UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number: 811-07507
Deutsche DWS Investments VIT Funds
(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: (212) 250-2500
Diane Kenneally
One International Place
Boston, MA 02110
(Name and Address of Agent for Service)
| Date of fiscal year end: | 12/31 |
| Date of reporting period: | 12/31/2018 |
| ITEM 1. | REPORT TO STOCKHOLDERS |
Table of Contents
December 31, 2018
Annual Report
Deutsche DWS Investments VIT Funds
(formerly Deutsche Investments VIT Funds)
DWS Small Cap Index VIP
(formerly Deutsche Small Cap Index VIP)
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, you may not be receiving paper copies of the Fund’s shareholder reports from the insurance company that offers your contract unless you specifically request paper copies from your insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site, and your insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from your insurance company electronically by following the instructions provided by your insurance company.
You may elect to receive all future reports in paper free of charge from your insurance company. If your insurance company informs you that future reports will be delivered via Web access, you can inform your insurance company that you wish to continue receiving paper copies of your shareholder reports by following the instructions provided by your insurance company.
Table of Contents
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. Various factors, including costs, cash flows and security selection, may cause the Fund’s performance to differ from that of the index. Smaller company stocks tend to be more volatile than medium-sized or large company stocks. The Fund may lend securities to approved institutions. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. Please read the prospectus for details.
The brand DWS represents DWS Group GmbH & Co. KGaA and any of its subsidiaries such as DWS Distributors, Inc. which offers investment products or DWS Investment Management Americas, Inc. and RREEF America L.L.C. which offer advisory services.
DWS Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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| Performance Summary | December 31, 2018 (Unaudited) |
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 figures for Classes A and B differ because each class maintains a distinct expense structure. Performance does 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. These charges and fees will reduce returns.
The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2018 are 0.51% and 0.78% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.
Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.
Growth of an Assumed $10,000 Investment
|
The Russell 2000® Index is an unmanaged, capitalization-weighted measure of approximately 2,000 of the smallest companies in the Russell 3000® Index.
Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index. |
| Comparative Results (as of December 31, 2018) | ||||||||||
| DWS Small Cap Index VIP | 1-Year | 3-Year | 5-Year | 10-Year | ||||||
| Class A | Growth of $10,000 | $8,877 | $12,283 | $12,274 | $30,250 | |||||
| Average annual total return | –11.23% | 7.09% | 4.18% | 11.71% | ||||||
| Russell 2000 Index | Growth of $10,000 | $8,899 | $12,376 | $12,409 | $30,983 | |||||
| Average annual total return | –11.01% | 7.36% | 4.41% | 11.97% | ||||||
| DWS Small Cap Index VIP | 1-Year | 3-Year | 5-Year | 10-Year | ||||||
| Class B | Growth of $10,000 | $8,858 | $12,192 | $12,120 | $29,514 | |||||
| Average annual total return | –11.42% | 6.83% | 3.92% | 11.43% | ||||||
| Russell 2000 Index | Growth of $10,000 | $8,899 | $12,376 | $12,409 | $30,983 | |||||
| Average annual total return | –11.01% | 7.36% | 4.41% | 11.97% | ||||||
The growth of $10,000 is cumulative.
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| Management Summary | December 31, 2018 (Unaudited) |
For the 12 months ended December 31, 2018, the Fund returned –11.23% (Class A shares, unadjusted for contract charges), compared with the –11.01% return of the Russell 2000® Index.
The past year saw the worst equity market performance since 2008, though unfavorable returns for stocks belied the fact that the investment environment was quite positive through late September. U.S. GDP registered growth above 3% in both the second and third quarters, a better-than-expected expansion that created a tailwind for equities. In addition, consumer confidence hit its highest in level 17 years, unemployment fell to the lowest point since 2000, and small business confidence hit an all-time high. In turn, the strength in the economy — together with the reduction in the corporate tax rate — fueled robust gains for corporate profits. However, this favorable picture waned in early October, setting the stage for a fourth-quarter loss that pushed the benchmark into negative territory for the full year. Stocks initially turned lower in early October, when U.S. Federal Reserve (Fed) Chairman Powell suggested that interest rates were “a long way” from the neutral level at which the central bank could pause its long series of rate hikes. Investors took this as an indication that several more increases could be on the way for 2019, sending stock prices tumbling. Though Fed officials walked back the comments in the following days, the market was unable to regain its momentum. As the fourth quarter progressed, stocks continued to stumble due to mounting concerns regarding uncertain U.S. trade policy, slowing global growth and questions concerning the outlook for corporate profits. Later in the quarter, the prospect of a government shutdown sparked a fresh wave of selling that lasted into late December. Although equities regained their footing in the final week of the year, the modest recovery only offset a small portion of earlier losses.
To attempt to match the risk and return characteristics of the Russell 2000 Index as closely as possible, the Fund invests in a statistically selected sample of the securities found in the Russell 2000 Index, using a process known as “optimization.” This process selects stocks for the Fund so that industry weightings, market capitalizations and fundamental characteristics closely match those of the securities in the Russell 2000 Index without purchasing all of the stocks in the index. Going forward, we will continue to seek returns that approximate those of the index.
Brent Reeder
Senior Vice President, Northern Trust Investments, Inc., Subadvisor to the Fund
Portfolio Manager
The views expressed reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The management team’s views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results. Current and future fund holdings are subject to risk.
