<PAGE>
SCHEDULE 14A
(Rule 14a-101)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DEM, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
---------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
DEM, INC.
The World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
An annual meeting of stockholders of DEM, Inc. (the "Company"), will be held
at The Chapman Co., The World Trade Center-Baltimore, 28th Floor, 401 East Pratt
Street, Baltimore, Maryland, on April 23, 1998, at 11:00 A.M. local time to act
on the following matters:
1. Election of Class I and Class III directors to serve until 2001 and
2000, respectively, and until their successors are elected and
qualify;
2. Approval of the Investment Advisory and Administrative Services
Agreement between the Company and Chapman Capital Management, Inc.;
3. Approval of a change in the Company's fundamental policies to remove
the investment restriction against investment in "restricted
securities";
4. Ratification of the selection of Arthur Andersen LLP as certified
independent auditors for the Company; and
5. Such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 24, 1998, are
entitled to notice of and to vote at such meeting or any adjournments thereof.
<TABLE>
<S> <C>
March 24, 1998 Earl U. Bravo, Sr.
Secretary
</TABLE>
Please mark, sign and date the enclosed proxy and return it promptly in the
enclosed envelope. If you attend the meeting and wish to vote in person, you may
revoke your proxy.
<PAGE>
DEM, INC.
The World Trade Center-Baltimore
28th Floor
401 East Pratt Street
Baltimore, Maryland 21202
PROXY STATEMENT
Annual Meeting of Stockholders
April 23, 1998
The enclosed proxy is solicited by the Board of Directors of DEM, Inc. (the
"Company") for use at the annual meeting of stockholders of the Company to be
held at the offices of The Chapman Co., The World Trade Center-Baltimore, 28th
Floor, 401 East Pratt Street, Baltimore, Maryland, on April 23, 1998, at 11:00
A.M. local time. This Proxy Statement and form of Proxy were first mailed to
stockholders on March 25, 1998.
Proxies will be solicited by mail and may be solicited in person or by
telephone by directors, officers and employees of the Company. Nominees will,
upon request, be supplied with additional proxy materials and will be reimbursed
by the Company for their reasonable expenses in sending these materials to their
principals. The cost of printing and mailing this notice and proxy statement and
proxy form and of soliciting proxies will be borne by the Company.
Management knows of no business to be brought before the meeting except as
set forth in the notice of the meeting. If any other matters should come before
the meeting, the persons named in the enclosed form of proxy intend to vote on
such matters in accordance with their best judgment.
A stockholder may revoke his proxy by notifying the Company in writing prior
to the meeting, by subsequently executing another proxy or by attending the
meeting and giving oral notice of revocation to the Chairman of the meeting.
Stockholders are urged to return their proxies promptly in order to ensure
action by a quorum and to avoid the expense of additional solicitation.
The Company will furnish, without charge, a copy of the Annual Report to
Stockholders dated December 31, 1997 to any stockholder upon request. Any such
request should be directed to Lisa Fullagar, DEM, Inc., The World Trade
Center-Baltimore, 28th Floor, 401 East Pratt Street, Baltimore, Maryland 21202,
telephone (800) 752-1013.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, to the Company's knowledge, the name, the
number of shares and the percentage of the outstanding shares of the Company
owned beneficially by each person who owned beneficially 5% or more of the
outstanding shares on February 28, 1998, the latest practicable date. No shares
of the Company are beneficially owned by any director, director nominee or
executive officer of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER TOTAL SHARES %
- ---------------------------------------------------------------------------------------- ---------------- ---------
<S> <C> <C>
Memphis Retirement System 252,536 21.98%
125 North Main Street, Room 368
Memphis, TN 38103-2017
Policemen & Firemen Retirement 250,000 21.76%
System of the City of Detroit
908 City-County Building
Detroit, MI 48226
Shelby County Retirement System 202,451 17.62%
160 North Mid-Atlantic Mall, Suite 950
Memphis, TN 38103
Potomac Electric Power Company 134,967 11.75%
1900 Pennsylvania Avenue, N.W.
Washington, DC 20068-0001
Texaco--Harrison Capital, Inc. 101,225 8.81%
2000 Westchester Avenue
White Plains, NY 10650
Philadelphia Gas Works 60,000 5.22%
Retirement Reserve Fund
1310 Municipal Services Building
1401 JFK Boulevard
Philadelphia, PA 19102
</TABLE>
Stockholders of record at the close of business on March 24, 1998, are
entitled to vote at the meeting ("Record Date"). On the Record Date the Company
had 1,148,776 outstanding shares of Common Stock. Stockholders of the Company
are entitled to one vote for each share held and will vote as a single class on
each matter to be considered at the meeting. The presence in person or by proxy
of the holders of one-third of the shares entitled to vote at the meeting is
required to constitute a quorum for the transaction of business.
