PAGE>
Share Certificates shall mean the share certificates
representing shares of stock of the Company.
Shareholders shall mean the registered owners of the
shares of the Company in accordance with the share registry
records maintained by Fund/Plan for the Company.
Shares shall mean the issued and outstanding shares of
the Company.
Signature Guarantee shall mean the guarantee of
signatures by an "eligible guarantor institution" as defined in
rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended. Eligible guarantor institutions include banks, brokers,
dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings
associations. Broker-dealers guaranteeing signatures must be
members of a clearing corporation or maintain net capital of at
least $100,000. Signature guarantees will be accepted from any
eligible guarantor institution which participates in a signature
guarantee program.
Oral Instruction shall mean an authorization,
instruction, approval, item or set of data, or information of any
kind transmitted to Fund/Plan in person or by telephone,
telegram, telecopy or other mechanical or documentary means
lacking original signature, by a person or persons reasonably
identified to Fund/Plan to be a person or persons so authorized
by a resolution of the Board of Directors of the Company to give
Oral Instructions on behalf of the Company.
Written Instruction shall mean an authorization,
instruction, approval, item or set of data or information of any
kind transmitted to Fund/Plan in an original writing containing
an original signature or a copy of such document transmitted by
telecopy including transmission of such signature reasonably
identified to Fund/Plan to be the signature of a person or
persons so authorized by a resolution of the Board of Directors
of the Company to give Written Instructions to Fund/Plan.
<PAGE>
TRANSFER AGENCY SERVICES
Section 2. The Company shall furnish to Fund/Plan
as Transfer Agent, a sufficient supply of blank Share
Certificates and from time to time will renew such supply upon
the request of Fund/Plan. Such blank Share Certificates shall be
signed manually or by facsimile signatures of officers of the
Company authorized by law or the by-laws of the Company to sign
Share Certificates and, if required, shall bear the corporate
seal or a facsimile thereof.
Section 3. Fund/Plan, as Transfer Agent, shall make
original issues of Shares in accordance with this Agreement and
with the Company's Prospectus and Statement of Additional
Information upon the written request of the Company and upon
being furnished with (i) a certified copy of a resolution or
resolutions of the Board of Directors of the Company authorizing
such issue; (ii) an opinion of counsel as to the validity of such
additional Shares; and (iii) necessary funds for the payment of
any original issue tax applicable to such additional Shares.
Section 4. Transfers of Shares shall be registered
and new Share Certificates issued by Fund/Plan upon surrender of
outstanding Share Certificates (i) in the form deemed by
Fund/Plan to be properly endorsed for transfer, (ii) with all
necessary endorsers' signatures guaranteed pursuant to Rule 17Ad-
15 under the Securities Exchange Act of 1934, as amended, and
accompanied by, (iii) such assurances as Fund/Plan shall deem
necessary or appropriate to evidence the genuineness and
effectiveness of each necessary endorsement, and (iv)
satisfactory evidence of compliance with all applicable laws
relating to the payment or collection of taxes.
Section 5. When mail is used for delivery of Share
Certificates, Fund/Plan shall forward Share Certificates in "non-
negotiable" form by first-class mail, and Share Certificates in
"negotiable" form by registered mail, all mail deliveries to be
covered while in transit to the addressee by insurance aranged
for by Fund/Plan.
<PAGE>
Section 6. In registering transfers, Fund/Plan as
Transfer Agent, may rely upon the applicable commercial code or
any other applicable law which, in the written opinion of counsel
(a copy of which shall previously have been furnished to the
Company), protect Fund/Plan and the Company in not requiring
complete documentation, in registering transfer without inquiry
into adverse claims, in delaying registration for purposes of
such inquiry, or in refusing registration where in its judgment
an adverse claim requires such refusal.
Section 7. Fund/Plan, as Transfer Agent, may issue
new Share Certificates in place of Share Certificates represented
to have been lost, destroyed or stolen, upon receiving indemnity
satisfactory to Fund/Plan and may issue new Share Certificates in
exchange for and upon surrender of mutilated Share Certificates.
Section 8. In case any officer of the Company who
shall have signed manually or whose facsimile signature shall
have been affixed to blank Share Certificates shall die, resign
or be removed prior to the issuance of such Share Certificates,
Fund/Plan, as Transfer Agent may issue or register such Share
Certificates as the Share Certificates of the Company
notwithstanding such death, resignation or removal; and the
Company shall file promptly with Fund/Plan such approval,
adoption or ratification as may be required by law.