Terms to Know
The Russell 2000 Index is an unmanaged, capitalization-weighted measure of approximately 2,000 of the smallest companies in the Russell 3000® Index. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
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| Portfolio Summary | (Unaudited) | |||
| Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/18 | 12/31/17 | ||||||
| Common Stocks | 98% | 98% | ||||||
| Cash Equivalents | 1% | 2% | ||||||
| Government & Agency Obligations | 1% | 0% | ||||||
| Rights | 0% | 0% | ||||||
| 100% | 100% | |||||||
| Sector Diversification (As a % of Common Stocks and Rights) | 12/31/18 | 12/31/17 | ||||||
| Financials | 18% | 18% | ||||||
| Health Care | 16% | 15% | ||||||
| Industrials | 15% | 15% | ||||||
| Information Technology | 15% | 15% | ||||||
| Consumer Discretionary | 12% | 12% | ||||||
| Real Estate | 7% | 7% | ||||||
| Utilities | 4% | 3% | ||||||
| Materials | 4% | 5% | ||||||
| Energy | 3% | 4% | ||||||
| Communication Services | 3% | 3% | ||||||
| Consumer Staples | 3% | 3% | ||||||
| 100% | 100% | |||||||
| Ten Largest Equity Holdings (2.8% of Net Assets) | Percent | |||||
| 1 | Integrated Device Technology, Inc. | |||||
| Designs a variety of semiconductor products & modules | 0.3% | |||||
| 2 | Etsy, Inc. | |||||
| Provides e-commerce services | 0.3% | |||||
| 3 | Five Below, Inc. | |||||
| Operates as a speciality value retailer offering merchandise for teen & pre-teen customers | 0.3% | |||||
| 4 | Haemonetics Corp. | |||||
| Manufactures and markets automated blood processing systems | 0.3% | |||||
| 5 | Ciena Corp. | |||||
| Develops and markets communications network platforms and software | 0.3% | |||||
| 6 | Planet Fitness, Inc. | |||||
| Owns and operates a chain of fitness club | 0.3% | |||||
| 7 | IDACORP, Inc. | |||||
| Provider of electricity | 0.3% | |||||
| 8 | HubSpot, Inc. | |||||
| Provides a cloud-based marketing and sales software platform | 0.3% | |||||
| 9 | LivaNova PLC | |||||
| Operates as a medical technology company | 0.2% | |||||
| 10 | Cree, Inc. | |||||
| Designer, developer and manufacturer of silicon carbide based semiconductor materials | 0.2% | |||||
Portfolio holdings and characteristics 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 or Form N-PORT (available for filings after March 31, 2019). The Fund’s Form N-Q or Form N-PORT will be available on the SEC’s Web site at sec.gov. The Fund’s portfolio holdings are also posted on dws.com from time to time. Please see the Fund’s current prospectus for more information.
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| Investment Portfolio | as of December 31, 2018 |
The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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A summary of the Fund’s transactions with affiliated investments during the year ended December 31, 2018 are as follows:
| Value ($) at 12/31/2017 |
Purchases Cost ($) |
Sales Proceeds ($) |
Net Realized Gain/ (Loss) ($) |
Net Change in Unrealized Appreciation (Depreciation) ($) |
Income ($) | Capital Gain Distributions ($) |
Number 12/31/2018 |
Value ($) at 12/31/2018 |
||||||||||||||||||||||||
| Securities Lending Collateral 4.4% |
|
|||||||||||||||||||||||||||||||
| DWS Government & Agency Securities Portfolio “DWS Government Cash Institutional Shares”, 2.29% (d) (e) |
| |||||||||||||||||||||||||||||||
| 22,619,056 | — | 7,998,903 | (f) | — | — | 529,250 | — | 14,620,153 | 14,620,153 | |||||||||||||||||||||||
| Cash Equivalents 1.4% |
|
|||||||||||||||||||||||||||||||
| DWS Central Cash Management Government Fund, 2.41% (d) |
| |||||||||||||||||||||||||||||||
| 6,880,492 | 46,035,637 | 48,221,972 | — | — | 112,299 | — | 4,694,157 | 4,694,157 | ||||||||||||||||||||||||
| 29,499,548 | 46,035,637 | 56,220,875 | — | — | 641,549 | — | 19,314,310 | 19,314,310 | ||||||||||||||||||||||||
| * | Non-income producing security. |
| ** | Annualized yield at time of purchase; not a coupon rate. |
| (a) | All or a portion of these securities were on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The value of securities loaned at December 31, 2018 amounted to $14,218,194, which is 4.2% of net assets. |
| (b) | Investment was valued using significant unobservable inputs. |
| (c) | At December 31, 2018, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts. |
| (d) | Affiliated fund managed by DWS Investment Management Americas, Inc. The rate shown is the annualized seven-day yield at period end. |
| (e) | Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates. |
| (f) | Represents the net increase (purchase cost) or decrease (sales proceeds) in the amount invested for the year ended December 31, 2018. |
At December 31, 2018, open futures contracts purchased were as follows:
| Futures | Currency | Expiration Date |
Contracts | Notional Amount ($) |
Notional Value ($) |
Unrealized Depreciation ($) |
||||||||||||||
| Russell E Mini 2000 Index | USD | 3/15/2019 | 103 | 7,240,447 | 6,947,350 | (293,097 | ) | |||||||||||||
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 level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.
The following is a summary of the inputs used as of December 31, 2018 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 (g) | $ | 329,854,318 | $ | — | $ | — | $ | 329,854,318 | ||||||||
| Rights (g) | — | — | 10,369 | 10,369 | ||||||||||||
| Government & Agency Obligation | — | 1,519,239 | — | 1,519,239 | ||||||||||||
| Short-Term Investments (g) | 19,314,310 | — | — | 19,314,310 | ||||||||||||
| Total | $ | 349,168,628 | $ | 1,519,239 | $ | 10,369 | $ | 350,698,236 | ||||||||
| Liabilities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Derivatives (h) | ||||||||||||||||
| Futures Contracts |
$ | (293,097 | ) | $ | — | $ | — | $ | (293,097 | ) | ||||||
| Total | $ | (293,097 | ) | $ | — | $ | — | $ | (293,097 | ) | ||||||
| (g) | See Investment Portfolio for additional detailed categorizations. |
| (h) | Derivatives include unrealized appreciation (depreciation) on open futures contracts. |
The accompanying notes are an integral part of the financial statements.