2
<PAGE>
1. ELECTION OF DIRECTORS
Three directors are to be elected at the meeting. The Board of Directors has
nominated the persons named below for election as directors.
Nominees for Directors to serve until the 2001 Annual Meeting (Class I)
Dr. Glenda Glover James B. Lewis
Nominees for Directors to serve until the 2000 Annual Meeting (Class III)
Dr. Benjamin Hooks
Unless directed to the contrary, proxies will be voted for the election of
such nominees. Each nominee has consented to the nomination and has agreed to
serve if elected. If any of the nominees should not be available for election,
the persons named as proxies may vote for other persons in their discretion. The
Board of Directors has no reason to believe that any of the nominees will be
unable or unwilling to serve if elected.
The name and age, positions held with the Company and principal occupation
for the past five years of each director, nominee for election as director and
executive officer of the Company are set forth below:
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
POSITION(S)
HELD WITH PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS REGISTRANT AGE DURING PAST 5 YEARS
- ----------------------------------- ----------------------------------- --- -----------------------------------
<S> <C> <C> <C>
Class I Directors to serve until the 2001 Annual Meeting
James B. Lewis Nominee for 50 City Administrator/Manager,
401 E. Pratt St., 28th Floor Director; Director City of Rio Rancho, New
Baltimore, MD 21202 since 1995 Mexico since March 1996,
Chief Clerk--State
Corporation Commission from
April 1995 to March 1996,
Chief of Staff, Office of
the Governor from Jan. 1991
to April 1995. New Mexico
State Treasurer, December
1985 to January 1991. County
Treasurer, Bernadillo County
1982-1985. Director of The
Chapman Funds, Inc.
Dr. Glenda Glover Nominee for 45 Dean of School of Business,
401 E. Pratt St., 28th Floor Director; Director since 1997 Jackson State University
Baltimore, MD 21202 since 1994. Chairperson of
Accounting Department, Howard
University from 1990 through 1994.
</TABLE>
3
<PAGE>
Class II Directors to serve until the 1999 Annual Meeting
<TABLE>
<S> <C> <C> <C>
Lottie H. Shackelford Director since 1995 56 Executive Vice President of
401 E. Pratt St., 28th Floor Global USA since 1994.
Baltimore, MD 21202 Independent Consultant, City
Director of the City of
Little Rock, Arkansas from
1978 through 1995. Director of
The Chapman Funds, Inc. (an
open-end investment company
managed by the Company's
investment adviser). Director of
Chapman Holdings, Inc. since 1997
Robert L. Wallace Director since 1995 41 President since 1993 of the
401 E. Pratt St., 28th Floor BITH Group, Inc. Senior Vice
Baltimore, MD 21202 President of ECS Technology,
Inc. from 1992 to 1993.
Assistant Vice President
Maryland National Bank from
1990 to 1992. Author "Black
Wealth Through Black
Entrepreneurship."
Class III Directors to serve until the 2000 Annual Meeting
*Nathan A. Chapman, Jr. President, Chairman of the 40 President and Director since
401 E. Pratt St., 28th Floor Board of Directors and 1986 of The Chapman Co. and
Baltimore, MD 21202 Director since 1995 President and Director of
Chapman Capital Management, Inc.
since 1988. President and
Director of The Chapman
Funds, Inc. (an open-end
investment company managed
by the Company's investment
adviser) since 1988.
President and Director of
Chapman Holdings, Inc.
Ronald A. White Director since 1995 48 President, Ronald A. White,
401 E. Pratt St., 28th Floor P.C., a law firm, since
Baltimore, MD 21202 1982. Director of The
Chapman Funds, Inc.