Section 9. Fund/Plan will maintain stock registry
records in the usual form in which it will note the issuance and
transfer of Shares and the issuance, transfer and cancellation of
Share Certificates, and is also authorized to maintain an account
entitled Unissued Certificate Account in which it will record the
Shares and fractions issued and outstanding from time to time for
which issuance of Share Certificates is deferred.
The Company is responsible to provide Fund/Plan reports
of Share purchases, redemptions, and total Shares outstanding on
the next business day after each net asset valuation. Fund/Plan
is authorized to keep records, which will be part of the stock
transfer records, in which it will note the names and registered
address of Shareholders and the number of Shares and
<PAGE>
fractions from time to time owned by them for which no Share
Certificates are outstanding. Each Shareholder will be assigned
a single account number even though Shares for which Certificates
have been issued will be accounted for separately.
Section 10. Fund/Plan shall perform the usual duties
and functions of a Stock Transfer Agent for a corporation. It
will countersign for issuance or reissuance Share Certificates
representing original issue or reissued treasury Shares as
directed by the Written Instructions of the Company and will
transfer Share Certificates registered in the name of
Shareholders from one Shareholder to another in the usual manner.
Fund/Plan may rely conclusively and without further investigation
upon any lists, instruction, certification, authorization, Share
Certificate or other instrument or paper believed by it in good
faith to be genuine and unaltered, and to have been signed,
countersigned, or executed by duly authorized person or persons,
or upon the instructions of any officer of the Company, or upon
the advice of counsel for the Company or for Fund/Plan.
Fund/Plan may record any transfer of Share Certificates which in
good faith it reasonably believes to have been duly authorized or
may refuse to record any transfer of Share Certificates if in
good faith Fund/Plan, in its capacity as Transfer Agent,
reasonably determines such refusal necessary in order to avoid
any liability either to the Company or to Fund/Plan. Fund/Plan
shall solicit from the Company or its counsel instructions as to
the disposition of Share Certificates which Fund/Plan reasonably
determines to be questionable for transfer. The Company agrees
to indemnify and hold harmless Fund/Plan from and against any and
all losses, costs, claims, and liability which it may suffer or
incur by reason of so relying or acting or refusing to act.
Section 11. In case of any request or demand for the
inspection of the Share records of the Company, Fund/Plan as
Transfer Agent shall endeavor to notify the Company and to secure
instructions as to permitting or refusing such inspection.
Fund/Plan may, however, exhibit such records to any person in any
case where it is advised by its counsel that it may be held
liable for failure to do so.
<PAGE>
DIVIDEND REINVESTMENT PLAN
Section 12. Upon the declaration of each dividend
and each capital gains distribution (all dividends and
distributions being herinafter referred to as "distributions") by
the Board of Directors of the Company, the Company shall notify
Fund/Plan of the date of such declaration, the amount payable per
share, the record date for determining the shareholders entitled
to payment, the payment date, and whether it is payable in cash,
common stock or otherwise.
Written instructions may be received from any
Shareholder that they wish to participate in the Plan thus
subjecting to the provisions of the Plan all of the shares of
capital stock then or thereafter registered to the identical name
and address of the Participant. For written notice that a
Participant wishes to withdraw from the Plan to be effective as
to any distribution, it must be received by Fund/Plan not less
than 10 days before the record date for such distribution.
Upon the termination of the Plan, Fund/Plan shall send
to the Shareholder or his transferee a stock certificate or
certificates for the whole shares remaining in the account, and
shall pay to the Shareholder an amount equal to the market value
of any fractional interest in the account based on the "market
price" of the Company's shares on the effective date of
termination.
On or before each payment date, the Company will
transfer, or will cause the Custodian to transfer to Fund/Plan in
its capacity as Dividend Disbursing Agent, the total amount of
the distribution currently payable. Fund/Plan shall credit the
appropriate shares to the Participants in the Plan. In cases
where the Shareholders have elected to receive distributions in
cash, Fund/Plan will mail distribution checks to the Shareholders
for the proper amounts payable to them.
<PAGE>
The Company shall be responsible to arrange purchases
of the Company's shares at market price in accordance with the
Plan.