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The accompanying notes are an integral part of the financial statements.
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| Statements of Changes in Net Assets |
| Years Ended December 31, | ||||||||
| Increase (Decrease) in Net Assets | 2018 | 2017 | ||||||
| Operations: | ||||||||
| Net investment income (loss) | $ | 4,120,982 | $ | 3,726,523 | ||||
| Net realized gain (loss) | 32,583,952 | 27,159,475 | ||||||
| Change in net unrealized appreciation (depreciation) | (78,598,339 | ) | 20,593,262 | |||||
| Net increase (decrease) in net assets resulting from operations | (41,893,405 | ) | 51,479,260 | |||||
| Distributions to shareholders: | ||||||||
| Class A |
(28,419,168 | ) | (16,429,033 | ) | ||||
| Class B |
(2,572,476 | ) | (1,371,677 | ) | ||||
| Total distributions | (30,991,644 | ) | (17,800,710 | )* | ||||
| Fund share transactions: |
| |||||||
| Class A |
||||||||
| Proceeds from shares sold | 41,172,754 | 47,080,221 | ||||||
| Reinvestment of distributions | 28,419,168 | 16,429,033 | ||||||
| Payments for shares redeemed | (54,633,970 | ) | (76,730,004 | ) | ||||
| Net increase (decrease) in net assets from Class A share transactions | 14,957,952 | (13,220,750 | ) | |||||
| Class B |
||||||||
| Proceeds from shares sold | 18,227,770 | 6,631,775 | ||||||
| Reinvestment of distributions | 2,572,476 | 1,371,677 | ||||||
| Payments for shares redeemed | (21,601,323 | ) | (6,094,920 | ) | ||||
| Net increase (decrease) in net assets from Class B share transactions | (801,077 | ) | 1,908,532 | |||||
| Increase (decrease) in net assets | (58,728,174 | ) | 22,366,332 | |||||
| Net assets at beginning of period | 394,817,773 | 372,451,441 | ||||||
| Net assets at end of period | 336,089,599 | 394,817,773 | ** | |||||
| Other Information | ||||||||
| Class A |
||||||||
| Shares outstanding at beginning of period | 19,690,579 | 20,420,238 | ||||||
| Shares sold | 2,269,653 | 2,735,613 | ||||||
| Shares issued to shareholders in reinvestment of distributions | 1,663,885 | 984,954 | ||||||
| Shares redeemed | (3,033,468 | ) | (4,450,226 | ) | ||||
| Net increase (decrease) in Class A shares | 900,070 | (729,659 | ) | |||||
| Shares outstanding at end of period | 20,590,649 | 19,690,579 | ||||||
| Class B |
||||||||
| Shares outstanding at beginning of period | 1,897,242 | 1,782,927 | ||||||
| Shares sold | 982,362 | 388,266 | ||||||
| Shares issued to shareholders in reinvestment of distributions | 150,437 | 82,136 | ||||||
| Shares redeemed | (1,168,706 | ) | (356,087 | ) | ||||
| Net increase (decrease) in Class B shares | (35,907 | ) | 114,315 | |||||
| Shares outstanding at end of period | 1,861,335 | 1,897,242 | ||||||
| * | Includes distributions from net investment income of $3,372,021, and $217,424 for Class A and Class B, respectively and distributions from net realized gains of $13,057,012 and $1,154,253 for Class A and Class B, respectively. |
| ** | Includes undistributed net investment income of $3,839,482. |
The accompanying notes are an integral part of the financial statements.
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| Years Ended December 31, |
||||||||||||||||||||
| Class A | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 18.29 | $ | 16.78 | $ | 15.18 | $ | 17.33 | $ | 17.69 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)a |
.19 | .17 | .18 | .19 | .17 | |||||||||||||||
| Net realized and unrealized gain (loss) |
(2.06 | ) | 2.16 | 2.76 | (.87 | ) | .59 | |||||||||||||
| Total from investment operations |
(1.87 | ) | 2.33 | 2.94 | (.68 | ) | .76 | |||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(.18 | ) | (.17 | ) | (.17 | ) | (.18 | ) | (.17 | ) | ||||||||||
| Net realized gains |
(1.27 | ) | (.65 | ) | (1.17 | ) | (1.29 | ) | (.95 | ) | ||||||||||
| Total distributions |
(1.45 | ) | (.82 | ) | (1.34 | ) | (1.47 | ) | (1.12 | ) | ||||||||||
| Net asset value, end of period | $ | 14.97 | $ | 18.29 | $ | 16.78 | $ | 15.18 | $ | 17.33 | ||||||||||
| Total Return (%)b | (11.23 | ) | 14.33 | 21.03 | (4.60 | ) | 4.74 | |||||||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||||||
| Net assets, end of period ($ millions) | 308 | 360 | 343 | 284 | 313 | |||||||||||||||
| Ratio of expenses before expense reductions (%)c | .51 | .51 | .53 | .54 | .53 | |||||||||||||||
| Ratio of expenses after expense reductions (%)c | .41 | .44 | .45 | .45 | .47 | |||||||||||||||
| Ratio of net investment income (loss) (%) | 1.03 | 1.00 | 1.25 | 1.14 | 1.04 | |||||||||||||||
| Portfolio turnover rate (%) | 17 | 15 | 18 | 21 | 21 | |||||||||||||||
| a | Based on average shares outstanding during the period. |
| b | Total return would have been lower had certain expenses not been reduced. |
| c | Expense ratio does not reflect charges and fees 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. |
| Years Ended December 31, |
||||||||||||||||||||
| Class B | 2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 18.28 | $ | 16.77 | $ | 15.17 | $ | 17.31 | $ | 17.68 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
| Net investment income (loss)a |
.14 | .13 | .15 | .14 | .13 | |||||||||||||||
| Net realized and unrealized gain (loss) |
(2.05 | ) | 2.15 | 2.75 | (.86 | ) | .57 | |||||||||||||
| Total from investment operations |
(1.91 | ) | 2.28 | 2.90 | (.72 | ) | .70 | |||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income |
(.13 | ) | (.12 | ) | (.13 | ) | (.13 | ) | (.12 | ) | ||||||||||
| Net realized gains |
(1.27 | ) | (.65 | ) | (1.17 | ) | (1.29 | ) | (.95 | ) | ||||||||||
| Total distributions |
(1.40 | ) | (.77 | ) | (1.30 | ) | (1.42 | ) | (1.07 | ) | ||||||||||
| Net asset value, end of period | $ | 14.97 | $ | 18.28 | $ | 16.77 | $ | 15.17 | $ | 17.31 | ||||||||||
| Total Return (%)b | (11.42 | ) | 14.03 | 20.71 | (4.85 | ) | 4.47 | |||||||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||||||
| Net assets, end of period ($ millions) | 28 | 35 | 30 | 25 | 27 | |||||||||||||||
| Ratio of expenses before expense reductions (%)c | .80 | .78 | .78 | .79 | .79 | |||||||||||||||
| Ratio of expenses after expense reductions (%)c | .67 | .70 | .71 | .71 | .72 | |||||||||||||||
| Ratio of net investment income (loss) (%) | .77 | .76 | .99 | .88 | .80 | |||||||||||||||
| Portfolio turnover rate (%) | 17 | 15 | 18 | 21 | 21 | |||||||||||||||
| a | Based on average shares outstanding during the period. |
| b | Total return would have been lower had certain expenses not been reduced. |
| c | Expense ratio does not reflect charges and fees 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. |
The accompanying notes are an integral part of the financial statements.
