<DOCUMENT>
<TYPE>485BPOS
<SEQUENCE>1
<FILENAME>ptc-svs1.txt
<TEXT>
Filed with the Securities and Exchange Commission on April 30, 2007
File No. 2-96461
File No. 811-4257
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_/
Pre-Effective Amendment _____ /_/
Post-Effective Amendment No. 42 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /_/
Amendment No. 46 /X/
DWS Variable Series I
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(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2572
--------------
John Millette
Deutsche Investment Management Americas Inc.
Two International Place
Boston, Massachusetts 02110-4103
--------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/_/ Immediately upon filing pursuant to paragraph (b)
/_/ 60 days after filing pursuant to paragraph (a)(1)
/_/ 75 days after filing pursuant to paragraph (a)(2)
/X/ On May 1, 2007 pursuant to paragraph (b)
/_/ On __________________ pursuant to paragraph (a)(1)
/_/ On __________________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/_/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
MAY 1, 2007
PROSPECTUS
CLASS A
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DWS VARIABLE SERIES I
DWS BOND VIP
DWS GROWTH & INCOME VIP
DWS CAPITAL GROWTH VIP
DWS GLOBAL OPPORTUNITIES VIP
DWS INTERNATIONAL VIP
DWS HEALTH CARE VIP
DWS INVESTMENTS VIT FUNDS
DWS RREEF REAL ESTATE SECURITIES VIP
DWS EQUITY 500 INDEX VIP
DWS SMALL CAP INDEX VIP
This prospectus should be read in conjunction with the variable life insurance
or variable annuity contract prospectus and plan documents for tax-qualified
plans. These shares are available and are being marketed exclusively as a
pooled funding vehicle for life insurance companies writing all types of
variable life insurance policies and variable annuity contracts.
The Securities and Exchange Commission (SEC) does not approve or disapprove
these shares or determine whether the information in this prospectus is
truthful or complete. It is a criminal offense for anyone to inform you
otherwise.
[DWS SCUDDER LOGO APPEARS HERE]
<PAGE>
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TABLE OF CONTENTS
HOW EACH PORTFOLIO WORKS
<TABLE>
<S> <C>
3 DWS Bond VIP
12 DWS Growth & Income VIP
19 DWS Capital Growth VIP
26 DWS Global Opportunities VIP
33 DWS International VIP
40 DWS Health Care VIP
46 DWS RREEF Real Estate Securities VIP
53 DWS Equity 500 Index VIP
60 DWS Small Cap Index VIP
67 Other Policies and Risks
67 The Investment Advisor
69 Portfolio Subadvisors
</TABLE>
YOUR INVESTMENT IN THE PORTFOLIOS
<TABLE>
<S> <C>
72 Buying and Selling Shares
75 How each Portfolio Calculates Share Price
75 Distributions
76 Taxes
</TABLE>
HOW EACH PORTFOLIO WORKS
Each portfolio is designed to serve as an investment option for certain
variable annuity contracts, variable life insurance policies and tax-qualified
plans. Your investment in a portfolio is made in conjunction with one of these
contracts or policies. Each portfolio has its own goal and strategy.
Remember that each portfolio is not a bank deposit. Each portfolio is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Share prices will go up and down and you could lose money by
investing.
Please read this prospectus in conjunction with the prospectus for your
variable life insurance policy or variable annuity contract or plan documents
for tax-qualified plans.
<PAGE>
DWS BOND VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks to maximize total return consistent with preservation of
capital and prudent investment management, by investing for both current income
and capital appreciation. Under normal circumstances, the portfolio invests at
least 80% of net assets, plus the amount of any borrowings for investment
purposes, in bonds of any maturity.
The portfolio primarily invests in US dollar-denominated investment grade fixed
income securities, including corporate bonds, US government and agency bonds
and mortgage- and asset-backed securities. A significant portion of the
portfolio's assets may also be allocated among foreign investment grade fixed
income securities, high yield bonds of US and foreign issuers (including high
yield bonds of issuers in countries with new or emerging securities markets),
or, to maintain liquidity, in cash or money market instruments.