FEES
Section 13. The Company agrees to pay Fund/Plan
compensation for its services and to reimburse it for expenses,
as set forth in Schedule "B" attached hereto, and as shall be set
forth in any amendments to such Schedule "B" approved by the
Company and Fund/Plan. The Company authorizes Fund/Plan to debit
the Company's custody account for invoices which are rendered for
the services performed for the applicable function. The invoices
for the service will be sent to the Company after the debiting
with the indication that payment has been made.
(ii) reimbursement of any reasonable out-of-pocket
expenses paid by Fund/Plan on behalf of the Trust, which out-of-
pocket expenses will be billed to the Trust within the first ten
calendar days of the month following the month in which such out-
of-pocket expenses were incurred. The Trust agrees to reimburse
Fund/Plan for such expenses within ten calendar days of receipt
of such bill.
During the term of this Agreement, should the Company
seek services or functions in addition to those outlined above or
in Schedule "A" attached, a written amendment to this Agreement
specifying the additional services and corresponding compensation
shall be executed by both Fund/Plan and the Company.
GENERAL PROVISIONS
Section 14. Fund/Plan shall maintain records (which
may be part of the stock transfer records) in connection with the
issuance of Shares, and the disbursement of dividends
<PAGE>
and dividend reinvestments, in which will be noted the
transactions effected for each Shareholder and the number of
Shares and fractional Shares owned by each for which no Share
Certificates
are outstanding. Fund/Plan agrees to make available upon request
and to preserve for the periods prescribed in Rule 31a-2 under
the Act, any records relating to services provided under this
Agreement which are required to be maintained by Rule 31a-1 under
the Act.
Section 15. In addition to the services as Transfer
Agent and Dividend Disbursing Agent as set forth above, Fund/Plan
will perform other services for the Company as agreed upon from
time to time, including but not limited to, preparation of and
mailing Federal Tax Information Forms and mailing semi-annual
reports to shareholders of the Company.
Section 16. Nothing contained in this Agreement is
intended to or shall require Fund/Plan in any capacity hereunder,
to perform any functions or duties on any holiday, day of special
observance or any other day on which the Custodian or the New
York Stock Exchange are closed. Functions or duties normally
scheduled to be performed on such days shall be performed on, and
as of, the next business day on which both the New York Stock
Exchange and the Custodian are open.
Section 17.
(a) Fund/Plan, its directors, officers, employees,
shareholders and agents shall only be liable for any error of
judgment or mistake of law or for any loss suffered by the
Company in connection with the performance of this Agreement that
result from willful misfeasance, bad faith, negligence or
reckless disregard on the part of Fund/Plan in the performance of
its obligations and duties under this Agreement.
(b) Any person, even though also a director, officer,
employee, shareholder or agent of Fund/Plan, who may be or become
an officer, trustee, employee, or agent of the Company shall be
deemed, when rendering services to such entity or acting on any
business of
<PAGE>
the Company (other than services or business in connection with
Fund/Plan's duties hereunder), to be rendering such services to
or acting solely for the Company and not as a director, officer,
employee, shareholder or agent of, or one under the control or
direction of Fund/Plan even though that person is being paid
salary by Fund/Plan.
(c) Notwithstanding any other provision of this
Agreement, the Company shall indemnify and hold harmless
Fund/Plan, its directors, officers, employees, shareholders or
agents from and against any and all claims, demands, expenses and
liabilities (whether with or without basis in fact or law) of any
and every nature which Fund/Plan may sustain or incur or which
may be asserted against Fund/Plan by any person by reason of, or
as a result of (i) any action taken or omitted to be taken by
Fund/Plan in good faith hereunder; (ii) any action taken or
omitted to be taken by Fund/Plan in good faith in reliance upon
any certificate, instrument, order, or stock certificate or other
document reasonably believed by it to be genuine and to be
signed, countersigned or executed by any duly authorized person,
upon the Oral Instructions or Written Instructions of an
authorized person of the Company or upon the opinion of legal
counsel to the Company, or its own counsel; or (iii) any action
taken or omitted to be taken by Fund/Plan in connection with its
appointment under this Agreement, which action or omission was
taken in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter
have been altered, changed, amended or repealed. Indemnification
under this subparagraph, however, shall not apply to actions or
omissions of Fund/Plan or its directors, officers, employees,
shareholders, or agents in cases of its or their willful
misfeasance, bad faith, negligence or reckless disregard of its
or their duties hereunder.