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A. Organization and Significant Accounting Policies
Deutsche DWS Investments VIT Funds (formerly Deutsche Investments VIT Funds) (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Massachusetts business trust. DWS Small Cap Index VIP (formerly Deutsche Small Cap Index VIP) (the “Fund”) is a diversified series of the Trust offered to investors. The Fund is an 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 to investors: 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 Class B shares average daily net assets. 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 Rule 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 Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
In October 2018, the Securities and Exchange Commission adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which is intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. Effective with the current reporting period, the Fund adopted the amendments with the impacts being that the Fund is no longer required to present components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributable earnings and the amount of undistributed net investment income on the Statements of Changes in Net Assets.
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 level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.
Equity securities are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. 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. Equity securities are generally categorized as Level 1.
Debt securities are valued at prices supplied by independent pricing services approved by the Fund’s Board. 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.
Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.
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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 Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered 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. Brown Brothers Harriman & Co. serves as securities lending agent for the Fund, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the 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. As of period end, any securities on loan were collateralized by cash. For the year ended December 31, 2018, the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by DWS Investment Management Americas, Inc. As of December 31, 2018, the Fund invested the cash collateral in DWS Government & Agency Securities Portfolio. DWS Investment Management Americas, Inc. receives a management/administration fee (0.12% annualized effective rate as of December 31, 2018) on the cash collateral invested in DWS Government & Agency Securities Portfolio. 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 at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. 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. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. 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.
As of December 31, 2018, the Fund had securities on loan, which were classified as common stock in the Investment Portfolio. The value of the related collateral exceeded the value of the securities loaned at period end. As of period end, the remaining contractual maturity of the collateral agreements were overnight and continuous.
Federal Income Taxes. The Fund’s policy is 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 its shareholders.
The Fund has reviewed the tax positions for the open tax years as of December 31, 2018 and has determined that no provision for income tax and/or uncertain tax positions 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. Net investment income of the Fund, if any, is distributed to shareholders annually. 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 Fund may also make additional distributions for tax purposes if necessary.
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The timing and characterization of certain income and capital gain 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 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.
At December 31, 2018, the Fund’s components of distributable earnings (accumulated gains) on a tax basis were as follows:
| Undistributed ordinary income* | $ | 6,028,054 | ||
| Undistributed long-term capital gains | $ | 29,486,060 | ||
| Unrealized appreciation (depreciation) on investments | $ | 31,713,558 |
At December 31, 2018, the aggregate cost of investments for federal income tax purposes was $318,984,678. The net unrealized appreciation for all investments based on tax cost was $31,713,558. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $88,200,621 and aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value of $56,487,063.
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
| Years Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Distributions from ordinary income* | $ | 6,449,285 | $ | 3,591,637 | ||||
| Distributions from long-term capital gains | $ | 24,542,359 | $ | 14,209,073 | ||||
| * | For tax purposes, short-term capital gain distributions are considered ordinary income distributions. |
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.
Expenses. Expenses of the Trust arising in connection with a specific fund are allocated to that fund. Other Trust expenses which cannot be directly attributed to a fund are apportioned among the funds in the Trust based upon the relative net assets or other appropriate measures.
Real Estate Investment Trusts. The Fund at its fiscal year end recharacterizes distributions received from a Real Estate Investment Trust (“REIT”) investment based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available timely from a REIT, the recharacterization will be estimated for financial statement purposes and a recharacterization will be made within the accounting records in the following year when such information becomes available. Distributions received from REITs in excess of income are recorded as either a reduction of cost of investments or realized gains.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset valuation 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. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments.
B. Derivative Instruments
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 year ended December 31, 2018, the Fund invested in futures to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the stock market.
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
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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 disclosed in the Statement of Assets and Liabilities.
A summary of the open futures contracts as of December 31, 2018, is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2018, the investment in futures contracts purchased had a total notional value generally indicative of a range from $3,954,000 to approximately $10,259,000.