The portfolio normally invests at least 65% of total assets in high grade US
bonds (those considered to be in the top three grades of credit quality). The
portfolio may invest up to 25% of its total assets in foreign investment grade
bonds (those considered to be in the top four grades of credit quality).
In addition, the portfolio may also invest up to 20% of total assets in
securities of US and foreign issuers that are below investment grade (rated as
low as the sixth credit grade, i.e., grade B, otherwise known as junk bonds),
including investments in US dollar or foreign currency denominated bonds of
issuers located in countries with new or emerging securities markets. The
portfolio considers an emerging securities market to be one where the sovereign
debt issued by the government in local currency terms is rated below investment
grade. Compared to investment grade bonds, junk bonds generally pay higher
yields and have higher volatility and higher risk of default.
The subadvisor has a dedicated Core Plus Investment Team which is responsible
for portfolio oversight, plus sector allocation decisions, product design, and
risk management. This team is comprised of senior investment professionals from
each of the subadvisor's sector specialist investment teams (US Core, High
Yield, Emerging Debt, and International Bonds). The sector specialist teams are
responsible for identifying value within each sector and for contributing to
plus sector level relative value analysis.
Once allocation targets for each broad fixed income sector are set, the sector
specialist teams consider the relative value of purchase candidates given the
distinct characteristics of that particular asset class. Company research and
fundamental analysis are used to select the best securities within each asset
class. The techniques used by the sector specialists in evaluating each asset
class include those described below:
US INVESTMENT GRADE SECURITIES. In selecting these securities for investment,
the subadvisor typically:
o assigns a relative value to each bond, based on creditworthiness, cash flow
and price;
o determines the value of each issue by examining the issuer's credit quality,
debt structure, option value and liquidity risks. The portfolio managers
look to take advantage of any inefficiencies between this value and market
trading price;
o uses credit analysis to determine the issuer's ability to fulfill its
contracts; and
o uses a bottom-up approach which subordinates sector weightings to individual
bonds that the investment advisor believes may add above-market value.
The subadvisor generally sells these securities when they reach their target
price or when there is a negative change in their outlook relative to the other
securities held by the portfolio. Bonds may also be sold to facilitate the
purchase of an issue with more attractive risk/return characteristics.
HIGH YIELD SECURITIES (EXCLUDING EMERGING MARKET SOVEREIGN DEBT). In selecting
these securities for investment, the US Core Credit team broadens the
opportunity set to include the full credit spectrum (AAA to BB/B). Portfolio
construction is driven by bottom-up issue selection consistent with the
investment grade process.
FOREIGN INVESTMENT GRADE SECURITIES AND EMERGING MARKETS HIGH YIELD SECURITIES.
In selecting these securities for investment, the subadvisor follows a
bottom-up, relative value strategy. The subadvisor looks to purchase foreign
securities that offer incremental value over US Treasuries. The subadvisor
invests in a focused
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS BOND VIP 3
<PAGE>
fashion, so that it is not simply investing in a basket of all non-US fixed
income markets, but instead only those markets that its relative value process
has identified as being the most attractive. The subadvisor sells securities or
exchanges currencies when they meet their target price objectives or when the
subadvisor revises price objectives downward. In selecting emerging market
securities, the subadvisor also considers short-term factors such as market
sentiment, capital flows, and new issue programs.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval. However, the Board will provide shareholders with at least 60 days'
notice prior to making any changes to the portfolio's 80% investment policy.
OTHER INVESTMENTS
The portfolio may have exposure of up to 10% of total assets in foreign
currencies measured by the market value of non-US dollar holdings netted with
the market value of currency forward contracts. Currency forward contracts are
permitted for both hedging and non-hedging purposes.
