Western Investment LLC delivered the following letter to Richard
H. Walker, General Counsel of Deutsche Bank AG, the parent company
of Deutsche Investment Management Americas Inc., which is the
investment adviser of each of DWS Enhanced Commodity Strategy Fund,
Inc. (NYSE: GCS), DWS RREEF World Real Estate & Tactical
Strategies Fund, Inc. (NYSE: DRP), DWS Global High Income Fund,
Inc. (NYSE: LBF), DWS Dreman Value Income Edge Fund, Inc. (NYSE:
DHG), DWS Multi-Market Income Trust (NYSE: KMM), DWS Strategic
Income Trust (NYSE: KST) and DWS High Income Trust (NYSE: KHI).
WESTERN INVESTMENT LLC7050
South Union Park CenterSuite 590Midvale, Utah
84047
June 9, 2010
BY HAND AND OVERNIGHT
COURIER
Richard H. WalkerGeneral CounselDeutsche Bank AG60 Wall
StreetNew York, New York 10005
Re: Deutsche Bank Closed-End Funds
Dear Mr. Walker:
I am writing to you regarding the actions of Deutsche Investment
Management Americas Inc. (“DIM”) and its affiliates (together
“Deutsche”) relating to many of the closed-end funds it manages.
Western Investment LLC (“Western Investment”) is the largest
shareholder of many of these funds and has been harmed by
Deutsche’s actions, along with other fund shareholders. We are
extremely frustrated with these funds’ generally poor performance,
excessive trading discounts to net asset value, grossly inadequate
and, in some cases, skipped stock buy backs, and most importantly,
Deutsche’s offensive disregard for even the most basic standards of
corporate governance. I am writing to you out of exasperation,
after years of futile attempts at making any progress with DIM. I
am writing to you because you are general counsel to the parent
corporation of Deutsche, responsible for the legal and compliance
departments on a global basis, and a former enforcement director
for the Securities and Exchange Commission, and I hope that your
influence could lead to a reversal of Deutsche closed-end funds’
historical and continuing disregard for fundamental tenets of good
corporate governance and shareholder democracy.
Deutsche closed-end funds have abysmal corporate governance
records for disregarding fundamental shareholder rights whenever
doing so has served Deutsche’s interests. In fund after fund there
is a laundry list of entrenchment devices employed by Deutsche to
keep Deutsche’s hand-picked board in office and those funds’
capital under Deutsch management. An example of Deutsche’s
embarrassing actions can be found at DWS Enhanced Commodity
Strategy Fund, Inc. (formerly named DWS Global Commodities Stock
Fund, Inc.) (“GCS”). At GCS’s 2008 annual meeting of shareholders,
Western Investment’s five director nominees received the vast
majority of votes by a margin of 64% to 36%. But, because GCS had
an absolute majority voting standard for the election of directors
- a threshold that is nearly impossible to attain in a contested
election – it declared that no directors were elected, so the five
Deutsche nominee incumbents who received the five lowest vote
totals were declared by the fund as the winners (“holdovers” is the
polite legal term they used) and have served as directors ever
since, without election. The absolute majority voting standard
requires that to be elected a nominee receive the affirmative vote
of a majority of the shares outstanding and entitled to vote.
Following the striking 2008 vote of no-confidence by shareholders,
GCS recognized that if it repeated this conduct in 2009, and
declared a second consecutive “failed” election, under then-current
law, any shareholder could have petitioned for GCS’ dissolution. So
rather than repeal the majority vote provision bylaw and assure
that shareholders could elect directors, GCS simply declined to
hold an annual meeting in calendar 2009. It took a lawsuit from
Western Investment to compel GCS to even schedule a shareholder
meeting in 2010.
At GCS’s 2010 annual meeting, there are eight directors up for
election. Of these eight, four of the incumbents were never even
elected by shareholders. Because GCS maintains an absolute majority
voting requirement, it is nearly certain that once again no
directors will be elected. The majority vote bylaw is designed to
make contested elections fail. You should know that Deutsche has
employed this device to keep the unpopular and unelected incumbents
in office at many of their other closed-end funds, including as
recently as May 24, 2010 at the annual shareholders meeting of DWS
Dreman Value Edge Fund, Inc. where Western Investment’s four
director nominees received the vast majority of votes by a margin
of 57% to 43%. How is that fair to shareholders? How is that
acceptable corporate governance?
It is quite obvious that the Deutsche funds are using the
absolute majority voting standard to ensure that its hand-picked
directors will serve in near perpetuity. We are not alone in
thinking that this represents an abuse and manipulation of
shareholder democracy. The proposed Wall Street reform bill, which
was recently passed by the United States Senate (S. 3217- Restoring
American Financial Stability Act of 2010), includes a provision
requiring that issuers eliminate absolute majority vote
requirements or otherwise face delisting. This means that someday
soon GCS and the other Deutsche closed-end funds may finally have
directors who are elected by the will of shareholders, rather than
incumbents who serve in perpetuity due to a legal technicality. Why
do GCS and Deutsche continue to fight U.S. policy? Must an action
be prohibited before Deutsche will discontinue it?