The following tables summarize the value of the Fund’s derivative instruments held as of December 31, 2018 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:
| Liability Derivative | Futures Contracts |
|||
| Equity Contracts (a) | $ | (293,097 | ) | |
The above derivative is located in the following Statement of Assets and Liabilities account:
| (a) | 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 year ended December 31, 2018 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 (b) | $ | (285,485 | ) | |
The above derivative is located in the following Statement of Operations account:
| (b) | Net realized gain (loss) from futures |
| Change in Net Unrealized Appreciation (Depreciation) | Futures Contracts |
|||
| Equity Contracts (c) | $ | (282,225 | ) | |
The above derivative is located in the following Statement of Operations account:
| (c) | Change in net unrealized appreciation (depreciation) on futures |
C. Purchases and Sales of Securities
During the year ended December 31, 2018, purchases and sales of investment securities (excluding short-term investments) aggregated $65,833,053 and $73,619,802, respectively.
D. Related Parties
Investment Management Agreement. Under the Investment Management Agreement with DWS Investment Management Americas, Inc. (formerly Deutsche Investment Management Americas Inc.) (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of DWS Group GmbH & Co. KGaA (“DWS Group”), 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. Northern Trust Investments, Inc. (“NTI”) serves as subadvisor. As a subadvisor to the Fund, NTI makes investment decisions and buys and sells securities for the Fund. NTI is paid by the Advisor for the services NTI provides to the Fund.
Pursuant to the Investment Management Agreement with the Advisor, the Fund pays the Advisor an annual fee based on its average daily net assets, computed and accrued daily and payable monthly at the annual rate (exclusive of any applicable waivers/reimbursements) of 0.35%.
For the period from January 1, 2018 through September 30, 2018, the Advisor had contractually agreed to waive all or a portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to
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maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:
| Class A | .41 | % | ||
| Class B | .67 | % |
Effective October 1, 2018 through September 30, 2019, the Advisor has contractually agreed to waive all or a portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:
| Class A | .39 | % | ||
| Class B | .65 | % |
For the year ended December 31, 2018, fees waived and/or expenses reimbursed for each class are as follows:
| Class A | $ | 404,697 | ||
| Class B | 45,583 | |||
| $ | 450,280 |
Administration Fee. Pursuant to the Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA 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 year ended December 31, 2018, the Administration Fee was $405,262, of which $29,859 is unpaid.
Distribution Service Agreement. DWS Distributors, Inc. (“DDI”), an affiliate of the Advisor, is the Fund’s distributor. In accordance with the Distribution Plan, DDI receives 12b-1 fees of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2018, the Distribution Service Fee was as follows:
| Distribution Service Fee | Total Aggregated |
Unpaid at December 31, 2018 |
||||||
| Class B | $ | 84,968 | $ | 6,164 | ||||
Service Provider Fees. DWS Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent of the Fund. Pursuant to a sub-transfer agency agreement among DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee they receive from the Fund. For the year ended December 31, 2018, the amounts charged to the Fund by DSC were as follows:
| Services to Shareholders | Total Aggregated |
Unpaid at December 31, 2018 |
||||||
| Class A | $ | 1,051 | $ | 175 | ||||
| Class B | 257 | 37 | ||||||
| $ | 1,308 | $ | 212 | |||||
Typesetting and Filing Service Fees. Under an agreement with the fund, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2018, the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $20,421, of which $9,461 is unpaid.
Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and to each committee Chairperson.
Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in DWS Central Cash Management Government Fund and DWS ESG Liquidity Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. DWS Central Cash Management Government Fund seeks to maintain a stable net asset value, and DWS ESG Liquidity Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. DWS Central
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Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that DWS ESG Liquidity Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in DWS ESG Liquidity Fund.
E. Line of Credit
The Fund and other affiliated funds (the “Participants”) share in a $400 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 the one-month 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 December 31, 2018.
F. Ownership of the Fund
At December 31, 2018, three participating insurance companies were beneficial owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 37%, 16% and 15%, respectively. At December 31, 2018, four participating insurance companies were beneficial owners of record of 10% or more of the outstanding Class B shares of the Fund, each owning 46%, 19%, 12% and 10%, respectively.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Deutsche DWS Investments VIT Funds and Shareholders of DWS Small Cap Index VIP
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of DWS Small Cap Index VIP (one of the funds constituting Deutsche DWS Investments VIT Funds, referred to hereafter as the “Fund”) as of December 31, 2018, the related statement of operations for the year ended December 31, 2018, the statements of changes in net assets for each of the two years in the period ended December 31, 2018, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2018 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended December 31, 2018 and the financial highlights for each of the five years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018 by correspondence with the custodian, transfer agent and brokers. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 14, 2019
We have served as the auditor of one or more investment companies in the DWS family of funds since 1930.
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| Information About Your Fund’s Expenses | (Unaudited) |
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, 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 (July 1, 2018 to December 31, 2018).
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 December 31, 2018 | ||||||||
| Actual Fund Return | Class A | Class B | ||||||
| Beginning Account Value 7/1/18 | $ | 1,000.00 | $ | 1,000.00 | ||||
| Ending Account Value 12/31/18 | $ | 825.20 | $ | 824.30 | ||||
| Expenses Paid per $1,000* | $ | 1.84 | $ | 3.03 | ||||
| Hypothetical 5% Fund Return | Class A | Class B | ||||||
| Beginning Account Value 7/1/18 | $ | 1,000.00 | $ | 1,000.00 | ||||
| Ending Account Value 12/31/18 | $ | 1,023.19 | $ | 1,021.88 | ||||
| Expenses Paid per $1,000* | $ | 2.04 | $ | 3.36 | ||||
| * | 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 184 (the number of days in the most recent six-month period), then divided by 365. |
| Annualized Expense Ratios | Class A | Class B | ||||||
| DWS Small Cap Index VIP | .40 | % | .66 | % | ||||
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.
For an analysis of the fees associated with an investment in the Fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at dws.com/calculators.
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| Tax Information | (Unaudited) |
The Fund paid distributions of $1.14 per share from net long-term capital gains during its year ended December 31, 2018.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $32,630,000 as capital gain dividends for its year ended December 31, 2018.
