UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSRS
Investment Company Act file number: 811-04257
DWS Variable Series I
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue
New York, NY 10154-0004
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (201) 593-6408
Paul Schubert
100 Plaza One
Jersey City, NJ 07311
(Name and Address of Agent for Service)
| Date of fiscal year end: | 12/31 |
| | |
| Date of reporting period: | 6/30/2011 |
| ITEM 1. | REPORT TO STOCKHOLDERS |
| | |
JUNE 30, 2011
SEMIANNUAL REPORT
DWS VARIABLE SERIES I
DWS Bond VIP
Contents
4 Information About Your Fund's Expenses 13 Statement of Assets and Liabilities 14 Statement of Operations 15 Statement of Changes in Net Assets 17 Notes to Financial Statements 24 Summary of Management Fee Evaluation by Independent Fee Consultant |
This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund's objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.
Bond investments are subject to interest-rate and credit risks. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investments in lower-quality and non-rated securities present greater risk of loss than investments in higher-quality securities. Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. See the prospectus for details.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary June 30, 2011
Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns.
The gross expense ratio of the Fund, as stated in the fee table of the prospectus dated May 1, 2011 is 0.59% for Class A shares and may differ from the expense ratio disclosed in the Financial Highlights table in this report.
| Growth of an Assumed $10,000 Investment |
[] DWS Bond VIP — Class A [] Barclays Capital US Aggregate Bond Index | The Barclays Capital US Aggregate Bond Index is an unmanaged, market-value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index. |
| |
| Yearly periods ended June 30 | |
| Comparative Results |
| DWS Bond VIP | 6-Month‡ | 1-Year | 3-Year | 5-Year | 10-Year |
| Class A | Growth of $10,000 | $10,291 | $10,495 | $10,235 | $11,038 | $13,853 |
| Average annual total return | 2.91% | 4.95% | 0.78% | 1.99% | 3.31% |
| Barclays Capital US Aggregate Bond Index | Growth of $10,000 | $10,272 | $10,390 | $12,065 | $13,715 | $17,481 |
| Average annual total return | 2.72% | 3.90% | 6.46% | 6.52% | 5.74% |
The growth of $10,000 is cumulative.
‡ Total returns shown for periods less than one year are not annualized.
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and other Fund expenses. Examples of transaction costs include contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (January 1, 2011 to June 30, 2011).
The tables illustrate your Fund's expenses in two ways:
•Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
• Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended June 30, 2011 | |
| Actual Fund Return | | Class A | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,029.10 | |
| Expenses Paid per $1,000* | | $ | 3.17 | |
| Hypothetical 5% Fund Return | | Class A | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,021.67 | |
| Expenses Paid per $1,000* | | $ | 3.16 | |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
| Annualized Expense Ratio | Class A |
| DWS Variable Series I — DWS Bond VIP | .63% |
For more information, please refer to the Fund's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 6/30/11 | 12/31/10 |
| | | |
| Corporate Bonds | 31% | 31% |
| Mortgage-Backed Securities Pass-Throughs | 23% | 28% |
| Government & Agency Obligations | 15% | 21% |
| Commercial Mortgage-Backed Securities | 10% | 9% |
| Cash Equivalents | 9% | 2% |
| Municipal Bonds and Notes | 6% | 5% |
| Collateralized Mortgage Obligations | 4% | 4% |
| Asset-Backed | 2% | — |
| | 100% | 100% |
Quality (Excludes Cash Equivalents and Securities Lending Collateral) | 6/30/11 | 12/31/10 |
| | | |
| US Government & Treasury Obligations | 35% | 47% |
| AAA | 8% | 5% |
| AA | 6% | 5% |
| A | 12% | 10% |
| BBB | 24% | 17% |
| BB or Below | 12% | 14% |
| Not Rated | 3% | 2% |
| | 100% | 100% |
| Interest Rate Sensitivity | 6/30/11 | 12/31/10 |
| | | |
| Effective Maturity | 7.1 years | 7.3 years |
| Effective Duration | 5.1 years | 4.9 years |
Effective maturity is the weighted average of the bonds held by the Fund taking into consideration any available maturity shortening features.
Effective duration is an approximate measure of the Fund's sensitivity to interest rate changes taking into consideration any maturity shortening features.
Asset allocation, quality and interest rate sensitivity are subject to change.
The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Fund's credit quality does not remove market risk.
For more complete details about the Fund's investment portfolio, see page 7.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. The Fund's portfolio holdings are also posted on www.dws-investments.com from time to time. Please see the Fund's current prospectus for more information.
Investment Portfolio June 30, 2011 (Unaudited) | | Principal Amount ($) (a) | Value ($) |
| | |
| Corporate Bonds 36.4% |
| Consumer Discretionary 10.0% |
| AMC Entertainment, Inc., 8.75%, 6/1/2019 | 900,000 | 949,500 |
| CBS Corp., 5.9%, 10/15/2040 | 600,000 | 574,280 |
| CCO Holdings LLC: |
| | 6.5%, 4/30/2021 | 1,050,000 | 1,035,562 |
| | 7.0%, 1/15/2019 | 1,300,000 | 1,339,000 |
| DIRECTV Holdings LLC, 6.35%, 3/15/2040 | 815,000 | 857,309 |
| Home Depot, Inc., 5.4%, 9/15/2040 | 420,000 | 400,480 |
| JC Penney Co., Inc., 5.65%, 6/1/2020 | 1,100,000 | 1,089,000 |
| Levi Strauss & Co., 7.625%, 5/15/2020 | 1,200,000 | 1,200,000 |
| MGM Resorts International, 9.0%, 3/15/2020 | 550,000 | 602,250 |
| NBCUniversal Media LLC: |
| | 144A, 5.15%, 4/30/2020 | 500,000 | 527,951 |
| | 144A, 5.95%, 4/1/2041 | 350,000 | 355,912 |
| Norcraft Companies LP, 10.5%, 12/15/2015 | 100,000 | 101,500 |
| Royal Caribbean Cruises Ltd., 7.25%, 6/15/2016 | 750,000 | 806,250 |
| Time Warner Cable, Inc., 7.3%, 7/1/2038 | 40,000 | 46,497 |
| Time Warner, Inc.: |
| | 6.2%, 3/15/2040 | 400,000 | 409,791 |
| | 7.625%, 4/15/2031 | 400,000 | 479,911 |
| Yum! Brands, Inc., 3.875%, 11/1/2020 | 465,000 | 451,361 |
| | 11,226,554 |
| Consumer Staples 2.4% |
| Anheuser-Busch InBev Worldwide, Inc., 7.75%, 1/15/2019 | 750,000 | 943,533 |
| CVS Caremark Corp., 5.75%, 5/15/2041 | 245,000 | 240,893 |
| Kraft Foods, Inc., 5.375%, 2/10/2020 | 1,000,000 | 1,093,198 |
| Kroger Co., 5.4%, 7/15/2040 | 375,000 | 360,351 |
| | 2,637,975 |
| Energy 4.2% |
| DCP Midstream LLC, 144A, 9.75%, 3/15/2019 | 480,000 | 627,348 |
| Enterprise Products Operating LLC, 6.125%, 10/15/2039 | 460,000 | 467,794 |
| Kinder Morgan Energy Partners LP: |
| | 6.5%, 9/1/2039 | 500,000 | 519,190 |
| | 6.95%, 1/15/2038 | 210,000 | 228,082 |
| ONEOK Partners LP, 6.15%, 10/1/2016 | 557,000 | 640,909 |
| Plains All American Pipeline LP, 8.75%, 5/1/2019 | 450,000 | 566,109 |
| Reliance Holdings USA, Inc., 144A, 4.5%, 10/19/2020 | 650,000 | 607,308 |
| Weatherford International Ltd., 5.125%, 9/15/2020 | 700,000 | 714,715 |
| Williams Partners LP, 4.125%, 11/15/2020 | 300,000 | 287,968 |
| | 4,659,423 |
| | Principal Amount ($) (a) | Value ($) |
| | |
| Financials 11.9% |
| American Express Co., 7.0%, 3/19/2018 | 800,000 | 941,470 |
| Bank of America Corp., 5.75%, 12/1/2017 | 710,000 | 754,927 |
| Bunge Ltd. Finance Corp., 4.1%, 3/15/2016 | 205,000 | 213,542 |
Citigroup, Inc., 5.375%, 8/9/2020 | 1,000,000 | 1,043,563 |
| CNA Financial Corp., 5.75%, 8/15/2021 | 598,000 | 617,489 |
| Fifth Third Bancorp., 5.45%, 1/15/2017 | 751,000 | 804,413 |
| Ford Motor Credit Co., LLC, 7.0%, 4/15/2015 | 900,000 | 972,143 |
| General Electric Capital Corp., 5.3%, 2/11/2021 | 465,000 | 483,852 |
Hartford Financial Services Group, Inc., 5.95%, 10/15/2036 | 300,000 | 282,485 |
| International Lease Finance Corp., 5.75%, 5/15/2016 | 395,000 | 388,963 |
| JPMorgan Chase & Co., 5.125%, 9/15/2014 | 1,000,000 | 1,080,648 |
| KeyCorp, 5.1%, 3/24/2021 | 800,000 | 814,794 |
| Lincoln National Corp., 8.75%, 7/1/2019 | 500,000 | 630,949 |
| MetLife, Inc., Series A, 6.817%, 8/15/2018 | 400,000 | 468,342 |
Morgan Stanley, 5.75%,1/25/2021 | 485,000 | 490,737 |
| Nationwide Financial Services, Inc., 144A, 5.375%, 3/25/2021 | 227,000 | 228,008 |
| Nordea Bank AB, 144A, 4.875%, 5/13/2021 | 440,000 | 422,563 |
PNC Bank NA, 6.875%, 4/1/2018 | 200,000 | 235,729 |
| Prudential Financial, Inc.: |
| | 6.2%, 1/15/2015 | 100,000 | 111,953 |
| | 7.375%, 6/15/2019 | 120,000 | 142,309 |
| Red Arrow International Leasing PLC, "A", 8.375%, 6/30/2012 RUB | 602,122 | 21,798 |
| Royal Bank of Scotland PLC, 6.125%, 1/11/2021 | 300,000 | 307,534 |
| SunTrust Banks, Inc., 3.6%, 4/15/2016 | 185,000 | 186,795 |
| The Goldman Sachs Group, Inc., 6.0%, 6/15/2020 | 800,000 | 860,790 |
| Toll Brothers Finance Corp., 8.91%, 10/15/2017 | 200,000 | 234,397 |
Wells Fargo & Co., 4.6%, 4/1/2021 | 585,000 | 588,248 |
| | 13,328,441 |
| Health Care 2.5% |
| Amgen, Inc., 5.65%, 6/15/2042 | 179,000 | 179,290 |
| Express Scripts, Inc., 7.25%, 6/15/2019 | 720,000 | 861,166 |
McKesson Corp., 4.75%, 3/1/2021 | 475,000 | 492,896 |
| Quest Diagnostics, Inc.: |
| | 4.7%, 4/1/2021 | 650,000 | 665,364 |
| | 6.4%, 7/1/2017 | 500,000 | 576,886 |
| | 2,775,602 |
| | Principal Amount ($) (a) | Value ($) |
| | |
| Industrials 1.5% |
| CSX Corp.: |
| | 6.15%, 5/1/2037 | 400,000 | 428,323 |
| | 6.25%, 3/15/2018 | 800,000 | 923,066 |
| Republic Services, Inc., 5.7%, 5/15/2041 | 310,000 | 302,628 |
| | 1,654,017 |
| Information Technology 0.4% |
| Applied Materials, Inc., 5.85%, 6/15/2041 | 500,000 | 507,140 |
| Materials 2.0% |
| ArcelorMittal, 6.125%, 6/1/2018 | 500,000 | 535,539 |
| Corporacion Nacional del Cobre — Codelco, REG S, 7.5%, 1/15/2019 | 600,000 | 723,723 |
| Dow Chemical Co., 4.25%, 11/15/2020 | 455,000 | 444,059 |
| United States Steel Corp., 7.375%, 4/1/2020 (b) | 550,000 | 565,125 |
| | 2,268,446 |
| Telecommunication Services 0.2% |
| Verizon Communications, Inc., 4.6%, 4/1/2021 | 224,000 | 231,122 |
| Utilities 1.3% |
| DTE Energy Co., 7.625%, 5/15/2014 | 152,000 | 175,449 |
| Energy Future Competitive Holdings Co., 7.48%, 1/1/2017 | 26,811 | 22,957 |
| FirstEnergy Solutions Corp., 6.8%, 8/15/2039 | 367,000 | 381,634 |
| Majapahit Holding BV, REG S, 7.75%, 10/17/2016 | 100,000 | 115,884 |
| Sempra Energy, 6.5%, 6/1/2016 | 650,000 | 752,759 |
| | 1,448,683 |
Total Corporate Bonds (Cost $39,117,204) | 40,737,403 |
| |
| Mortgage-Backed Securities Pass-Throughs 26.0% |
| Federal Home Loan Mortgage Corp.: |
| | 5.5%, with various maturities from 10/1/2023 until 8/1/2024 | 324,152 | 353,047 |
| | 5.504%*, 2/1/2038 | 386,000 | 412,784 |
| | 6.5%, 3/1/2026 | 669,200 | 756,357 |
| | 7.0%, 1/1/2038 | 103,869 | 117,855 |
| Federal National Mortgage Association: | |
| | 3.193%*, 8/1/2037 | 112,941 | 118,105 |
| | 3.5%, 9/1/2025 (c) | 2,500,000 | 2,545,312 |
| | 4.0%, with various maturities from 11/1/2039 until 9/1/2040 (c) | 5,479,216 | 5,482,161 |
| | 4.5%, 3/1/2039 (c) | 5,500,000 | 5,690,352 |
| | 5.0%, with various maturities from 2/1/2021 until 8/1/2040 (c) | 5,972,143 | 6,346,535 |
| | 5.124%*, 9/1/2038 | 172,065 | 181,905 |
| | 5.36%*, 1/1/2038 | 459,715 | 486,961 |
| | 5.5%, with various maturities from 12/1/2032 until 4/1/2037 | 2,224,331 | 2,412,272 |
| | 6.0%, with various maturities from 4/1/2024 until 3/1/2025 | 688,603 | 766,197 |
| | 6.5%, with various maturities from 3/1/2017 until 12/1/2037 | 772,314 | 869,492 |
| | 8.0%, 9/1/2015 | 13,376 | 14,516 |
| | Principal Amount ($) (a) | Value ($) |
| | |
| Government National Mortgage Association, 4.5%, 7/1/2039 (c) | 2,375,000 | 2,506,553 |
Total Mortgage-Backed Securities Pass-Throughs (Cost $28,587,538) | 29,060,404 |
| |
| Asset-Backed 2.1% |
| Student Loans |
| Nelnet Student Loan Trust: |
| | "A1", Series 2007-1, 0.267%*, 11/27/2018 | 1,030,369 | 1,016,859 |
| | "A4", Series 2006-1, 0.349%*, 11/23/2022 | 1,375,000 | 1,349,601 |
Total Asset-Backed (Cost $2,369,621) | 2,366,460 |
| |
| Commercial Mortgage-Backed Securities 12.0% |
| Banc of America Commercial Mortgage, Inc.: | |
| | "A5A", Series 2005-4, 4.933%, 7/10/2045 | 1,600,000 | 1,706,746 |
| | "A4", Series 2006-3, 5.889%, 7/10/2044 | 975,000 | 1,072,106 |
| Bear Stearns Commercial Mortgage Securities, Inc., "A4", Series 2007-PW18, 5.7%, 6/13/2050 | 700,000 | 760,860 |
| Citigroup/Deutsche Bank Commercial Mortgage Trust, "A5", Series 2006-CD3, 5.617%, 10/15/2048 | 625,000 | 678,394 |
| Commercial Mortgage Pass-Through Certificates, "A4", Series 2007-C9, 6.008%*, 12/10/2049 | 1,000,000 | 1,098,380 |
| Greenwich Capital Commercial Funding Corp., "A4", Series 2007-GG9, 5.444%, 3/10/2039 | 1,000,000 | 1,072,696 |
| JPMorgan Chase Commercial Mortgage Securities Corp.: | |
| | "A4", Series 2005-CB12, 4.895%, 9/12/2037 | 1,500,000 | 1,614,196 |
| | "A4", Series 2006-CB16, 5.552%, 5/12/2045 | 640,000 | 696,971 |
| | "F", Series 2007-LD11, 6.005%*, 6/15/2049 | 650,000 | 82,584 |
| | "G", Series 2007-LD11, 144A, 6.005%*, 6/15/2049 | 760,000 | 62,487 |
| | "H", Series 2007-LD11, 144A, 6.005%*, 6/15/2049 | 460,000 | 25,211 |
| LB-UBS Commercial Mortgage Trust: | |
| | "A3", Series 2006-C7, 5.347%, 11/15/2038 | 1,750,000 | 1,883,854 |
| | "E", Series 2005-C2, 5.522%*, 4/15/2015 | 500,000 | 402,481 |
| | "A4", Series 2007-C6, 5.858%, 7/15/2040 | 490,000 | 531,624 |
| Merrill Lynch Mortgage Trust, "ASB", Series 2007-C1, 6.02%*, 6/12/2050 | 590,000 | 633,030 |
| Wachovia Bank Commercial Mortgage Trust: | |
| | "A4", Series 2005-C22, 5.44%*, 12/15/2044 | 950,000 | 1,029,659 |
| | "H", Series 2007-C32, 144A, 5.932%*, 6/15/2049 | 770,000 | 92,862 |
Total Commercial Mortgage-Backed Securities (Cost $15,328,358) | 13,444,141 |
| |
| | Principal Amount ($) (a) | Value ($) |
| | |
| Collateralized Mortgage Obligations 4.5% |
| Countrywide Home Loans, "A2", Series 2006-1, 6.0%, 3/25/2036 | 581,620 | 484,340 |
| CS First Boston Mortgage Securities Corp., "10A3", Series 2005-10, 6.0%, 11/25/2035 | 156,178 | 97,928 |
| Federal Home Loan Mortgage Corp., "PE", Series 2898, 5.0%, 5/15/2033 | 335,000 | 364,523 |
| Federal National Mortgage Association: |
| | ''IO", Series 2010-143, Interest Only, 5.0%, 12/25/2025 | 5,252,220 | 640,463 |
| | "EG", Series 2005-22, 5.0%, 11/25/2033 | 750,000 | 820,546 |
| | "TC", Series 2007-77, 5.5%, 9/25/2034 | 370,000 | 401,555 |
| Government National Mortgage Association: | |
| | "IU", Series 2010-164, Interest Only, 2.0%, 12/20/2013 | 2,895,453 | 111,937 |
| | "MI", Series 2010-85, Interest Only, 4.5%, 1/20/2036 | 1,896,849 | 246,278 |
| | "GI", Series 2010-89, Interest Only, 4.5%, 5/20/2039 | 1,274,662 | 247,665 |
| | "EI", Series 2010-134, Interest Only, 4.5%, 11/20/2039 | 663,894 | 131,437 |
| | "DI", Series 2011-40, Interest Only, 4.5%, 12/20/2040 | 3,444,248 | 559,766 |
| | "IM", Series 2010-87, Interest Only, 4.75%, 3/20/2036 | 1,871,268 | 263,902 |
| | "IA", Series 2010-58, Interest Only, 5.0%, 3/20/2039 | 2,368,596 | 509,165 |
| | "KI", Series 2010-130, Interest Only, 5.5%, 9/16/2040 | 431,484 | 74,778 |
| MASTR Alternative Loans Trust, "8A1", Series 2004-3, 7.0%, 4/25/2034 | 12,218 | 11,651 |
Total Collateralized Mortgage Obligations (Cost $5,069,523) | 4,965,934 |
| |
| Government & Agency Obligations 17.6% |
| Sovereign Bonds 6.8% |
| Eskom Holdings Ltd., REG S, 5.75%, 1/26/2021 | 400,000 | 413,000 |
| Kingdom of Morocco, REG S, 4.5%, 10/5/2020 EUR | 625,000 | 825,074 |
| Republic of Argentina: |
| | GDP Linked Note, Zero Coupon, 12/15/2035 (d) | 410,000 | 72,160 |
| | 8.28%, 12/31/2033 | 658,639 | 581,249 |
Republic of Egypt, 9.1%, 9/20/2012 EGP | 230,000 | 37,861 |
| Republic of EL Salvador, REG S, 8.25%, 4/10/2032 | 40,000 | 44,700 |
| Republic of Lithuania, REG S, 5.125%, 9/14/2017 | 200,000 | 205,750 |
| Republic of Panama: |
| | 5.2%, 1/30/2020 | 425,000 | 466,225 |
| | 7.125%, 1/29/2026 | 220,000 | 271,150 |
| | 7.25%, 3/15/2015 | 80,000 | 94,240 |
| Republic of Poland, 6.375%, 7/15/2019 | 310,000 | 354,175 |
| Republic of Serbia, REG S, 6.75%, 11/1/2024 | 463,500 | 465,818 |
| Republic of South Africa, 6.25%, 3/8/2041 | 600,000 | 643,500 |
| | Principal Amount ($) (a) | Value ($) |
| | |
| Republic of Sri Lanka, 144A, 6.25%, 10/4/2020 | 825,000 | 825,000 |
| Republic of Venezuela, REG S, 7.75%, 10/13/2019 | 1,000,000 | 722,500 |
| Russian Federation, 144A, 5.0%, 4/29/2020 | 1,600,000 | 1,654,000 |
| | 7,676,402 |
| US Treasury Obligations 10.8% |
| US Treasury Bill, 0.135%**, 9/15/2011 (e) | 969,000 | 968,959 |
| US Treasury Bonds: |
| | 4.75%, 2/15/2037 | 2,000,000 | 2,139,688 |
| | 5.375%, 2/15/2031 | 1,000,000 | 1,172,031 |
| | 7.125%, 2/15/2023 | 5,000,000 | 6,771,875 |
| US Treasury Note, 0.875%, 1/31/2012 | 1,000,000 | 1,004,375 |
| | 12,056,928 |
Total Government & Agency Obligations (Cost $19,507,061) | 19,733,330 |
| |
| Loan Participations and Assignments 0.3% |
| Sovereign Loans |
| Gazprom, 144A, 8.125%, 7/31/2014 | 205,000 | 233,187 |
| Russian Agricultural Bank, REG S, 7.75%, 5/29/2018 | 100,000 | 114,500 |
Total Loan Participations and Assignments (Cost $302,858) | 347,687 |
| |
| Municipal Bonds and Notes 6.7% |
| California, University Revenues, Build America Bonds, 5.946%, 5/15/2045 (f) | 420,000 | 395,295 |
| Gwinnett County, GA, Development Authority Revenue, Gwinnett Stadium Project, 6.4%, 1/1/2028 (f) | 655,000 | 730,738 |
| Jicarilla, NM, Sales & Special Tax Revenue, Apache Nation Revenue, 144A, 5.2%, 12/1/2013 (f) | 410,000 | 408,585 |
| Kentucky, Asset/Liability Commission, General Fund Revenue, 3.165%, 4/1/2018 (f) | 1,300,000 | 1,305,941 |
| Los Angeles, CA, Community Development Agency Tax Allocation Revenue, Adelante Eastside Project, Series C, 6.49%, 9/1/2037, INS: Radian (f) | 315,000 | 258,149 |
| Louisville & Jefferson County, KY, Metropolitan Sewer District & Drain Systems, Build America Bonds, 6.25%, 5/15/2043 (f) | 400,000 | 419,384 |
| Nashville & Davidson County, TN, Metropolitan Government, Convention Center Authority Revenue, Build America Bonds, Series B, 6.731%, 7/1/2043 (f) | 400,000 | 418,436 |
| New Jersey, Economic Development Authority Revenue, Series B, 6.5%, 11/1/2013, INS: AGC (f) | 860,000 | 949,724 |
| Port Authority New York & New Jersey, One Hundred Fiftieth Series, 4.75%, 9/15/2016 (f) | 930,000 | 1,022,014 |
| Rhode Island, Convention Center Authority Revenue, Civic Center, Series A, 6.06%, 5/15/2035, INS: AGMC (f) | 515,000 | 507,862 |
| | Principal Amount ($) (a) | Value ($) |
| | |
| Virgin Islands, Port Authority Marine Revenue, Series B, 5.08%, 9/1/2013, INS: AGMC (f) | 755,000 | 767,420 |
| Washington, Central Puget Sound Regional Transit Authority, Sales & Use Tax Revenue, Series A, 5.0%, 11/1/2036 | 285,000 | 290,950 |
Total Municipal Bonds and Notes (Cost $7,238,521) | 7,474,498 |
| | Shares | Value ($) |
| | |
| Securities Lending Collateral 0.3% |
| Daily Asset Fund Institutional 0.13% (g) (h) (Cost $371,700) | 371,700 | 371,700 |
| |
| | Shares | Value ($) |
| | |
| Cash Equivalents 10.0% |
| Central Cash Management Fund, 0.11% (g) (Cost $11,215,052) | 11,215,052 | 11,215,052 |
| | | % of Net Assets | | | Value ($) | |
| | | | |
Total Investment Portfolio (Cost $129,107,436)+ | | | 115.9 | | | | 129,716,609 | |
| Other Assets and Liabilities, Net | | | (15.9 | ) | | | (17,781,104 | ) |
| Net Assets | | | 100.0 | | | | 111,935,505 | |
* These securities are shown at their current rate as of June 30, 2011. Floating rate securities' yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate.
** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $129,126,228. At June 30, 2011, net unrealized appreciation for all securities based on tax cost was $590,381. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $3,555,693 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $2,965,312.
(a) Principal amount stated in US dollars unless otherwise noted.
(b) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at June 30, 2011 amounted to $359,625, which is 0.3% of net assets.