*Dr. Benjamin Hooks Nominee for 72 Senior Vice President of the
401 E. Pratt St., 28th Floor Director; Director Chapman Co., since May 1993.
Baltimore, MD 21202 since 1997 Executive Director of the
NAACP from 1977 to April
1993. Director of The
Chapman Funds, Inc.
4
<PAGE>
Earl U. Bravo, Sr. Vice President and Secretary 50 Secretary and Assistant
401 E. Pratt St., 28th Floor since 1995 and Assistant Treasurer of The Chapman Co.
Baltimore, Maryland 21202 Treasurer since 1997 since 1997. Secretary and
Assistant Treasurer of The
Chapman Funds, Inc. since
1997. Senior Vice President,
Secretary, Assistant
Treasurer and Director of
Chapman Holdings, Inc. since
1997.
M. Lynn Ballard Treasurer since 1995 and 55 Controller since 1988 and
401 E. Pratt St., 28th Floor Assistant Secretary since Treasurer and Assistant
Baltimore, Maryland 21202 1997 Secretary since 1997 of The
Chapman Co. Treasurer since
1990, Controller since 1995
and Assistant Secretary
since 1997 of Chapman
Capital Management, Inc.
Treasurer since 1988 and
Assistant Secretary since
1997 of The Chapman Funds,
Inc. Treasurer, Secretary
and Controller of Chapman
Holdings, Inc. since 1997.
</TABLE>
* Directors deemed to be "interested persons" of the Company for purposes of
the Investment Company Act of 1940, as amended (the "1940 Act"), are
indicated by an asterisk. In addition to the positions indicated with the
Company's advisor and distributor, Mr. Chapman is a controlling stockholder
of Chapman Holdings, Inc. and Chapman Capital Holdings, Inc., the holding
companies of the Company's distributor and advisor, respectively.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM FUND AND
AGGREGATE BENEFIT ACCRUED ANNUAL FUND COMPLEX
NAME OF PERSON COMPENSATION AS PART OF FUND BENEFITS UPON PAID TO
POSITION FROM FUND EXPENSES RETIREMENT DIRECTORS
- --------------------------------------------------- ------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Nathan A. Chapman, Jr.
Director and President $ -0- $ -0- $ -0- $ -0-
Dr. Glenda Glover
Director $ 1,000 -0- -0- $ 1,000
Dr. Benjamin Hooks
Director $ 1,000 -0- -0- $ 5,000
James B. Lewis
Director $ 4,000 -0- -0- $ 8,000
Lottie H. Shackelford
Director $ 4,000 -0- -0- $ 8,000
Ronald A. White
Director $ 3,000 -0- -0- $ 6,000
5
<PAGE>
Robert L. Wallace
Director $ 3,000 $ -0- $ -0- $ 3,000
</TABLE>
No executive officer of the Company receives any compensation from the
Company. The Board of Directors of the Company met four times during the fiscal
year ended December 31, 1997. Ms. Shackelford and Mr. Lewis each attended four
meetings. Messrs. Wallace and White each attended three meetings. Dr. Glover and
Dr. Hooks each attended one meeting after their appointments as directors of the
Company at a Board of Directors meeting held on July 18, 1997. Messrs. Lewis,
Wallace and White and Dr. Glover and Ms. Shackelford are members of the Audit
Committee of the Board of Directors.
Directors of the Company, who are not executive officers of the Company,
receive from the Company a fee of $1,000 for each Board of Directors meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at meetings.
No director or executive officer of the Company owns beneficially any shares
of the Company. All of the outstanding voting equity securities of Chapman
Capital Management, Inc., the Company's investment advisor, are held by Chapman
Capital Holdings, Inc. Mr. Chapman owns 92% of the outstanding voting securities
of Chapman Capital Holdings, Inc. Mr. Chapman also owns approximately 62% of the
outstanding voting securities of Chapman Holdings, Inc., the holding company of
the Company's distributor, The Chapman Co.
If a quorum is present, a plurality of the votes cast at the meeting is
required for election of a director. Abstentions and broker non-votes will not
constitute a vote "for" or "against" any matter but will be counted toward a
quorum.
The Board of Directors recommends a vote FOR election of each of the
nominees named above as a director of the Corporation.
2. APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT
Chapman Capital Management, Inc., The World Trade Center--Baltimore, 28th
Floor, 401 East Pratt Street, Baltimore, MD 21202 (the "Advisor"), has acted as
the investment advisor and administrator for the Company pursuant to an advisory
and administrative services agreement dated November 30, 1995 which was approved
by the directors of the Company at a meeting on November 17, 1995 and by the
sole stockholder of the Company pursuant to a written consent action dated
December 1, 1995. At a meeting held on February 11, 1998, a majority of the
Company's directors who are not "interested persons" of the Company for purposes
of the 1940 Act with concurrence of a majority of the Board of Directors,
approved a revised advisory and administrative services agreement with the
Advisor (the "Advisory Agreement"), subject to ratification by the stockholders.
6
<PAGE>
THE ADVISOR
As of February 26, 1998, the Advisor is a wholly-owned subsidiary of Chapman
Capital Holdings, Inc. Mr. Chapman owns approximately 92% of the outstanding
voting securities of Chapman Capital Holdings, Inc.
The name, address and principal occupation of the principal executive
officer and each director of the Advisor are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME AND ADDRESS OFFICE DURING PAST FIVE YEARS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. President, Chairman of the Board of See "ELECTION OF DIRECTORS."
401 E. Pratt St., 28th Floor Directors and Director
Baltimore, MD 21202
M. Lynn Ballard Treasurer, Assistant Secretary and See "ELECTION OF DIRECTORS."
401 E. Pratt St., 28th Floor Controller
Baltimore, MD 21202
Theron Stokes Director Attorney for the Alabama Education
401 E. Pratt St., 28th Floor Association.
Baltimore, MD 21202
Earl U. Bravo Director, Secretary and Assistant See "ELECTION OF DIRECTORS."
401 E. Pratt St., 28th Floor Treasurer
Baltimore, MD 21202
</TABLE>
Mr. Chapman is President and a Director of the Company. Ms. Ballard is the
Treasurer and Assistant Secretary of the Company. Mr. Bravo is the Vice
President, Secretary and Assistant Treasurer of the Company
TERMS OF THE ADVISORY AGREEMENT
The following summary of the Advisory Agreement is not intended to be a
complete description and is qualified by reference to the terms of the Advisory
Agreement, a copy of which is attached hereto as Annex A.
Under the terms of the Advisory Agreement, the Advisor is responsible for
supervision and management of the Company's operations and formulation and
implementation of the investment polices of the Company under the supervision of
the Board of Directors. The Advisor is also responsible for administration of
the Company, including executive management, office facilities and
administrative services.
Pursuant to the Advisory Agreement, the Advisor receives from the Company
both an advisory fee at an annual rate of .90% of the Company's average weekly
net assets during the preceding month and an
7
<PAGE>
administrative fee of .15% of the Company's average weekly net assets during
the preceding month.
The Advisor has agreed to bear all expenses in connection with the
performance of its advisory and administrative services. The Company bears all
other expenses incurred in its operations. The expenses the Company pays include
the Advisor's management and administration fees, taxes, fees of its directors
who are not officers, cost of directors' meetings, fees payable to the
Securities and Exchange Commission, state securities qualification fees, costs
of preparing and printing prospectuses for existing stockholders, fees and
expenses of the custodian and transfer agent, certain insurance costs, auditing
and legal expenses, costs of stockholder reports and meetings and any
extraordinary expenses. The Company also pays for brokerage fees and commissions
in connection with the purchase and sale of portfolio securities.
For the period January 1, 1997 to December 31, 1997, the Advisor received
management and administrative fees of $117,740 and $19,624, respectively, from
the Company. These amounts include administrative amounts paid by the Advisor to
others for administrative services with respect to the Company.
The Advisory Agreement provides that the Advisor and other persons who
assist the Advisor in providing services to the Company will not be liable for
any error of judgment, mistake of law or for any loss suffered by the Company
and the Company will indemnify the Advisor and such other persons who may assist
the Advisor in providing services to the Company against liability incurred by
them in providing service to the Company, except for willful misfeasance, bad
faith or gross negligence of the Advisor or such other persons in the
performance of duties or reckless disregard or obligations and duties.