For corporate shareholders, 50% of the ordinary dividends (i.e., income dividends plus short-term capital gains) paid during the Fund’s fiscal year ended December 31, 2018 qualified for the dividends received deduction.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, contact your insurance provider.
The Fund’s policies and procedures for voting proxies for portfolio securities and information about how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — dws.com/en-us/resources/proxy-voting — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Fund’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.
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Advisory Agreement Board Considerations and Fee Evaluation
The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of DWS Small Cap Index VIP’s (the “Fund”) investment management agreement (the “Agreement”) with DWS Investment Management Americas, Inc. (“DIMA”) and sub-advisory agreement (the “Sub-Advisory Agreement” and together with the Agreement, the “Agreements”) between DIMA and Northern Trust Investments, Inc. (“NTI”) in September 2018.
In terms of the process that the Board followed prior to approving the Agreements, shareholders should know that:
| – | During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”). |
| – | The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations. |
| – | The Board also received extensive information throughout the year regarding performance of the Fund. |
| – | The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations. |
| – | In connection with reviewing the Agreements, the Board also reviewed the terms of the Fund’s Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements. |
In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund. DIMA is part of DWS Group GmbH & Co. KGaA (“DWS Group”). DWS Group is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world. In 2018, approximately 20% of DWS Group’s shares were sold in an initial public offering, with Deutsche Bank AG owning the remaining shares.
As part of the contract review process, the Board carefully considered the fees and expenses of each DWS fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.
While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s and NTI’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.
Nature, Quality and Extent of Services. The Board considered the terms of the Agreements, including the scope of advisory services provided under the Agreements. The Board noted that, under the Agreements, DIMA and NTI provide portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. Throughout the course of the year, the Board also received information regarding DIMA’s oversight of fund sub-advisers, including NTI. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by
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Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2017, the Fund’s performance (Class A shares) was in the 1st quartile, 2nd quartile and 3rd quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers).
Fees and Expenses. The Board considered the Fund’s investment management fee schedule, sub-advisory fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were higher than the median (4th quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2017). With respect to the sub-advisory fee paid to NTI, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2017, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board also reviewed data comparing each share class’s total (net) operating expenses to the applicable Broadridge Universe Expenses. The Board noted that the expense limitations agreed to by DIMA were expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable DWS U.S. registered funds (“DWS Funds”) and considered differences between the Fund and the comparable DWS Funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“DWS Europe Funds”) managed by DWS Group. The Board noted that DIMA indicated that DWS Group does not manage any institutional accounts or DWS Europe Funds comparable to the Fund.
On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA and NTI.
Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the DWS Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the DWS Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available. The Board did not consider the profitability of NTI with respect to the Fund. The Board noted that DIMA pays NTI’s fee out of its management fee, and its understanding that the Fund’s sub-advisory fee schedule was the product of an arm’s length negotiation with DIMA.
Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. In this regard, the Board observed that while the Fund’s current investment management fee schedule does not include breakpoints, the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.
Other Benefits to DIMA and NTI and Their Affiliates. The Board also considered the character and amount of other incidental or “fall-out” benefits received by DIMA and NTI and their affiliates, including any fees received by DIMA for administrative services provided to the Fund, any fees received by an affiliate of DIMA
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for transfer agency services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA and NTI related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA and NTI related to DWS Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.
Compliance. The Board considered the significant attention and resources dedicated by DIMA to its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers and (ii) the substantial commitment of resources by DIMA and its affiliates to compliance matters, including the retention of compliance personnel. The Board also considered the attention and resources dedicated by DIMA to the oversight of the investment sub-advisor’s compliance program and compliance with the applicable fund policies and procedures.
Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreements is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreements.
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The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, DWS Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.
| Independent Board Members | ||||||||
| Name, Year of Birth, Position with the Fund and Length of Time Served1 |
Business Experience and Directorships During the Past Five Years | Number of Funds in DWS Fund Complex Overseen |
Other Directorships Held by Board Member | |||||
| Keith R. Fox, CFA (1954)
Chairperson since 2017, and Board Member since 1996 |
Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012) | 82 | — | |||||
| John W. Ballantine (1946)
Board Member since 1999 |
Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International; Public Radio International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago); Life Director of Hubbard Street Dance Chicago | 82 | Portland General Electric2 (utility company) (2003– present) | |||||
| Henry P. Becton, Jr. (1943)
Board Member since 1990 |
Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); Massachusetts Humane Society; Overseer of the New England Conservatory; former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston); American Documentary, Inc. (public media) | 82 | — | |||||
| Dawn-Marie Driscoll (1946)
Board Member since 1987 |
Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees) | 82 | — | |||||
| Paul K. Freeman* (1950)
Board Member since 1993 |
Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive committee); Adjunct Professor, University of Denver Law School (2017–present); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International; Denver Zoo Foundation (2012–2018) | 82 | — | |||||
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| Name, Year of Birth, Position with the Fund and Length of Time Served1 |
Business Experience and Directorships During the Past Five Years | Number of Funds in DWS Fund Complex Overseen |
Other Directorships Held by Board Member | |||||