(c) When-issued or delayed delivery security included.
(d) Security is linked to Argentine Republic Gross Domestic Product (GDP). Security does not pay principal over life of security or at expiration. Payments are based on growth of Argentina GDP, subject to certain conditions.
(e) At June 30, 2011, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(f) Taxable issue.
(g) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(h) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
AGC: Assured Guaranty Corp.
AGMC: Assured Guaranty Municipal Corp.
GDP: Gross Domestic Product
INS: Insured
Interest Only: Interest Only (IO) bonds represent the "interest only" portion of payments on a pool of underlying mortgages or mortgage-backed securities. IO securities are subject to prepayment risk of the pool of underlying mortgages.
Radian: Radian Asset Assurance, Inc.
REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, US persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.
Included in the Fund are investments in mortgage- or asset-backed securities, which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal Home Loan Mortgage Corp. and Federal National Mortgage Association issues have similar coupon rates and have been aggregated for presentation purposes in the investment portfolio.
At June 30, 2011, open futures contracts sold were as follows:
| Futures | Currency | Expiration Date | | Contracts | | | Notional Value ($) | | | Unrealized Appreciation (Depreciation) ($) | |
| 10 Year US Treasury Note | USD | 9/21/2011 | | | 169 | | | | 20,673,453 | | | | 181,406 | |
| Federal Republic of Germany Euro-Bund | EUR | 9/8/2011 | | | 39 | | | | 7,096,626 | | | | (14,117 | ) |
| Total net unrealized appreciation | | | | 167,289 | |
As of June 30, 2011, open credit default swap contracts purchased were as follows:
| Effective/ Expiration Date | | Notional Amount ($) | | | Fixed Cash Flows Paid | | Reference Entity | | Value ($) | | | Upfront Payments Paid/ (Received) ($) | | | Unrealized Depreciation ($) | |
3/21/2011 6/20/2016 | | | 5,700,000 | 1 | | | 1.00 | % | Markit CDX.NA.IG Index | | | (23,341 | ) | | | (2,679 | ) | | | (20,662 | ) |
Counterparty:
1 Citigroup, Inc.
As of June 30, 2011, the Fund had the following open forward currency exchange contracts:
| Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Appreciation ($) | | Counterparty |
| EUR | | | 625,000 | | USD | | | 912,681 | | 7/28/2011 | | | 7,067 | | Citigroup, Inc. |
| RUB | | | 800,000 | | EUR | | | 28,646 | | 7/28/2011 | | | 81 | | JPMorgan Chase Securities, Inc. |
| Total unrealized appreciation | | | | | 7,148 | |
| Currency Abbreviations |
EGP Egyptian Pound EUR Euro RUB Russian Ruble USD United States Dollar |
For information on the Fund's policy and additional disclosures regarding futures contracts, credit default swap contracts and forward foreign currency exchange contracts, please refer to Note B in the accompanying Notes to Financial Statements.
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of June 30, 2011 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.
| Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | |
| Fixed Income Investments (i) | |
| Corporate Bonds | | $ | — | | | $ | 40,737,403 | | | $ | — | | | $ | 40,737,403 | |
| Mortgage-Backed Securities Pass-Throughs | | | — | | | | 29,060,404 | | | | — | | | | 29,060,404 | |
| Asset-Backed | | | — | | | | 2,366,460 | | | | — | | | | 2,366,460 | |
| Commercial Mortgage-Backed Securities | | | — | | | | 13,444,141 | | | | — | | | | 13,444,141 | |
| Collateralized Mortgage Obligations | | | — | | | | 4,965,934 | | | | — | | | | 4,965,934 | |
| Government & Agency Obligations | | | — | | | | 19,733,330 | | | | — | | | | 19,733,330 | |
| Loan Participations and Assignments | | | — | | | | 347,687 | | | | — | | | | 347,687 | |
| Municipal Bonds and Notes | | | — | | | | 7,474,498 | | | | — | | | | 7,474,498 | |
| Short-Term Investments (i) | | | 11,586,752 | | | | — | | | | — | | | | 11,586,752 | |
| Derivatives (j) | | | 181,406 | | | | 7,148 | | | | — | | | | 188,554 | |
| Total | | $ | 11,768,158 | | | $ | 118,137,005 | | | $ | — | | | $ | 129,905,163 | |
| Liabilities | | | | | | | | | | | | | | | | |
| Derivatives (j) | | $ | (14,117 | ) | | $ | (20,662 | ) | | $ | — | | | $ | (34,779 | ) |
| Total | | $ | (14,117 | ) | | $ | (20,662 | ) | | $ | — | | | $ | (34,779 | ) |
There have been no transfers between Level 1 and Level 2 fair value measurements during the period ended June 30, 2011.
(i) See Investment Portfolio for additional detailed categorizations.
(j) Derivatives include unrealized appreciation (depreciation) on open futures contracts, credit default swap contracts and forward foreign currency exchange contracts.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities | as of June 30, 2011 (Unaudited) | |
| Assets | |
Investments: Investments in non-affiliated securities, at value (cost $117,520,684) — including $359,625 of securities loaned | | $ | 118,129,857 | |
Investment in Daily Assets Fund Institutional (cost $371,700)* | | | 371,700 | |
| Investment in Central Cash Management Fund (cost $11,215,052) | | | 11,215,052 | |
| Total investments, at value (cost $129,107,436) | | | 129,716,609 | |
| Cash | | | 24,801 | |
| Foreign currency, at value (cost $60,268) | | | 56,844 | |
| Deposit with broker for futures contracts | | | 971 | |
| Receivable for Fund shares sold | | | 18,032 | |
| Receivable for daily variation margin on futures contracts | | | 155,990 | |
| Interest receivable | | | 1,285,081 | |
| Unrealized appreciation on forward foreign currency exchange contracts | | | 7,148 | |
| Foreign taxes recoverable | | | 2,923 | |
| Other assets | | | 1,270 | |
| Total assets | | | 131,269,669 | |
| Liabilities | |
| Payable upon return of securities loaned | | | 371,700 | |
| Payable for Investments purchased | | | 112,386 | |
| Payable for investments purchased — when-issued/delayed delivery securities | | | 18,527,711 | |
| Payable for Fund shares redeemed | | | 44,480 | |
| Net payable for closed swap contracts | | | 138,354 | |
| Unrealized depreciation on swap contracts | | | 20,662 | |
| Upfront payments received on swap contracts | | | 2,679 | |
| Accrued management fee | | | 33,104 | |
| Accrued expenses | | | 83,088 | |
| Total liabilities | | | 19,334,164 | |
| Net assets, at value | | $ | 111,935,505 | |
| Net Assets Consist of | |
| Undistributed net investment income | | | 2,698,655 | |
Net unrealized appreciation (depreciation) on: Investments | | | 609,173 | |
| Futures | | | 167,289 | |
| Foreign currency | | | 6,807 | |
| Swap contracts | | | (20,662 | ) |
| Accumulated net realized gain (loss) | | | (37,035,172 | ) |
| Paid-in capital | | | 145,509,415 | |
| Net assets, at value | | $ | 111,935,505 | |
Class A Net Asset Value, offering and redemption price per share ($111,935,505 ÷ 20,076,141 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 5.58 | |
* Represents collateral of securities loaned.
The accompanying notes are an integral part of the financial statements.
Statement of Operations
| for the six months ended June 30, 2011 (Unaudited) | |
| Investment Income | |
Income: Interest | | $ | 3,207,539 | |
| Income distributions — Central Cash Management Fund | | | 5,520 | |
| Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | | | 1,806 | |
| Total income | | | 3,214,865 | |
Expenses: Management fee | | | 242,893 | |
| Administration fee | | | 62,280 | |
| Services to shareholders | | | 2,302 | |
| Custodian fee | | | 10,895 | |
| Legal fees | | | 9,259 | |
| Audit and tax fees | | | 20,242 | |
| Reports to shareholders | | | 24,554 | |
| Trustees' fees and expenses | | | 3,591 | |
| Other | | | 13,481 | |
| Total expenses | | | 389,497 | |
| Net investment income | | | 2,825,368 | |
| Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | | | 1,150,162 | |
| Futures | | | 50,289 | |
| Foreign currency | | | (36,243 | ) |
| Swap contracts | | | (134,946 | ) |
| | | | 1,029,262 | |
Change in net unrealized appreciation (depreciation) on: Investments | | | 579,593 | |
| Futures | | | (721,367 | ) |
| Foreign currency | | | (39,653 | ) |
| Swap contracts | | | (20,662 | ) |
| | | | (202,089 | ) |
| Net gain (loss) | | | 827,173 | |
| Net increase (decrease) in net assets resulting from operations | | $ | 3,652,541 | |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | Increase (Decrease) in Net Assets | | Six Months Ended June 30, 2011 (Unaudited) | | | Year Ended December 31, 2010 | |
Operations: Net investment income (loss) | | $ | 2,825,368 | | | $ | 5,460,988 | |
| Net realized gain (loss) | | | 1,029,262 | | | | 5,014,458 | |
| Change in net unrealized appreciation (depreciation) | | | (202,089 | ) | | | 3,501 | |
| Net increase (decrease) in net assets resulting from operations | | | 3,652,541 | | | | 10,478,947 | |
Distributions to shareholders from: Net investment income: Class A | | | (4,956,830 | ) | | | (6,962,542 | ) |
Fund share transactions: Class A Proceeds from shares sold | | | 4,907,629 | | | | 16,049,365 | |
| Reinvestment of distributions | | | 4,956,830 | | | | 6,962,542 | |
| Payments for shares redeemed | | | (52,002,358 | ) | | | (29,824,695 | ) |
| Net increase (decrease) in net assets from Class A share transactions | | | (42,137,899 | ) | | | (6,812,788 | ) |
| Increase (decrease) in net assets | | | (43,442,188 | ) | | | (3,296,383 | ) |
| Net assets at beginning of period | | | 155,377,693 | | | | 158,674,076 | |
| Net assets at end of period (including undistributed net investment income of $2,698,655 and $4,830,117, respectively) | | $ | 111,935,505 | | | $ | 155,377,693 | |
| Other Information | |
Class A Shares outstanding at beginning of period | | | 27,458,970 | | | | 28,638,100 | |
| Shares sold | | | 866,073 | | | | 2,857,267 | |
| Shares issued to shareholders in reinvestment of distributions | | | 891,516 | | | | 1,277,530 | |
| Shares redeemed | | | (9,140,418 | ) | | | (5,313,927 | ) |
| Net increase (decrease) in Class A shares | | | (7,382,829 | ) | | | (1,179,130 | ) |
| Shares outstanding at end of period | | | 20,076,141 | | | | 27,458,970 | |
The accompanying notes are an integral part of the financial statements.
| Class A | Six Months Ended 6/30/11 (Unaudited) | Years Ended December 31, |
| 2010 | 2009 | 2008 | 2007 | 2006 |
| Selected Per Share Data |
| Net asset value, beginning of period | $ 5.66 | $ 5.54 | $ 5.50 | $ 6.98 | $ 7.03 | $ 6.99 |
Income (loss) from investment operations: Net investment incomea | .13 | .19 | .25 | .37 | .35 | .33 |
| Net realized and unrealized gain (loss) | .04 | .18 | .26 | (1.48) | (.06) | (.01) |
| Total from investment operations | .17 | .37 | .51 | (1.11) | .29 | .32 |
Less distributions from: Net investment income | (.25) | (.25) | (.47) | (.37) | (.34) | (.27) |
| Net realized gains | — | — | — | — | — | (.01) |
| Total distributions | (.25) | (.25) | (.47) | (.37) | (.34) | (.28) |
| Net asset value, end of period | $ 5.58 | $ 5.66 | $ 5.54 | $ 5.50 | $ 6.98 | $ 7.03 |
| Total Return (%) | 2.91** | 6.79 | 10.07 | (16.77) | 4.18 | 4.72b |
| Ratios to Average Net Assets and Supplemental Data |
| Net assets, end of period ($ millions) | 112 | 155 | 159 | 155 | 229 | 218 |
| Ratio of expenses before expense reductions (%) | .63* | .59 | .59 | .59 | .61 | .66 |
| Ratio of expenses after expense reductions (%) | .63* | .59 | .59 | .59 | .61 | .62 |
| Ratio of net investment income (%) | 4.54* | 3.42 | 4.68 | 5.76 | 5.03 | 4.82 |
| Portfolio turnover rate (%) | 135** | 357 | 284 | 196 | 185 | 186 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Notes to Financial Statements (Unaudited)
A. Organization and Significant Accounting Policies
DWS Variable Series I (the "Series") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, registered management investment company organized as a Massachusetts business trust. The Series consists of five diversified funds: DWS Bond VIP, DWS Growth & Income VIP, DWS Capital Growth VIP, DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP) and DWS International VIP (individually or collectively hereinafter referred to as a "Fund" or the "Funds"). These financial statements report on DWS Bond VIP. The Series is intended to be the underlying investment vehicle for variable annuity contracts and variable life insurance policies to be offered by the separate accounts of certain life insurance companies ("Participating Insurance Companies").
The Series' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Series in the preparation of the financial statements for its Funds.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Debt securities are valued by independent pricing services approved by the Trustees of the Series. If the pricing services are unable to provide valuations, securities are valued at the most recent bid quotation or evaluated price, as applicable, obtained from one or more broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. These securities are generally categorized as Level 2.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost, which approximates value, and are categorized as Level 2. Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.
Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1.
Swap contracts are valued daily based upon prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer. Swap contracts are generally categorized as Level 2.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities; the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.
Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.
Securities Lending. The Fund lends securities to certain financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
Mortgage Dollar Rolls. The Fund may enter into mortgage dollar rolls in which the Fund sells to a bank or broker/dealer (the "counterparty") mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase similar, but not identical, securities on a fixed date. The counterparty receives all principal and interest payments, including prepayments, made on the security while it is the holder. The Fund receives compensation as consideration for entering into the commitment to repurchase. The compensation is paid in the form of a lower price for the security upon its repurchase, or alternatively, a fee. Mortgage dollar rolls may be renewed with a new sale and repurchase price and a cash settlement made at each renewal without physical delivery of the securities subject to the contract.
Certain risks may arise upon entering into mortgage dollar rolls from the potential inability of counterparties to meet the terms of their commitments. Additionally, the value of such securities may change adversely before the Fund is able to repurchase them. There can be no assurance that the Fund's use of the cash that it receives from a mortgage dollar roll will provide a return that exceeds its costs.
When-Issued/Delayed Delivery Securities. The Fund may purchase or sell securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the transaction is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. At the time the Fund enters into a purchase transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.
Certain risks may arise upon entering into when-issued or delayed delivery transactions from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
Federal Income Taxes. The Fund is treated as a separate taxpayer as provided for in the Internal Revenue Code, as amended. It is the Fund's policy to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to the separate accounts of the Participating Insurance Companies which hold its shares.
At December 31, 2010, the Fund had a net tax basis capital loss carryforward of approximately $37,157,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2017 (the expiration date), whichever occurs first.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the "Act") was enacted. Under the Act, net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. As a result of this ordering rule, pre-enactment capital loss carryforwards may expire unused, whereas under the previous rules these losses may have been utilized. This change is effective for fiscal years beginning after the date of enactment.
The Fund has reviewed the tax positions for the open tax years as of December 31, 2010 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. The Fund will declare and distribute dividends from its net investment income, if any, annually, although additional distributions may be made if necessary. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to investments in foreign denominated investments, investments in forward foreign currency exchange contracts, futures contracts, swap contracts and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Expenses. Expenses of the Series arising in connection with a specific Fund are allocated to that Fund. Other Series expenses which cannot be directly attributed to a Fund are apportioned among the Funds in the Series.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis and may include proceeds from litigation. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes.
B. Derivative Instruments
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). For the six months ended June 30, 2011, the Fund invested in interest rate futures to gain exposure to different parts of the yield curve while managing the overall duration. The Fund also entered into currency futures contracts for non-hedging purposes to seek to enhance potential gains.
Futures contracts are valued at the most recent settlement price. Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary cash or securities ("initial margin") in an amount equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are exchange traded, counterparty risk is minimized as the exchange's clearinghouse acts as the counterparty, and guarantees the futures against default.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid market will limit the Fund's ability to close out a futures contract prior to the settlement date and the risk that the futures contract is not well correlated with the security, index or currency to which it relates. Risk of loss may exceed amounts recognized in the Statement of Assets and Liabilities.
A summary of the open futures contracts as of June 30, 2011, is included in a table following the Fund's Investment Portfolio. For the six months ended June 30, 2011, the Fund's investment in futures contracts sold had a total notional value generally indicative of a range from approximately $27,770,000 to $48,873,000.
Credit Default Swap Contracts. A credit default swap is a contract between a buyer and a seller of protection against pre-defined credit events for the reference entity. For the six months ended June 30, 2011, the Fund bought credit default swap contracts to gain exposure to an underlying reference entity's credit quality characteristics without directly investing in that reference entity, or to hedge the risk of default on Fund securities. As a seller in the credit default swap contract, the Fund is required to pay the par (or other agreed-upon) value of the referenced entity to the counterparty with the occurrence of a credit event by a third party, such as a US or foreign corporate issuer, on the reference entity, which would likely result in a loss to the Fund. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Fund keeps the stream of payments with no payment obligations. The Fund may also buy credit default swap contracts in order to hedge against the risk of a credit event on debt securities, in which case the Fund functions as the counterparty referenced above. This involves the risk that the contract may expire worthless. It also involves counterparty risk that the seller may fail to satisfy its payment obligations to the Fund with the occurrence of a credit event. When the Fund sells a credit default swap contract it will cover its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the reference entities for all outstanding credit default swap contracts sold by the Fund.
The value of the credit default swap is adjusted daily and the change in value, if any, is recorded daily as unrealized appreciation or depreciation in the Statement of Assets and Liabilities. An upfront payment, if any, made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment, if any, received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Under the terms of the credit default swap contracts, the Fund receives or makes quarterly payments based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss in the Statement of Operations. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses in the Statement of Operations.
A summary of the open credit default swap contracts as of June 30, 2011 is included in a table following the Fund's Investment Portfolio. For the six months ended June 30, 2011, the investment in credit default swap contracts purchased had a total notional value generally indicative of a range from $0 to approximately $5,700,000.
Total Return Swap Contracts. Total return swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. For the six months ended June 30, 2011, the Fund entered into total return swap transactions to enhance potential gains. To the extent the total return of the reference security or index underlying the total return swap exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment or make a payment to the counterparty, respectively. Certain risks may arise when entering into swap transactions including counterparty default, liquidity or unfavorable changes in the value of the underlying reference security or index. The value of the swap is adjusted daily and the change in value, if any, is recorded as unrealized appreciation or depreciation in the Statement of Assets and Liabilities. An upfront payment, if any, made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment, if any, received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Payments received or made at the end of each measurement period are recorded as realized gain or loss in the Statement of Operations.
There are no open contracts as of June 30, 2011. For the six months ended June 30, 2011, the investment in total return swap contracts had a total notional amount generally indicative of a range from $0 to approximately $9,000,000.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund is subject to foreign exchange rate risk in its securities denominated in foreign currencies. Changes in exchange rates between foreign currencies and the US dollar may affect the US dollar value of foreign securities or the income or gains received on these securities. To reduce the effect of currency fluctuations, the Fund may enter into forward foreign currency exchange contracts. For the six months ended June 30, 2011, the Fund invested in forward foreign currency contracts to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated securities.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. On the settlement date of the forward currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.
A summary of the open forward currency contracts as of June 30, 2011, is included in a table following the Fund's Investment Portfolio. For the six months ended June 30, 2011, the investment in forward currency contracts US dollars purchased had a total contract value generally indicative of a range from approximately $902,000 to $1,361,000, and the investment in forward currency contracts US dollars sold had a total contract value generally indicative of a range from $0 to approximately $360,000.
The following tables summarize the value of the Fund's derivative instruments held as of June 30, 2011 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:
| Asset Derivatives | | Forward Contracts | | | Futures Contracts | | | Total | |
| Interest Rate Contracts (a) | | $ | — | | | $ | 181,406 | | | $ | 181,406 | |
| Foreign Exchange Contracts (b) | | | 7,148 | | | | — | | | | 7,148 | |
| | | $ | 7,148 | | | $ | 181,406 | | | $ | 188,554 | |
Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:
(a) Includes cumulative appreciation of futures contracts as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.
(b) Unrealized appreciation on forward foreign currency exchange contracts
| Liability Derivatives | | Swap Contracts | | | Futures Contracts | | | Total | |
| Credit contracts (a) | | $ | (20,662 | ) | | $ | — | | | $ | (20,662 | ) |
| Interest Rate Contracts (b) | | | — | | | | (14,117 | ) | | | (14,117 | ) |
| | | $ | (20,662 | ) | | $ | (14,117 | ) | | $ | (34,779 | ) |
Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:
(a) Unrealized depreciation on swap contracts
(b) Includes cumulative depreciation of futures contracts as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.
Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the six months ended June 30, 2011 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:
| Realized Gain (Loss) | | Forward Contracts | | | Swap Contracts | | | Futures Contracts | | | Total | |
| Foreign Exchange Contracts (a) (b) | | $ | (40,641 | ) | | $ | — | | | $ | (535,187 | ) | | $ | (575,828 | ) |
| Interest Rate Contracts (b) | | | — | | | | 52,362 | | | | 585,476 | | | | 637,838 | |
| Credit Contracts (b) | | | — | | | | (187,308 | ) | | | — | | | | (187,308 | ) |
| | | $ | (40,641 | ) | | $ | (134,946 | ) | | $ | 50,289 | | | $ | (125,298 | ) |
Each of the above derivatives is located in the following Statement of Operations accounts:
(a) Net realized gain (loss) from foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions)
(b) Net realized gain (loss) from swaps and futures, respectively
| Change in Net Unrealized Appreciation (Depreciation) | | Forward Contracts | | | Swap Contracts | | | Futures Contracts | | | Total | |
| Foreign Exchange Contracts (a) (b) | | $ | (40,878 | ) | | $ | — | | | $ | 23,390 | | | $ | (17,488 | ) |
| Interest Rate Contracts (b) | | | — | | | | — | | | | (744,757 | ) | | | (744,757 | ) |
| Credit Contracts (b) | | | — | | | | (20,662 | ) | | | — | | | | (20,662 | ) |
| | | $ | (40,878 | ) | | $ | (20,662 | ) | | $ | (721,367 | ) | | $ | (782,907 | ) |
Each of the above derivatives is located in the following Statement of Operations accounts:
(a) Change in net unrealized appreciation (depreciation) on foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions)
(b) Change in net unrealized appreciation (depreciation) on swaps and futures, respectively
C. Purchases and Sales of Securities
During the six months ended June 30, 2011, purchases and sales of investment securities (excluding short-term investments and US Treasury obligations) aggregated $171,314,598 and $221,381,969, respectively. Purchases and sales of US Treasury obligations aggregated $13,176,268 and $31,344,036, respectively.
D. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.
Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:
| First $250 million of average daily net assets | .390% |
| Next $750 million of average daily net assets | .365% |
| Over $1 billion of average daily net assets | .340% |
Accordingly, for the six months ended June 30, 2011, the fee pursuant to the Investment Management Agreement was equivalent to an annualized effective rate of 0.39% of the Fund's average daily net assets.
Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Series. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the six months ended June 30, 2011, the Administration Fee was $62,280, of which $9,295 is unpaid.
Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Series. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended June 30, 2011, the amounts charged to the Fund by DISC aggregated $340, of which $249 is unpaid.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended June 30, 2011, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $5,913, of which $1,663 is unpaid.
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Affiliated Cash Management Vehicle. The Fund may invest uninvested cash balances in Central Cash Management Fund, which is managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of Central Cash Management Fund. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.
E. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not typically associated with investing in developed markets. These risks include revaluation of currencies, high rates of inflation or deflation, repatriation restrictions on income and capital, and future adverse political, social and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls or delayed settlements and may have prices more volatile or less easily assessed than those of comparable securities of issuers in developed markets.
F. Ownership of the Fund
Three participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, owning 49%, 12% and 10%, respectively.
G. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $450 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at June 30, 2011.
The Series' policies and procedures for voting proxies for portfolio securities and information about how the Series voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the Series' policies and procedures without charge, upon request, call us toll free at (800) 728-3337.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 3, 2010
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2010, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007, 2008, and 2009.
Qualifications
For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past ten years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds and have served in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 118 publicly offered Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Fund. These similar products included the other DWS Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Funds are reasonable.
Thomas H. Mack
Notes
DWS Investments Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 621-1148
VS1bond-3 (R-023163-1 8/11)
JUNE 30, 2011
SEMIANNUAL REPORT
DWS VARIABLE SERIES I
DWS Capital Growth VIP
Contents
4 Information About Your Fund's Expenses 9 Statement of Assets and Liabilities 9 Statement of Operations 10 Statement of Changes in Net Assets 14 Notes to Financial Statements 18 Summary of Management Fee Evaluation by Independent Fee Consultant |
This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund's objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.
