<PAGE>
DEM, INC.
SEMI-ANNUAL REPORT
June 30, 1997
<PAGE>
DEM, INC.
STATEMENT OF PORTFOLIO INVESTMENTS
AS OF JUNE 30, 1997
UNAUDITED
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ----------
<C> <S> <C>
CASH AND MONEY MARKETS--6.4%
Cash $ 439,889
Fidelity U.S. Treasury Portfolio II 298,066
----------
Total cash & money markets 737,955
----------
COMMON STOCK--93.6%
Apparel--1.0%
7,000 Supreme International Corp.* 112,000
----------
Banking--10.0%
10,000 Capital Bancorp/Miami, Florida 401,250
5,500 Carver Bancorp., Inc.* 64,625
17,000 Popular, Inc. 686,375
----------
1,152,250
----------
Communications--7.1%
5,000 Digital Link Corp.* 105,625
15,000 Mastec, Inc.* 709,688
----------
815,313
----------
Consumer Products--4.1%
18,750 Movado Group, Inc. 478,125
----------
Consumer Services--1.9%
6,000 Vincam Group, Inc.* 223,500
----------
Environmental Services 2.1%
10,000 Tetra Tech, Inc.* 241,250
----------
Financial Services 1.5%
10,000 Capital Factor Holdings, Inc.* 175,000
----------
Furniture--4.9%
10,000 Ethan Allen Interiors, Inc. 570,000
----------
Healthcare--2.3%
5,000 CRA Managed Care, Inc.* 260,937
----------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
DEM, INC.
STATEMENT OF PORTFOLIO INVESTMENTS
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ----------
<S> <C> <C>
COMMON STOCK (Continued):
Media/Publishing--5.6%
15,000 BET Holdings, Inc.* 491,250
15,000 Granite Broadcasting Corp.* 153,750
----------
645,000
----------
Pharmaceuticals--3.7%
10,000 Watson Pharmaceuticals, Inc.* 422,500
----------
Retail--7.5%
15,000 CHS Electronics, Inc.* 397,500
15,000 Wet Seal, Inc.* 473,437
----------
870,937
----------
Software and Technology Service--13.0%
15,000 Autodesk, Inc. 574,688
11,500 Computer Associate International 640,406
10,000 Integrated Systems, Inc.* 117,500
4,511 Quickresponse Services* 163,524
----------
1,496,118
-----------
Technology--23.4%
25,000 ESS Technology, Inc.* 335,938
10,000 Gemstar International Group Ltd.* 183,750
20,000 Lattice Semiconductor Corp.* 1,130,000
25,000 Osicom Technologies, Inc.* 157,812
10,000 Solectron Corp.* 700,625
17,050 Trident Microsystems, Inc.* 191,812
----------
2,699,937
-----------
Textile--5.5%
20,000 Warnaco Group, Inc., Class A 637,500
----------
Total common stock 10,800,367
----------
Total investments--100.0% $ 11,538,322
----------
</TABLE>
* Non-income producing for the six months ended June 30, 1997.
The accompanying notes are an integral part of this statement.
<PAGE>
DEM, INC.
STATEMENTS OF ASSETS AND LIABILITIES
AS OF JUNE 30, 1997
UNAUDITED
<TABLE>
<S> <C>
ASSETS:
Common stock investments (Cost $9,421,718) $ 10,800,367
Cash and cash equivalents 737,955
Receivable for investments sold 158,095
Deferred organizational costs, net (Note 2) 34,775
Prepaid expenses 8,676
Accrued interest receivable 1,260
----------
Total assets 11,741,128
----------
LIABILITIES:
Accounts payable and accrued expenses 37,159
----------
Total liabilities 37,159
----------
NET ASSETS--equivalent to $14.42 per share on 811,776 shares of common stock
outstanding $ 11,703,969
----------
SUMMARY OF SHAREHOLDERS' EQUITY:
Common stock, $.00001 par value, 500,000,000 shares authorized, 811,776 shares
issued and outstanding $ 8
Additional paid-in capital 11,260,030
Accumulated net realized loss on investments (334,276)
Accumulated unrealized gain on investments 1,378,650
Overdistributed investment income, net (600,443)
----------
Net assets applicable to outstanding common stock $ 11,703,969
----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DEM, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
UNAUDITED
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income (net of withholding tax of $792) $ 13,765
Interest income (Note 2) 7,424
---------
Total investment income 21,189
---------
EXPENSES:
Management and administrative fees (Note 3) 56,223
Legal and auditing fees 30,244
Transfer agent fees 15,148
Registration fees 6,779
Directors' fees and expenses 6,542
Organizational expenses 4,967
Custodian fees 3,689
Insurance expenses 3,233
Other expenses 29,019
---------
Total expenses 155,844
---------
Net investment (loss) income (134,655)
---------
REALIZED AND UNREALIZED (LOSS) / GAIN ON INVESTMENTS:
Net realized loss on investments (747,616)
Unrealized gain on investments 1,389,321
---------
Net gain on investments 641,705
---------
Net increase in net assets resulting from operations $ 507,050
---------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DEM, INC.
