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Western Investment LLC v. DWS Global Commodities Stock Fund

April 5, 2010

WESTERN INVESTMENT LLC, PLAINTIFF,
v.
DWS GLOBAL COMMODITIES STOCK FUND, INC., DEFENDANT.



The opinion of the court was delivered by: Cedarbaum, J.

OPINION

Western Investment LLC ("Western Investment") sues DWS Global Commodities Stock Fund, Inc. (the "Fund") for violations of the Investment Company Act of 1940 (the "ICA"), the Maryland Control Share Acquisition Act, and the Fund's Articles of Incorporation. Western Investment seeks a preliminary injunction prohibiting the Fund from implementing the change in investment strategy disclosed by the Fund in press releases of January 20 and 29, 2010. Western Investment contends that the announced strategy represents a change in the Fund's investment objective, and therefore requires a shareholder vote pursuant to Section 13 of the ICA. For the reasons that follow, Western Investment's motion is denied.

BACKGROUND

The Fund is a closed-end investment company, organized under Maryland law in 2004. It is listed on the New York Stock Exchange under the ticker symbol "GCS." Western Investment is the Fund's largest stockholder.

In connection with its public offering, the Fund filed a registration statement (including a "Prospectus") describing its investment objectives and policies. Under the subheading "Investment Objectives," the Prospectus states:

The Fund's investment objective is capital appreciation with total return as a secondary objective. The Fund's investment objectives and certain other policies are fundamental and may not be changed without the approval of shareholders (determined as provided for in the 1940 Act). Unless otherwise indicated, the Fund's investment policies are not fundamental and may be changed by the Board of Directors without the approval of shareholders, although we have no current intention of doing so. (Prospectus at 20.) In the following subsection, entitled "Principal Investment Focus and Philosophy," the Prospectus states:

The Fund has a policy of concentrating its investments in commodities-related industries. This investment policy is not fundamental and can be changed without the approval of shareholders.

Under normal market conditions, the Fund will invest substantially all but not less than 80% of its total assets in equity and commodities-linked securities of companies in commodities-related industries or other issuers where the value of the investment is linked to changes in commodity prices or a commodities-related index, such as commodities-linked structured notes. . . . The Fund intends to invest in commodities-linked derivative instruments, in particular in structured notes. . . .

The Fund's policy of investing at least 80% of its total assets in equity and commodities-linked securities is not fundamental. If the Board of Directors of the Fund changes this non-fundamental policy to one allowing the Fund to invest less than 80% of its total assets in equity and commodities-linked securities of commodities-related companies, the Fund will provide shareholders with at least 60 days' prior notice of such change if the change has not first been approved by shareholders, which notice will comply with the 1940 Act and the regulations thereunder. (Prospectus at 20-21.) The Prospectus also explains that "[c]ommodities-linked securities of companies in commodities-related industries include commodities-linked derivative instruments, in particular structured notes, and may also include options, swaps and futures contracts." (Prospectus at 22.) The Fund has invested in a manner consistent with these policies from 2004 until the present.

On January 20, 2010, the Fund issued a press release containing the following statements: "[T]he Board of Directors has approved a change in the Fund's investment approach from a blended approach into an actively-managed direct commodity total return strategy. In conjunction with the strategy change, the Fund's investment objective will change from capital appreciation to total return."

On January 29, 2010, the Fund announced a clarification of the changes described in the press release of January 20:

The Board of Directors has approved a change in the Fund's investment approach from a blended approach involving investment in companies in commodities-related industries and direct commodity investments to an actively-managed direct commodity strategy.

The Fund will invest under normal circumstances in commodity-linked derivative instruments backed by a portfolio of fixed income securities . . . . This will replace the Fund's current investment policy of investing substantially all but not less than 80% of its total assets in equity and commodities-linked securities . . . .

The Fund's January 20, 2010 announcement incorrectly noted that the Fund's investment objective would be changing. The Fund's current investment objective of capital appreciation with total ...


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