Stocks may decline in value. See the prospectus for details.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary June 30, 2011
Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2011 are 0.51% and 0.85% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.
| Growth of an Assumed $10,000 Investment |
[] DWS Capital Growth VIP — Class A [] Russell 1000® Growth Index | The Russell 1000® Growth Index is an unmanaged, capitalization-weighted index containing those securities in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index. |
| |
| Yearly periods ended June 30 | |
| Comparative Results | |
| DWS Capital Growth VIP | | 6-Month‡ | | | 1-Year | | | 3-Year | | | 5-Year | | | 10-Year | |
| Class A | Growth of $10,000 | | $ | 10,365 | | | $ | 13,143 | | | $ | 10,934 | | | $ | 12,656 | | | $ | 12,247 | |
| Average annual total return | | | 3.65 | % | | | 31.43 | % | | | 3.02 | % | | | 4.82 | % | | | 2.05 | % |
| Russell 1000 Growth Index | Growth of $10,000 | | $ | 10,683 | | | $ | 13,501 | | | $ | 11,581 | | | $ | 12,965 | | | $ | 12,479 | |
| Average annual total return | | | 6.83 | % | | | 35.01 | % | | | 5.01 | % | | | 5.33 | % | | | 2.24 | % |
| DWS Capital Growth VIP | | 6-Month‡ | | | 1-Year | | | 3-Year | | | 5-Year | | | 10-Year | |
| Class B | Growth of $10,000 | | $ | 10,348 | | | $ | 13,101 | | | $ | 10,827 | | | $ | 12,444 | | | $ | 11,831 | |
| Average annual total return | | | 3.48 | % | | | 31.01 | % | | | 2.68 | % | | | 4.47 | % | | | 1.70 | % |
| Russell 1000 Growth Index | Growth of $10,000 | | $ | 10,683 | | | $ | 13,501 | | | $ | 11,581 | | | $ | 12,965 | | | $ | 12,479 | |
| Average annual total return | | | 6.83 | % | | | 35.01 | % | | | 5.01 | % | | | 5.33 | % | | | 2.24 | % |
The growth of $10,000 is cumulative.
‡ Total returns shown for periods less than one year are not annualized.
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (January 1, 2011 to June 30, 2011).
The tables illustrate your Fund's expenses in two ways:
•Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
• Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended June 30, 2011 | |
| Actual Fund Return | | Class A | | | Class B | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,036.50 | | | $ | 1,034.80 | |
| Expenses Paid per $1,000* | | $ | 2.63 | | | $ | 4.34 | |
| Hypothetical 5% Fund Return | | Class A | | | Class B | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,022.22 | | | $ | 1,020.53 | |
| Expenses Paid per $1,000* | | $ | 2.61 | | | $ | 4.31 | |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
| Annualized Expense Ratios | Class A | | Class B | |
| DWS Variable Series I — DWS Capital Growth VIP | .52% | | .86% | |
For more information, please refer to the Fund's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 6/30/11 | 12/31/10 |
| | | |
| Common Stocks | 98% | 100% |
| Cash Equivalents | 2% | — |
| | 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 6/30/11 | 12/31/10 |
| | | |
| Information Technology | 30% | 31% |
| Industrials | 16% | 14% |
| Energy | 13% | 12% |
| Consumer Discretionary | 13% | 16% |
| Health Care | 10% | 10% |
| Consumer Staples | 6% | 5% |
| Materials | 6% | 6% |
| Financials | 4% | 5% |
| Telecommunication Services | 2% | 1% |
| | 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Fund's investment portfolio, see page 6.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. The Fund's portfolio holdings are also posted on www.dws-investments.com from time to time. Please see the Fund's current prospectus for more information.
Investment Portfolio June 30, 2011 (Unaudited) | | | Shares | | | Value ($) | |
| | | | |
| Common Stocks 99.2% | |
| Consumer Discretionary 12.7% | |
| Auto Components 2.2% | |
| Autoliv, Inc. (a) | | | 110,264 | | | | 8,650,211 | |
| BorgWarner, Inc.* (a) | | | 118,765 | | | | 9,595,024 | |
| | | | | | | | 18,245,235 | |
| Hotels Restaurants & Leisure 4.1% | |
| Darden Restaurants, Inc. (a) | | | 209,730 | | | | 10,436,165 | |
| McDonald's Corp. (a) | | | 123,835 | | | | 10,441,767 | |
| Starwood Hotels & Resorts Worldwide, Inc. (a) | | | 229,918 | | | | 12,884,605 | |
| | | | | | | | 33,762,537 | |
| Multiline Retail 1.6% | |
| Dollar General Corp.* (a) | | | 142,866 | | | | 4,841,729 | |
| Nordstrom, Inc. (a) | | | 172,002 | | | | 8,073,774 | |
| | | | | | | | 12,915,503 | |
| Specialty Retail 2.9% | |
| Dick's Sporting Goods, Inc.* | | | 245,666 | | | | 9,445,858 | |
| Limited Brands, Inc. (a) | | | 385,330 | | | | 14,815,938 | |
| | | | | | | | 24,261,796 | |
| Textiles, Apparel & Luxury Goods 1.9% | |
| NIKE, Inc. "B" | | | 179,980 | | | | 16,194,600 | |
| Consumer Staples 6.2% | |
| Beverages 1.4% | |
| PepsiCo, Inc. (a) | | | 174,442 | | | | 12,285,950 | |
| Food & Staples Retailing 3.1% | |
| Costco Wholesale Corp. | | | 151,166 | | | | 12,280,726 | |
| Wal-Mart Stores, Inc. (a) | | | 174,355 | | | | 9,265,224 | |
| Whole Foods Market, Inc. | | | 65,844 | | | | 4,177,802 | |
| | | | | | | | 25,723,752 | |
| Food Products 1.7% | |
| Kellogg Co. | | | 253,352 | | | | 14,015,433 | |
| Energy 12.7% | |
| Energy Equipment & Services 5.0% | |
| Halliburton Co. (a) | | | 126,541 | | | | 6,453,591 | |
| National Oilwell Varco, Inc. | | | 176,441 | | | | 13,799,451 | |
| Oil States International, Inc.* (a) | | | 82,334 | | | | 6,579,310 | |
| Schlumberger Ltd. | | | 170,007 | | | | 14,688,605 | |
| | | | | | | | 41,520,957 | |
| Oil, Gas & Consumable Fuels 7.7% | |
| Anadarko Petroleum Corp. (a) | | | 173,974 | | | | 13,354,244 | |
| EOG Resources, Inc. (a) | | | 128,390 | | | | 13,423,174 | |
| Exxon Mobil Corp. | | | 140,975 | | | | 11,472,546 | |
| Marathon Oil Corp. | | | 121,715 | | | | 6,411,946 | |
| Occidental Petroleum Corp. (a) | | | 123,129 | | | | 12,810,341 | |
| Plains Exploration & Production Co.* | | | 177,881 | | | | 6,780,824 | |
| | | | | | | | 64,253,075 | |
| Financials 4.4% | |
| Capital Markets | |
| Ameriprise Financial, Inc. | | | 94,307 | | | | 5,439,628 | |
| Charles Schwab Corp. (a) | | | 377,927 | | | | 6,216,899 | |
| Morgan Stanley | | | 379,297 | | | | 8,727,624 | |
| T. Rowe Price Group, Inc. (a) | | | 272,116 | | | | 16,419,479 | |
| | | | | | | | 36,803,630 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Health Care 10.0% | |
| Biotechnology 3.7% | |
| Amgen, Inc.* (a) | | | 75,112 | | | | 4,382,785 | |
| Celgene Corp.* (a) | | | 298,428 | | | | 18,001,177 | |
| Gilead Sciences, Inc.* | | | 207,522 | | | | 8,593,486 | |
| | | | | | | | 30,977,448 | |
| Health Care Equipment & Supplies 1.5% | |
| CareFusion Corp.* | | | 233,629 | | | | 6,347,700 | |
| Edwards Lifesciences Corp.* (a) | | | 72,585 | | | | 6,327,960 | |
| | | | | | | | 12,675,660 | |
| Health Care Providers & Services 3.7% | |
| Express Scripts, Inc.* | | | 319,263 | | | | 17,233,817 | |
| McKesson Corp. | | | 158,770 | | | | 13,281,111 | |
| | | | | | | | 30,514,928 | |
| Life Sciences Tools & Services 1.1% | |
| Thermo Fisher Scientific, Inc.* | | | 135,015 | | | | 8,693,616 | |
| Industrials 16.1% | |
| Aerospace & Defense 3.5% | |
| TransDigm Group, Inc.* | | | 102,936 | | | | 9,386,734 | |
| United Technologies Corp. | | | 226,401 | | | | 20,038,752 | |
| | | | | | | | 29,425,486 | |
| Commercial Services & Supplies 1.0% | |
| Stericycle, Inc.* (a) | | | 87,989 | | | | 7,841,580 | |
| Electrical Equipment 3.1% | |
| AMETEK, Inc. | | | 301,507 | | | | 13,537,664 | |
| Roper Industries, Inc. (a) | | | 147,055 | | | | 12,249,682 | |
| | | | | | | | 25,787,346 | |
| Machinery 6.0% | |
| Dover Corp. | | | 112,692 | | | | 7,640,518 | |
| Meritor, Inc.* (a) | | | 312,013 | | | | 5,004,688 | |
| Navistar International Corp.* (a) | | | 167,878 | | | | 9,478,392 | |
| Parker Hannifin Corp. (a) | | | 216,882 | | | | 19,462,991 | |
| SPX Corp. (a) | | | 103,493 | | | | 8,554,731 | |
| | | | | | | | 50,141,320 | |
| Road & Rail 2.5% | |
| Norfolk Southern Corp. (a) | | | 280,226 | | | | 20,997,334 | |
| Information Technology 29.9% | |
| Communications Equipment 3.7% | |
| QUALCOMM, Inc. | | | 466,531 | | | | 26,494,295 | |
| Riverbed Technology, Inc.* (a) | | | 102,173 | | | | 4,045,029 | |
| | | | | | | | 30,539,324 | |
| Computers & Peripherals 8.5% | |
| Apple, Inc.* | | | 138,313 | | | | 46,427,525 | |
| EMC Corp.* (a) | | | 893,537 | | | | 24,616,944 | |
| | | | | | | | 71,044,469 | |
| Internet Software & Services 1.2% | |
| Google, Inc. "A"* | | | 19,252 | | | | 9,748,828 | |
| IT Services 4.2% | |
| Accenture PLC "A" | | | 218,454 | | | | 13,198,991 | |
| International Business Machines Corp. (a) | | | 65,648 | | | | 11,261,914 | |
| VeriFone Systems, Inc.* (a) | | | 242,271 | | | | 10,744,719 | |
| | | | | | | | 35,205,624 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Semiconductors & Semiconductor Equipment 3.2% | |
| Intel Corp. (a) | | | 817,066 | | | | 18,106,183 | |
| Skyworks Solutions, Inc.* | | | 379,933 | | | | 8,730,860 | |
| | | | | | | | 26,837,043 | |
| Software 9.1% | |
| Adobe Systems, Inc.* | | | 132,928 | | | | 4,180,585 | |
| Check Point Software Technologies Ltd.* (a) | | | 162,682 | | | | 9,248,472 | |
| Concur Technologies, Inc.* (a) | | | 132,711 | | | | 6,644,840 | |
| Microsoft Corp. | | | 712,689 | | | | 18,529,914 | |
| Oracle Corp. | | | 844,212 | | | | 27,783,017 | |
| Solera Holdings, Inc. | | | 150,405 | | | | 8,897,960 | |
| | | | | | | | 75,284,788 | |
| Materials 5.6% | |
| Chemicals 3.4% | |
| Huntsman Corp. (a) | | | 924,713 | | | | 17,430,840 | |
| The Mosaic Co. | | | 157,470 | | | | 10,665,443 | |
| | | | | | | | 28,096,283 | |
| Containers & Packaging 0.7% | |
| Owens-Illinois, Inc.* | | | 242,076 | | | | 6,247,981 | |
| Metals & Mining 1.5% | |
| Freeport-McMoRan Copper & Gold, Inc. | | | 237,634 | | | | 12,570,839 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Telecommunication Services 1.6% | |
| Wireless Telecommunication Services | |
| American Tower Corp. "A"* | | | 254,061 | | | | 13,295,013 | |
Total Common Stocks (Cost $583,281,627) | | | | 825,907,378 | |
| | |
| Securities Lending Collateral 27.3% | |
| Daily Assets Fund Institutional, 0.13% (b) (c) (Cost $227,048,807) | | | 227,048,807 | | | | 227,048,807 | |
| | |
| Cash Equivalents 1.7% | |
| Central Cash Management Fund, 0.11% (b) (Cost $13,846,777) | | | 13,846,777 | | | | 13,846,777 | |
| | | % of Net Assets | | | Value ($) | |
| | | | |
Total Investment Portfolio (Cost $824,177,211)+ | | | 128.2 | | | | 1,066,802,962 | |
| Other Assets and Liabilities, Net | | | (28.2 | ) | | | (234,407,694 | ) |
| Net Assets | | | 100.0 | | | | 832,395,268 | |
* Non-income producing security.
+ The cost for federal income tax purposes was $827,129,683. At June 30, 2011, net unrealized appreciation for all securities based on tax cost was $239,673,279. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $251,036,181 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $11,362,902.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at June 30, 2011 amounted to $225,149,671, which is 27.0% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of June 30, 2011 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.
| Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | |
| Common Stocks (d) | | $ | 825,907,378 | | | $ | — | | | $ | — | | | $ | 825,907,378 | |
| Short-Term Investments (d) | | | 240,895,584 | | | | — | | | | — | | | | 240,895,584 | |
| Total | | $ | 1,066,802,962 | | | $ | — | | | $ | — | | | $ | 1,066,802,962 | |
There have been no transfers between Level 1 and Level 2 fair value measurements during the period ended June 30, 2011.
(d) See Investment Portfolio for additional detailed categorizations.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities | as of June 30, 2011 (Unaudited) | |
| Assets | |
Investments: Investments in non-affiliated securities, at value (cost $583,281,627) — including $225,149,671 of securities loaned | | $ | 825,907,378 | |
| Investment in Daily Assets Fund Institutional (cost $227,048,807)* | | | 227,048,807 | |
| Investment in Central Cash Management Fund (cost $13,846,777) | | | 13,846,777 | |
| Total investments in securities, at value (cost $824,177,211) | | | 1,066,802,962 | |
| Cash | | | 11,068 | |
| Foreign currency, at value (cost $3,846) | | | 3,887 | |
| Receivable for Fund shares sold | | | 20,419 | |
| Dividends receivable | | | 630,432 | |
| Interest receivable | | | 7,739 | |
| Foreign taxes recoverable | | | 52,713 | |
| Other assets | | | 990 | |
| Total assets | | | 1,067,530,210 | |
| Liabilities | |
| Payable upon return of securities loaned | | | 227,048,807 | |
| Payable for investments purchased | | | 6,574,518 | |
| Payable for Fund shares redeemed | | | 818,478 | |
| Accrued management fee | | | 251,723 | |
| Other accrued expenses and payables | | | 441,416 | |
| Total liabilities | | | 235,134,942 | |
| Net assets, at value | | $ | 832,395,268 | |
| Net Assets Consist of | |
| Undistributed net investment income | | | 2,420,579 | |
Net unrealized appreciation (depreciation) on: Investments | | | 242,625,751 | |
| Foreign currency | | | 11,333 | |
| Accumulated net realized gain (loss) | | | (125,898,280 | ) |
| Paid-in capital | | | 713,235,885 | |
| Net assets, at value | | $ | 832,395,268 | |
Class A Net Asset Value, offering and redemption price per share ($817,551,420 ÷ 40,560,109 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 20.16 | |
Class B Net Asset Value, offering and redemption price per share ($14,843,848 ÷ 738,253 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 20.11 | |
* Represents collateral of securities loaned.
The accompanying notes are an integral part of the financial statements.
Statement of Operations
| for the six months ended June 30, 2011 (Unaudited) | |
| Investment Income | |
Income: Dividends | | $ | 4,520,569 | |
| Income distributions — Central Cash Management Fund | | | 2,855 | |
| Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | | | 56,926 | |
| Total income | | | 4,580,350 | |
Expenses: Management fee | | | 1,468,529 | |
| Administration fee | | | 385,150 | |
| Services to shareholders | | | 6,136 | |
| Distribution service fee (Class B) | | | 16,319 | |
| Record keeping fee (Class B) | | | 5,679 | |
| Custodian fee | | | 29,015 | |
| Professional fees | | | 35,976 | |
| Reports to shareholders | | | 39,423 | |
| Trustees' fees and expenses | | | 13,083 | |
| Other | | | 20,859 | |
| Total expenses | | | 2,020,169 | |
| Net investment income (loss) | | | 2,560,181 | |
| Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | | | 40,257,242 | |
| Foreign currency | | | 266 | |
| | | | 40,257,508 | |
Change in net unrealized appreciation (depreciation) on: Investments | | | (20,797,394 | ) |
| Foreign currency | | | 7,010 | |
| | | | (20,790,384 | ) |
| Net gain (loss) | | | 19,467,124 | |
| Net increase (decrease) in net assets resulting from operations | | $ | 22,027,305 | |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | Increase (Decrease) in Net Assets | | Six Months Ended June 30, 2011 (Unaudited) | | | Year Ended December 31, 2010 | |
Operations: Net investment income (loss) | | $ | 2,560,181 | | | $ | 5,440,265 | |
| Net realized gain (loss) | | | 40,257,508 | | | | 56,939,552 | |
| Change in net unrealized appreciation (depreciation) | | | (20,790,384 | ) | | | 46,062,994 | |
| Net increase (decrease) in net assets resulting from operations | | | 22,027,305 | | | | 108,442,811 | |
Distributions to shareholders from: Net investment income: Class A | | | (5,283,454 | ) | | | (6,317,623 | ) |
| Class B | | | (48,050 | ) | | | (67,783 | ) |
| Total distributions | | | (5,331,504 | ) | | | (6,385,406 | ) |
Fund share transactions: Class A Proceeds from shares sold | | | 6,977,977 | | | | 12,396,402 | |
Net assets acquired in tax-free reorganization* | | | 126,872,037 | | | | — | |
| Reinvestment of distributions | | | 5,283,454 | | | | 6,317,623 | |
| Payments for shares redeemed | | | (66,910,154 | ) | | | (105,101,955 | ) |
| Net increase (decrease) in net assets from Class A share transactions | | | 72,223,314 | | | | (86,387,930 | ) |
Class B Proceeds from shares sold | | | 335,771 | | | | 1,077,251 | |
Net assets acquired in tax-free reorganization* | | | 3,304,909 | | | | — | |
| Reinvestment of distributions | | | 48,050 | | | | 67,783 | |
| Payments for shares redeemed | | | (1,268,637 | ) | | | (2,881,286 | ) |
| Net increase (decrease) in net assets from Class B share transactions | | | 2,420,093 | | | | (1,736,252 | ) |
| Increase (decrease) in net assets | | | 91,339,208 | | | | 13,933,223 | |
| Net assets at beginning of period | | | 741,056,060 | | | | 727,122,837 | |
| Net assets at end of period (including undistributed net investment income of $2,420,579 and $5,191,902, respectively) | | $ | 832,395,268 | | | $ | 741,056,060 | |
| Other Information | |
Class A Shares outstanding at beginning of period | | | 37,210,167 | | | | 42,229,316 | |
| Shares sold | | | 344,950 | | | | 714,318 | |
Shares issued in tax-free reorganization* | | | 6,079,145 | | | | — | |
| Shares issued to shareholders in reinvestment of distributions | | | 254,870 | | | | 348,655 | |
| Shares redeemed | | | (3,329,023 | ) | | | (6,082,122 | ) |
| Net increase (decrease) in Class A shares | | | 3,349,942 | | | | (5,019,149 | ) |
| Shares outstanding at end of period | | | 40,560,109 | | | | 37,210,167 | |
Class B Shares outstanding at beginning of period | | | 623,731 | | | | 725,636 | |
| Shares sold | | | 16,721 | | | | 62,186 | |
Shares issued in tax-free reorganization* | | | 158,668 | | | | — | |
| Shares issued to shareholders in reinvestment of distributions | | | 2,322 | | | | 3,749 | |
| Shares redeemed | | | (63,189 | ) | | | (167,840 | ) |
| Net increase (decrease) in Class B shares | | | 114,522 | | | | (101,905 | ) |
| Shares outstanding at end of period | | | 738,253 | | | | 623,731 | |
* On April 29, 2011 DWS Health Care VIP and DWS Technology VIP were acquired by the Fund through a tax-free reorganization (see Note F).
The accompanying notes are an integral part of the financial statements.
| Class A | Six Months Ended 6/30/11 (Unaudited) | Years Ended December 31, |
| 2010 | 2009 | 2008 | 2007 | 2006 |
| Selected Per Share Data |
| Net asset value, beginning of period | $ 19.59 | $ 16.93 | $ 13.55 | $ 20.41 | $18.24 | $ 16.90 |
Income (loss) from investment operations: Net investment income (loss)a | .07 | .14d | .14 | .16 | .17d | .13c |
| Net realized and unrealized gain (loss) | .65 | 2.68 | 3.43 | (6.83) | 2.12 | 1.31 |
| Total from investment operations | .72 | 2.82 | 3.57 | (6.67) | 2.29 | 1.44 |
Less distributions from: Net investment income | (.15) | (.16) | (.19) | (.19) | (.12) | (.10) |
| Net asset value, end of period | $ 20.16 | $ 19.59 | $ 16.93 | $ 13.55 | $ 20.41 | $ 18.24 |
| Total Return (%) | 3.65** | 16.71b | 26.87b | (32.98)b | 12.59b | 8.53b,c |
| Ratios to Average Net Assets and Supplemental Data |
| Net assets, end of period ($ millions) | 818 | 729 | 715 | 594 | 1,058 | 1,131 |
| Ratio of expenses before expense reductions (%) | .52* | .51 | .51 | .50 | .53 | .52 |
| Ratio of expenses after expense reductions (%) | .52* | .51 | .49 | .49 | .52 | .49 |
| Ratio of net investment income (loss) (%) | .67* | .78d | .98 | .89 | .86d | .73c |
| Portfolio turnover rate (%) | 24** | 42 | 76 | 21 | 30 | 16 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Funds. The non-recurring income resulted in an increase in net investment income of $0.007 per share and an increase in the ratio of net investment income of 0.04%. Excluding this non-recurring income, total return would have been 0.03% lower. d Net investment income per share and ratio of net investment income include non-recurring dividend income amounting to $0.05 and $0.03 per share and 0.28% and 0.17% of average daily net assets for the years ended December 31, 2010 and 2007, respectively. * Annualized ** Not annualized |
| Class B | Six Months Ended 6/30/11 (Unaudited) | Years Ended December 31, |
| 2010 | 2009 | 2008 | 2007 | 2006 |
| Selected Per Share Data |
| Net asset value, beginning of period | $ 19.51 | $ 16.86 | $ 13.49 | $ 20.31 | $ 18.15 | $ 16.81 |
Income (loss) from investment operations: Net investment income (loss)a | .03 | .08d | .09 | .10 | .09d | .06c |
| Net realized and unrealized gain (loss) | .65 | 2.67 | 3.43 | (6.81) | 2.12 | 1.31 |
| Total from investment operations | .68 | 2.75 | 3.52 | (6.71) | 2.21 | 1.37 |
Less distributions from: Net investment income | (.08) | (.10) | (.15) | (.11) | (.05) | (.03) |
| Net asset value, end of period | $ 20.11 | $ 19.51 | $ 16.86 | $ 13.49 | $ 20.31 | $ 18.15 |
| Total Return (%) | 3.48** | 16.33b | 26.49b | (33.20)b | 12.18b | 8.17b,c |
| Ratios to Average Net Assets and Supplemental Data |
| Net assets, end of period ($ millions) | 15 | 12 | 12 | 10 | 19 | 107 |
| Ratio of expenses before expense reductions (%) | .86* | .85 | .85 | .85 | .94 | .91 |
| Ratio of expenses after expense reductions (%) | .86* | .84 | .82 | .82 | .90 | .86 |
| Ratio of net investment income (loss) (%) | .33* | .45d | .65 | .56 | .48d | .36c |
| Portfolio turnover rate (%) | 24** | 42 | 76 | 21 | 30 | 16 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Funds. The non-recurring income resulted in an increase in net investment income of $0.007 per share and an increase in the ratio of net investment income of 0.04%. Excluding this non-recurring income, total return would have been 0.03% lower. d Net investment income per share and ratio of net investment income include non-recurring dividend income amounting to $0.05 and $0.03 per share and $0.28% and 0.17% of average daily net assets for the years ended December 31, 2010 and 2007, respectively. * Annualized ** Not annualized |
Notes to Financial Statements (Unaudited)
A. Organization and Significant Accounting Policies
DWS Variable Series I (the "Series") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, registered management investment company organized as a Massachusetts business trust. The Series consists of five diversified funds: DWS Bond VIP, DWS Growth & Income VIP, DWS Capital Growth VIP, DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP) and DWS International VIP (individually or collectively hereinafter referred to as a "Fund" or the "Funds"). These financial statements report on DWS Capital Growth VIP. The Series is intended to be the underlying investment vehicle for variable annuity contracts and variable life insurance policies to be offered by the separate accounts of certain life insurance companies ("Participating Insurance Companies").
Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Class B shares are subject to Rule 12b-1 distribution fees under the 1940 Act and record keeping fees equal to an annual rate of 0.25% and up to 0.15%, respectively, of the average daily net assets of the Class B shares of the Fund. Class A shares are not subject to such fees.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class (including the applicable 12b-1 distribution fees and record keeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.
The Series' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Series in the preparation of the financial statements for its Funds.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which they trade and are categorized as Level 1 securities. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost, which approximates value, and are categorized as Level 2. Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities; the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.
Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.
Securities Lending. The Fund lends securities to certain financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
Federal Income Taxes. The Fund is treated as a separate taxpayer as provided for in the Internal Revenue Code, as amended. It is the Fund's policy to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to the separate accounts of the Participating Insurance Companies which hold its shares.