Not only is Deutsche’s behavior offensive, it is hypocritical.
As you may be aware, Deutsche, when wearing its investor hat, has
adopted policies and procedures that it believes are reasonably
designed to ensure that proxies are voted in the best economic
interest of its clients, in accordance with its fiduciary duties
and local regulation (the “Global Proxy Voting Guidelines”).
Perhaps it was you who designed the Global Proxy Voting Guidelines.
Ironically, and hypocritically, Deutsche has continually violated
its own Global Proxy Voting Guidelines with respect to the
closed-end funds it manages. It maintains classified board
structures at each of its funds despite its statement in the Global
Proxy Voting Guidelines that “directors should be held accountable
on an annual basis” and that “by entrenching the incumbent board, a
classified board may be used as an anti-takeover device to the
detriment of the shareholders….”
But Deutsche’s abuses do not stop with majority voting in
contested elections. GCS has also decided to deny certain
shareholders the right to vote their shares by opting into the
Maryland Control Share Acquisition Act (“MCSAA”). This, despite
Deutsche’s policy statement in the Global Proxy Voting Guidelines
that “[c]ontrol share statutes, enacted at the state level, may
harm long-term share value by entrenching management. They also
unfairly deny certain shares their inherent voting rights.”
A number of the Deutsche closed-end funds have also recently
unilaterally decided that “if an annual meeting is called for the
purpose of considering the election of Board Members, and a then
current Board Member up for election is not elected and such Board
Member’s successor is not elected and qualified, then the current
Board Member shall remain a member of the relevant class, holding
office until the annual meeting held in the third succeeding year after such annual
meeting is initially called and until the election and
qualification of such Board Member’s successor, if any, or until
such current Board Member sooner dies, resigns, retires or is
removed.” In other words, if they win they get 3-year terms, and if
they don’t win, they still get 3-year terms. Not only does such
action counter disclosure provided to shareholders in the
respective funds’ offering documents, we believe it violates the
Investment Company Act of 1940.
You should be aware that this letter does not just represent the
view of one shareholder. In a speech in November 2009, Andrew
Donohue, the Director of the SEC’s Division of Investment
Management, reviewed numerous practices taken by independent
directors of investment companies and expressed his personal views
when commenting on the legality of such practices - practices
continuously used by Deutsche for its own benefit, to the detriment
of shareholders.
- Mr. Donohue criticized the
adoption by a fund, or more particularly its board, of the MCSAA,
stating “even when state law authorizes it, [the adoption] may be
inconsistent with federal law and not in the best interest of the
fund and its shareholders.” Mr. Donohue continued, “In my view, a
provision which denies a shareholder deemed to posses ‘control
shares’ the right to vote those shares constitutes a denial of
equal voting rights and may violate the fundamental requirement
that every share of the fund’s stock be voting stock.”
- Mr. Donohue also criticized
classic entrenchment maneuvers identical to those employed by the
Deutsche directors - delaying the annual meeting and the imposition
of a requirement that the election of directors requires the
affirmative vote of a majority of outstanding shares.
- Mr. Donohue stated that “the
effect of the [meeting] delay is to postpone the ability of the
shareholders to replace the existing board.”
- He similarly noted that the
absolute majority voting rule “amounts to an anti-takeover device
that keeps the existing board in place.”
Western Investments has filed a proxy seeking the election of
its eight nominees at GCS’s long overdue 2010 annual meeting. As is
its practice, rather than address the true problem - GCS’s poor
performance and corporate failings - GCS authorized its high priced
corporate law firm to send a letter to the SEC, at shareholders’
expense, consisting of thin-skinned whining about the deserved
antagonism we direct at Deutsche and GCS’ directors in our proxy
materials. Does Deutsche, a giant international bank, really need
to ask the SEC for protection from tiny Western Investment. How
ludicrous! We encourage GCS and Deutsche to focus inward, do the
right thing for shareholders, and not continue fighting
shareholders’ inevitable rejection of Deutsche.
The time has come for Deutsche to get its funds in order. The
corporate governance abuses and the disregard of the basic tenets
of shareholder democracy have gone on long enough. We hope that you
will consider this ongoing problem and will finally listen to
shareholders and institute the corporate governance reforms at
Deutsche that shareholders demand. Deutsche cannot continue to
hide. Shareholders are watching. I will call you promptly to
discuss this matter further.
Very truly yours, WESTERN INVESTMENT
LLC
By
/s/ Arthur D. Lipson
Name:
Arthur D. Lipson
Title:
Managing Member
Dws Enhanced Commodity Strategy Fund, Inc. (NYSE:GCS)
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