Unless sooner terminated, the Advisory Agreement will continue in effect
until December 29, 1999 and from year to year thereafter if such continuance is
approved at least annually by the Company's Board of Directors or by a vote of
the majority of the outstanding shares of the Company, and, in either case, by a
majority of the Directors who are not parties to the Advisory Agreement or
interested persons, as defined in the 1940 Act, of any party, by votes cast in
person at a meeting called for such purpose. The Advisory Agreement may be
terminated by the Company or the Advisor on 60 days' written notice, and will
terminate immediately in the event of its assignment.
The Advisory Agreement provides that if the Advisor ceases to be the
Company's investment advisor, the Company will change its name to a name
which does not include "DEM," "Domestic Emerging Markets" or "Chapman" at the
Advisor's request. The Advisory and Administrative Services Agreement dated
November 31, 1995 (the "Existing Advisory Agreement") contained a provision
only as to the use of the "Chapman" name. In addition, as required by the
1940 Act, the Advisory Agreement provides that the books and records
maintained by the Advisor pursuant to the Advisory Agreement are the property
of the Company and will be surrendered to the
8
<PAGE>
Company promptly on its request. The Existing Advisory Agreement did not
contain such a provision. In all other material respects, the terms of the
Advisory Agreement are the same as the terms of the Existing Advisory
Agreement.
PORTFOLIO TRANSACTIONS
The Advisor is responsible for decisions to buy or sell securities and the
selection of broker-dealers for the Company subject to policies adopted by the
Company's Board of Directors. Portfolio securities may be purchased directly
from the issuer or from a dealer serving as market maker or may be purchased in
broker's transactions. If securities are sold prior to maturity, they may be
sold directly to an issuer or dealer or in broker's transactions. When
securities are purchased or sold directly from or to an issuer, no commissions
or discounts are paid. The price paid to or received from a dealer for a
security may include a spread between bid and asked prices. When securities are
purchased or sold in a broker's transaction, a commission will be paid.
The Company's policy for placing orders for purchases and sales of
securities for the Company is to give primary consideration to obtaining the
most favorable price and efficient execution of transactions.
The Chapman Co. may effect brokerage transactions for the Company when it is
able to provide a net price and execution at least as favorable to the Company
as those determined to be available from unaffiliated brokers or dealers. The
commissions paid to The Chapman Co. on transactions for the Company may not
exceed those charges by The Chapman Co. to comparable unaffiliated clients in
similar transactions or the limits set forth in rules adopted by the Securities
and Exchange Commission. The Board of Directors of the Company has adopted
procedures, which it will review annually, intended to ensure compliance with
these limitations. The procedures require that The Chapman Co. report each
transaction to the Company and that the Board of Directors determine at least
quarterly that all transactions effected by The Chapman Co. have been effected
in accordance with such procedures.
During the period January 1, 1997 to December 31, 1997, the total purchases
and sales (excluding maturities) of the Company were $12,541,502, all of which
were transacted through The Chapman Co. During such period The Chapman Co.
received compensation of $22,872 for portfolio transactions executed on behalf
of the Company. Such compensation represented 100% of the Company's aggregate
brokerage commissions.
When comparable price and execution can be obtained from more than one
broker or dealer, consideration may be given to placing portfolio transactions
with those brokers or dealers who also furnish research and other services to
the Company or the Advisor. These services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to investments,
9
<PAGE>
evaluations of portfolio securities, and research related computer software
or hardware. These services may benefit the Advisor in the management of
accounts of other clients and may not benefit the Company directly. While
such services are useful and important in supplementing its own research,
the Advisor believes the value of such services is not determinable and does
not significantly reduce its expenses. The fees payable to the Advisor will
not be reduced by the value of such services.
The Advisor and its affiliates deal, trade and invest for its own account in
the types of securities in which the Company may invest and may have
relationships with the issuers of securities purchased by the Company.
Investment decisions for the Company are made independently from those for
other accounts advised by the Advisor. The Advisor's other accounts may also
invest in the same securities as the Company. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Company
and another account, the transaction will be averaged as to price, and available
instruments allocated as to amount, in a manner believed to be equitable to the
Company and/or account. In some instances, this procedure may adversely affect
the price paid or received by a Company or the size of the position obtained or
sold by a Company. To the extent permitted by law, the securities to be sold or
purchased for a Company may be aggregated with those to be sold or purchased for
the other Company or accounts in order to obtain the best execution.