At December 31, 2010, the Fund had a net tax basis capital loss carryforward of approximately $163,203,000, including $31,237,000 inherited from its mergers with affiliated funds in fiscal years 2005, 2006 and 2009, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2011 ($69,353,000), December 31, 2012 ($28,616,000), December 31, 2015 ($6,163,000), December 31, 2016 ($20,912,000) and December 31, 2017 ($38,159,000), the respective expiration dates, whichever occurs first, and which may be subject to certain limitations under Sections 382-384 of the Internal Revenue Code.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the "Act") was enacted. Under the Act, net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. As a result of this ordering rule, pre-enactment capital loss carryforwards may expire unused, whereas under the previous rules these losses may have been utilized. This change is effective for fiscal years beginning after the date of enactment.
The Fund has reviewed the tax positions for the open tax years as of December 31, 2010 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. The Fund will declare and distribute dividends from its net investment income, if any, annually, although additional distributions may be made if necessary. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Expenses. Expenses of the Series arising in connection with a specific Fund are allocated to that Fund. Other Series expenses which cannot be directly attributed to a Fund are apportioned among the Funds in the Series.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis and may include proceeds from litigation.
B. Purchases and Sales of Securities
During the six months ended June 30, 2011, purchases and sales of investment securities (excluding short-term investments) aggregated $190,644,597 and $272,483,077, respectively.
C. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.
Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly at the following annual rates:
| First $250 million of average daily net assets | .390% |
| Next $750 million of average daily net assets | .365% |
| Over $1 billion of average daily net assets | .340% |
Accordingly, for the six months ended June 30, 2011, the fee pursuant to the Investment Management Agreement was equivalent to an annualized effective rate of 0.38% of the Fund's average daily net assets.
Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Series. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the six months ended June 30, 2011, the Administration Fee was $385,150, of which $67,552 is unpaid.
Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Series. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended June 30, 2011, the amounts charged to the Fund by DISC were as follows:
| Services to Shareholders | | Total Aggregated | | | Unpaid at June 30, 2011 | |
| Class A | | $ | 410 | | | $ | 349 | |
| Class B | | | 70 | | | | 70 | |
| | | $ | 480 | | | $ | 419 | |
Distribution Service Agreement. DWS Investments Distributors, Inc. ("DIDI"), also an affiliate of the Advisor, is the Series' Distributor. In accordance with the Master Distribution Plan, DIDI receives 12b-1 fees of 0.25% of average daily net assets of Class B shares. Pursuant to the Master Distribution Plan, DIDI remits these fees to the Participating Insurance Companies for various costs incurred or paid by these companies in connection with marketing and distribution of Class B shares. For the six months ended June 30, 2011, the Distribution Service Fee aggregated $16,319, of which $2,358 is unpaid.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended June 30, 2011, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $7,762, of which $386 is unpaid.
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Affiliated Cash Management Vehicle. The Fund may invest uninvested cash balances in Central Cash Management Fund, which is managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of Central Cash Management Fund. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.
D. Ownership of the Fund
Three participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 37%, 28% and 14%. Two participating insurance companies were owners of record of 10% or more of the total outstanding Class B shares of the Fund, each owning 84% and 14%.
E. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $450 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at June 30, 2011.
F. Acquisition of Assets
On April 29, 2011, the Fund acquired all of the net assets of DWS Health Care VIP and DWS Technology VIP pursuant to a plan of reorganization approved by shareholders on April 11, 2011. The purpose of the transaction was to combine three funds managed by DWS with comparable investment objectives and strategies.
The acquisition was accomplished by a tax-free exchange as follows:
| | | Class A shares | | | Class B shares | |
| DWS Health Care VIP | | | 5,605,448 | | | | 377,495 | |
| DWS Technology VIP | | | 6,613,518 | | | | 10,454 | |
The above shares were exchanged for the following shares outstanding on the date acquired of the DWS Capital Growth VIP Fund:
| | | Class A shares | | | Class B shares | |
| DWS Health Care VIP | | | 2,358,210 | | | | 152,955 | |
| DWS Technology VIP | | | 3,720,935 | | | | 5,713 | |
The net assets at acquired date were as follows:
| DWS Health Care VIP | | $ | 52,398,965 | |
| DWS Technology VIP | | $ | 77,777,981 | |
The net unrealized appreciation included in the net assets above were as follows:
| DWS Health Care VIP | | $ | 4,928,832 | |
| DWS Technology VIP | | $ | 13,786,077 | |
The aggregate net assets of DWS Capital Growth VIP immediately before the acquisition were $754,712,975. The combined net assets of DWS Capital Growth VIP immediately following the acquisition were $884,889,922.
The financial statements reflect the operations of the DWS Capital Growth VIP for the period prior to the acquisition and the combined portfolio for the period subsequent to the Fund merger. Assuming the acquisition had been completed on January 1, 2011, DWS Capital Growth VIP's pro forma results of operations for the period ending June 30, 2011, are as follows:
Net investment income* | | $ | 2,467,086 | |
| Net gain (loss) on investments | | | 31,145,502 | |
| Net increase (decrease) in net assets resulting from operations | | | 33,612,588 | |
* Net investment income includes $157,183 of pro forma eliminated expenses.
The Series' policies and procedures for voting proxies for portfolio securities and information about how the Series voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the Series' policies and procedures without charge, upon request, call us toll free at (800) 728-3337.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 3, 2010
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2010, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007, 2008, and 2009.
Qualifications
For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past ten years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds and have served in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 118 publicly offered Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Fund. These similar products included the other DWS Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Funds are reasonable.
Thomas H. Mack
DWS Investments Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 621-1148
VS1capgro-3 (R-023164-1 8/11)
JUNE 30, 2011
SEMIANNUAL REPORT
DWS VARIABLE SERIES I
DWS Global Small Cap Growth VIP
(formerly DWS Global Opportunities VIP)
Contents
4 Information About Your Fund's Expenses 10 Statement of Assets and Liabilities 11 Statement of Operations 12 Statement of Changes in Net Assets 16 Notes to Financial Statements 20 Summary of Management Fee Evaluation by Independent Fee Consultant |
This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund's objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.
Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Stocks of smaller companies involve greater risk than securities of larger, more-established companies. Stocks may decline in value. See the prospectus for details.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary June 30, 2011
Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2011 are 1.12% and 1.34% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.
| Growth of an Assumed $10,000 Investment |
[] DWS Global Small Cap Growth VIP — Class A [] S&P® Developed SmallCap Index | The S&P® Developed SmallCap Index is an unmanaged index of small-capitalization stocks within 26 countries around the globe. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index. |
| |
| Yearly periods ended June 30 | |
| Comparative Results |
| DWS Global Small Cap Growth VIP | 6-Month‡ | 1-Year | 3-Year | 5-Year | 10-Year |
| Class A | Growth of $10,000 | $10,518 | $13,779 | $11,119 | $12,374 | $20,737 |
| Average annual total return | 5.18% | 37.79% | 3.60% | 4.35% | 7.57% |
| S&P Developed SmallCap Index | Growth of $10,000 | $10,681 | $13,870 | $11,413 | $12,470 | $23,573 |
| Average annual total return | 6.81% | 38.70% | 4.50% | 4.51% | 8.95% |
| DWS Global Small Cap Growth VIP | 6-Month‡ | 1-Year | 3-Year | 5-Year | 10-Year |
| Class B | Growth of $10,000 | $10,508 | $13,753 | $11,015 | $12,180 | $20,221 |
| Average annual total return | 5.08% | 37.53% | 3.27% | 4.02% | 7.29% |
| S&P Developed SmallCap Index | Growth of $10,000 | $10,681 | $13,870 | $11,413 | $12,470 | $23,573 |
| Average annual total return | 6.81% | 38.70% | 4.50% | 4.51% | 8.95% |
The growth of $10,000 is cumulative.
‡ Total returns shown for periods less than one year are not annualized.
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (January 1, 2011 to June 30, 2011).
The tables illustrate your Fund's expenses in two ways:
•Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
• Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended June 30, 2011 | |
| Actual Fund Return | | Class A | | | Class B | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,051.80 | | | $ | 1,050.80 | |
| Expenses Paid per $1,000* | | $ | 5.09 | | | $ | 6.41 | |
| Hypothetical 5% Fund Return | | Class A | | | Class B | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,019.84 | | | $ | 1,018.55 | |
| Expenses Paid per $1,000* | | $ | 5.01 | | | $ | 6.31 | |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
| Annualized Expense Ratios | Class A | | Class B | |
| DWS Variable Series I — DWS Global Small Cap Growth VIP | 1.00% | | 1.26% | |
For more information, please refer to the Fund's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 6/30/11 | 12/31/10 |
| | | |
| Common Stocks | 97% | 99% |
| Cash Equivalents | 3% | 1% |
| | 100% | 100% |
Geographical Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral) | 6/30/11 | 12/31/10 |
| | | |
| United States | 43% | 40% |
| Continental Europe | 22% | 21% |
| Pacific Basin | 13% | 15% |
| United Kingdom | 8% | 9% |
| Japan | 7% | 8% |
| Australia | 2% | 2% |
| Canada | 2% | 2% |
| Latin America | 1% | 1% |
| Other | 2% | 2% |
| | 100% | 100% |
Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral) | 6/30/11 | 12/31/10 |
| | | |
| Industrials | 22% | 22% |
| Consumer Discretionary | 18% | 18% |
| Health Care | 17% | 14% |
| Information Technology | 15% | 15% |
| Financials | 10% | 12% |
| Energy | 9% | 8% |
| Consumer Staples | 5% | 5% |
| Materials | 4% | 6% |
| | 100% | 100% |
Asset allocation, geographical diversification and sector diversification are subject to change.
For more complete details about the Fund's investment portfolio, see page 6.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. The Fund's portfolio holdings are also posted on www.dws-investments.com from time to time. Please see the Fund's current prospectus for more information.
Investment Portfolio June 30, 2011 (Unaudited) | | | Shares | | | Value ($) | |
| | | | |
| Common Stocks 96.8% | |
| Australia 1.5% | |
| Austal Ltd. | | | 317,365 | | | | 948,056 | |
| Lynas Corp., Ltd.* | | | 622,982 | | | | 1,356,424 | |
| (Cost $977,234) | | | | 2,304,480 | |
| Austria 0.9% | |
| Andritz AG (Cost $1,240,572) | | | 14,123 | | | | 1,454,202 | |
| Bermuda 0.6% | |
| Lazard Ltd. "A" (a) (Cost $656,160) | | | 26,900 | | | | 997,990 | |
| Brazil 1.0% | |
| Fleury SA (Cost $1,245,600) | | | 106,204 | | | | 1,546,802 | |
| Canada 1.5% | |
| SunOpta, Inc.* | | | 230,568 | | | | 1,639,339 | |
| Thompson Creek Metals Co., Inc.* | | | 73,091 | | | | 729,448 | |
| (Cost $2,459,110) | | | | 2,368,787 | |
| Channel Islands 1.1% | |
| Charter International PLC | | | 63,580 | | | | 808,259 | |
| Randgold Resources Ltd. (ADR) (b) | | | 11,627 | | | | 977,249 | |
| (Cost $1,508,076) | | | | 1,785,508 | |
| China 2.4% | |
| Charm Communications, Inc. (ADR)* | | | 72,867 | | | | 867,117 | |
| Minth Group Ltd. | | | 1,173,988 | | | | 1,905,122 | |
| NetQin Mobile, Inc. (ADR)* (c) | | | 34,911 | | | | 192,011 | |
| VanceInfo Technologies, Inc. (ADR)* | | | 34,175 | | | | 789,784 | |
| (Cost $1,937,890) | | | | 3,754,034 | |
| Cyprus 0.5% | |
| ProSafe SE (d) (Cost $668,450) | | | 102,813 | | | | 774,059 | |
| France 1.6% | |
| Flamel Technologies SA (ADR)* | | | 167,113 | | | | 894,055 | |
| JC Decaux SA* | | | 44,410 | | | | 1,422,653 | |
| Meetic* | | | 10,627 | | | | 230,574 | |
| (Cost $3,407,282) | | | | 2,547,282 | |
| Germany 6.4% | |
| Fresenius Medical Care AG & Co. KGaA | | | 69,091 | | | | 5,165,641 | |
| M.A.X. Automation AG | | | 232,043 | | | | 1,682,307 | |
| Rational AG | | | 5,948 | | | | 1,567,592 | |
| United Internet AG (Registered) | | | 77,391 | | | | 1,626,686 | |
| (Cost $2,434,825) | | | | 10,042,226 | |
| Gibraltar 0.3% | |
| Bwin.Party Digital Entertainment PLC* (Cost $874,189) | | | 211,754 | | | | 510,778 | |
| Hong Kong 4.7% | |
| Dah Sing Banking Group Ltd. | | | 518,739 | | | | 730,108 | |
| EVA Precision Industrial Holdings Ltd. (e) | | | 5,174,015 | | | | 1,590,398 | |
| K Wah International Holdings Ltd. | | | 3,498,956 | | | | 1,296,231 | |
| Kingboard Chemical Holdings Ltd. | | | 286,377 | | | | 1,335,082 | |
| REXLot Holdings Ltd. (e) | | | 15,603,668 | | | | 1,509,066 | |
| Shui On Construction & Materials Ltd. | | | 648,348 | | | | 872,097 | |
| (Cost $5,267,679) | | | | 7,332,982 | |
| India 0.0% | |
| Magma Fincorp Ltd. (Cost $12,952) | | | 8,821 | | | | 14,444 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Ireland 3.5% | |
| C&C Group PLC (f) | | | 144,956 | | | | 756,337 | |
| C&C Group PLC (f) | | | 185,737 | | | | 966,592 | |
| Paddy Power PLC | | | 38,975 | | | | 2,118,171 | |
| Ryanair Holdings PLC (f) | | | 2,200 | | | | 11,335 | |
| Ryanair Holdings PLC (f) | | | 307,920 | | | | 1,577,159 | |
| (Cost $3,032,718) | | | | 5,429,594 | |
| Israel 0.6% | |
| EZchip Semiconductor Ltd.* (a) (Cost $805,984) | | | 23,811 | | | | 880,293 | |
| Italy 0.6% | |
| Prysmian SpA (Cost $837,686) | | | 46,571 | | | | 936,755 | |
| Japan 7.1% | |
| Digital Garage, Inc.* | | | 231 | | | | 943,611 | |
| Hajime Construction Co., Ltd. | | | 42,681 | | | | 1,129,006 | |
| Internet Initiative Japan, Inc. | | | 293 | | | | 1,135,773 | |
| JFE Shoji Holdings, Inc. | | | 178,014 | | | | 872,284 | |
| MISUMI Group, Inc. | | | 63,107 | | | | 1,634,084 | |
| Nippon Seiki Co., Ltd. | | | 104,513 | | | | 1,386,432 | |
| Star Micronics Co., Ltd. | | | 76,798 | | | | 910,767 | |
| Sumikin Bussan Corp. | | | 371,764 | | | | 902,485 | |
| Universal Entertainment Corp. | | | 67,834 | | | | 2,266,071 | |
| (Cost $7,932,190) | | | | 11,180,513 | |
| Korea 0.8% | |
| DGB Financial Group, Inc.* (Cost $1,287,209) | | | 86,307 | | | | 1,309,580 | |
| Luxembourg 0.6% | |
| L'Occitane International SA* (Cost $672,957) | | | 335,532 | | | | 898,321 | |
| Netherlands 4.1% | |
| Brunel International NV | | | 22,689 | | | | 1,000,907 | |
| Chicago Bridge & Iron Co. NV (g) | | | 47,789 | | | | 1,858,992 | |
| Koninklijke Vopak NV | | | 32,153 | | | | 1,575,603 | |
| SBM Offshore NV | | | 73,545 | | | | 1,945,455 | |
| (Cost $2,597,813) | | | | 6,380,957 | |
| Philippines 0.5% | |
| Cebu Air, Inc. (Cost $1,093,752) | | | 403,406 | | | | 849,001 | |
| Singapore 2.3% | |
| Amtek Engineering Ltd.* | | | 1,482,234 | | | | 1,197,197 | |
| UOB-Kay Hian Holdings Ltd. | | | 578,390 | | | | 763,405 | |
| Venture Corp., Ltd. | | | 165,438 | | | | 1,151,876 | |
| Yongnam Holdings Ltd. | | | 2,665,927 | | | | 577,128 | |
| (Cost $3,233,713) | | | | 3,689,606 | |
| South Africa 0.4% | |
| Northam Platinum Ltd. (Cost $724,060) | | | 106,933 | | | | 672,983 | |
| Spain 0.5% | |
| Tecnicas Reunidas SA (Cost $812,339) | | | 13,884 | | | | 714,465 | |
| Switzerland 1.0% | |
| Partners Group Holding AG (Cost $521,648) | | | 8,555 | | | | 1,514,133 | |
| Taiwan 0.9% | |
| E Ink Holdings, Inc.* (Cost $1,473,862) | | | 742,989 | | | | 1,400,947 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Thailand 0.5% | |
| Kiatnakin Bank PCL (Foreign Registered) (Cost $623,990) | | | 741,741 | | | | 796,662 | |
| United Arab Emirates 0.8% | |
| Lamprell PLC (Cost $659,259) | | | 217,457 | | | | 1,317,265 | |
| United Kingdom 8.2% | |
| Aegis Group PLC | | | 273,649 | | | | 702,370 | |
| ARM Holdings PLC | | | 174,989 | | | | 1,654,971 | |
| Ashmore Group PLC | | | 313,127 | | | | 2,001,332 | |
| Babcock International Group PLC | | | 178,266 | | | | 2,036,907 | |
| Burberry Group PLC | | | 50,916 | | | | 1,183,797 | |
| Domino's Pizza UK & IRL PLC | | | 142,859 | | | | 925,644 | |
| ICAP PLC | | | 98,470 | | | | 747,247 | |
| John Wood Group PLC | | | 121,019 | | | | 1,258,323 | |
| Rotork PLC | | | 45,773 | | | | 1,238,659 | |
| Serco Group PLC | | | 118,277 | | | | 1,048,223 | |
| (Cost $6,918,978) | | | | 12,797,473 | |
| United States 41.9% | |
| Accuray, Inc.* | | | 123,995 | | | | 993,200 | |
| Advance Auto Parts, Inc. | | | 17,884 | | | | 1,046,035 | |
| Aecom Technology Corp.* | | | 47,758 | | | | 1,305,704 | |
| Aeropostale, Inc.* | | | 53,258 | | | | 932,015 | |
| Affiliated Managers Group, Inc.* | | | 9,854 | | | | 999,688 | |
| Altra Holdings, Inc.* | | | 43,108 | | | | 1,034,161 | |
| Approach Resources, Inc.* | | | 32,177 | | | | 729,453 | |
| BE Aerospace, Inc.* | | | 41,384 | | | | 1,688,881 | |
| BorgWarner, Inc.* | | | 20,696 | | | | 1,672,030 | |
| Cardtronics, Inc.* | | | 70,944 | | | | 1,663,637 | |
| Centene Corp.* | | | 48,940 | | | | 1,738,838 | |
| Central European Distribution Corp. (h) | | | 23,827 | | | | 266,862 | |
| Cliffs Natural Resources, Inc. | | | 9,557 | | | | 883,545 | |
| Cloud Peak Energy, Inc.* | | | 41,811 | | | | 890,574 | |
| Cognex Corp. | | | 30,503 | | | | 1,080,721 | |
| Complete Production Services, Inc.* | | | 40,209 | | | | 1,341,372 | |
| CONMED Corp.* | | | 29,715 | | | | 846,283 | |
| Deckers Outdoor Corp.* | | | 29,553 | | | | 2,604,801 | |
| Diamond Foods, Inc. | | | 34,586 | | | | 2,640,295 | |
| Dresser-Rand Group, Inc.* | | | 27,393 | | | | 1,472,374 | |
| FSI International, Inc.* | | | 193,500 | | | | 530,190 | |
| Green Mountain Coffee Roasters, Inc.* | | | 17,602 | | | | 1,571,155 | |
| Guess?, Inc. | | | 30,700 | | | | 1,291,242 | |
| Harris Corp. | | | 23,156 | | | | 1,043,409 | |
| hhgregg, Inc.* | | | 50,566 | | | | 677,584 | |
| Itron, Inc.* | | | 26,506 | | | | 1,276,529 | |
| Jarden Corp. | | | 23,400 | | | | 807,534 | |
| Jefferies Group, Inc. | | | 56,400 | | | | 1,150,560 | |
| Joy Global, Inc. | | | 9,018 | | | | 858,874 | |
| Kinetic Concepts, Inc.* | | | 23,454 | | | | 1,351,654 | |
| Lam Research Corp.* | | | 14,827 | | | | 656,540 | |
| Life Technologies Corp.* | | | 29,757 | | | | 1,549,447 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Merit Medical Systems, Inc.* | | | 22,210 | | | | 399,114 | |
| Metabolix, Inc.* | | | 45,129 | | | | 322,221 | |
| NIC, Inc. | | | 78,307 | | | | 1,054,012 | |
| Northern Oil & Gas, Inc.* | | | 38,325 | | | | 848,899 | |
| NxStage Medical, Inc.* | | | 65,965 | | | | 1,373,391 | |
| Oil States International, Inc.* | | | 10,395 | | | | 830,665 | |
| Onyx Pharmaceuticals, Inc.* | | | 22,124 | | | | 780,977 | |
| Pacira Pharmaceuticals. Inc.* | | | 110,748 | | | | 1,328,976 | |
| Prosperity Bancshares, Inc. | | | 28,851 | | | | 1,264,251 | |
| Questcor Pharmaceuticals, Inc.* | | | 100,242 | | | | 2,415,832 | |
| Rovi Corp.* | | | 22,959 | | | | 1,316,928 | |
| Schweitzer-Mauduit International, Inc. | | | 24,006 | | | | 1,347,937 | |
| Sirona Dental Systems, Inc.* | | | 17,953 | | | | 953,304 | |
| Stericycle, Inc.* | | | 17,342 | | | | 1,545,519 | |
| STR Holdings, Inc.* | | | 43,575 | | | | 650,139 | |
| SXC Health Solutions Corp.* | | | 34,777 | | | | 2,049,061 | |
| Sycamore Networks, Inc. | | | 30,900 | | | | 687,216 | |
| Thoratec Corp.* | | | 56,361 | | | | 1,849,768 | |
| TiVo, Inc.* | | | 72,127 | | | | 742,187 | |
| Ultra Petroleum Corp.* | | | 16,871 | | | | 772,692 | |
| Urban Outfitters, Inc.* | | | 41,483 | | | | 1,167,747 | |
| VeriFone Systems, Inc.* | | | 16,789 | | | | 744,592 | |
| VIVUS, Inc.* | | | 86,066 | | | | 700,577 | |
| Waddell & Reed Financial, Inc. "A" | | | 26,407 | | | | 959,895 | |
| Zions Bancorp. | | | 41,408 | | | | 994,206 | |
| (Cost $44,364,345) | | | | 65,695,293 | |
Total Common Stocks (Cost $100,282,522) | | | | 151,897,415 | |
| | |
| Warrants 0.0% | |
| Hong Kong | |
| Kingboard Chemical Holdings Ltd. Expiration Date 10/31/2012* (Cost $0) | | | 39,014 | | | | 20,305 | |
| | |
| Securities Lending Collateral 0.2% | |
| Daily Assets Fund Institutional, 0.13% (i) (j) (Cost $183,350) | | | 183,350 | | | | 183,350 | |
| | |
| Cash Equivalents 2.7% | |
| Central Cash Management Fund, 0.11% (i) (Cost $4,251,033) | | | 4,251,033 | | | | 4,251,033 | |
| | | % of Net Assets | | | Value ($) | |
| | | | |
Total Investment Portfolio (Cost $104,716,905)+ | | | 99.7 | | | | 156,352,103 | |
| Other Assets and Liabilities, Net | | | 0.3 | | | | 548,446 | |
| Net Assets | | | 100.0 | | | | 156,900,549 | |
* Non-income producing security.
+ The cost for federal income tax purposes was $107,370,223. At June 30, 2011, net unrealized appreciation for all securities based on tax cost was $48,981,880. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $57,856,526 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $8,874,646.
(a) Listed on the NASDAQ Stock Market, Inc.
(b) Security is listed in country of domicile. Significant business activities of the company are in Africa.
(c) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at June 30, 2011 amounted to $175,379, which is 0.1% of net assets.
(d) Security is listed in country of domicile. Significant business activities of the company are in Norway.
(e) Security is listed in country of domicile. Significant business activities of the company are in China.
(f) Securities with the same description are the same corporate entity but trade on different stock exchanges.
(g) Listed on the New York Stock Exchange.
(h) Security is listed in country of domicile. Significant business activities of the company are in Poland.
(i) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(j) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.