STATEMENTS OF CHANGES IN NET ASSETS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
1997 (UNAUDITED) 1996
---------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment loss $(134,655) $(148,428)
Net realized (loss) /gain on investments (747,616) 413,340
Unrealized gain/(loss) on investments 1,389,321 (10,672)
----------- -----------
Net increase in net assets resulting from operations 507,050 254,240
----------- -----------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (302,022) (17,222)
----------- -----------
Net decrease in net assets resulting from distribution
to shareholders (302,022) (17,222)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Common shares issued, net of issuance costs 473,742 6,044,996
Common shares issued in reinvestment of dividends 47 338
----------- -----------
Net increase in net assets resulting from capital shares
transactions 473,789 6,045,334
----------- -----------
TOTAL INCREASE IN NET ASSETS 678,817 6,282,352
NET ASSETS, beginning of the period 11,025,152 4,742,800
----------- -----------
NET ASSETS, end of the period $11,703,969 $11,025,152
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
DEM, INC.
Financial Highlights
The following table includes selected data for a share outstanding
throughout each year and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<TABLE>
<CAPTION>
* PERIOD
SIX MONTHS ENDED FOR THE YEAR NOVEMBER 30,1995
JUNE 30, 1997 ENDED TO DECEMBER 31,
(UNAUDITED) DECEMBER 31, 1996 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period............. 14.17 13.77 13.97
--------- -------- --------
Net investment (loss)/gain................... (0.17) (0.42) 0.01
Net gain on securities (realized and
unrealized)................................ 0.80 1.15 0.00
--------- -------- --------
Total from investment operations................. 0.63 0.73 0.01
Distributions paid from:
Net investment income........................ (0.38) (0.05) 0.00
Net realized gain on investments............. 0.00 0.00 0.00
Dilutive effect of shares........................ 0.00 (0.28) (0.21)
Net asset value, end of period................... 14.42 14.17 13.77
--------- -------- --------
--------- -------- --------
Market value per share, end of period............ $ 15.00 $ 15.50 $ 15.00
Total Return..................................... 2.22%** 3.68% 0.00%
Ratios/Supplemental Data:
Net Assets, end of period (000 omitted)...... $11,704 $11,025 $ 4,743
Average commission rate paid................. 5.00% 4.38% 0.00%
Portfolio Turnover........................... 38.20% 332.60% 0.00%
Ratios to Average Net Assets:
Expenses..................................... 2.90%*** 3.21% 0.04%
Net investment income........................ -2.49%** -1.89% 1.45%
</TABLE>
- ------------------------
* Commencement of operations
** Annualized
*** Does not reflect sales load
<PAGE>
DEM, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
DEM, Inc. (the Company) was incorporated on October 20, 1995, in the
State of Maryland and is registered as a nondiversified closed-end management
investment company under the Investment Company Act of 1940, as amended.
The principal investment objective of the Company is long-term growth
through capital appreciation. Both capital appreciation and income are
considered in the selection of investments, but primary emphasis is on
capital appreciation. The Company retains maximum flexibility as to the types
of investments it may make and it is permitted to invest in portfolio
companies with large and small market capitalizations. The Company, however,
seeks 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 may be changed by the Board of Directors
without the approval of shareholders. 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.
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.
2. SIGNIFICANT ACCOUNTING POLICIES:
These statements are unaudited, and certain information and footnote
disclosures normally included in the Company's annual financial statements have
been omitted, as permitted under the applicable rules and regulations. Readers
of these statements should refer to the financial statements and notes thereto
as of December 31, 1996 and for the year then ended. The results of operations
presented in the accompanying financial statements are not necessarily
representative of operations for an entire year.
SECURITY VALUATION
Investments in securities traded on a national securities exchange (or
reported on the NASDAQ national market) are stated at the last reported sales
price on the day of valuation; other securities traded in the over-the-counter
market and listed securities for which no sale was reported on that date are
stated at the last quoted bid price.
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of funds invested in the money market
funds stated at cost which is market.
DEFERRED ORGANIZATIONAL COSTS
Costs incurred to organize the Company have been deferred and are amortized
on a straight-line basis over a five-year period starting in 1996.
INTEREST INCOME
Interest income is recorded on the accrual basis to the extent that such
amounts will be collected.
INCOME TAXES
The Company elected 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 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%).
OTHER
The Company follows industry practice and records security transactions on
the trade date. Dividend income is recognized on the ex-dividend date, and
interest income is recognized on an accrual basis. Discounts and premiums on
securities purchased are amortized over the life of the respective securities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses in the financial statements and the disclosure of contingent assets
and liabilities. While actual results could differ from those estimates,
management believes that actual results will not be materially different from
amounts provided in the accompanying financial statements.
<PAGE>
3. INVESTMENT ADVISORY AGREEMENT:
The investment adviser to the Company is Chapman Capital Management, Inc.
(the Investment Advisor and CCM). Pursuant to an Investment Advisory Agreement,
the Investment Adviser receives an advisory fee from the Company at an annual
rate of .90% of the average weekly net assets of the Company. CCM also 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.