In approving the Advisory Agreement at its meeting on February 11, 1998, the
Board of Directors considered, among other factors, the nature and extent of the
services to be performed by the Advisor, the Advisor's experience in providing
such services to investment companies and to the Company, the fees to be paid to
the Advisor, the other terms of the Advisory Agreement, and the financial
condition of the Advisor.
The approval of the Advisory Agreement requires the vote of either (i) the
holders of 67% or more of the shares of the Company present at the Meeting, if
the holders of over 50% of the outstanding shares of the Company are present or
represented by proxy, or (ii) the vote of holders of over 50% of the outstanding
shares of the Company, whichever is less.
If the Advisory Agreement is not approved by the stockholders, the Board of
Directors will consider what actions it should take, including the substitution
of a new advisor.
The Board of Directors recommends that the stockholders vote FOR approval of
the Advisory Agreement.
10
<PAGE>
3. CHANGES TO FUNDAMENTAL POLICIES
The Company currently has a fundamental policy prohibiting it from investing
in restricted securities as defined in Rule 144 under the Securities Act of 1933
(the "1933 Act"). In order to achieve maximum investing flexibility in pursuing
its principal investment objective of aggressive long-term growth through
investment in Domestic Emerging Markets that it believes are positioned for
growth, the Company wishes to remove this investment restriction. This change
will, in turn, permit the Company to invest in non-publicly traded securities,
such as those of privately-held companies or private placements of public
companies, as well as private venture capital funds.
Set forth below is a description of these revised investment policies
concerning restricted and other non-publicly traded securities, including a
description of the risk factors inherent in such investments. Upon approval by
the stockholders of the Company, this new investment policy will become
effective immediately.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES
If the stockholders approve the removal of the Company's fundamental policy
prohibiting the Company from investing in restricted securites as defined in
Rule 144 under the 1933 Act, the Board of Directors currently intends to adopt a
policy that the Company may not invest more than 15% of its net assets in
illiquid securities, including securities that are illiquid by virtue of the
absence of a readily available market and securities that are restricted
securities as defined in Rule 144 under the Securities Act ("Illiquid
Securities"). Illiquid Securities include securities which have not been
registered under the Securities Act, sometimes referred to as private
placements, and are purchased directly from the issuer or in the secondary
market. The Company will seek to invest in the securities of private companies
that the Investment Advisor believes have the potential for above average
capital appreciation, in anticipation of their initial public offering.
Investment companies do not typically hold a significant amount of restricted
securities or other Illiquid Securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and an investment company
might be unable to dispose of restricted or other Illiquid Securities promptly
or at reasonable prices. An investment company might also be required to
register Illiquid Securities in order to dispose of them, resulting in
additional expense and delay. Adverse market conditions could impede a public
offering of such securities.
Although the Company's management believes that investments in Illiquid
Securities offer the opportunity for significant capital gains, these
investments involve a high degree of business and financial risk that can result
in substantial losses in the portion of the Company's portfolio invested in
these investments. Among these are the risks associated with companies in an
early stage of development or with little or no operating history, companies
operating at a loss or with substantial variation in operating results from
period to period, companies with the need for substantial
11
<PAGE>
additional capital to support expansion or to maintain their competitive
positions, or companies with significant financial leverage. Such companies
may also face intense competition from others including those with greater
financial resources or more extensive development, manufacturing,
distribution or other attributes, over which the Company will have no control.
PRIVATE FUNDS
If the stockholders approve the removal of the Company's fundamental
policy prohibiting the Company from investing in restricted securities as
defined in Rule 144 under the 1933 Act, the Board of Directors currently
intends to adopt a policy that, as an alternative to direct investments in
Illiquid Securities, the Company may invest up to 10% of its assets in
private venture capital funds including United States private limited
partnerships or other investment funds ("Private Funds") that themselves
invest in Illiquid Securities. Although investments in Private Funds offer
the opportunity for significant capital gains, these investments involve a
high degree of business and financial risk that can result in substantial
losses in the portion of the Company's portfolio invested in these
investments. Among these are the risks associated with investment in
companies in an early stage of development or with little or no operating
history, companies operating at a loss or with substantial variation in
operating results from period to period, companies with the need for
substantial additional capital to support expansion or to maintain a
competitive position, or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources or more extensive development, manufacturing,
distribution or other attributes, over which the Company will have no control.