ADR: American Depositary Receipt
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of June 30, 2011 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.
| Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | |
| Common Stocks & Warrants | | | | | | | | | | | | |
| Australia | | $ | — | | | $ | 2,304,480 | | | $ | — | | | $ | 2,304,480 | |
| Austria | | | — | | | | 1,454,202 | | | | — | | | | 1,454,202 | |
| Bermuda | | | 997,990 | | | | — | | | | — | | | | 997,990 | |
| Brazil | | | 1,546,802 | | | | — | | | | — | | | | 1,546,802 | |
| Canada | | | 2,368,787 | | | | — | | | | — | | | | 2,368,787 | |
| Channel Islands | | | 977,249 | | | | 808,259 | | | | — | | | | 1,785,508 | |
| China | | | 1,848,912 | | | | 1,905,122 | | | | — | | | | 3,754,034 | |
| Cyprus | | | — | | | | 774,059 | | | | — | | | | 774,059 | |
| France | | | 894,055 | | | | 1,653,227 | | | | — | | | | 2,547,282 | |
| Germany | | | — | | | | 10,042,226 | | | | — | | | | 10,042,226 | |
| Gibraltar | | | — | | | | 510,778 | | | | — | | | | 510,778 | |
| Hong Kong | | | — | | | | 7,353,287 | | | | — | | | | 7,353,287 | |
| India | | | — | | | | 14,444 | | | | — | | | | 14,444 | |
| Ireland | | | — | | | | 5,429,594 | | | | — | | | | 5,429,594 | |
| Israel | | | 880,293 | | | | — | | | | — | | | | 880,293 | |
| Italy | | | — | | | | 936,755 | | | | — | | | | 936,755 | |
| Japan | | | — | | | | 11,180,513 | | | | — | | | | 11,180,513 | |
| Korea | | | — | | | | 1,309,580 | | | | — | | | | 1,309,580 | |
| Luxembourg | | | — | | | | 898,321 | | | | — | | | | 898,321 | |
| Netherlands | | | 1,858,992 | | | | 4,521,965 | | | | — | | | | 6,380,957 | |
| Philippines | | | — | | | | 849,001 | | | | — | | | | 849,001 | |
| Singapore | | | — | | | | 3,689,606 | | | | — | | | | 3,689,606 | |
| South Africa | | | — | | | | 672,983 | | | | — | | | | 672,983 | |
| Spain | | | — | | | | 714,465 | | | | — | | | | 714,465 | |
| Switzerland | | | — | | | | 1,514,133 | | | | — | | | | 1,514,133 | |
| Taiwan | | | — | | | | 1,400,947 | | | | — | | | | 1,400,947 | |
| Thailand | | | — | | | | 796,662 | | | | — | | | | 796,662 | |
| United Arab Emirates | | | — | | | | 1,317,265 | | | | — | | | | 1,317,265 | |
| United Kingdom | | | — | | | | 12,797,473 | | | | — | | | | 12,797,473 | |
| United States | | | 65,695,293 | | | | — | | | | — | | | | 65,695,293 | |
| Short-Term Investments (k) | | | 4,434,383 | | | | — | | | | — | | | | 4,434,383 | |
| Total | | $ | 81,502,756 | | | $ | 74,849,347 | | | $ | — | | | $ | 156,352,103 | |
There have been no transfers between Level 1 and Level 2 fair value measurements during the period ended June 30, 2011.
(k) See Investment Portfolio for additional detailed categorizations.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities | as of June 30, 2011 (Unaudited) | |
| Assets | |
Investments: Investments in non-affiliated securities, at value (cost $100,282,522) — including $175,379 of securities loaned | | $ | 151,917,720 | |
| Investment in Daily Assets Fund Institutional (cost $183,350)* | | | 183,350 | |
| Investment in Central Cash Management Fund (cost $4,251,033) | | | 4,251,033 | |
| Total investments, at value (cost $104,716,905) | | | 156,352,103 | |
| Foreign currency, at value (cost $269,188) | | | 272,687 | |
| Receivable for investments sold | | | 875,277 | |
| Receivable for Fund shares sold | | | 2,753 | |
| Interest receivable | | | 6,419 | |
| Dividends receivable | | | 75,600 | |
| Foreign taxes recoverable | | | 55,385 | |
| Other assets | | | 1,146 | |
| Total assets | | | 157,641,370 | |
| Liabilities | |
| Payable upon return of securities loaned | | | 183,350 | |
| Payable for investments purchased | | | 130,858 | |
| Payable for Fund shares redeemed | | | 268,119 | |
| Accrued management fee | | | 78,353 | |
| Other accrued expenses and payables | | | 80,141 | |
| Total liabilities | | | 740,821 | |
| Net assets, at value | | $ | 156,900,549 | |
| Net Assets Consist of | |
| Distributions in excess of net investment income | | | (1,423,330 | ) |
Net unrealized appreciation (depreciation) on: Investments | | | 51,635,198 | |
| Foreign currency | | | 7,977 | |
| Accumulated net realized gain (loss) | | | 3,775,736 | |
| Paid-in capital | | | 102,904,968 | |
| Net assets, at value | | $ | 156,900,549 | |
Class A Net Asset Value, offering and redemption price per share ($154,570,059 ÷ 10,450,758 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 14.79 | |
Class B Net Asset Value, offering and redemption price per share ($2,330,490 ÷ 160,187 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 14.55 | |
* Represents collateral of securities loaned.
The accompanying notes are an integral part of the financial statements.
Statement of Operations
| for the six months ended June 30, 2011 (Unaudited) | |
| Investment Income | |
Income: Dividends (net of foreign taxes withheld of $83,705) | | $ | 1,078,968 | |
| Income distributions — Central Cash Management Fund | | | 2,774 | |
| Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | | | 64,748 | |
| Total income | | | 1,146,490 | |
Expenses: Management fee | | | 704,743 | |
| Administration fee | | | 78,977 | |
| Services to shareholders | | | 2,325 | |
| Custodian fee | | | 19,493 | |
| Distribution service fee (Class B) | | | 2,862 | |
| Professional fees | | | 26,737 | |
| Reports to shareholders | | | 17,812 | |
| Trustees' fees and expenses | | | 3,440 | |
| Other | | | 34,171 | |
| Total expenses before expense reductions | | | 890,560 | |
| Expense reductions | | | (97,829 | ) |
| Total expenses after expense reductions | | | 792,731 | |
| Net investment income (loss) | | | 353,759 | |
| Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | | | 14,097,798 | |
| Foreign currency | | | 12,617 | |
| | | | 14,110,415 | |
Change in net unrealized appreciation (depreciation) on: Investments (including deferred foreign taxes credit of $664) | | | (6,478,634 | ) |
| Foreign currency | | | 1,307 | |
| | | | (6,477,327 | ) |
| Net gain (loss) | | | 7,633,088 | |
| Net increase (decrease) in net assets resulting from operations | | $ | 7,986,847 | |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | Increase (Decrease) in Net Assets | | Six Months Ended June 30, 2011 (Unaudited) | | | Year Ended December 31, 2010 | |
Operations: Net investment income (loss) | | $ | 353,759 | | | $ | 589,628 | |
| Net realized gain (loss) | | | 14,110,415 | | | | 13,410,313 | |
| Change in net unrealized appreciation (depreciation) | | | (6,477,327 | ) | | | 20,284,923 | |
| Net increase (decrease) in net assets resulting from operations | | | 7,986,847 | | | | 34,284,864 | |
Distributions to shareholders from: Net investment income: Class A | | | (2,513,532 | ) | | | (567,314 | ) |
| Class B | | | (31,935 | ) | | | (5,306 | ) |
| Total distributions | | | (2,545,467 | ) | | | (572,620 | ) |
Fund share transactions: Class A Proceeds from shares sold | | | 4,786,111 | | | | 13,029,724 | |
| Reinvestment of distributions | | | 2,513,532 | | | | 567,314 | |
| Payments for shares redeemed | | | (15,808,183 | ) | | | (27,999,087 | ) |
| Net increase (decrease) in net assets from Class A share transactions | | | (8,508,540 | ) | | | (14,402,049 | ) |
Class B Proceeds from shares sold | | | 77,779 | | | | 260,167 | |
| Reinvestment of distributions | | | 31,935 | | | | 5,306 | |
| Payments for redeemed | | | (159,311 | ) | | | (5,280,324 | ) |
| Net increase (decrease) in net assets from Class B share transactions | | | (49,597 | ) | | | (5,014,851 | ) |
| Increase (decrease) in net assets | | | (3,116,757 | ) | | | 14,295,344 | |
| Net assets at beginning of period | | | 160,017,306 | | | | 145,721,962 | |
| Net assets at end of period (including distributions in excess of investment income of $1,423,330 and undistributed net investment income of $768,378, respectively) | | $ | 156,900,549 | | | $ | 160,017,306 | |
| Other Information | |
Class A Shares outstanding at beginning of period | | | 11,043,518 | | | | 12,301,988 | |
| Shares sold | | | 331,440 | | | | 1,052,936 | |
| Shares issued to shareholders in reinvestment of distributions | | | 165,582 | | | | 46,236 | |
| Shares redeemed | | | (1,089,782 | ) | | | (2,357,642 | ) |
| Net increase (decrease) in Class A shares | | | (592,760 | ) | | | (1,258,470 | ) |
| Shares outstanding at end of period | | | 10,450,758 | | | | 11,043,518 | |
Class B Shares outstanding at beginning of period | | | 163,772 | | | | 586,186 | |
| Shares sold | | | 5,488 | | | | 22,014 | |
| Shares issued to shareholders in reinvestment of distributions | | | 2,139 | | | | 439 | |
| Shares redeemed | | | (11,212 | ) | | | (444,867 | ) |
| Net increase (decrease) in Class B shares | | | (3,585 | ) | | | (422,414 | ) |
| Shares outstanding at end of period | | | 160,187 | | | | 163,772 | |
The accompanying notes are an integral part of the financial statements.
| Class A | Six Months Ended 6/30/11 (Unaudited) | Years Ended December 31, |
| 2010 | 2009 | 2008 | 2007 | 2006 |
| Selected Per Share Data |
| Net asset value, beginning of period | $14.28 | $ 11.32 | $ 7.79 | $ 18.28 | $ 18.15 | $ 15.00 |
Income (loss) from investment operations: Net investment income (loss)a | .03 | .05 | .04 | .20d | .08d | .03c |
| Net realized and unrealized gain (loss) | .72 | 2.96 | 3.64 | (8.18) | 1.61 | 3.28 |
| Total from investment operations | .75 | 3.01 | 3.68 | (7.98) | 1.69 | 3.31 |
Less distributions from: Net investment income | (.24) | (.05) | (.15) | (.04) | (.23) | (.16) |
| Net realized gains | — | — | — | (2.47) | (1.33) | — |
| Total distributions | (.24) | (.05) | (.15) | (2.51) | (1.56) | (.16) |
| Net asset value, end of period | $ 14.79 | $ 14.28 | $ 11.32 | $ 7.79 | $ 18.28 | $ 18.15 |
| Total Return (%) | 5.18b** | 26.64b | 48.20b | (49.96)b | 9.33b | 22.08c |
| Ratios to Average Net Assets and Supplemental Data |
| Net assets, end of period ($ millions) | 155 | 158 | 139 | 117 | 310 | 331 |
| Ratio of expenses before expense reductions (%) | 1.12* | 1.12 | 1.11 | 1.11 | 1.14 | 1.12 |
| Ratio of expenses after expense reductions (%) | 1.00* | 1.04 | .99 | .99 | 1.12 | 1.12 |
| Ratio of net investment income (loss) (%) | .45* | .42 | .47 | 1.53d | .45d | .16c |
| Portfolio turnover rate (%) | 15** | 39 | 53 | 21 | 19 | 28 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Funds. The non-recurring income resulted in an increase in net investment income of $0.002 per share and an increase in the ratio of net investment income of 0.01%. Excluding this non-recurring income, total return would have been 0.01% lower. d Net investment income per share and the ratio of net investment income include non-recurring dividend income amounting to $0.05 and $0.02 per share and 0.37% and 0.09% of average daily net assets for the years ended December 31, 2008 and 2007, respectively. * Annualized ** Not annualized |
| Class B | Six Months Ended 6/30/11 (Unaudited) | Years Ended December 31, |
| 2010 | 2009 | 2008 | 2007 | 2006 |
| Selected Per Share Data |
| Net asset value, beginning of period | $14.03 | $ 11.11 | $ 7.65 | $ 18.03 | $ 17.93 | $ 14.84 |
Income (loss) from investment operations: Net investment income (loss)a | .02 | .03 | .02 | .16d | .01d | (.00)c*** |
| Net realized and unrealized gain (loss) | .70 | 2.90 | 3.57 | (8.07) | 1.61 | 3.24 |
| Total from investment operations | .72 | 2.93 | 3.59 | (7.91) | 1.62 | 3.24 |
Less distributions from: Net investment income | (.20) | (.01) | (.13) | — | (.19) | (.15) |
| Net realized gains | — | — | — | (2.47) | (1.33) | — |
| Total distributions | (.20) | (.01) | (.13) | (2.47) | (1.52) | (.15) |
| Net asset value, end of period | $ 14.55 | $ 14.03 | $ 11.11 | $ 7.65 | $ 18.03 | $ 17.93 |
Total Return (%)b | 5.08** | 26.38 | 47.66 | (50.16) | 8.92 | 21.88c |
| Ratios to Average Net Assets and Supplemental Data |
| Net assets, end of period ($ millions) | 2 | 2 | 7 | 5 | 12 | 37 |
| Ratio of expenses before expense reductions (%) | 1.38* | 1.34 | 1.42 | 1.42 | 1.53 | 1.51 |
| Ratio of expenses after expense reductions (%) | 1.26* | 1.26 | 1.30 | 1.30 | 1.50 | 1.31 |
| Ratio of net investment income (loss) (%) | .19* | .20 | .16 | 1.21d | .07d | (.03)c |
| Portfolio turnover rate (%) | 15** | 39 | 53 | 21 | 19 | 28 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Funds. The non-recurring income resulted in an increase in net investment income of $0.002 per share and an increase in the ratio of net investment income of 0.01%. Excluding this non-recurring income, total return would have been 0.01% lower. d Net investment income per share and the ratio of net investment income include non-recurring dividend income amounting to $0.05 and $0.02 per share and 0.37% and 0.09% of average daily net assets for the years ended December 31, 2008 and 2007, respectively. * Annualized ** Not annualized *** Amount is less than $.005. |
Notes to Financial Statements (Unaudited)
A. Organization and Significant Accounting Policies
DWS Variable Series I (the "Series") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, registered management investment company organized as a Massachusetts business trust. The Series consists of five diversified funds: DWS Bond VIP, DWS Growth & Income VIP, DWS Capital Growth VIP, DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP) and DWS International VIP (individually or collectively hereinafter referred to as a "Fund" or the "Funds"). These financial statements report on DWS Global Small Cap Growth VIP. The Series is intended to be the underlying investment vehicle for variable annuity contracts and variable life insurance policies to be offered by the separate accounts of certain life insurance companies ("Participating Insurance Companies").
Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Class B shares are subject to Rule 12b-1 distribution fees under the 1940 Act.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class (including the applicable 12b-1 distribution fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.
The Series' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Series in the preparation of the financial statements for its Funds.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which they trade and are categorized as Level 1 securities. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. For certain international equity securities, in order to adjust for events which may occur between the close of the foreign exchanges and the close of the New York Stock Exchange, a fair valuation model may be used. This fair valuation model takes into account comparisons to the valuation of American Depository Receipts (ADRs), exchange-traded funds, futures contracts and certain indices and these securities are categorized as Level 2.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost, which approximates value, and are categorized as Level 2. Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities; the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.
Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.
Securities Lending. The Fund lends securities to certain financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
Taxes. The Fund is treated as a separate taxpayer as provided for in the Internal Revenue Code, as amended. It is the Fund's policy to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to the separate accounts of the Participating Insurance Companies which hold its shares.
Additionally, based on the Series' understanding of the tax rules and rates related to income, gains and transactions for the foreign jurisdictions in which the Fund invests, the Fund will provide for foreign taxes, and where appropriate, deferred foreign taxes.
At December 31, 2010, the Fund had a net tax basis capital loss carryforward of approximately $9,364,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2017 (the expiration date), whichever occurs first.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the "Act") was enacted. Under the Act, net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. As a result of this ordering rule, pre-enactment capital loss carryforwards may expire unused, whereas under the previous rules these losses may have been utilized. This change is effective for fiscal years beginning after the date of enactment.
The Fund has reviewed the tax positions for the open tax years as of December 31, 2010 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. The Fund will declare and distribute dividends from its net investment income, if any, annually, although additional distributions may be made if necessary. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to investments in foreign denominated investments, passive foreign investment companies and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Expenses. Expenses of the Series arising in connection with a specific Fund are allocated to that Fund. Other Series expenses which cannot be directly attributed to a Fund are apportioned among the Funds in the Series.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis net of foreign withholding taxes. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis and may include proceeds from litigation.
B. Purchases and Sales of Securities
During the six months ended June 30, 2011, purchases and sales of investment securities (excluding short-term investments) aggregated $23,103,690 and $37,514,779, respectively.
C. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.
Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:
| First $500 million of average daily net assets | .890% |
| Next $500 million of average daily net assets | .875% |
| Next $1 billion of average daily net assets | .860% |
| Over $2 billion of average daily net assets | .845% |
For the period from January 1, 2011 through September 30, 2011, the Advisor, the underwriter and accounting agent contractually agreed to waive a portion of their fee to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:
Accordingly, for the six months ended June 30, 2011, the Advisor waived a portion of its management fee pursuant to the Investment Management Agreement aggregating $97,582, and the amount charged aggregated $607,161, which was equivalent to an annualized effective rate of 0.77% of the Fund's average daily net assets.
Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Series. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the six months ended June 30, 2011, the Administration Fee was $78,977, of which $12,675 is unpaid.
Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Series. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended June 30, 2011, the amounts charged to the Fund by DISC were as follows:
| Services to Shareholders | | Total Aggregated | | | Waived | | | Unpaid at June 30, 2011 | |
| Class A | | $ | 247 | | | | 247 | | | $ | — | |
| Class B | | | 57 | | | | — | | | | 37 | |
| | | $ | 304 | | | $ | 247 | | | $ | 37 | |
Distribution Service Agreement. DWS Investments Distributors, Inc. ("DIDI"), also an affiliate of the Advisor, is the Series' Distributor. In accordance with the Master Distribution Plan, DIDI receives 12b-1 fees of 0.25% of average daily net assets of Class B shares. Pursuant to the Master Distribution Plan, DIDI remits these fees to the Participating Insurance Companies for various costs incurred or paid by these companies in connection with marketing and distribution of Class B shares. For the six months ended June 30, 2011, the Distribution Service Fee aggregated $2,862, of which $467 is unpaid.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended June 30, 2011, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $8,855, of which $801 is unpaid.
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Affiliated Cash Management Vehicle. The Fund may invest uninvested cash balances in Central Cash Management Fund, which is managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of Central Cash Management Fund. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.
D. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not typically associated with investing in developed markets. These risks include revaluation of currencies, high rates of inflation or deflation, repatriation restrictions on income and capital, and future adverse political, social and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls or delayed settlements and may have prices more volatile or less easily assessed than those of comparable securities of issuers in developed markets.
E. Ownership of the Fund
Three participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 48%, 20% and 11%. One participating insurance company was an owner of record of 10% or more of the total outstanding Class B shares of the Fund, owning 92%.
F. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $450 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at June 30, 2011.
The Series' policies and procedures for voting proxies for portfolio securities and information about how the Series voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the Series' policies and procedures without charge, upon request, call us toll free at (800) 728-3337.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 3, 2010
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2010, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007, 2008, and 2009.
Qualifications
For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past ten years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds and have served in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 118 publicly offered Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Fund. These similar products included the other DWS Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Funds are reasonable.
Thomas H. Mack
DWS Investments Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 621-1148
VS1gloscg-3 (R-023284-1 8/11)
JUNE 30, 2011
SEMIANNUAL REPORT
DWS VARIABLE SERIES I
DWS Growth & Income VIP
Contents
4 Information About Your Fund's Expenses 11 Statement of Assets and Liabilities 12 Statement of Operations 13 Statement of Changes in Net Assets 17 Notes to Financial Statements 22 Summary of Management Fee Evaluation by Independent Fee Consultant |
This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund's objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.
Fund management could be wrong in its analysis of industries, companies, economic trends and favor a security that underperforms the market. Stocks may decline in value. See the prospectus for details.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary June 30, 2011
Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2011 are 0.63% and 0.88% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.
| Growth of an Assumed $10,000 Investment |
[] DWS Growth & Income VIP — Class A [] Russell 1000® Index | The Russell 1000® Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index. |
| |
| Yearly periods ended June 30 | |
| Comparative Results | |
| DWS Growth & Income VIP | | 6-Month‡ | | | 1-Year | | | 3-Year | | | 5-Year | | | 10-Year | |
| Class A | Growth of $10,000 | | $ | 10,869 | | | $ | 13,232 | | | $ | 11,540 | | | $ | 11,848 | | | $ | 12,759 | |
| Average annual total return | | | 8.69 | % | | | 32.32 | % | | | 4.89 | % | | | 3.45 | % | | | 2.47 | % |
| Russell 1000 Index | Growth of $10,000 | | $ | 10,637 | | | $ | 13,193 | | | $ | 11,145 | | | $ | 11,763 | | | $ | 13,716 | |
| Average annual total return | | | 6.37 | % | | | 31.93 | % | | | 3.68 | % | | | 3.30 | % | | | 3.21 | % |
| DWS Growth & Income VIP | | 6-Month‡ | | | 1-Year | | | 3-Year | | | 5-Year | | | 10-Year | |
| Class B | Growth of $10,000 | | $ | 10,856 | | | $ | 13,199 | | | $ | 11,486 | | | $ | 11,716 | | | $ | 12,423 | |
| Average annual total return | | | 8.56 | % | | | 31.99 | % | | | 4.73 | % | | | 3.22 | % | | | 2.19 | % |
| Russell 1000 Index | Growth of $10,000 | | $ | 10,637 | | | $ | 13,193 | | | $ | 11,145 | | | $ | 11,763 | | | $ | 13,716 | |
| Average annual total return | | | 6.37 | % | | | 31.93 | % | | | 3.68 | % | | | 3.30 | % | | | 3.21 | % |
The growth of $10,000 is cumulative.
‡ Total returns shown for periods less than one year are not annualized.
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (January 1, 2011 to June 30, 2011).
The tables illustrate your Fund's expenses in two ways:
•Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
• Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended June 30, 2011 | |
| Actual Fund Return | | Class A | | | Class B | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,086.90 | | | $ | 1,085.60 | |
| Expenses Paid per $1,000* | | $ | 3.21 | | | $ | 4.55 | |
| Hypothetical 5% Portfolio Return | | Class A | | | Class B | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,021.72 | | | $ | 1,020.43 | |
| Expenses Paid per $1,000* | | $ | 3.11 | | | $ | 4.41 | |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
| Annualized Expense Ratios | Class A | | Class B | |
| DWS Variable Series I — DWS Growth & Income VIP | .62% | | .88% | |
For more information, please refer to the Fund's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 6/30/11 | 12/31/10 |
| | | |
| Common Stocks | 99% | 99% |
| Cash Equivalents | 1% | 1% |
| | 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 6/30/11 | 12/31/10 |
| | | |
| Information Technology | 17% | 19% |
| Financials | 15% | 17% |
| Health Care | 15% | 14% |
| Industrials | 13% | 12% |
| Energy | 12% | 11% |
| Consumer Discretionary | 11% | 11% |
| Consumer Staples | 7% | 7% |
| Materials | 6% | 5% |
| Telecommunication Services | 2% | 2% |
| Utilities | 2% | 2% |
| | 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Fund's investment portfolio, see page 6.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. The Fund's portfolio holdings are also posted on www.dws-investments.com from time to time. Please see the Fund's current prospectus for more information.