If a claim is made against Fund/Plan as to which
Fund/Plan may seek indemnity under this Section, Fund/Plan shall
notify the Company promptly after any written assertion of such
claim threatening to institute an action or proceeding with
respect thereto and shall notify the Company promptly of any
action commenced against Fund/Plan within ten (10) days after
Fund/Plan shall have been served with a summons or other legal
process, giving information as to the nature and basis of the
claim. Failure so to notify the Company shall not, however,
relieve
<PAGE>
the Company from any liability which it may have on account of
the indemnity under this Section 8(d) if the Company has not been
prejudiced in any material respect by such failure.
The Company shall have the sole right to control the
defense of any action, suit or proceeding in which Fund/Plan is
involved and for which indemnity is being provided by the Company
to Fund/Plan. The Company shall have the sole right to control
the settlement of any action, suit or proceeding subject to
Fund/Plan's approval, which shall not be unreasonably withheld.
Fund/Plan shall have the right, but not the obligation, to
participate in the defense or settlement of a claim or action,
with its own counsel, but any costs or expenses incurred by
Fund/Plan in connection with, or as a result of, such
participation will be borne solely by Fund/Plan. Fund/Plan shall
have the right to participate in the defense of an action or
proceeding and to retain its own counsel, and the reasonable fees
and expenses of such counsel shall be borne by the Company (which
shall pay such fees, costs and expenses at least quarterly) if:
(i) Fund/Plan has received an opinion of counsel
stating that the use of counsel chosen by the Company to
represent Fund/Plan would present such counsel with a conflict of
interest;
(ii) the defendants in, or targets of, any such
action or proceeding include both Fund/Plan and the Company, and
legal counsel to Fund/Plan shall have reasonably concluded that
there are legal defenses available to it which are different from
or additional to those available to the Company or which may be
adverse to or inconsistent with defenses available to the Company
(in which case the Company shall not have the right to direct the
defense of such action on behalf of Fund/Plan); or
(iii) the Company shall authorize Fund/Plan to
employ separate counsel at the expense of the Company.
Notwithstanding anything to the contrary herein, it is understood
that the Company shall not, in connection with any action, suit
or proceeding or related action,
<PAGE>
suit or proceeding, be liable under this Agreement for the fees
and expenses of more than one firm.
Section 18. Fund/Plan is authorized, upon receipt of
Written Instructions from the Company, to make payment upon
redemption of Shares without a signature guarantee. The Company
hereby agrees to indemnify and hold Fund/Plan, its successors and
assigns, harmless of and from any and all expenses, damages,
claims, suits, liabilities, actions, demands, losses whatsoever
arising out of or in connection with a payment by Fund/Plan upon
redemption of Shares pursuant to Written Instructions and without
a signature guarantee.
Section 19.
(a) The term of this Agreement shall be for a period
of two (2) years, commencing on the date which the Company's
registration statement is declared effective by the U.S.
Securities and Exchange Commission ("Effective Date") and shall
continue thereafter on a year to year term subject to termination
by either Party as set forth in (c) below.
(b) The fee schedule set forth in Schedule "B"
attached shall be fixed for two (2) years commencing on the
Effective Date of this Agreement.
(c) After the initial term of this Agreement, the
Company or Fund/Plan may give written notice to the other of the
termination of this Agreement, such termination to take effect at
the time specified in the notice, which date shall not be less
than one hundred twenty (120) days after the date of receipt of
such notice. Upon the effective termination date, the Company
shall pay to Fund/Plan such compensation as may be due as of the
date of termination and shall likewise reimburse Fund/Plan for
any out-of-pocket expenses and disbursements reasonably incurred
by Fund/Plan to such date.
<PAGE>
(d) If a successor to any of Fund/Plan's duties or
responsibilities under this Agreement is designated by the
Company by written notice to Fund/Plan in connection with the
termination of this Agreement, Fund/Plan shall promptly, upon
such termination and at the expense of the Company, transfer all
Required Records and shall cooperate in the transfer of such
duties and responsibilities.
Section 20. The Company shall file with Fund/Plan a
certified copy of each resolution of its Board of Directors
authorizing the execution of Written Instructions or the
transmittal of Oral Instructions, as provided in Section 1 of
this Agreement.