Interests in the Private Funds in which the Company may invest will be
subject to substantial restrictions on transfer and, in some instances, may be
non-transferable for a period of years. Private Funds may participate in only a
limited number of investments and, as a consequence, the return of a particular
Private Fund may be substantially adversely affected by the unfavorable
performance of even a single investment. Certain of the Private Funds in which
the Company may invest may pay their investment managers a fee based on the
performance of the Company, which may create an incentive for the manager to
make investments that are riskier or more speculative than would be the case if
the manager was paid a fixed fee. Private Funds are not registered under the
1940 Act and, consequently, are not subject to the restrictions on affiliated
transactions and other protections applicable to regulated investment companies.
The valuation of companies held by Private Funds, the securities of which are
generally unlisted and illiquid, may be very difficult and will often depend on
the subjective valuation of the managers of the Private Funds, which may prove
to be inaccurate. Inaccurate valuations of a Private Fund's portfolio holdings
may affect the Company's net asset value calculations.
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To the extent that these Private Funds are investment companies for
purposes of the 1940 Act, the Company's ability to invest in them will be
limited to, subject to certain exceptions, (i) 3% of the total voting stock
of any one investment company, (ii) 5% of total assets with respect to any
one investment company and, (iii) 10% of the Company's total assets in the
aggregate. The securities of Private Funds will typically themselves be
classified as Illiquid Securities by the Board of Directors. Accordingly, the
Company's total investment in Illiquid Securities, including Private Funds,
is limited to 15% of the Company's net assets with no more than 10% of the
Company's net assets invested in Private Funds.
The foregoing investment limitations are not fundamental policies and may be
changed by the Board of Directors of the Company without shareholder approval,
subject to the provisions of the 1940 Act.
The approval of the changes in the Company's fundamental policies requires
the vote of either (i) the holders of 67% or more of the shares of the Company
present at the Meeting, if the holders of 50% of the outstanding shares of the
Company are present or represented by proxy, or (ii) the vote of holders of over
50% of the outstanding shares of the Company, whichever is less.
The Board of Directors recommends that the stockholders vote FOR approval of
the changes to the Company's fundamental policies.
4. SELECTION OF INDEPENDENT AUDITORS
Arthur Andersen LLP served as independent auditors of the Company for its
fiscal year ended December 31, 1997. Arthur Andersen LLP has no direct or
material indirect interest in the Company, Chapman Capital Management, Inc.,
Chapman Capital Holdings, Inc., The Chapman Co. or Chapman Holdings, Inc. At
a meeting held on February 11, 1998, a majority of the Company's Directors
who are not interested persons of the Company, with the concurrence of a
majority of the Board of Directors, selected Arthur Andersen LLP as
independent auditors of the Company for the current fiscal year, subject to
ratification by the stockholders.
The Board of Directors of the Company has determined that utilizing the
services of Arthur Andersen LLP, who have experience in auditing mutual funds,
is in the best interests of the Company.
Arthur Andersen LLP is not currently expected to have a representative
present at the meeting and, therefore, will not make a statement or respond to
questions at the meeting.
The affirmative vote of a majority of the shares voted at the meeting,
assuming a quorum is present, is required to ratify the selection of auditors.
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The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of Arthur Andersen LLP as independent auditors of
the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that the Company's directors and executive officers, and persons who own more
than 10% of a registered class of the Company's equity securities, file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of change in ownership of Common Stock of the Company. The
same persons are also required by Commission regulation to furnish the Company
with copies of all Section 16(a) forms that they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, and written representations that no other
reports were required during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to the Company's executive officers
and directors were complied with. With respect to greater than 10% beneficial
owners, the Company has not received copies of any reports filed by such persons
with the Commission and has received no written representations from such
persons.
ADDITIONAL INFORMATION
The Chapman Co., The World Trade Center--Baltimore, 28th Floor, 401 East
Pratt Street, Baltimore, Maryland 21202, acts as the Company's principal
underwriter.