Investment Portfolio June 30, 2011 (Unaudited) | | | Shares | | | Value ($) | |
| | | | |
| Common Stocks 98.5% | |
| Consumer Discretionary 11.2% | |
| Auto Components 0.1% | |
| Dana Holding Corp.* | | | 700 | | | | 12,810 | |
| TRW Automotive Holdings Corp.* | | | 1,900 | | | | 112,157 | |
| | | | | | | | 124,967 | |
| Diversified Consumer Services 0.1% | |
| Weight Watchers International, Inc. (a) | | | 1,800 | | | | 135,846 | |
| Hotels Restaurants & Leisure 1.4% | |
| Chipotle Mexican Grill, Inc.* | | | 300 | | | | 92,457 | |
| Marriott International, Inc. "A" | | | 5,000 | | | | 177,450 | |
| Wynn Resorts Ltd. | | | 8,000 | | | | 1,148,320 | |
| | | | | | | | 1,418,227 | |
| Internet & Catalog Retail 0.8% | |
| Priceline.com, Inc.* (a) | | | 1,500 | | | | 767,895 | |
| Leisure Equipment & Products 0.1% | |
| Polaris Industries, Inc. | | | 500 | | | | 55,585 | |
| Media 5.0% | |
| CBS Corp. "B" | | | 54,100 | | | | 1,541,309 | |
| Comcast Corp. "A" | | | 70,200 | | | | 1,778,868 | |
| McGraw-Hill Companies, Inc. | | | 2,700 | | | | 113,157 | |
| Omnicom Group, Inc. | | | 1,300 | | | | 62,608 | |
| Time Warner, Inc. | | | 20,000 | | | | 727,400 | |
| Viacom, Inc. "B" | | | 16,500 | | | | 841,500 | |
| | | | | | | | 5,064,842 | |
| Multiline Retail 1.3% | |
| Dillard's, Inc. "A" (a) | | | 20,007 | | | | 1,043,165 | |
| Macy's, Inc. | | | 10,400 | | | | 304,096 | |
| | | | | | | | 1,347,261 | |
| Specialty Retail 1.5% | |
| Aaron's, Inc. | | | 1,600 | | | | 45,216 | |
| Abercrombie & Fitch Co. "A" | | | 1,100 | | | | 73,612 | |
| Bed Bath & Beyond, Inc.* | | | 1,400 | | | | 81,718 | |
| Dick's Sporting Goods, Inc.* | | | 3,400 | | | | 130,730 | |
| Foot Locker, Inc. | | | 2,600 | | | | 61,776 | |
| Limited Brands, Inc. | | | 12,400 | | | | 476,780 | |
| TJX Companies, Inc. | | | 13,000 | | | | 682,890 | |
| Tractor Supply Co. | | | 200 | | | | 13,376 | |
| | | | | | | | 1,566,098 | |
| Textiles, Apparel & Luxury Goods 0.9% | |
| VF Corp. (a) | | | 8,700 | | | | 944,472 | |
| Consumer Staples 7.0% | |
| Beverages 0.2% | |
| Coca-Cola Enterprises, Inc. | | | 6,200 | | | | 180,916 | |
| Food & Staples Retailing 2.0% | |
| Costco Wholesale Corp. | | | 9,300 | | | | 755,532 | |
| Kroger Co. | | | 10,500 | | | | 260,400 | |
| Safeway, Inc. (a) | | | 23,400 | | | | 546,858 | |
| Walgreen Co. | | | 8,700 | | | | 369,402 | |
| Whole Foods Market, Inc. (a) | | | 2,000 | | | | 126,900 | |
| | | | | | | | 2,059,092 | |
| Food Products 2.2% | |
| ConAgra Foods, Inc. | | | 2,500 | | | | 64,525 | |
| Corn Products International, Inc. | | | 2,500 | | | | 138,200 | |
| Fresh Del Monte Produce, Inc. | | | 4,900 | | | | 130,683 | |
| Hormel Foods Corp. (a) | | | 5,900 | | | | 175,879 | |
| Smithfield Foods, Inc.* | | | 6,600 | | | | 144,342 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| The Hershey Co. | | | 9,700 | | | | 551,445 | |
| The JM Smucker Co. | | | 500 | | | | 38,220 | |
| Tyson Foods, Inc. "A" (a) | | | 51,900 | | | | 1,007,898 | |
| | | | | | | | 2,251,192 | |
| Household Products 0.3% | |
| Church & Dwight Co., Inc. | | | 900 | | | | 36,486 | |
| Colgate-Palmolive Co. | | | 2,500 | | | | 218,525 | |
| | | | | | | | 255,011 | |
| Personal Products 0.6% | |
| Herbalife Ltd. | | | 10,600 | | | | 610,984 | |
| Tobacco 1.7% | |
| Lorillard, Inc. | | | 1,700 | | | | 185,079 | |
| Philip Morris International, Inc. | | | 22,700 | | | | 1,515,679 | |
| | | | | | | | 1,700,758 | |
| Energy 11.8% | |
| Energy Equipment & Services 0.6% | |
| Complete Production Services, Inc.* | | | 9,800 | | | | 326,928 | |
| National Oilwell Varco, Inc. | | | 2,400 | | | | 187,704 | |
| Patterson-UTI Energy, Inc. | | | 3,400 | | | | 107,474 | |
| | | | | | | | 622,106 | |
| Oil, Gas & Consumable Fuels 11.2% | |
| Anadarko Petroleum Corp. | | | 6,300 | | | | 483,588 | |
| Chevron Corp. | | | 23,200 | | | | 2,385,888 | |
| ConocoPhillips | | | 28,600 | | | | 2,150,434 | |
| CVR Energy, Inc.* | | | 6,000 | | | | 147,720 | |
| Devon Energy Corp. | | | 3,000 | | | | 236,430 | |
| Exxon Mobil Corp. | | | 19,800 | | | | 1,611,324 | |
| Hess Corp. | | | 6,400 | | | | 478,464 | |
| Marathon Oil Corp. | | | 30,600 | | | | 1,612,008 | |
| Murphy Oil Corp. | | | 8,000 | | | | 525,280 | |
| Stone Energy Corp.* | | | 1,200 | | | | 36,468 | |
| Tesoro Corp.* | | | 12,900 | | | | 295,539 | |
| Valero Energy Corp. | | | 50,400 | | | | 1,288,728 | |
| W&T Offshore, Inc. | | | 2,400 | | | | 62,688 | |
| | | | | | | | 11,314,559 | |
| Financials 15.0% | |
| Capital Markets 0.8% | |
| American Capital Ltd.* | | | 10,700 | | | | 106,251 | |
| BlackRock, Inc. | | | 800 | | | | 153,448 | |
| Franklin Resources, Inc. (a) | | | 4,300 | | | | 564,547 | |
| | | | | | | | 824,246 | |
| Commercial Banks 2.8% | |
| KeyCorp | | | 67,000 | | | | 558,110 | |
| M&T Bank Corp. (a) | | | 1,500 | | | | 131,925 | |
| Marshall & Ilsley Corp. | | | 10,500 | | | | 83,685 | |
| Regions Financial Corp. | | | 37,800 | | | | 234,360 | |
| SunTrust Banks, Inc. | | | 52,200 | | | | 1,346,760 | |
| Zions Bancorp. (a) | | | 19,500 | | | | 468,195 | |
| | | | | | | | 2,823,035 | |
| Consumer Finance 2.5% | |
| Capital One Financial Corp. | | | 30,200 | | | | 1,560,434 | |
| Discover Financial Services | | | 37,700 | | | | 1,008,475 | |
| | | | | | | | 2,568,909 | |
| Diversified Financial Services 2.7% | |
| CME Group, Inc. "A" | | | 800 | | | | 233,272 | |
| JPMorgan Chase & Co. | | | 55,900 | | | | 2,288,546 | |
| The NASDAQ OMX Group, Inc.* (a) | | | 7,500 | | | | 189,750 | |
| | | | | | | | 2,711,568 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Insurance 5.0% | |
| ACE Ltd. | | | 10,800 | | | | 710,856 | |
| Allied World Assurance Co. Holdings AG | | | 3,300 | | | | 190,014 | |
| American International Group, Inc.* (a) | | | 23,700 | | | | 694,884 | |
| Chubb Corp. | | | 12,600 | | | | 788,886 | |
| Hartford Financial Services Group, Inc. (a) | | | 9,000 | | | | 237,330 | |
| Lincoln National Corp. | | | 1,800 | | | | 51,282 | |
| Progressive Corp. | | | 8,700 | | | | 186,006 | |
| Prudential Financial, Inc. | | | 4,900 | | | | 311,591 | |
| Reinsurance Group of America, Inc. | | | 1,800 | | | | 109,548 | |
| RenaissanceRe Holdings Ltd. (a) | | | 500 | | | | 34,975 | |
| The Travelers Companies, Inc. (a) | | | 30,400 | | | | 1,774,752 | |
| | | | | | | | 5,090,124 | |
| Real Estate Investment Trusts 1.0% | |
| HCP, Inc. (REIT) | | | 1,700 | | | | 62,373 | |
| Public Storage (REIT) | | | 2,900 | | | | 330,629 | |
| Rayonier, Inc. (REIT) | | | 3,200 | | | | 209,120 | |
| Vornado Realty Trust (REIT) | | | 4,700 | | | | 437,946 | |
| | | | | | | | 1,040,068 | |
| Thrifts & Mortgage Finance 0.2% | |
| People's United Financial, Inc. | | | 12,500 | | | | 168,000 | |
| Health Care 14.9% | |
| Biotechnology 1.9% | |
| Biogen Idec, Inc.* | | | 12,600 | | | | 1,347,192 | |
| Cephalon, Inc.* | | | 7,500 | | | | 599,250 | |
| | | | | | | | 1,946,442 | |
| Health Care Providers & Services 6.7% | |
| Aetna, Inc. | | | 4,400 | | | | 193,996 | |
| AmerisourceBergen Corp. (a) | | | 10,700 | | | | 442,980 | |
| Cardinal Health, Inc. | | | 11,600 | | | | 526,872 | |
| CIGNA Corp. | | | 6,900 | | | | 354,867 | |
| Coventry Health Care, Inc.* | | | 20,700 | | | | 754,929 | |
| Health Net, Inc.* | | | 2,600 | | | | 83,434 | |
| Humana, Inc. | | | 18,800 | | | | 1,514,152 | |
| McKesson Corp. | | | 2,400 | | | | 200,760 | |
| UnitedHealth Group, Inc. | | | 42,600 | | | | 2,197,308 | |
| WellPoint, Inc. | | | 6,400 | | | | 504,128 | |
| | | | | | | | 6,773,426 | |
| Pharmaceuticals 6.3% | |
| Bristol-Myers Squibb Co. | | | 50,700 | | | | 1,468,272 | |
| Eli Lilly & Co. | | | 43,800 | | | | 1,643,814 | |
| Endo Pharmaceuticals Holdings, Inc.* | | | 4,900 | | | | 196,833 | |
| Forest Laboratories, Inc.* | | | 34,600 | | | | 1,361,164 | |
| Johnson & Johnson (a) | | | 2,200 | | | | 146,344 | |
| Medicis Pharmaceutical Corp. "A" (a) | | | 3,600 | | | | 137,412 | |
| Merck & Co., Inc. | | | 25,500 | | | | 899,895 | |
| Par Pharmaceutical Companies, Inc.* | | | 5,200 | | | | 171,496 | |
| Pfizer, Inc. | | | 9,100 | | | | 187,460 | |
| Warner Chilcott PLC "A" (a) | | | 3,700 | | | | 89,281 | |
| Watson Pharmaceuticals, Inc.* | | | 1,500 | | | | 103,095 | |
| | | | | | | | 6,405,066 | |
| Industrials 12.3% | |
| Aerospace & Defense 4.7% | |
| General Dynamics Corp. | | | 11,500 | | | | 856,980 | |
| Honeywell International, Inc. | | | 15,400 | | | | 917,686 | |
| Lockheed Martin Corp. | | | 4,100 | | | | 331,977 | |
| Northrop Grumman Corp. (a) | | | 24,100 | | | | 1,671,335 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Raytheon Co. | | | 10,800 | | | | 538,380 | |
| United Technologies Corp. | | | 4,900 | | | | 433,699 | |
| | | | | | | | 4,750,057 | |
| Air Freight & Logistics 0.8% | |
| FedEx Corp. | | | 8,700 | | | | 825,195 | |
| Airlines 0.4% | |
| Alaska Air Group, Inc.* | | | 3,800 | | | | 260,148 | |
| Southwest Airlines Co. | | | 11,300 | | | | 129,046 | |
| | | | | | | | 389,194 | |
| Commercial Services & Supplies 0.2% | |
| R.R. Donnelley & Sons Co. (a) | | | 12,000 | | | | 235,320 | |
| Construction & Engineering 0.5% | |
| EMCOR Group, Inc.* | | | 4,300 | | | | 126,033 | |
| Fluor Corp. | | | 3,100 | | | | 200,446 | |
| KBR, Inc. | | | 4,200 | | | | 158,298 | |
| | | | | | | | 484,777 | |
| Industrial Conglomerates 0.9% | |
| General Electric Co. | | | 11,200 | | | | 211,232 | |
| Tyco International Ltd. | | | 14,500 | | | | 716,735 | |
| | | | | | | | 927,967 | |
| Machinery 3.0% | |
| Caterpillar, Inc. | | | 18,000 | | | | 1,916,280 | |
| Cummins, Inc. | | | 2,600 | | | | 269,074 | |
| Dover Corp. | | | 1,200 | | | | 81,360 | |
| Eaton Corp. | | | 12,500 | | | | 643,125 | |
| Joy Global, Inc. | | | 1,700 | | | | 161,908 | |
| Oshkosh Corp.* | | | 500 | | | | 14,470 | |
| | | | | | | | 3,086,217 | |
| Professional Services 0.1% | |
| Manpower, Inc. | | | 2,900 | | | | 155,585 | |
| Road & Rail 1.1% | |
| CSX Corp. | | | 7,300 | | | | 191,406 | |
| Norfolk Southern Corp. | | | 2,600 | | | | 194,818 | |
| Ryder System, Inc. | | | 12,500 | | | | 710,625 | |
| | | | | | | | 1,096,849 | |
| Trading Companies & Distributors 0.6% | |
| W.W. Grainger, Inc. (a) | | | 3,800 | | | | 583,870 | |
| Information Technology 16.9% | |
| Communications Equipment 0.4% | |
| Motorola Solutions, Inc.* | | | 3,300 | | | | 151,932 | |
| Polycom, Inc.* | | | 1,700 | | | | 109,310 | |
| Riverbed Technology, Inc.* | | | 1,600 | | | | 63,344 | |
| Telefonaktiebolaget LM Ericsson (ADR) | | | 6,500 | | | | 93,470 | |
| | | | | | | | 418,056 | |
| Computers & Peripherals 2.6% | |
| Apple, Inc.* | | | 3,200 | | | | 1,074,144 | |
| Dell, Inc.* | | | 30,200 | | | | 503,434 | |
| Lexmark International, Inc. "A"* | | | 12,300 | | | | 359,898 | |
| SanDisk Corp.* | | | 4,000 | | | | 166,000 | |
| Western Digital Corp.* | | | 14,600 | | | | 531,148 | |
| | | | | | | | 2,634,624 | |
| Electronic Equipment, Instruments & Components 3.1% | |
| Anixter International, Inc. (a) | | | 2,700 | | | | 176,418 | |
| Arrow Electronics, Inc.* | | | 19,200 | | | | 796,800 | |
| Avnet, Inc.* | | | 10,900 | | | | 347,492 | |
| Ingram Micro, Inc. "A"* (a) | | | 10,700 | | | | 194,098 | |
| Jabil Circuit, Inc. | | | 1,300 | | | | 26,260 | |
| TE Connectivity Ltd. | | | 15,200 | | | | 558,752 | |
| Tech Data Corp.* (a) | | | 9,200 | | | | 449,788 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Vishay Intertechnology, Inc.* (a) | | | 37,400 | | | | 562,496 | |
| | | | | | | | 3,112,104 | |
| Internet Software & Services 0.8% | |
| AOL, Inc.* (a) | | | 9,000 | | | | 178,740 | |
| IAC/InterActiveCorp.* (a) | | | 16,700 | | | | 637,439 | |
| | | | | | | | 816,179 | |
| IT Services 5.2% | |
| Automatic Data Processing, Inc. | | | 19,600 | | | | 1,032,528 | |
| Computer Sciences Corp. (a) | | | 20,124 | | | | 763,907 | |
| Fiserv, Inc.* | | | 5,000 | | | | 313,150 | |
| International Business Machines Corp. | | | 18,400 | | | | 3,156,520 | |
| SAIC, Inc.* | | | 3,100 | | | | 52,142 | |
| VeriFone Systems, Inc.* (a) | | | 500 | | | | 22,175 | |
| | | | | | | | 5,340,422 | |
| Semiconductors & Semiconductor Equipment 2.0% | |
| Altera Corp. | | | 17,400 | | | | 806,490 | |
| Analog Devices, Inc. | | | 7,500 | | | | 293,550 | |
| Applied Materials, Inc. | | | 10,200 | | | | 132,702 | |
| Cypress Semiconductor Corp.* | | | 3,500 | | | | 73,990 | |
| GT Solar International, Inc.* (a) | | | 13,700 | | | | 221,940 | |
| Intel Corp. | | | 10,000 | | | | 221,600 | |
| Micron Technology, Inc.* | | | 26,500 | | | | 198,220 | |
| NVIDIA Corp.* (a) | | | 7,300 | | | | 116,325 | |
| | | | | | | | 2,064,817 | |
| Software 2.8% | |
| Activision Blizzard, Inc. | | | 12,900 | | | | 150,672 | |
| CA, Inc. | | | 2,400 | | | | 54,816 | |
| Citrix Systems, Inc.* | | | 200 | | | | 16,000 | |
| Oracle Corp. | | | 66,300 | | | | 2,181,933 | |
| Symantec Corp.* | | | 11,200 | | | | 220,864 | |
| TIBCO Software, Inc.* | | | 6,400 | | | | 185,728 | |
| | | | | | | | 2,810,013 | |
| Materials 5.8% | |
| Chemicals 3.6% | |
| Dow Chemical Co. | | | 24,600 | | | | 885,600 | |
| E.I. du Pont de Nemours & Co. | | | 27,400 | | | | 1,480,970 | |
| Eastman Chemical Co. | | | 4,400 | | | | 449,108 | |
| Georgia Gulf Corp.* | | | 1,300 | | | | 31,382 | |
| Lubrizol Corp. | | | 100 | | | | 13,427 | |
| OM Group, Inc.* | | | 400 | | | | 16,256 | |
| Potash Corp. of Saskatchewan, Inc. | | | 2,400 | | | | 136,776 | |
| PPG Industries, Inc. | | | 3,400 | | | | 308,686 | |
| Rockwood Holdings, Inc.* | | | 3,200 | | | | 176,928 | |
| Westlake Chemical Corp. (a) | | | 2,000 | | | | 103,800 | |
| | | | | | | | 3,602,933 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Metals & Mining 1.0% | |
| Barrick Gold Corp. | | | 13,900 | | | | 629,531 | |
| Cliffs Natural Resources, Inc. | | | 4,300 | | | | 397,535 | |
| | | | | | | | 1,027,066 | |
| Paper & Forest Products 1.2% | |
| Domtar Corp. | | | 6,300 | | | | 596,736 | |
| International Paper Co. | | | 20,100 | | | | 599,382 | |
| MeadWestvaco Corp. | | | 800 | | | | 26,648 | |
| | | | | | | | 1,222,766 | |
| Telecommunication Services 2.1% | |
| Diversified Telecommunication Services 2.0% | |
| AT&T, Inc. | | | 7,700 | | | | 241,857 | |
| Verizon Communications, Inc. | | | 48,400 | | | | 1,801,932 | |
| | | | | | | | 2,043,789 | |
| Wireless Telecommunication Services 0.1% | |
| Vodafone Group PLC (ADR) | | | 3,100 | | | | 82,832 | |
| Utilities 1.5% | |
| Electric Utilities 0.5% | |
| Duke Energy Corp. (a) | | | 24,500 | | | | 461,335 | |
| Pepco Holdings, Inc. | | | 2,700 | | | | 53,001 | |
| | | | | | | | 514,336 | |
| Independent Power Producers & Energy Traders 0.8% | |
| NRG Energy, Inc.* (a) | | | 32,641 | | | | 802,316 | |
| Multi-Utilities 0.2% | |
| Ameren Corp. | | | 8,100 | | | | 233,604 | |
Total Common Stocks (Cost $86,459,204) | | | | 100,031,583 | |
| | |
| Securities Lending Collateral 13.7% | |
| Daily Assets Fund Institutional, 0.13% (b) (c) (Cost $13,956,868) | | | 13,956,868 | | | | 13,956,868 | |
| | |
| Cash Equivalents 1.3% | |
| Central Cash Management Fund, 0.11% (b) (Cost $1,295,771) | | | 1,295,771 | | | | 1,295,771 | |
| | | % of Net Assets | | | Value ($) | |
| | | | |
Total Investment Portfolio (Cost $101,711,843)+ | | | 113.5 | | | | 115,284,222 | |
| Other Assets and Liabilities, Net (a) | | | (13.5 | ) | | | (13,687,584 | ) |
| Net Assets | | | 100.0 | | | | 101,596,638 | |
* Non-income producing security.
+ The cost for federal income tax purposes was $102,587,208. At June 30, 2011, net unrealized appreciation for all securities based on tax cost was $12,697,014. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $14,498,524 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,801,510.
(a) All or a portion of these securities were on loan amounting to $13,530,392. In addition, included in other assets and liabilities, net are pending sales, amounting to $240,963, that are also on loan (see Notes to Financial Statements). The value of all securities loaned at June 30, 2011 amounted to $13,771,355, which is 13.6% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.
ADR: American Depositary Receipt
REIT: Real Estate Investment Trust
At June 30, 2011, open futures contracts purchased were as follows:
| Futures | Currency | Expiration Date | | Contracts | | | Notional Value ($) | | | Unrealized Appreciation ($) | |
| S&P 500 E-Mini Index | USD | 9/16/2011 | | | 21 | | | | 1,381,275 | | | | 52,530 | |
| Currency Abbreviation |
| USD United States Dollar |
For information on the Fund's policy and additional disclosures regarding futures contracts, please refer to the Derivatives section of Note B in the accompanying Notes to Financial Statements.
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of June 30, 2011 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.
| Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | |
| Common Stocks (d) | | $ | 100,031,583 | | | $ | — | | | $ | — | | | $ | 100,031,583 | |
| Short-Term Investments (d) | | | 15,252,639 | | | | — | | | | — | | | | 15,252,639 | |
| Derivatives (e) | | | 52,530 | | | | — | | | | — | | | | 52,530 | |
| Total | | $ | 115,336,752 | | | $ | — | | | $ | — | | | $ | 115,336,752 | |
There have been no transfers between Level 1 and Level 2 fair value measurements during the period ended June 30, 2011.
(d) See Investment Portfolio for additional detailed categorizations.
(e) Derivatives include unrealized appreciation (depreciation) on open futures contracts.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities | as of June 30, 2011 (Unaudited) | |
| Assets | |
Investments: Investments in non-affiliated securities, at value (cost $86,459,204) — including $13,530,392 of securities loaned | | $ | 100,031,583 | |
| Investment in Daily Assets Fund Institutional (cost $13,956,868)* | | | 13,956,868 | |
| Investment in Central Cash Management Fund (cost $1,295,771) | | | 1,295,771 | |
| Total investments in securities, at value (cost $101,711,843) | | | 115,284,222 | |
| Foreign currency, at value (cost $1,777) | | | 1,904 | |
| Deposits with broker for futures contracts | | | 103,005 | |
| Receivable for investments sold | | | 351,834 | |
| Receivable for Fund shares sold | | | 113,125 | |
| Dividends receivable | | | 119,519 | |
| Interest receivable | | | 433 | |
| Receivable for variation margin on futures contracts | | | 52,530 | |
| Other assets | | | 662 | |
| Total assets | | | 116,027,234 | |
| Liabilities | |
| Cash overdraft | | | 339,991 | |
| Payable upon return of securities loaned | | | 13,956,868 | |
| Payable for Fund shares redeemed | | | 40,540 | |
| Accrued management fee | | | 31,628 | |
| Other accrued expenses and payables | | | 61,569 | |
| Total liabilities | | | 14,430,596 | |
| Net assets, at value | | $ | 101,596,638 | |
| Net Assets Consist of | |
| Undistributed net investment income | | | 528,198 | |
Net unrealized appreciation (depreciation) on: Investments | | | 13,572,379 | |
| Futures | | | 52,530 | |
| Foreign currency | | | 127 | |
| Accumulated net realized gain (loss) | | | (39,771,686 | ) |
| Paid-in capital | | | 127,215,090 | |
| Net assets, at value | | $ | 101,596,638 | |
Class A Net Asset Value, offering and redemption price per share ($99,649,543 ÷ 12,273,303 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 8.12 | |
Class B Net Asset Value, offering and redemption price per share ($1,947,095 ÷ 239,832 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 8.12 | |
* Represents collateral of securities loaned.
The accompanying notes are an integral part of the financial statements.