| Richard J. Herring (1946)
Board Member since 1990 |
Jacob Safra Professor of International Banking and Professor of Finance, The Wharton School, University of Pennsylvania (since July 1972); Director, The Wharton Financial Institutions Center (since 1994); formerly: Vice Dean and Director, Wharton Undergraduate Division (1995–2000) and Director, The Lauder Institute of International Management Studies (2000–2006); Member FDIC Systemic Risk Advisory Committee since 2011, member Systemic Risk Council since 2012 and member of the Advisory Board at the Yale Program on Financial Stability since 2013; Formerly Co-Chair of the Shadow Financial Regulatory Committee (2003–2015), Executive Director of The Financial Economists Roundtable (2008–2015), Director of The Thai Capital Fund (2007–2013), Director of The Aberdeen Singapore Fund (2007–2018), and Nonexecutive Director of Barclays Bank DE (2010–2018) |
82 | Director, Aberdeen Japan Fund (since 2007) | |||||
| William McClayton (1944)
Board Member since 2004 |
Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival | 82 | — | |||||
| Rebecca W. Rimel (1951)
Board Member since 1995 |
President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012) | 82 | Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc.2 (health care) (2009– present) | |||||
| William N. Searcy, Jr. (1946)
Board Member since 1993 |
Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012) | 82 | — | |||||
| Jean Gleason Stromberg (1943)
Board Member since 1997 |
Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996) | 82 | — | |||||
| Officers4 | ||
| Name, Year of Birth, Position with the Fund and Length of Time Served5 |
Business Experience and Directorships During the Past Five Years | |
| Hepsen Uzcan6 (1974)
President and Chief Executive Officer, 2017–present
Assistant Secretary, 2013–present |
Managing Director,3 DWS; Secretary, DWS USA Corporation (since March 2018); Assistant Secretary, DWS Distributors, Inc. (since June 25, 2018); Director and Vice President, DWS Service Company (since June 25, 2018); Assistant Secretary, DWS Investment Management Americas, Inc. (since June 25, 2018); and Director and President, DB Investment Managers, Inc. (since June 25, 2018); formerly: Vice President for the Deutsche funds (2016–2017) | |
| John Millette8 (1962)
Vice President and Secretary, 1999–present |
Director,3 DWS; Chief Legal Officer, DWS Investment Management Americas, Inc. (2015–present); and Director and Vice President, DWS Trust Company (2016–present); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017) | |
| Diane Kenneally8,9 (1966)
Treasurer and Chief Financial Officer since 2018 |
Director,3 DWS; formerly: Assistant Treasurer for the DWS funds (2007–2018) | |
| Caroline Pearson8 (1962) Chief Legal Officer, 2010–present |
Managing Director,3 DWS; formerly: Secretary, Deutsche AM Distributors, Inc. (2002–2017); and Secretary, Deutsche AM Service Company (2010–2017) |
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| Name, Year of Birth, Position with the Fund and Length of Time Served5 |
Business Experience and Directorships During the Past Five Years | |
| Scott D. Hogan8 (1970)
Chief Compliance Officer, 2016–present |
Director,3 DWS | |
| Wayne Salit7 (1967)
Anti-Money Laundering Compliance Officer, 2014–present |
Director,3 Deutsche Bank; and AML Officer, DWS Trust Company; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011) | |
| Sheila Cadogan8 (1966)
Assistant Treasurer, 2017–present |
Director,3 DWS; Director and Vice President, DWS Trust Company (since 2018) | |
| Paul Antosca8 (1957)
Assistant Treasurer, 2007–present |
Director,3 DWS |
| 1 | The length of time served represents the year in which the Board Member joined the board of one or more DWS funds currently overseen by the Board. |
| 2 | A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. |
| 3 | Executive title, not a board directorship. |
| 4 | As a result of their respective positions held with the Advisor or its affiliates, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund. |
| 5 | The length of time served represents the year in which the officer was first elected in such capacity for one or more DWS funds. |
| 6 | Address: 345 Park Avenue, New York, NY 10154. |
| 7 | Address: 60 Wall Street, New York, NY 10005. |
| 8 | Address: One International Place, Boston, MA 02110. |
| 9 | Appointed Treasurer and Chief Financial Officer effective July 2, 2018. |
| * | Paul K. Freeman retired from the Board effective December 31, 2018. |
The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.
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| vit-scif-2 (R-025818-8 2/19) |
| ITEM 2. | CODE OF ETHICS |
|
As of the end of the period covered by this report, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR that applies to its Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR. | |
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
| The fund’s audit committee is comprised solely of trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The fund’s Board of Trustees has determined that there are several "audit committee financial experts" (as such term has been defined by the Regulations) serving on the fund’s audit committee including Mr. William McClayton, the chair of the fund’s audit committee. An “audit committee financial expert” is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and the designation or identification of a person as an “audit committee financial expert” does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. | |
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
DWS Small
Cap Index VIP
form n-csr disclosure re: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP (“PWC”), the Fund’s independent registered public accounting firm, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that PWC provided to the Fund.
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Fund
| Fiscal Year Ended December 31, |
Audit Fees Billed to Fund | Audit-Related Fees Billed to Fund |
Tax Fees Billed to Fund | All Other Fees Billed to Fund |
| 2018 | $54,468 | $0 | $0 | $0 |
| 2017 | $53,663 | $0 | $0 | $0 |
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by PWC to DWS Investment Management Americas Inc. (“DIMA” or the “Adviser”), and any entity controlling, controlled by or under common control with DIMA (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
| Fiscal Year Ended December 31, |
Audit-Related Fees Billed to Adviser and Affiliated Fund Service Providers |
Tax Fees Billed to Adviser and Affiliated Fund Service Providers | All Other Fees Billed to Adviser and Affiliated Fund Service Providers |
| 2018 | $0 | $0 | $0 |
| 2017 | $0 | $0 | $0 |
Non-Audit Services
The following table shows the amount of fees that PWC billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that PWC provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from PWC about any non-audit services that PWC rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating PWC’s independence.
| Fiscal Year Ended December 31, |
Total (A) |
Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) (B) |
Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C) |
Total of (A), (B) and (C) |
| 2018 | $0 | $0 | $0 | $0 |
| 2017 | $0 | $0 | $0 | $0 |
Audit Committee Pre-Approval Policies and Procedures. Generally, each Fund’s Audit Committee must pre approve (i) all services to be performed for a Fund by a Fund’s Independent Registered Public Accounting Firm and (ii) all non-audit services to be performed by a Fund’s Independent Registered Public Accounting Firm for the DIMA Entities with respect to operations and financial reporting of the Fund, except that the Chairperson or Vice Chairperson of each Fund’s Audit Committee may grant the pre-approval for non-audit services described in items (i) and (ii) above for non-prohibited services for engagements of less than $100,000. All such delegated pre approvals shall be presented to each Fund’s Audit Committee no later than the next Audit Committee meeting.