Section 21. This Agreement may be amended from time
to time by a supplemental agreement executed by the Company and
Fund/Plan.
Section 22. Except as otherwise provided in this
Agreement, any notice or other communication required by or
permitted to be given in connection with this Agreement shall be
in writing, and shall be delivered in person or sent by first
class mail, postage prepaid, to the respective parties as
follows:
If to the Company: If to
Fund/Plan:
DEM, Inc. Fund/Plan Services, Inc.
The World Trade Center - Baltimore 2 West Elm Street
401 E. Pratt Street, 28th Floor Conshohocken, PA 19428
Baltimore, MD 21202 Attention: Kenneth J. Kempf, President
Attention: Nathan A. Chapman, Jr.
Section 23. The Parties represent and warrant to
each other that the execution and delivery of this Agreement by
the undersigned officer of each Party has been duly and validly
authorized; and, when duly executed, this Agreement will
constitute a valid and legally binding enforceable obligation of
each Party.
<PAGE>
Section 24. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be
deemed to be an original, but such counterparts shall together
constitute but one and the same instrument.
Section 25. This Agreement shall extend to and shall
be binding upon the Parties and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Company without the written consent of
Fund/Plan or by Fund/Plan without the written consent of the
Company, authorized or approved by a resolution of their
respective Boards of Directors.
Section 26. This Agreement shall be governed by the
laws of the State of Maryland and the exclusive venue of any
action arising under this Agreement shall be Montgomery County,
Commonwealth of Pennsylvania.
Section 27. No provision of this Agreement may be
amended or modified, in any manner except in writing, properly
authorized and executed by Fund/Plan and the Company.
Section 28. If any part, term or provision of this
Agreement is held by any court to be illegal, in conflict with
any law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or
provision held to be illegal or invalid, provided that the basic
agreement is not thereby substantially impaired.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement consisting in its entirety, of eleven typewritten
pages, together with Schedules "A" and "B" to be signed by their
duly authorized officers as of the day and year first above
written.
<PAGE> <PAGE>
DEM, Inc. Fund/Plan Services, Inc.
/s/ NATHAN A. CHAPMAN,
JR. /s/ KENNETH J.
By: Nathan A. Chapman, Jr., KEMPF
President By: Kenneth J. Kempf,
President
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Schedule "A"
TRANSFER AGENCY STANDARD SERVICES
I. Shareholder File
1. Establish new accounts and enter demographic data
into shareholder base. Includes review and file
maintenance for all NSCC originated registrations and
data changes for FundServ, Networking and ACTS accounts
for compliance with Investar customer file
requirements.
2. Create Customer Information File (CIF) to link
accounts within the Fund and across funds within the
Fund Group. Facilitates account maintenance, lead
tracking, quality control, household mailings and
combined statements.
3. 100% quality control of new account information,
including verification of initial investment.
*4. Systematic linkage of shareholder accounts with
exact matches on SSN and address for the purpose of
consolidated account history reporting. Periodic
production of laser printed combined statements.
*5. Production of household mailing labels which
enable the Fund to do special mailings to each address
in the Fund Group rather than each account.
6. Maintain account and customer file records based
on shareholder request and routine quality review.
7. Maintain tax ID certification and NRA records for
each account, including backup withholding.
8. Provide written confirmation of address changes.
9. Produce shareholder statements for daily activity,
dividends, on-request, third party and periodic
mailings.
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*10. Produce shareholder lists, labels and ad hoc
reports to Fund management as requested.
11. Automated processing of dividends and capital
gains with daily, monthly, quarterly or annual
distributions. Payment options include reinvestment,
directed payment to another fund, cash via mail, Fed
wire or ACH.
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II Shareholder Services
1. Provide quality service through a staff of highly
trained NASD licensed customer service personnel,
including phone, research and correspondence
representatives.
2. Answer shareholder calls: provide routine account
information, transaction details and problem solving.
3. Silent monitoring of shareholder calls by the
phone supervisor to ensure exceptional customer
service.
4. Record and maintain tape recordings of all
shareholder calls for a six month period.
5. Phone Supervisor produces daily management reports
of shareholder calls which track volumes, length of
calls, average wait time and abandoned call rates to
ensure quality service.
6. Phone representatives are thoroughly trained
through in house training programs on the techniques of
providing exceptional customer service.