Statement of Operations
| for the six months ended June 30, 2011 (Unaudited) | |
| Investment Income | |
Income: Dividends (net of foreign taxes withheld of $409) | | $ | 883,886 | |
| Income distributions — Central Cash Management Fund | | | 623 | |
| Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | | | 11,121 | |
| Total income | | | 895,630 | |
Expenses: Management fee | | | 197,255 | |
| Administration fee | | | 50,857 | |
| Services to shareholders | | | 1,944 | |
| Distribution service fee (Class B) | | | 2,465 | |
| Custodian fee | | | 10,473 | |
| Audit and tax fees | | | 21,358 | |
| Legal fees | | | 9,344 | |
| Reports to shareholders | | | 17,636 | |
| Trustees' fees and expenses | | | 2,565 | |
| Other | | | 4,565 | |
| Total expenses | | | 318,462 | |
| Net investment income | | | 577,168 | |
| Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | | | 7,998,887 | |
| Futures | | | 68,817 | |
| | | | 8,067,704 | |
Change in net unrealized appreciation (depreciation) on: Investments | | | (223,718 | ) |
| Futures | | | 38,020 | |
| Foreign currency | | | 57 | |
| | | | (185,641 | ) |
| Net gain (loss) | | | 7,882,063 | |
| Net increase (decrease) in net assets resulting from operations | | $ | 8,459,231 | |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | Increase (Decrease) in Net Assets | | Six Months Ended June 30, 2011 (Unaudited) | | | Year Ended December 31, 2010 | |
Operations: Net investment income | | $ | 577,168 | | | $ | 1,286,371 | |
| Net realized gain (loss) | | | 8,067,704 | | | | 10,731,923 | |
| Change in net unrealized appreciation (depreciation) | | | (185,641 | ) | | | 860,787 | |
| Net increase (decrease) in net assets resulting from operations | | | 8,459,231 | | | | 12,879,081 | |
Distributions to shareholders from: Net investment income: Class A | | | (1,231,321 | ) | | | (1,597,628 | ) |
| Class B | | | (19,225 | ) | | | (27,222 | ) |
| Total distributions | | | (1,250,546 | ) | | | (1,624,850 | ) |
Fund share transactions: Class A Proceeds from shares sold | | | 3,648,557 | | | | 5,336,052 | |
| Reinvestment of distributions | | | 1,231,321 | | | | 1,597,628 | |
| Payments for shares redeemed | | | (10,640,413 | ) | | | (20,642,306 | ) |
| Net increase (decrease) in net assets from Class A share transactions | | | (5,760,535 | ) | | | (13,708,626 | ) |
Class B Proceeds from shares sold | | | 37,241 | | | | 68,140 | |
| Reinvestment of distributions | | | 19,225 | | | | 27,222 | |
| Payments for shares redeemed | | | (187,801 | ) | | | (453,581 | ) |
| Net increase (decrease) in net assets from Class B share transactions | | | (131,335 | ) | | | (358,219 | ) |
| Increase (decrease) in net assets | | | 1,316,815 | | | | (2,812,614 | ) |
| Net assets at beginning of period | | | 100,279,823 | | | | 103,092,437 | |
| Net assets at end of period (including undistributed net investment income of $528,198 and $1,201,576, respectively) | | $ | 101,596,638 | | | $ | 100,279,823 | |
| Other Information | |
Class A Shares outstanding at beginning of period | | | 13,004,152 | | | | 15,048,001 | |
| Shares sold | | | 455,328 | | | | 774,532 | |
| Shares issued to shareholders in reinvestment of distributions | | | 148,352 | | | | 219,153 | |
| Shares redeemed | | | (1,334,529 | ) | | | (3,037,534 | ) |
| Net increase (decrease) in Class A shares | | | (730,849 | ) | | | (2,043,849 | ) |
| Shares outstanding at end of period | | | 12,273,303 | | | | 13,004,152 | |
Class B Shares outstanding at beginning of period | | | 256,466 | | | | 309,228 | |
| Shares sold | | | 4,681 | | | | 10,025 | |
| Shares issued to shareholders in reinvestment of distributions | | | 2,316 | | | | 3,734 | |
| Shares redeemed | | | (23,631 | ) | | | (66,521 | ) |
| Net increase (decrease) in Class B shares | | | (16,634 | ) | | | (52,762 | ) |
| Shares outstanding at end of period | | | 239,832 | | | | 256,466 | |
The accompanying notes are an integral part of the financial statements.
| | | Six Months Ended 6/30/11 (Unaudited) | | | Years Ended December 31, | |
| Class A | | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| Selected Per Share Data | |
| Net asset value, beginning of period | | $ | 7.56 | | | $ | 6.71 | | | $ | 5.12 | | | $ | 10.81 | | | $ | 10.94 | | | $ | 9.72 | |
Income (loss) from investment operations: Net investment income (loss)a | | | .05 | | | | .09 | | | | .10 | | | | .10 | | | | .13 | | | | .13 | c |
| Net realized and unrealized gain (loss) | | | .61 | | | | .87 | | | | 1.61 | | | | (3.45 | ) | | | .02 | | | | 1.19 | |
| Total from investment operations | | | .66 | | | | .96 | | | | 1.71 | | | | (3.35 | ) | | | .15 | | | | 1.32 | |
Less distributions from: Net investment income | | | (.10 | ) | | | (.11 | ) | | | (.12 | ) | | | (.18 | ) | | | (.13 | ) | | | (.10 | ) |
| Net realized gains | | | — | | | | — | | | | — | | | | (2.16 | ) | | | (.15 | ) | | | — | |
| Total distributions | | | (.10 | ) | | | (.11 | ) | | | (.12 | ) | | | (2.34 | ) | | | (.28 | ) | | | (.10 | ) |
| Net asset value, end of period | | $ | 8.12 | | | $ | 7.56 | | | $ | 6.71 | | | $ | 5.12 | | | $ | 10.81 | | | $ | 10.94 | |
| Total Return (%) | | | 8.69 | ** | | | 14.40 | b | | | 34.15 | b | | | (38.31 | )b | | | 1.36 | b | | | 13.63 | b,c |
| Ratios to Average Net Assets and Supplemental Data | |
| Net assets, end of period ($ millions) | | | 100 | | | | 98 | | | | 101 | | | | 94 | | | | 196 | | | | 280 | |
| Ratio of expenses before expense reductions (%) | | | .62 | * | | | .63 | | | | .63 | | | | .60 | | | | .57 | | | | .56 | |
| Ratio of expenses after expense reductions (%) | | | .62 | * | | | .60 | | | | .54 | | | | .54 | | | | .56 | | | | .54 | |
| Ratio of net investment income (loss) (%) | | | 1.14 | * | | | 1.32 | | | | 1.74 | | | | 1.34 | | | | 1.18 | | | | 1.24 | c |
| Portfolio turnover rate (%) | | | 98 | ** | | | 145 | | | | 82 | | | | 130 | | | | 310 | | | | 105 | |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Funds. The non-recurring income resulted in an increase in net investment income of $0.007 per share and an increase in the ratio of net investment income of 0.07%. Excluding this non-recurring income, total return would have been 0.06% lower. * Annualized ** Not annualized | |
| | | Six Months Ended 6/30/11 (Unaudited) | | | Years Ended December 31, | |
| Class B | | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| Selected Per Share Data | |
| Net asset value, beginning of period | | $ | 7.55 | | | $ | 6.70 | | | $ | 5.12 | | | $ | 10.77 | | | $ | 10.90 | | | $ | 9.68 | |
Income (loss) from investment operations: Net investment income (loss)a | | | .04 | | | | .07 | | | | .08 | | | | .08 | | | | .09 | | | | .09 | c |
| Net realized and unrealized gain (loss) | | | .61 | | | | .87 | | | | 1.60 | | | | (3.42 | ) | | | .02 | | | | 1.19 | |
| Total from investment operations | | | .65 | | | | .94 | | | | 1.68 | | | | (3.34 | ) | | | .11 | | | | 1.28 | |
Less distributions from: Net investment income | | | (.08 | ) | | | (.09 | ) | | | (.10 | ) | | | (.15 | ) | | | (.09 | ) | | | (.06 | ) |
| Net realized gains | | | — | | | | — | | | | — | | | | (2.16 | ) | | | (.15 | ) | | | — | |
| Total distributions | | | (.08 | ) | | | (.09 | ) | | | (.10 | ) | | | (2.31 | ) | | | (.24 | ) | | | (.06 | ) |
| Net asset value, end of period | | $ | 8.12 | | | $ | 7.55 | | | $ | 6.70 | | | $ | 5.12 | | | $ | 10.77 | | | $ | 10.90 | |
| Total Return (%) | | | 8.56 | ** | | | 14.12 | b | | | 33.64 | b | | | (38.29 | )b | | | 1.00 | b | | | 13.28 | b,c |
| Ratios to Average Net Assets and Supplemental Data | |
| Net assets, end of period ($ millions) | | | 2 | | | | 2 | | | | 2 | | | | 2 | | | | 15 | | | | 52 | |
| Ratio of expenses before expense reductions (%) | | | .88 | * | | | .88 | | | | .89 | | | | .82 | | | | .95 | | | | .94 | |
| Ratio of expenses after expense reductions (%) | | | .88 | * | | | .85 | | | | .80 | | | | .77 | | | | .92 | | | | .89 | |
| Ratio of net investment income (loss) (%) | | | .89 | * | | | 1.07 | | | | 1.48 | | | | 1.12 | | | | .82 | | | | .89 | c |
| Portfolio turnover rate (%) | | | 98 | ** | | | 145 | | | | 82 | | | | 130 | | | | 310 | | | | 105 | |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Funds. The non-recurring income resulted in an increase in net investment income of $0.007 per share and an increase in the ratio of net investment income of 0.07%. Excluding this non-recurring income, total return would have been 0.06% lower. * Annualized ** Not annualized | |
Notes to Financial Statements (Unaudited)
A. Organization and Significant Accounting Policies
DWS Variable Series I (the "Series") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, registered management investment company organized as a Massachusetts business trust. The Series consists of five diversified funds: DWS Bond VIP, DWS Growth & Income VIP, DWS Capital Growth VIP, DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP) and DWS International VIP (individually or collectively hereinafter referred to as a "Fund" or the "Funds"). These financial statements report on DWS Growth & Income VIP. The Series is intended to be the underlying investment vehicle for variable annuity contracts and variable life insurance policies to be offered by the separate accounts of certain life insurance companies ("Participating Insurance Companies").
Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Class B shares are subject to Rule 12b-1 distribution fees under the 1940 Act and recordkeeping fees equal to an annual rate of 0.25% and up to 0.15%, respectively, of the average daily net assets of the Class B shares of the Fund. Class A shares are not subject to such fees.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class (including the applicable 12b-1 distribution fees and recordkeeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.
The Series' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Series in the preparation of the financial statements for its Funds.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which they trade and are categorized as Level 1 securities. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost, which approximates value, and are categorized as Level 2. Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.
Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities; the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.
Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.
Securities Lending. The Fund lends securities to certain financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
Federal Income Taxes. The Fund is treated as a separate taxpayer as provided for in the Internal Revenue Code, as amended. It is the Fund's policy to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to the separate accounts of the Participating Insurance Companies which hold its shares.
At December 31, 2010, the Fund had a net tax basis capital loss carryforward of approximately $46,950,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2016 ($17,829,000) and December 31, 2017 ($29,121,000), the respective expiration dates, whichever occurs first.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the "Act") was enacted. Under the Act, net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. As a result of this ordering rule, pre-enactment capital loss carryforwards may expire unused, whereas under the previous rules these losses may have been utilized. This change is effective for fiscal years beginning after the date of enactment.
The Fund has reviewed the tax positions for the open tax years as of December 31, 2010 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. The Fund will declare and distribute dividends from its net investment income, if any, annually, although additional distributions may be made if necessary. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to futures contracts and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Expenses. Expenses of the Series arising in connection with a specific Fund are allocated to that Fund. Other Series expenses which cannot be directly attributed to a Fund are apportioned among the Funds in the Series.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis net of foreign withholding taxes. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis and may include proceeds from litigation. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes.
B. Derivative Instruments
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). For the six months ended June 30, 2011, the Fund entered into futures contracts in circumstances where portfolio management believed they offered an economic means of gaining exposure to a particular asset class or to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the market.
Futures contracts are valued at the most recent settlement price. Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary cash or securities ("initial margin") in an amount equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are exchange traded, counterparty risk is minimized as the exchange's clearinghouse acts as the counterparty, and guarantees the futures against default.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid market will limit the Fund's ability to close out a futures contract prior to the settlement date and the risk that the futures contract is not well correlated with the security, index or currency to which it relates. Risk of loss may exceed amounts recognized in the Statement of Assets and Liabilities.
A summary of the open futures contracts as of June 30, 2011, is included in a table following the Fund's Investment Portfolio. For the six-month ended June 30, 2011, the investment in futures contracts purchased had a total notional value generally indicative of a range from approximately $1,002,000 to $1,381,000.
The following table summarizes the value of the Fund's derivative instruments held as of June 30, 2011 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:
| Asset Derivative | | Futures Contracts | |
| Equity Contracts (a) | | $ | 52,530 | |
The above derivative is located in the following Statement of Assets and Liabilities account:
(a) Includes cumulative appreciation of futures contracts as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.
Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the six months ended June 30, 2011 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:
| Realized Gain (Loss) | | Futures Contracts | |
| Equity Contracts (a) | | $ | 68,817 | |
The above derivative is located in the following Statement of Operations account:
(a) Net realized gain (loss) from futures
| Change in Net Unrealized Appreciation (Depreciation) | | Futures Contracts | |
| Equity Contracts (a) | | $ | 38,020 | |
The above derivative is located in the following Statement of Operations account:
(a) Change in net unrealized appreciation (depreciation) on futures
C. Purchases and Sales of Securities
During the six months ended June 30, 2011, purchases and sales of investment securities (excluding short-term investments) aggregated $100,089,737 and $107,157,278, respectively.
D. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund or delegates such responsibility to the Fund's subadvisor.
QS Investors, LLC ("QS Investors") serves as subadvisor. As a subadvisor to the Fund, QS Investors makes investment decisions and buys and sells securities for the Fund. QS Investors is paid by the Advisor for the services QS Investors provides to the Fund.
Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:
| First $250 million of average daily net assets | | | .390 | % |
| Next $750 million of average daily net assets | | | .365 | % |
| Over $1 billion of average daily net assets | | | .340 | % |
Accordingly, for the six months ended June 30, 2011, the fee pursuant to the Investment Management Agreement was equivalent to an annualized effective rate of 0.39% of the Fund's average daily net assets.
Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Series. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the six months ended June 30, 2011, the Administration Fee was $50,857, of which $8,110 is unpaid.
Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Series. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended June 30, 2011, the amounts charged to the Fund by DISC were as follows:
| Services to Shareholders | | Total Aggregated | | | Unpaid at June 30, 2011 | |
| Class A | | $ | 269 | | | $ | 192 | |
| Class B | | | 46 | | | | 28 | |
| | | $ | 315 | | | $ | 220 | |
Distribution Service Agreement. DWS Investments Distributors, Inc. ("DIDI"), also an affiliate of the Advisor, is the Series' Distributor. In accordance with the Master Distribution Plan, DIDI receives 12b-1 fees of 0.25% of average daily net assets of Class B shares. Pursuant to the Master Distribution Plan, DIDI remits these fees to the Participating Insurance Companies for various costs incurred or paid by these companies in connection with marketing and distribution of Class B shares. For the six months ended June 30, 2011, the Distribution Service Fee aggregated $2,465, of which $392 is unpaid.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended June 30, 2011, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $8,100, of which $1,149 is unpaid.
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Affiliated Cash Management Vehicle. The Fund may invest uninvested cash balances in Central Cash Management Fund, which is managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of Central Cash Management Fund. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.
E. Ownership of the Fund
Three participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 34%, 27% and 15%. Two participating insurance companies were owners of record of 10% or more of the total outstanding Class B shares of the Fund, each owning 85% and 12%.
F. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $450 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at June 30, 2011.
The Series' policies and procedures for voting proxies for portfolio securities and information about how the Series voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the Series' policies and procedures without charge, upon request, call us toll free at (800) 728-3337.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 3, 2010
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2010, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007, 2008, and 2009.
Qualifications
For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past ten years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds and have served in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 118 publicly offered Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Fund. These similar products included the other DWS Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Funds are reasonable.
Thomas H. Mack
DWS Investments Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 621-1148
VS1groinc-3 (R-023285-1 8/11)
JUNE 30, 2011
SEMIANNUAL REPORT
DWS VARIABLE SERIES I
DWS International VIP
Contents
4 Information About Your Fund's Expenses 5 Investment Management Update 9 Statement of Assets and Liabilities 9 Statement of Operations 10 Statement of Changes in Net Assets 13 Notes to Financial Statements 18 Summary of Management Fee Evaluation by Independent Fee Consultant |
This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund's objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.
Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Stocks may decline in value. See the prospectus for details.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary June 30, 2011
Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2011 are 1.00% and 1.27% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.
| Growth of an Assumed $10,000 Investment |
[] DWS International VIP — Class A [] MSCI EAFE® Index | The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE®) Index is an unmanaged index that tracks international stock performance in the 21 developed markets in Europe, Australasia and the Far East. The index is calculated using closing local market prices and translates into US dollars using the London close foreign exchange rates. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index. |
| |
| Yearly periods ended June 30 | |
| Comparative Results | |
| DWS International VIP | | 6-Month‡ | | | 1-Year | | | 3-Year | | | 5-Year | | | 10-Year | |
| Class A | Growth of $10,000 | | $ | 10,237 | | | $ | 12,375 | | | $ | 7,727 | | | $ | 9,471 | | | $ | 12,442 | |
| Average annual total return | | | 2.37 | % | | | 23.75 | % | | | -8.24 | % | | | -1.08 | % | | | 2.21 | % |
MSCI EAFE® Index | Growth of $10,000 | | $ | 10,498 | | | $ | 13,036 | | | $ | 9,478 | | | $ | 10,760 | | | $ | 17,344 | |
| Average annual total return | | | 4.98 | % | | | 30.36 | % | | | -1.77 | % | | | 1.48 | % | | | 5.66 | % |
| DWS International VIP | | 6-Month‡ | | | 1-Year | | | 3-Year | | | 5-Year | | | 10-Year | |
| Class B | Growth of $10,000 | | $ | 10,221 | | | $ | 12,338 | | | $ | 7,669 | | | $ | 9,339 | | | $ | 12,134 | |
| Average annual total return | | | 2.21 | % | | | 23.38 | % | | | -8.47 | % | | | -1.36 | % | | | 1.95 | % |
MSCI EAFE® Index | Growth of $10,000 | | $ | 10,498 | | | $ | 13,036 | | | $ | 9,478 | | | $ | 10,760 | | | $ | 17,344 | |
| Average annual total return | | | 4.98 | % | | | 30.36 | % | | | -1.77 | % | | | 1.48 | % | | | 5.66 | % |
The growth of $10,000 is cumulative.
‡ Total returns shown for periods less than one year are not annualized.
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (January 1, 2011 to June 30, 2011).
The tables illustrate your Fund's expenses in two ways:
•Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
• Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended June 30, 2011 | |
| Actual Fund Return | | Class A | | | | | | Class B | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | | | | | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,023.70 | | | | , | | | $ | 1,022.10 | |
| Expenses Paid per $1,000* | | $ | 5.02 | | | | | | | $ | 6.42 | |
| Hypothetical 5% Fund Return | | Class A | | | | | | | Class B | |
| Beginning Account Value 1/1/11 | | $ | 1,000.00 | | | | | | | $ | 1,000.00 | |
| Ending Account Value 6/30/11 | | $ | 1,019.84 | | | | | | | $ | 1,018.45 | |
| Expenses Paid per $1,000* | | $ | 5.01 | | | | | | | $ | 6.41 | |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
| Annualized Expense Ratios | Class A | | Class B | |
| DWS Variable Series I — DWS International VIP | 1.00% | | 1.28% | |
For more information, please refer to the Fund's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.
Investment Management Update
Effective April 11, 2011, the main investments, management process and portfolio team are as follows.
Main investments. Although the Fund can invest in companies of any size and from any country, it invests mainly in common stocks of established companies in countries with developed economies (other than the United States).
Management process. Portfolio management aims to add value through stock selection. The investment team utilizes a proprietary investment process designed to identify attractive investment candidates from an extensive pool of fundamental research resources, which identify investments that may offer the potential for price appreciation. The investment process also takes into consideration various factors — including country and sector weightings, style and other risk targets relative to the benchmark — and assists portfolio management in devising allocations among particular securities. Portfolio management may buy a security when its research resources indicate the potential for future upside price appreciation or their investment process identifies an attractive investment opportunity. Conversely, portfolio management may sell a security when its research resources indicate limited future upside or their investment process identifies more attractive investment opportunities elsewhere.
Portfolio Management Team
Thomas Voecking, Managing Director. Portfolio Manager of the Fund. Joined the Fund in 2011.
Jason E. Inzer, Director. Portfolio Manager of the Fund. Joined the Fund in 2011.
Asset Allocation (As a % of Investment Portfolio) | 6/30/11 | 12/31/10 |
| | | |
| Common Stocks | 95% | 96% |
| Preferred Stocks | 2% | 4% |
| Cash Equivalents | 3% | — |
| | 100% | 100% |
Geographical Diversification
(As a % of Investment Portfolio excluding Cash Equivalents) | 6/30/11 | 12/31/10 |
| | | |
| Continental Europe | 57% | 41% |
| Japan | 18% | 20% |
| United Kingdom | 14% | 15% |
| Australia | 6% | 8% |
| Pacific Basin | 4% | 11% |
| Latin America | — | 4% |
| Africa | — | 1% |
| Other | 1% | — |
| | 100% | 100% |
Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents) | 6/30/11 | 12/31/10 |
| | | |
| Financials | 27% | 19% |
| Industrials | 15% | 16% |
| Information Technology | 13% | 6% |
| Consumer Staples | 11% | 15% |
| Health Care | 9% | 6% |
| Energy | 8% | 10% |
| Consumer Discretionary | 6% | 9% |
| Utilities | 5% | 2% |
| Telecommunication Services | 4% | 6% |
| Materials | 2% | 11% |
| | 100% | 100% |
Asset allocation, geographical diversification and sector diversification are subject to change.
For more complete details about the Fund's investment portfolio, see page 6.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. The Fund's portfolio holdings are also posted on www.dws-investments.com from time to time. Please see the Fund's current prospectus for more information.
Investment Portfolio June 30, 2011 (Unaudited) | | | Shares | | | Value ($) | |
| | | | |
| Common Stocks 93.7% | |
| Australia 5.8% | |
| Australia & New Zealand Banking Group Ltd. | | | 52,879 | | | | 1,248,819 | |
| Foster's Group Ltd. | | | 185,000 | | | | 1,024,145 | |
| National Australia Bank Ltd. | | | 94,207 | | | | 2,599,200 | |
| Newcrest Mining Ltd. | | | 62,592 | | | | 2,540,644 | |
| Origin Energy Ltd. | | | 79,000 | | | | 1,343,394 | |
| Treasury Wine Estates Ltd.* | | | 61,666 | | | | 224,876 | |
| Wesfarmers Ltd. | | | 38,691 | | | | 1,325,950 | |
| Westfield Group (REIT) (Units) | | | 143,000 | | | | 1,332,583 | |
| Woodside Petroleum Ltd. | | | 27,708 | | | | 1,222,252 | |
| Woolworths Ltd. | | | 97,000 | | | | 2,892,506 | |
| (Cost $15,151,580) | | | | 15,754,369 | |
| Belgium 0.9% | |
| Anheuser-Busch InBev NV (Cost $2,727,874) | | | 44,000 | | | | 2,551,345 | |
| Bermuda 0.5% | |
| Seadrill Ltd. (Cost $1,369,442) | | | 40,000 | | | | 1,408,035 | |
| Denmark 1.9% | |
| Carlsberg AS "B" | | | 23,639 | | | | 2,572,247 | |
| Novo Nordisk AS "B" | | | 21,908 | | | | 2,746,677 | |
| (Cost $4,488,608) | | | | 5,318,924 | |
| Finland 0.3% | |
| Nokia Corp. (Cost $1,333,235) | | | 151,000 | | | | 975,249 | |
| France 18.7% | |
| AXA SA | | | 359,857 | | | | 8,170,196 | |
| Cap Gemini | | | 46,000 | | | | 2,695,130 | |
| Compagnie de Saint-Gobain | | | 115,000 | | | | 7,447,578 | |
| Dassault Systemes SA | | | 137,000 | | | | 11,664,517 | |
| GDF Suez | | | 68,797 | | | | 2,517,755 | |
| Klepierre (REIT) | | | 34,000 | | | | 1,403,057 | |
| Schneider Electric SA | | | 15,974 | | | | 2,668,807 | |
| Societe Generale | | | 198,032 | | | | 11,737,659 | |
| Technip SA | | | 25,102 | | | | 2,688,892 | |
| (Cost $52,337,538) | | | | 50,993,591 | |
| Germany 13.9% | |
| Allianz SE (Registered) | | | 87,000 | | | | 12,155,398 | |
| Beiersdorf AG | | | 21,500 | | | | 1,395,181 | |
| Continental AG* | | | 27,800 | | | | 2,918,839 | |
| Lanxess AG | | | 30,300 | | | | 2,484,066 | |
| Merck KGaA | | | 13,200 | | | | 1,434,432 | |
| SAP AG | | | 289,050 | | | | 17,482,355 | |
| (Cost $38,476,321) | | | | 37,870,271 | |
| Hong Kong 1.7% | |
| BOC Hong Kong (Holdings) Ltd. | | | 1,230,000 | | | | 3,571,517 | |
| Li & Fung Ltd. | | | 548,000 | | | | 1,102,151 | |
| (Cost $5,111,663) | | | | 4,673,668 | |
| Italy 1.5% | |
| Luxottica Group SpA | | | 43,000 | | | | 1,378,402 | |
| Snam Rete Gas SpA | | | 450,000 | | | | 2,664,008 | |
| (Cost $4,287,406) | | | | 4,042,410 | |
| Japan 17.4% | |
| Daikin Industries Ltd. | | | 44,000 | | | | 1,559,360 | |
| Eisai Co., Ltd. | | | 78,000 | | | | 3,046,424 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Honda Motor Co., Ltd. | | | 71,792 | | | | 2,767,121 | |
| INPEX Corp. | | | 380 | | | | 2,805,437 | |
| Kawasaki Kisen Kaisha Ltd. | | | 410,000 | | | | 1,434,268 | |
| Kyushu Electric Power Co., Inc. | | | 76,000 | | | | 1,370,415 | |
| Mitsubishi Corp. | | | 500,909 | | | | 12,550,245 | |
| Mitsubishi Electric Corp. | | | 254,000 | | | | 2,949,870 | |
| Mitsubishi Estate Co., Ltd. | | | 159,000 | | | | 2,791,219 | |
| Mitsui Fudosan Co., Ltd. | | | 160,000 | | | | 2,758,480 | |
| Mitsui O.S.K Lines Ltd. | | | 287,119 | | | | 1,545,096 | |
| Nabtesco Corp. | | | 55,000 | | | | 1,333,509 | |
| Nippon Electric Glass Co., Ltd. | | | 94,000 | | | | 1,204,173 | |
| Resona Holdings, Inc. | | | 257,000 | | | | 1,210,271 | |
| SMC Corp. | | | 4,700 | | | | 846,787 | |
| Softbank Corp. | | | 69,000 | | | | 2,613,358 | |
| Sumitomo Realty & Development Co., Ltd. | | | 42,000 | | | | 938,998 | |
| Terumo Corp. | | | 50,000 | | | | 2,701,916 | |
| Tokyo Electric Power Co., Inc. | | | 266,000 | | | | 1,092,601 | |
| (Cost $49,119,489) | | | | 47,519,548 | |
| Netherlands 6.3% | |
| European Aeronautic Defence & Space Co. NV | | | 136,000 | | | | 4,552,114 | |
| Heineken NV | | | 125,000 | | | | 7,518,371 | |
| ING Groep NV (CVA)* | | | 210,857 | | | | 2,600,984 | |
| Royal Dutch Shell PLC "B" | | | 72,000 | | | | 2,570,132 | |
| (Cost $16,469,483) | | | | 17,241,601 | |
| Norway 0.9% | |
| DnB NOR ASA (Cost $2,801,279) | | | 172,000 | | | | 2,397,535 | |
| Singapore 2.2% | |
| CapitaMall Trust (REIT) | | | 2,970,000 | | | | 4,529,798 | |
| Golden Agri-Resources Ltd. | | | 2,590,000 | | | | 1,439,372 | |
| (Cost $6,059,607) | | | | 5,969,170 | |
| Spain 1.5% | |
| Industria de Diseno Textil SA | | | 15,700 | | | | 1,433,675 | |
| Red Electrica Corporacion SA | | | 44,000 | | | | 2,658,799 | |
| (Cost $4,273,080) | | | | 4,092,474 | |
| Sweden 3.1% | |
| Hennes & Mauritz AB "B" | | | 25,000 | | | | 861,599 | |
| TeliaSonera AB | | | 1,020,000 | | | | 7,482,705 | |
| (Cost $9,202,094) | | | | 8,344,304 | |
| Switzerland 3.6% | |
| Nestle SA (Registered) | | | 18,110 | | | | 1,125,523 | |
| Novartis AG (Registered) | | | 23,700 | | | | 1,451,802 | |
| Zurich Financial Services AG* | | | 28,800 | | | | 7,279,101 | |
| (Cost $10,273,675) | | | | 9,856,426 | |
| United Kingdom 13.5% | |
| AMEC PLC | | | 70,338 | | | | 1,229,204 | |
| AstraZeneca PLC | | | 28,227 | | | | 1,409,422 | |
| BAE Systems PLC | | | 154,000 | | | | 787,256 | |
| BP PLC | | | 1,032,000 | | | | 7,603,772 | |
| Centrica PLC | | | 263,000 | | | | 1,364,724 | |
| GlaxoSmithKline PLC | | | 558,000 | | | | 11,947,151 | |
| Inmarsat PLC | | | 138,000 | | | | 1,231,875 | |
| Lloyds Banking Group PLC* | | | 1,420,000 | | | | 1,115,784 | |
| National Grid PLC | | | 137,000 | | | | 1,348,177 | |
| Old Mutual PLC | | | 608,041 | | | | 1,301,916 | |
| Reckitt Benckiser Group PLC | | | 44,000 | | | | 2,429,385 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Tesco PLC | | | 420,000 | | | | 2,712,563 | |
| Unilever PLC | | | 43,000 | | | | 1,387,644 | |
| William Morrison Supermarkets PLC | | | 196,000 | | | | 936,517 | |
| (Cost $37,783,369) | | | | 36,805,390 | |
Total Common Stocks (Cost $261,265,743) | | | | 255,814,310 | |
| | |
| Preferred Stocks 2.2% | |
| Germany | |
| Porsche Automobil Holding SE | | | 39,000 | | | | 3,093,555 | |
| Volkswagen AG | | | 14,114 | | | | 2,909,955 | |
Total Preferred Stocks (Cost $5,406,815) | | | | 6,003,510 | |
| | | Shares | | | Value ($) | |
| | | | | | | | | |
| Cash Equivalents 2.6% | |
| Central Cash Management Fund, 0.11% (a) (Cost $6,990,530) | | | 6,990,530 | | | | 6,990,530 | |
| | | % of Net Assets | | | Value ($) | |
| | | | |
Total Investment Portfolio (Cost $273,663,088)+ | | | 98.5 | | | | 268,808,350 | |
| Other Assets and Liabilities, Net | | | 1.5 | | | | 4,098,591 | |
| Net Assets | | | 100.0 | | | | 272,906,941 | |
* Non-income producing security.