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.
According to the registrant’s principal Independent Registered Public Accounting Firm, substantially all of the principal Independent Registered Public Accounting Firm's hours spent on auditing the registrant's financial statements were attributed to work performed by full-time permanent employees of the principal Independent Registered Public Accounting Firm.
***
In connection with the audit of the 2017 and 2018 financial statements, the Fund entered into an engagement letter with PwC. The terms of the engagement letter required by PwC, and agreed to by the Fund’s Audit Committee, include a provision mandating the use of mediation and arbitration to resolve any controversy or claim between the parties arising out of or relating to the engagement letter or the services provided there-under.
***
Pursuant to PCAOB Rule 3526, PwC is required to describe in writing to the Fund’s Audit Committee, on at least an annual basis, all relationships between PwC, or any of its affiliates, and the DWS Funds, including the Fund, or persons in financial reporting oversight roles at the DWS Funds that, as of the date of the communication, may reasonably be thought to bear on PwC’s independence. Pursuant to PCAOB Rule 3526, PwC has reported the matters set forth below that may reasonably be thought to bear on PwC’s independence. In its PCAOB Rule 3526 communications to the Audit Committee, PwC affirmed that they are independent accountants with respect to the DWS Funds, within the meaning of PCAOB Rule 3520. PwC also informed the Audit Committee that they concluded that a reasonable investor with knowledge of all relevant facts and circumstances would conclude that PwC is capable of exercising objective and impartial judgment on all issues encompassed within PwC’s audit of the financial statements of the Fund. Finally, PwC confirmed to the Audit Committee that they can continue to serve as the independent registered public accounting firm for the Fund.
| · | PwC advised the Fund’s Audit Committee that covered persons within PwC that provided non-audit services to entities within the DWS Funds “investment company complex” (as defined in Regulation S-X) (the “DWS Funds Complex”) maintained financial relationships with investment companies within the DWS Funds Complex. PwC informed the Audit Committee that these financial relationships were inconsistent with Rule 2-01(c)(1) of Regulation S-X. PwC reported that the breaches have been resolved and that, among other things, the breaches (i) did not involve professionals who were part of the audit engagement team for the Fund or in a position to influence the audit engagement team, (ii) involved professionals whose non-audit services were not and will not be utilized or relied upon by the audit engagement team in the audit of the financial statements of the Fund and (iii) involved professionals that did not provide any consultation to the audit engagement team of the Fund. |
| · | PwC advised the Fund’s Audit Committee of certain lending relationships of PwC with owners of greater than 10% of the shares of certain investment companies within the DWS Funds Complex that PwC had identified as inconsistent with Rule 2-01(c)(l)(ii)(A) of Regulation S-X (referred to as the “Loan Rule”). The Loan Rule specifically provides that an accounting firm would not be independent if it receives a loan from a lender that is a record or beneficial owner of more than ten percent of an audit client’s equity securities. For purposes of the Loan Rule, an audit client includes the Fund as well as all other investment companies in the DWS Funds Complex. PwC’s lending relationships affect PwC’s independence under the Loan Rule with respect to all investment companies in the DWS Funds Complex. |
PwC stated that, in each lending relationship, (i) PwC believes that it is unlikely the lenders would have any interest in the outcome of the audit of the Fund and therefore would not seek to influence the outcome of the audit, (ii) no third party made an attempt to influence the outcome of the audit of the Fund and even if an attempt was made, PwC professionals are required to disclose any relationships that may raise issues about objectivity, confidentiality, independence, conflicts of interest or favoritism, and (iii) the lenders typically lack influence over the investment adviser, who controls the management of the Fund. In addition, on June 20, 2016, the SEC Staff issued a “no-action” letter to another mutual fund complex, Fidelity Management & Research Company et al., SEC Staff No-Action Letter (June 20, 2016) (the “Fidelity Letter”), related to similar Loan Rule issues as those described above. In the Fidelity Letter, the SEC Staff confirmed that it would not recommend enforcement action against an investment company that relied on the audit services performed by an audit firm that was not in compliance with the Loan Rule in certain specified circumstances. With respect to each lending relationship identified by PwC, the circumstances described in the Fidelity Letter appear to be substantially similar to the circumstances that affected PwC’s independence under the Loan Rule with respect to the Fund. PwC represented that they have complied with PCAOB Rule 3526(b)(1) and (2), which are conditions to the Fund relying on the no action letter, and affirmed that they are independent accountants within the meaning of PCAOB Rule 3520.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS | |
| Not applicable | ||
| ITEM 6. | SCHEDULE OF INVESTMENTS | |
| Not applicable | ||
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES | |
| Not applicable | ||
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES | |
| Not applicable | ||
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS | |
| Not applicable | ||
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | |
| 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 Keith R. Fox, DWS Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. | ||
| ITEM 11. | CONTROLS AND PROCEDURES | |
| (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. | |
| (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. | |
| ITEM 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies | |
| Not applicable | ||
| ITEM 13. | EXHIBITS | |
| (a)(1) | Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. | |
| (a)(2) | 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. | |
| (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. | |
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 Small Cap Index VIP, a series of Deutsche DWS Investments VIT Funds |
| By: |
/s/Hepsen Uzcan Hepsen Uzcan President |
| Date: | 2/15/2019 |
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/Hepsen Uzcan Hepsen Uzcan President |
| Date: | 2/15/2019 |
| By: |
/s/Diane Kenneally Diane Kenneally Chief Financial Officer and Treasurer |
| Date: | 2/15/2019 |