In addition, the portfolio is permitted, but not required, to use other various
types of derivatives (contracts whose value is based on, for example, indexes,
currencies or securities). Derivatives may be used for hedging and for risk
management or for non-hedging purposes to seek to enhance potential gains. The
portfolio may use these derivatives in circumstances where the managers believe
they offer an economical means of gaining exposure to a particular asset class
or to keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the market.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets in cash and cash equivalents, US government securities, money market
instruments and high quality debt securities without equity features. This
measure could prevent losses, but, while engaged in a temporary defensive
position, the portfolio will not be pursuing its investment objective. However,
the portfolio mangers may choose not to use these strategies for various
reasons, even in very volatile market conditions.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
INTEREST RATE RISK. Generally, fixed income securities will decrease in value
when interest rates rise. The longer the effective maturity of the portfolio's
securities, the more sensitive it will be to interest rate changes. (As a
general rule, a 1% rise in interest rates means a 1% fall in value for every
year of duration.) As interest rates decline, the issuers of securities held by
the portfolio may prepay principal earlier than scheduled, forcing the
portfolio to reinvest in lower-yielding securities. Prepayment may reduce the
portfolio's income. As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities. This will have
the effect of locking in a below-market interest rate, increasing the
portfolio's duration and reducing the value of such a security. Because the
portfolio may invest in mortgage-related securities, it is more vulnerable to
both of these risks.
CREDIT RISK. A portfolio purchasing bonds faces the risk that the
creditworthiness of an issuer may decline, causing the value of its bonds to
decline. In addition, an issuer may not be able to make timely payments on the
interest and principal on the bonds it has issued. Because the issuers of
high-yield bonds or junk bonds (rated below the fourth highest category) may be
in uncertain financial health, the prices of their bonds can be more vulnerable
to bad economic news or even the expectation of bad news, than investment-grade
bonds. In some cases, bonds, particularly high-yield bonds, may decline in
credit quality or go into default. Because this portfolio may invest in
securities not paying current interest or in securities already in default,
these risks may be more pronounced.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
4 DWS BOND VIP
<PAGE>
MARKET RISK. Deteriorating market conditions might cause a general weakness in
the market that reduces the overall level of securities prices in that market.
Developments in a particular class of bonds or the stock market could also
adversely affect the portfolio by reducing the relative attractiveness of bonds
as an investment. Also, to the extent that the portfolio emphasizes bonds from
any given industry, it could be hurt if that industry does not do well.
FOREIGN INVESTMENT RISK. Foreign investments involve certain special risks,
including:
o POLITICAL RISK. Some foreign governments have limited the outflow of profits
to investors abroad, imposed restrictions on the exchange or export of
foreign currency, extended diplomatic disputes to include trade and
financial relations, seized foreign investment and imposed high taxes.
o INFORMATION RISK. Companies based in foreign markets are usually not subject
to accounting, auditing and financial reporting standards and practices as
stringent as those in the US. Therefore, their financial reports may present
an incomplete, untimely or misleading picture of a foreign company, as
compared to the financial reports of US companies.
o LIQUIDITY RISK. Investments that trade less can be more difficult or more
costly to buy, or to sell, than more liquid or active investments. This
liquidity risk is a factor of the trading volume of a particular investment,
as well as the size and liquidity of the entire local market. On the whole,
foreign exchanges are smaller and less liquid than the US market. This can
make buying and selling certain investments more difficult and costly.
Relatively small transactions in some instances can have a
disproportionately large effect on the price and supply of securities. In
certain situations, it may become virtually impossible to sell an investment
in an orderly fashion at a price that approaches portfolio management's
estimate of its value. For the same reason, it may at times be difficult to
value the portfolio's foreign investments.
o REGULATORY RISK. There is generally less government regulation of foreign
markets, companies and securities dealers than in the US.
o CURRENCY RISK. The portfolio invests in securities denominated in foreign
currencies. This creates the possibility that changes in exchange rates
between foreign currencies and the US dollar will affect the US dollar value
of foreign securities or the income or gain received on these securities.
o LIMITED LEGAL RECOURSE RISK. Legal remedies for investors may be more limited
than the remedies available in the US.
o TRADING PRACTICE RISK. Brokerage commissions and other fees are generally
higher for foreign investments than for US investments. The procedures and
rules governing foreign transactions and custody may also involve delays in
payment, delivery or recovery of money or investments.
o TAXES. Foreign withholding and certain other taxes may reduce the amount of
income available to distribute to shareholders of the portfolio. In
addition, special US tax considerations may apply to the portfolio's foreign
investments.