7. Customer inquiries received by letter or telephone
are thoroughly researched by a correspondence team
member. These inquires include such items as,
account/customer file information, complete historical
account information, stop payments on checks,
transaction details and lost certificates.
III. Investment Processing
1. Initial investment (checks or Fed wires).
2. Prepare and process daily bank deposit of
shareholder investments.
*3. NSCC - Fund Serv trades.
IV. Exchange & Transfer Processing
1. Process legal transfers.
2. Issue and cancel certificates.
3. Replace certificates through surety bonds
(separate charge to shareholder).
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V. Retirement Plans (only if Semper Trust is engaged as
trustee)
1. Fund sponsored IRAs offered using Semper Trust
Company as trustee. Services include:
a. Contribution processing
b. Distribution processing
c. Apply rollover transactions
d. Process Transfer of Assets
e. Letters of Acceptance to prior custodians
f. Notify IRA holders of 70 1/2 requirements
g. Calculate Required Minimum Distributions
h. Maintain beneficiary information file
i. Solicit birth date information
2. Fund sponsored SEP-IRA plans offered using Semper
Trust Company as Trustee. Services include those listed
under IRAs and:
a. Identification of employer contributions
3. Fund sponsored Qualified plans offered.
a. Plan document available
b. Omnibus/master account processing only
c. Produce annual statements
d. Process contributions
e. Process distributions
f. Process rollover and Transfer of Assets
transactions
VI. Settlement & Control
1. Daily review of processed shareholder transactions
to assure input was processed correctly.
2. Preparation of daily cash movement information to
be passed to the Fund's Accounting Agent and Custodian
Bank by 10:00 am EST.
3. Prepare a daily share reconcilement which balances
the shares on the Transfer Agent system to those on the
books of the Fund.
4. Resolve any outstanding share or cash issues that
are not cleared by trade date + 2.
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5. Process shareholder adjustments to include the
proper notification of any booking entries needed, as
well as any necessary cash movement.
6. Settlement and review of Fund's declared dividends
and capital gains to include the following:
a. Review record date report for accuracy
of shares.
b. Preparation of dividend settlement
report after dividend is posted. Verify the
posting date shares, the rate used and the NAV
price of reinvest date to ensure dividend was
posted properly.
c. Distribute copies to the Fund's
Accounting Agent.
d. Preparation of the checks prior to being
mailed.
e. Sending of any dividends via wires if
requested.
f. Preparation of cash movement information
for the cash portion of the dividend payout on
payable date.
7. Placement of stop payments on dividend and
liquidation checks as well as the issuance of their
replacements.
8. Maintain inventory control for stock certificates
and dividend check form.
9. Aggregate tax filings for all Fund/Plan clients.
Monthly deposits to the IRS of all taxes withheld from
shareholder disbursements, distributions and foreign
account distributions. Correspond with the IRS
concerning any of the above issues.
VII. Year End Processing
1. Maintain shareholder records in accordance with
IRS notices for under-reporting and invalid Tax IDs.
This includes initiating 31% backup withholding and
notifying shareholders of their tax status and the
corrective action which is needed.
2. Conduct annual W-9 solicitation of all uncertified
accounts. Update account tax status to reflect backup
withholding or certified status depending upon
responses.
3. Conduct periodic W-8 solicitation of all non-
resident alien shareholder accounts. Update account
tax status with updated shareholder information and
treaty rates for NRA tax.
4. Review IRS Revenue Procedures for changes in
transaction and distribution reporting and
specifications for the production of forms to ensure
compliance.
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5. Coordinate year end activity with client.
Activities include producing year end statements,
scheduling record dates for year dividends and capital
gains, production of combined statements, printing of
inserts to be mailed with tax forms.
6. Distribute Dividend Letter to funds for them to
sign off on all distributions paid year to date. Dates
and rates must be authorized so that they can be used
for reporting to the IRS.
7. Coordinate the ordering of form stock and
envelopes from vendor in preparation of tax reporting.
Review against IRS requirements to ensure accuracy.
8. Prepare form flashes for the microfiche vendor.
Test and oversee the production of fiche for year end
statements and tax forms.
9. Match and settle tax reporting totals to fund
records and on-line date from Investar.
10. Produce forms 1099R, 1099B, 1099Div, 5498, 1042S
and year end valuations. Quality assure forms before
mailing to shareholders.