STOCKHOLDER PROPOSALS
All stockholder proposals intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company at the address set forth
on the first page of this Proxy Statement not later than November 24, 1998 for
inclusion in the Company's proxy statement and proxy relating to that meeting.
It is suggested that proposals be forwarded by certified mail, return receipt
requested.
March 24, 1998
-------------------------------
Earl U. Bravo, Sr.
Secretary
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ANNEX A
ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT
DEM, INC.
The World Trade Center--Baltimore
401 East Pratt Street, 28th Floor
Baltimore, Maryland 21202
April , 1998
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
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(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 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.
3
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9. Term. This Agreement shall continue with respect to the Company until
December 29, 1999 and thereafter shall continue automatically for successive
annual periods ending on the anniversary of such date, 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," "Domestic Emerging Markets" and "DEM" Names. 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
names "Chapman," "Domestic Emerging Markets" or "DEM" as part of their names.
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," "Domestic Emerging Markets" or "DEM" in any form or combination of
words.
11. Record Keeping and Other Information. You will create and maintain all
records required of you pursuant to your duties hereunder in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. All such records will be the property of the Company and
will be available upon request of the Company for inspection, copying and use by
the Company and will be surrendered to the Company promptly upon demand of the
Company. Where applicable, such records will be maintained by you for the
periods and in the places required by Rule 31a-2 under the 1940 Act. Upon
termination of this Agreement, you will promptly surrender all such records to
the Company or such person as the Company may designate.
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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:
----------------------------------------
Nathan A. Chapman, Jr.,
Chairman and President
Accepted:
CHAPMAN CAPITAL MANAGEMENT, INC.
By:
----------------------------------
Nathan A. Chapman, Jr.,
President
5
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DEM, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The Undersigned hereby appoints Nathan A. Chapman, Jr. and Earl U. Bravo,
Sr., or either of them, the proxy or proxies of the undersigned with full powers
of substitution, to vote all shares of Common Stock of DEM, Inc. held of record
by the undersigned at the close of business on March 24, 1998, at the Annual
Meeting of Stockholders of the Company to be held on Thursday, April 23, 1998 at
11:00 a.m., local time and at any adjournment or adjournments thereof, upon the
matters set forth herein.
PLEASE MARK YOUR CHOICE IN BLUE OR BLACK INK, PLEASE SIGN,
DATE AND RETURN THIS PROXY PROMPTLY USING THE ACCOMPANYING ENVELOPE
/ x / Please mark If properly executed, the shares represented by
votes as in this proxy will be voted in the manner
this example directed herein by the undersigned stockholder,
or to the extent directions are not given,
such shares will be voted FOR each of the nominees
and each other proposal.
The Board of Directors recommends a vote "FOR" the nominees listed below and
a vote "FOR" Proposal 2, 3, 4 and 5.
1. ELECTION OF DIRECTORS.
Nominees: Class I: Glenda Glover and James B. Lewis
Class III: Dr. Benjamin Hooks
/ / FOR ALL NOMINEES LISTED (EXCEPT AS / / WITHHOLD AUTHORITY FOR
INDICATED) ALL NOMINEES LISTED
To withhold authority to vote for any nominee, write that nominee's name in the
space provided.
- --------------------------------------------------------------------------------
For Against Abstain
2 APPROVAL OF THE INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENT / / / / / /
BETWEEN DEM, INC. AND CHAPMAN CAPITAL
MANAGEMENT, INC.
3 APPROVAL OF CHANGE IN FUNDAMENTAL
POLICIES CONCERNING RESTRICTED SECURITIES. / / / / / /
4 RATIFICATION OF APPOINTMENT OF ARTHUR / / / / / /
ANDERSEN LLP AS INDEPENDENT AUDITORS.
5 IN THEIR DISCRETION, THE PROXIES ARE
AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS / / / / / /
AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF.
MARK HERE FOR ADDRESS
- ---------------------- CHANGE AND NOTE SUCH CHANGE
AT LEFT / /
- ----------------------
Please sign. Persons acting in a fiduciary capacity should so indicate.
PLEASE NOTE any change of address and supply any missing Zip Code number.
Signature: Date:
---------------------- --------------------------
Signature: Date:
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