+ The cost for federal income tax purposes was $274,836,944. At June 30, 2011, net unrealized depreciation for all securities based on tax cost was $6,028,594. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $6,131,392 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $12,159,986.
(a) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
CVA: Certificaten Van Aandelen
REIT: Real Estate Investment Trust
At June 30, 2011, open futures contracts purchased were as follows:
| Futures | Currency | Expiration Date | | Contracts | | | Value ($) | | | Unrealized Appreciation ($) | |
| S&P 500 E-Mini Index | USD | 9/16/2011 | | | 150 | | | | 9,866,250 | | | | 232,125 | |
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of June 30, 2011 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.
| Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | |
| Common and Preferred Stocks (b) | | | | | | | | | | | | |
| Australia | | $ | — | | | $ | 15,754,369 | | | $ | — | | | $ | 15,754,369 | |
| Belgium | | | — | | | | 2,551,345 | | | | — | | | | 2,551,345 | |
| Bermuda | | | — | | | | 1,408,035 | | | | — | | | | 1,408,035 | |
| Denmark | | | — | | | | 5,318,924 | | | | — | | | | 5,318,924 | |
| Finland | | | — | | | | 975,249 | | | | — | | | | 975,249 | |
| France | | | — | | | | 50,993,591 | | | | — | | | | 50,993,591 | |
| Germany | | | — | | | | 43,873,781 | | | | — | | | | 43,873,781 | |
| Hong Kong | | | — | | | | 4,673,668 | | | | — | | | | 4,673,668 | |
| Italy | | | — | | | | 4,042,410 | | | | — | | | | 4,042,410 | |
| Japan | | | — | | | | 47,519,548 | | | | — | | | | 47,519,548 | |
| Netherlands | | | — | | | | 17,241,601 | | | | — | | | | 17,241,601 | |
| Norway | | | — | | | | 2,397,535 | | | | — | | | | 2,397,535 | |
| Singapore | | | — | | | | 5,969,170 | | | | — | | | | 5,969,170 | |
| Spain | | | — | | | | 4,092,474 | | | | — | | | | 4,092,474 | |
| Sweden | | | — | | | | 8,344,304 | | | | — | | | | 8,344,304 | |
| Switzerland | | | — | | | | 9,856,426 | | | | — | | | | 9,856,426 | |
| United Kingdom | | | — | | | | 36,805,390 | | | | — | | | | 36,805,390 | |
| Short-Term Investments (b) | | | 6,990,530 | | | | — | | | | — | | | | 6,990,530 | |
| Derivatives (c) | | | 232,125 | | | | — | | | | — | | | | 232,125 | |
| Total | | $ | 7,222,655 | | | $ | 261,817,820 | | | $ | — | | | $ | 269,040,475 | |
There have been no transfers between Level 1 and Level 2 fair value measurements during the period ended June 30, 2011.
(b) See Investment Portfolio for additional detailed categorizations.
(c) Derivatives include unrealized appreciation (depreciation) on futures contracts.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities | as of June 30, 2011 (Unaudited) | |
| Assets | |
Investments: Investments in non-affiliated securities, at value (cost $266,672,558) | | $ | 261,817,820 | |
| Investment in Central Cash Management Fund (cost $6,990,530) | | | 6,990,530 | |
| Total investments, at value (cost $273,663,088) | | | 268,808,350 | |
| Cash | | | 155,875 | |
| Foreign currency, at value (cost $3,046,671) | | | 3,040,236 | |
| Deposit with broker for future contracts | | | 600,000 | |
| Receivable for Fund shares sold | | | 12,493 | |
| Interest receivable | | | 71,731 | |
| Dividends receivable | | | 419,751 | |
| Foreign taxes recoverable | | | 267,853 | |
| Other assets | | | 1,824 | |
| Total assets | | | 273,378,113 | |
| Liabilities | |
| Payable for Fund shares redeemed | | | 175,895 | |
| Accrued management fee | | | 158,726 | |
| Other accrued expenses and payables | | | 136,551 | |
| Total liabilities | | | 471,172 | |
| Net assets, at value | | $ | 272,906,941 | |
| Net Assets Consist of | |
| Undistributed net investment income | | | 3,414,608 | |
Net unrealized appreciation (depreciation) on: Investments | | | (4,854,738 | ) |
| Futures | | | 232,125 | |
| Foreign currency | | | 38,666 | |
| Accumulated net realized gain (loss) | | | (106,453,124 | ) |
| Paid-in capital | | | 380,529,404 | |
| Net assets, at value | | $ | 272,906,941 | |
Class A Net Asset Value, offering and redemption price per share ($272,579,966 ÷ 32,939,418 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 8.28 | |
Class B Net Asset Value, offering and redemption price per share ($326,975 ÷ 39,429 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | | $ | 8.29 | |
The accompanying notes are an integral part of the financial statements.
Statement of Operations
| for the six months ended June 30, 2011 (Unaudited) | |
| Investment Income | |
Income: Dividends (net of foreign taxes withheld of $612,083) | | $ | 4,812,300 | |
| Interest | | | 23,516 | |
| Income distributions — Central Cash Management Fund | | | 5,679 | |
| Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | | | 243,437 | |
| Total income | | | 5,084,932 | |
Expenses: Management fee | | | 1,103,467 | |
| Administration fee | | | 139,679 | |
| Services to shareholders | | | 6,569 | |
| Custodian fee | | | 40,588 | |
| Distribution service fee (Class B) | | | 424 | |
| Professional fees | | | 32,245 | |
| Reports to shareholders | | | 38,944 | |
| Trustees' fees and expenses | | | 5,704 | |
| Other | | | 34,743 | |
| Total expenses | | | 1,402,363 | |
| Net investment income (loss) | | | 3,682,569 | |
| Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | | | 45,307,510 | |
| Futures | | | (427,635 | ) |
| Foreign currency | | | (94,743 | ) |
| | | | 44,785,132 | |
Change in net unrealized appreciation (depreciation) on: Investments | | | (41,947,406 | ) |
| Futures | | | 232,125 | |
| Foreign currency | | | 11,132 | |
| | | | (41,704,149 | ) |
| Net gain (loss) | | | 3,080,983 | |
| Net increase (decrease) in net assets resulting from operations | | $ | 6,763,552 | |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | Increase (Decrease) in Net Assets | | Six Months Ended June 30, 2011 (Unaudited) | | | Year Ended December 31, 2010 | |
Operations: Net investment income (loss) | | $ | 3,682,569 | | | $ | 5,139,006 | |
| Net realized gain (loss) | | | 44,785,132 | | | | 32,033,390 | |
| Change in net unrealized appreciation (depreciation) | | | (41,704,149 | ) | | | (35,483,954 | ) |
| Net increase (decrease) in net assets resulting from operations | | | 6,763,552 | | | | 1,688,442 | |
Distributions to shareholders from: Net investment income: Class A | | | (4,647,186 | ) | | | (6,697,099 | ) |
| Class B | | | (4,542 | ) | | | (8,035 | ) |
| Total distributions | | | (4,651,728 | ) | | | (6,705,134 | ) |
Fund share transactions: Class A Proceeds from shares sold | | | 3,483,481 | | | | 11,044,552 | |
| Reinvestment of distributions | | | 4,647,186 | | | | 6,697,099 | |
| Payments for shares redeemed | | | (25,951,761 | ) | | | (68,414,073 | ) |
| Net increase (decrease) in net assets from Class A share transactions | | | (17,821,094 | ) | | | (50,672,422 | ) |
Class B Proceeds from shares sold | | | 8,385 | | | | 28,325 | |
| Reinvestment of distributions | | | 4,542 | | | | 8,035 | |
| Payments for shares redeemed | | | (55,499 | ) | | | (124,745 | ) |
| Net increase (decrease) in net assets from Class B share transactions | | | (42,572 | ) | | | (88,385 | ) |
| Increase (decrease) in net assets | | | (15,751,842 | ) | | | (55,777,499 | ) |
| Net assets at beginning of period | | | 288,658,783 | | | | 344,436,282 | |
| Net assets at end of period (including undistributed net investment income of $3,414,608 and $4,383,767, respectively) | | $ | 272,906,941 | | | $ | 288,658,783 | |
| Other Information | |
Class A Shares outstanding at beginning of period | | | 35,091,522 | | | | 41,648,336 | |
| Shares sold | | | 419,816 | | | | 1,324,213 | |
| Shares issued to shareholders in reinvestment of distributions | | | 539,117 | | | | 845,593 | |
| Shares redeemed | | | (3,111,037 | ) | | | (8,726,620 | ) |
| Net increase (decrease) in Class A shares | | | (2,152,104 | ) | | | (6,556,814 | ) |
| Shares outstanding at end of period | | | 32,939,418 | | | | 35,091,522 | |
Class B Shares outstanding at beginning of period | | | 44,527 | | | | 56,405 | |
| Shares sold | | | 1,002 | | | | 3,694 | |
| Shares issued to shareholders in reinvestment of distributions | | | 525 | | | | 1,012 | |
| Shares redeemed | | | (6,625 | ) | | | (16,584 | ) |
| Net increase (decrease) in Class B shares | | | (5,098 | ) | | | (11,878 | ) |
| Shares outstanding at end of period | | | 39,429 | | | | 44,527 | |
The accompanying notes are an integral part of the financial statements.
| | Six Months Ended 6/30/11 (Unaudited) | Years Ended December 31, | |
| Class A | 2010 | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| Selected Per Share Data | |
| Net asset value, beginning of period | | $ | 8.22 | | | $ | 8.26 | | | $ | 6.52 | | | $ | 15.01 | | | $ | 13.42 | | | $ | 10.85 | |
Income (loss) from investment operations: Net investment income (loss)a | | | .11 | | | | .13 | | | | .12 | | | | .29 | c | | | .21 | c | | | .28 | c |
| Net realized and unrealized gain (loss) | | | .09 | | | | (.00 | )*** | | | 1.93 | | | | (6.46 | ) | | | 1.73 | | | | 2.51 | |
| Total from investment operations | | | .20 | | | | .13 | | | | 2.05 | | | | (6.17 | ) | | | 1.94 | | | | 2.79 | |
Less distributions from: Net investment income | | | (.14 | ) | | | (.17 | ) | | | (.31 | ) | | | (.17 | ) | | | (.35 | ) | | | (.22 | ) |
| Net realized gains | | | — | | | | — | | | | — | | | | (2.15 | ) | | | — | | | | — | |
| Total distributions | | | (.14 | ) | | | (.17 | ) | | | (.31 | ) | | | (2.32 | ) | | | (.35 | ) | | | (.22 | ) |
| Net asset value, end of period | | $ | 8.28 | | | $ | 8.22 | | | $ | 8.26 | | | $ | 6.52 | | | $ | 15.01 | | | $ | 13.42 | |
| Total Return (%) | | | 2.37 | ** | | | 1.62 | b | | | 33.52 | | | | (48.21 | )b,d | | | 14.59 | | | | 25.91 | |
| Ratios to Average Net Assets and Supplemental Data | |
| Net assets, end of period ($ millions) | | | 273 | | | | 288 | | | | 344 | | | | 297 | | | | 702 | | | | 702 | |
| Ratio of expenses before expense reductions (%) | | | 1.00 | * | | | .99 | | | | .94 | | | | 1.01 | | | | .98 | | | | .98 | |
| Ratio of expenses after expense reductions (%) | | | 1.00 | * | | | .99 | | | | .94 | | | | .97 | | | | .98 | | | | .98 | |
| Ratio of net investment income (loss) (%) | | | 2.64 | * | | | 1.68 | | | | 1.69 | | | | 2.74 | c | | | 1.48 | c | | | 2.32 | c |
| Portfolio turnover rate (%) | | | 118 | ** | | | 228 | | | | 81 | | | | 123 | | | | 108 | | | | 105 | |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Net investment income per share and the ratio of net investment income include non-recurring dividend income amounting to $0.09, $0.05 and $0.11 per share and 0.82%, 0.33% and 0.92% of average daily net assets for the years ended December 31, 2008, 2007 and 2006, respectively. d Includes a reimbursement from the Advisor to reimburse the effect of losses incurred as the result of certain operation errors during the period. Excluding this reimbursement, total return would have been 0.06% lower. * Annualized ** Not annualized *** Amount is less than $.005. | |
| | Six Months Ended 6/30/11 (Unaudited) | Years Ended December 31, | |
| Class B | 2010 | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| Selected Per Share Data | |
| Net asset value, beginning of period | | $ | 8.22 | | | $ | 8.26 | | | $ | 6.52 | | | $ | 14.98 | | | $ | 13.38 | | | $ | 10.82 | |
Income (loss) from investment operations: Net investment income (loss)a | | | .10 | | | | .11 | | | | .10 | | | | .23 | c | | | .16 | c | | | .24 | c |
| Net realized and unrealized gain (loss) | | | .09 | | | | (.00 | )*** | | | 1.94 | | | | (6.43 | ) | | | 1.73 | | | | 2.50 | |
| Total from investment operations | | | .19 | | | | .11 | | | | 2.04 | | | | (6.20 | ) | | | 1.89 | | | | 2.74 | |
Less distributions from: Net investment income | | | (.12 | ) | | | (.15 | ) | | | (.30 | ) | | | (.11 | ) | | | (.29 | ) | | | (.18 | ) |
| Net realized gains | | | — | | | | — | | | | — | | | | (2.15 | ) | | | — | | | | — | |
| Total distributions | | | (.12 | ) | | | (.15 | ) | | | (.30 | ) | | | (2.26 | ) | | | (.29 | ) | | | (.18 | ) |
| Net asset value, end of period | | $ | 8.29 | | | $ | 8.22 | | | $ | 8.26 | | | $ | 6.52 | | | $ | 14.98 | | | $ | 13.38 | |
| Total Return (%) | | | 2.21 | ** | | | 1.33 | b | | | 32.89 | | | | (48.25 | )b,d | | | 14.25 | b | | | 25.44 | b |
| Ratios to Average Net Assets and Supplemental Data | |
| Net assets, end of period ($ millions) | | | .33 | | | | .36 | | | | .50 | | | | .40 | | | | 12 | | | | 51 | |
| Ratio of expenses before expense reductions (%) | | | 1.28 | * | | | 1.26 | | | | 1.22 | | | | 1.33 | | | | 1.41 | | | | 1.37 | |
| Ratio of expenses after expense reductions (%) | | | 1.28 | * | | | 1.26 | | | | 1.22 | | | | 1.28 | | | | 1.39 | | | | 1.36 | |
| Ratio of net investment income (loss) (%) | | | 2.36 | * | | | 1.41 | | | | 1.42 | | | | 2.42 | c | | | 1.07 | c | | | 1.94 | c |
| Portfolio turnover rate (%) | | | 118 | ** | | | 228 | | | | 81 | | | | 123 | | | | 108 | | | | 105 | |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Net investment income per share and the ratio of net investment income include non-recurring dividend income amounting to $0.09, $0.05 and $0.11 per share and 0.82%, 0.33% and 0.92% of average daily net assets for the years ended December 31, 2008, 2007 and 2006, respectively. d Includes a reimbursement from the Advisor to reimburse the effect of losses incurred as the result of certain operation errors during the period. Excluding this reimbursement, total return would have been 0.06% lower. * Annualized ** Not annualized *** Amount is less than $.005. | |
Notes to Financial Statements (Unaudited)
A. Organization and Significant Accounting Policies
DWS Variable Series I (the "Series") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, registered management investment company organized as a Massachusetts business trust. The Series consists of five diversified funds: DWS Bond VIP, DWS Growth & Income VIP, DWS Capital Growth VIP, DWS Global Small Cap Growth VIP (formerly DWS Global Opportunities VIP) and DWS International VIP (individually or collectively hereinafter referred to as a "Fund" or the "Funds"). These financial statements report on DWS International VIP. The Series is intended to be the underlying investment vehicle for variable annuity contracts and variable life insurance policies to be offered by the separate accounts of certain life insurance companies ("Participating Insurance Companies").
Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Class B shares are subject to Rule 12b-1 distribution fees under the 1940 Act and recordkeeping fees equal to an annual rate of 0.25% and up to 0.15%, respectively, of the average daily net assets of the Class B shares of the Fund. Class A shares are not subject to such fees.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class (including the applicable 12b-1 distribution fees and recordkeeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.
The Series' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Series in the preparation of the financial statements for its Funds.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which they trade and are categorized as Level 1 securities. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. For certain international equity securities, in order to adjust for events which may occur between the close of the foreign exchanges and the close of the New York Stock Exchange, a fair valuation model may be used. This fair valuation model takes into account comparisons to the valuation of American Depository Receipts (ADRs), exchange-traded funds, futures contracts and certain indices and these securities are categorized as Level 2.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost, which approximates value, and are categorized as Level 2. Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.
Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities; the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.
Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.
Securities Lending. The Fund lends securities to certain financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments. The Fund had no securities on loan as of June 30, 2011.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
Taxes. The Fund is treated as a separate taxpayer as provided for in the Internal Revenue Code, as amended. It is the Fund's policy to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to the separate accounts of the Participating Insurance Companies which hold its shares.
Additionally, based on the Series' understanding of the tax rules and rates related to income, gains and transactions for the foreign jurisdictions in which the Fund invests, the Fund will provide for foreign taxes, and where appropriate, deferred foreign taxes.
At December 31, 2010, the Fund had a net tax basis capital loss carryforward of approximately $150,205,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2016 ($51,383,000) and December 31, 2017 ($98,822,000), the respective expiration dates, whichever occurs first.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the "Act") was enacted. Under the Act, net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. As a result of this ordering rule, pre-enactment capital loss carryforwards may expire unused, whereas under the previous rules these losses may have been utilized. This change is effective for fiscal years beginning after the date of enactment.
The Fund has reviewed the tax positions for the open tax years as of December 31, 2010 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. The Fund will declare and distribute dividends from its net investment income, if any, annually, although additional distributions may be made if necessary. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to investments in foreign denominated investments, futures contracts, passive foreign investment companies and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Expenses. Expenses of the Series arising in connection with a specific Fund are allocated to that Fund. Other Series expenses which cannot be directly attributed to a Fund are apportioned among the Funds in the Series.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis net of foreign withholding taxes. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis and may include proceeds from litigation.
B. Derivative Instruments
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). For the six months ended June 30, 2011, the Fund entered into futures contracts in circumstances where portfolio management believed they offered an economic means of gaining exposure to a particular asset class or to keep cash on hand to meet
shareholder redemptions or other needs while maintaining exposure to the market.
Futures contracts are valued at the most recent settlement price. Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary cash or securities ("initial margin") in an amount equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are exchange-traded, counterparty risk is minimized as the exchange's clearinghouse acts as the counterparty, and guarantees the futures against default.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid market will limit the Fund's ability to close out a futures contract prior to the settlement date and the risk that the futures contract is not well correlated with the security, index or currency to which it relates. Risk of loss may exceed amounts recognized in the Statement of Assets and Liabilities.
A summary of the open futures contracts as of June 30, 2011 is included in a table following the Fund's Investment Portfolio. For the six months ended June 30, 2011, the investment in futures contracts purchased had a total notional value generally indicative of a range from $0 to approximately $9,866,000.
| Asset Derivative | | Futures Contracts | |
| Equity Contracts (a) | | $ | 232,125 | |
The above derivative is located in the following Statement of Assets and Liabilities account:
(a) Includes cumulative appreciation of futures contracts as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.
Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the six months ended June 30, 2011 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:
| Realized Gain (Loss) | | Futures Contracts | |
| Equity Contracts (a) | | $ | (427,635 | ) |
The above derivative is located in the following Statement of Operations account:
(a) Net realized gain (loss) from futures
| Change in Net Unrealized Appreciation (Depreciation) | | Futures Contracts | |
| Equity Contracts (a) | | $ | 232,125 | |
The above derivative is located in the following Statement of Operations account:
(a) Change in net unrealized appreciation (depreciation) on futures
C. Purchases and Sales of Securities
During the six months ended June 30, 2011, purchases and sales of investment securities (excluding short-term investments) aggregated $325,053,153 and $355,400,702, respectively.
D. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.
Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:
| First $500 million of average daily net assets | | | .790 | % |
| Over $500 million of average daily net assets | | | .640 | % |
Accordingly, for the six months ended June 30, 2011, the fee pursuant to the Investment Management Agreement was equivalent to an annualized effective rate of 0.79% of the Fund's average daily net assets.
Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Series. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the six months ended June 30, 2011, the Administration Fee was $139,679, of which $22,001 is unpaid.
Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Series. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended June 30, 2011, the amounts charged to the Fund by DISC were as follows:
| Services to Shareholders | | Total Aggregated | | | Unpaid at June 30, 2011 | |
| Class A | | $ | 397 | | | $ | 282 | |
| Class B | | | 46 | | | | 29 | |
| | | $ | 443 | | | $ | 311 | |
Distribution Service Agreement. DWS Investments Distributors, Inc. ("DIDI"), also an affiliate of the Advisor, is the Series' Distributor. In accordance with the Master Distribution Plan, DIDI receives 12b-1 fees of 0.25% of average daily net assets of Class B shares. Pursuant to the Master Distribution Plan, DIDI remits these fees to the Participating Insurance Companies for various costs incurred or paid by these companies in connection with marketing and distribution of Class B shares. For six months ended June 30, 2011, the Distribution Service Fee aggregated $424, of which $66 is unpaid.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended June 30, 2011, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $10,501, of which $3,339 is unpaid.
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Affiliated Cash Management Vehicle. The Fund may invest uninvested cash balances in Central Cash Management Fund, which is managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of Central Cash Management Fund. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.
E. Ownership of the Fund
Two participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 41% and 13%. One participating insurance company was an owner of record of 10% or more of the total outstanding Class B shares of the Fund, owning 86%.
F. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $450 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at June 30, 2011.
The Series' policies and procedures for voting proxies for portfolio securities and information about how the Series voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the Series' policies and procedures without charge, upon request, call us toll free at (800) 728-3337.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 3, 2010
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2010, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007, 2008, and 2009.
Qualifications
For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past ten years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds and have served in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 118 publicly offered Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Fund. These similar products included the other DWS Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Funds are reasonable.
Thomas H. Mack
DWS Investments Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 621-1148
VS1int-3 (R-023286-1 8/11)
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| ITEM 2. | CODE OF ETHICS |
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| | Not applicable. |
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| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
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| | Not applicable |
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| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
| | |
| | Not applicable |
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| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
| | |
| | Not applicable |
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| ITEM 6. | SCHEDULE OF INVESTMENTS |
| | |
| | Not applicable |
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| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
| | |
| | Not applicable |
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| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
| | |
| | Not applicable |
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| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
| | |
| | Not applicable |
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| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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| | There were no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board. The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Paul K. Freeman, Independent Chairman, DWS Funds, P.O. Box 101833, Denver, CO 80250-1833. |
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| ITEM 11. | CONTROLS AND PROCEDURES |
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| | (a) | The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. |
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| | (b) | There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. |
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| ITEM 12. | EXHIBITS |
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| | (a)(1) | Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
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| | (b) | Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. |
Form N-CSRS Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Registrant: | DWS Variable Series I |
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| By: | /s/W. Douglas Beck W. Douglas Beck President |
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| Date: | August 18, 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/W. Douglas Beck W. Douglas Beck President |
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| Date: | August 18, 2011 |
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| By: | /s/Paul Schubert Paul Schubert Chief Financial Officer and Treasurer |
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| Date: | August 18, 2011 |