11. Monitor IRS deadlines and special events such as
cross over dividends and prior year IRA contributions.
12. Prepare IRS magnetic tapes and appropriate forms
for the filing of all reportable activity to the
Internal Revenue Service.
VIII. Client Services
1. An Account Manager is assigned to each
relationship. The Account Manager acts as the liaison
between the Fund and the Transfer Agency staff.
Responsibilities include scheduling of events, system
enhancement implementation, special promotion/event
implementation and follow-up, and constant fund
interaction on daily operational issues.
Specifically:
a. Scheduling of dividends, proxies, report
mailing and special mailings.
b. Coordinate with the Fund the shipment of
materials for scheduled mailings.
c. Liaison between the Fund and support
services for preparation of proofs and eventual
printing of statement forms, certificates, proxy
cards, envelopes.
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d. Handle all notification regarding proxy
tabulation through the meeting. Coordinate
scheduling of materials, including voted cards,
tabulation letters, and shareholder list, to be
available for the meeting.
e. Order special reports, tapes, discs for
special systems requests received.
f. Implement new operational procedures,
e.g., check writing feature, load discounts,
minimum waivers, sweeps, telephone options, PAD
promotions.
g. Coordinate with systems, services and
operations on special events, e.g., mergers, new
fund start ups, small account liquidations,
combined statements, household mailings,
additional mail files.
h. Prepare standard operating procedures
and review prospectus for new funds and our
current client base. Coordinate implementation of
suggested changes with the Fund.
i. Liaison between the Fund and the
transfer agency staff regarding all service and
operational issues.
2. Proxy Processing (Currently one free per year)
a. Coordinate printing of cards with vendor.
b. Coordinate mailing of cards with Account
Manager and mailroom.
c. Provide daily report totals to Account
Manager for client notification.
d. Preparation of affidavit of mailing
documents.
e. Provide one shareholder list.
f. Prepare final tabulation letter.
3. Blue Sky Processing
a. Maintain file with additions, deletions,
changes and updates at the Fund's direction.
b. Provide daily and monthly reports to
enable the Fund to do necessary state filings.
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Schedule "B"
Shareholder Services and Transfer Agent Fee Schedule
for
DEM, Inc.
This Fee Schedule is fixed for a period of two (2) years from the
Effective Date
as that term is defined in the Agreement.
I. Transfer Agency - Annual Fees (1/12 payable monthly)
$22.00 per account (minimum $30,000)
II. Out of Pocket Expenses:
DEM, Inc. will reimburse Fund/Plan Services monthly for all
reasonable out-of-pocket expenses, including postage,
stationery (statements), telecommunications (telephone, fax,
dedicated 800 line, on-line access), special reports,
transmissions, records retention, tapes, couriers and any
pre-approved travel expenses.
III. Other Services Not Covered By This Agreement
Activities of a non-recurring nature including but not
limited to fund consolidations, mergers, acquisitions,
reorganizations, the addition or deletion of a series, and
shareholder meetings/proxies are not included herein, and
will be quoted separately. To the extent DEM, Inc. should
decide to make an additional offering of shares, additional
fees will apply. Any enhanced services, programming
requests or reports will be quoted upon request.
VENABLE, BAETJER AND HOWARD, LLP
1800 Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201-2978
410-244-7400
Fax: 410-244-7742
December 6, 1995
DEM, Inc.
The World Trade Center-Baltimore
401 E. Pratt Street
28th Floor
Baltimore, Maryland 21202
Re: Registration Statement on Form N-2
Ladies and Gentlemen:
We have acted as counsel for DEM, Inc., a Maryland
corporation (the "Fund"), in connection with the
organization of the Fund and the issuance of shares of its
common stock, par value $.00001 per share (the "Common
Stock").
As counsel for the Fund, we are familiar with its
Charter and Bylaws. We have examined the prospectus and
statement of additional information included in its
Registration Statement on Form N-2 (File Nos. 33-98454; 811-
9118) (the "Registration Statement"), substantially in the
form in which they are to become effective (collectively,
the "Prospectus"). We have further examined and relied
upon a certificate of the Maryland State Department of
Assessments and Taxation to the effect that the Fund is
duly incorporated and existing under the laws of the State
of Maryland and is in good standing and duly authorized to
transact business in the State of Maryland.
We have also examined and relied upon such corporate
records of the Fund and other documents and certificates
with respect to factual matters as we have deemed necessary
to render the opinion expressed herein. With respect to
the documents we have received, we have assumed, without
independent verification, the genuineness of
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all signatures, the authenticity of all documents submitted
to us as originals, and the conformity with originals of
all documents submitted to us as copies.
Based on such examination, we are of the opinion and
so advise you that:
1. The Fund is duly organized and validly existing
as a corporation in good standing under the laws
of the State of Maryland.
2. The 6,667 presently issued and outstanding shares
of Common Stock have been validly and legally
issued and are fully paid and nonassessable.
3. The 1,000,000 shares of Common Stock of the Fund
to be offered for sale pursuant to the Prospectus
are duly authorized and, when sold, issued and
paid for as contemplated by the Prospectus, will
be validly and legally issued and will be fully
paid and nonassessable.
This letter expresses our opinion with respect to the
Maryland General Corporation Law governing matters such as
due organization and the authorization and issuance of
stock. It does not extend to the securities or "blue sky"
laws of Maryland, to federal securities laws or to other
laws.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference
to us in the Registration Statement under the heading
"Legal Matters."
Very truly yours,
VENABLE, BAETJER AND HOWARD, LLP
2
CONSENT REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
use of our report and to all references to our firm included
in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Chapman Capital Management, Inc.
401 East Pratt Street
28th Floor
Baltimore, MD 21202
November 30, 1995
Board of Directors of
DEM, Inc.
401 East Pratt Street
28th Floor
Baltimore, MD 21202
Ladies and Gentleman:
On behalf of Chapman Capital Management, Inc.
("CCM"), a Maryland corporation, and, in my sole capacity as
the President of CCM, I hereby subscribe for 6,667 shares of
the Common Stock, $.00001 par value per share, of DEM, Inc.,
a Maryland corporation, at $15.00 per share for an aggregate
purchase price of $100,005. CCM's payment in full is
confirmed.
I hereby represent and agree that CCM is
purchasing these shares of stock for investment purposes,
for its own account and risk and not with a view to any
sale, division or other distribution thereof within the
meaning of the Securities Act of 1933 as amended, nor with
any present intention of distributing or selling such
shares.
Very truly yours,
CHAPMAN CAPITAL MANAGEMENT, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
Nathan A. Chapman, Jr.
President
Confirmed and Accepted:
DEM, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
Nathan A. Chapman, Jr.
President
DEM, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned
Director(s) of DEM, Inc., a Maryland corporation, hereby
constitute and appoint NATHAN A. CHAPMAN, JR., and EARL U.
BRAVO, SR. and either of them, the true and lawful agents
and attorney-in-fact of the undersigned with full power and
authority in either said agent and attorney-in-fact, to sign
for the undersigned and in their respective names as
Directors and Executive Officers of DEM, Inc., the
Registration Statement on Form N-2, and any and all further
amendments to said Registration Statement, hereby ratifying
and confirming all acts taken by such agent and attorney-in-
fact, as herein authorized.
DATE
/s/ NATHAN A. CHAPMAN, JR. November 1, 1995
Nathan A. Chapman, Jr., President,
Chairman of Board of Directors and
Director (Principal Executive Director)
/s/ RONALD A. WHITE November 2,
1995
Ronald A. White, Director,
/s/ JAMES B. LEWIS November
2, 1995
James B. Lewis, Director
/s/ LOTTIE H. SHACKELFORD November 2,
1995
Lottie H. Shackelford, Director
/s/ M. LYNN BALLARD November 2,
1995
M. Lynn Ballard
Treasurer (Principal Accounting &
Financial Officer)
DEM, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned
Director of DEM, Inc., a Maryland corporation, hereby
constitutes and appoints NATHAN A. CHAPMAN, JR., and EARL U.
BRAVO, SR. and either of them, the true and lawful agents
and attorney-in-fact of the undersigned with full power and
authority in either said agent and attorney-in-fact, to sign
for the undersigned and in his name as Director of DEM,
Inc., the Registration Statement on Form N-2, and any and
all further amendments to said Registration Statement,
hereby ratifying and confirming all acts taken by such agent
and attorney-in-fact, as herein authorized.
DATE
/s/ ROBERT L. WALLACE December 3, 1995
Robert L. Wallace, Director,