EMERGING MARKET RISK. All of the risks of investing in foreign securities are
increased in connection with investments in emerging markets securities. In
addition, profound social changes and business practices that depart from norms
in developed countries' economies have hindered the orderly growth of emerging
economies and their markets in the past and have caused instability. High
levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. These countries are also more likely
to experience high levels of inflation, deflation or currency devaluation,
which could also hurt their economies and securities markets. For these and
other reasons, investments in emerging markets are often considered
speculative.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS BOND VIP 5
<PAGE>
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
Another factor that could affect performance is:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
This portfolio is designed for investors who are looking for a relatively high
level of income and can accept a moderate level of risk to their investment.
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.10 6.57 -0.95 10.56 5.75 7.66 5.06 5.38 2.60 4.72
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 3.98%, Q4 2000 WORST QUARTER: -2.27%, Q2 2004
2007 TOTAL RETURN AS OF MARCH 31: 1.56%
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
6 DWS BOND VIP
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
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Portfolio - Class A 4.72 5.07 5.60
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Lehman Brothers Aggregate Bond
Index 4.33 5.06 6.24
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</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
LEHMAN BROTHERS AGGREGATE BOND (LBAB) INDEX is an unmanaged market
value-weighted measure of Treasury issues, agency issues, corporate bond issues
and mortgage securities.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS A
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<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
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Management Fee 1 0.49%
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Distribution/Service (12b-1) Fee None
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Other Expenses 2 0.17
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TOTAL ANNUAL OPERATING EXPENSES 0.66
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Less Fee Waiver/Expense Reimbursement 3, 4 0.03
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NET ANNUAL OPERATING EXPENSES 3, 4 0.63
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</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through September 30, 2007, the Advisor has contractually agreed to waive
all or a portion of its management fee and reimburse or pay certain
operating expenses of the portfolio to the extent necessary to maintain
the portfolio's total operating expenses at 0.60% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
4 Through April 30, 2008, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary so that the portfolio's
total operating expenses will not exceed 0.63% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in each
period), this example helps you compare the expenses of Class A shares to those
of other mutual funds. This example assumes the expenses above remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions and sold your shares at the end of each period.
This is only an example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Class A shares $64 $208 $365 $820
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</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS BOND VIP 7
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio's subadvisor is Aberdeen Asset Management, Inc. A team approach
is utilized with respect to the day-to-day management of the portfolio.
Portfolio decisions are made jointly by the senior members of the management
team. The following members of the management team handle the day-to-day
operations of the core bond, active fixed income and high yield portions of the
portfolio:
Gary W. Bartlett, CFA
Head of US Fixed Income and senior portfolio manager specializing in taxable
municipal, utility and government fixed income investments: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1992 after nine years of experience as an
analyst and fixed income portfolio manager at PNC Financial and credit
analyst at First Pennsylvania Bank.
o BA from Bucknell University; MBA from Drexel University.
Warren S. Davis, III
Senior portfolio manager for mortgage- and asset-backed fixed income
investments: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1995 after nine years of experience as a
trader, analyst and developer of analytical and risk management systems
for PaineWebber and Merrill Lynch.
o BS from Pennsylvania State University; MBA from Drexel University.
Thomas J. Flaherty
Senior portfolio manager for corporate and taxable municipal fixed income
investments: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1995 after 10 years of fixed income
experience, including vice president for US taxable fixed income
securities at Prudential Securities.
o BA from SUNY Stony Brook.
J. Christopher Gagnier
Head of Core Plus Fixed Income product and senior portfolio manager for
corporate and commercial mortgages: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1997 after 17 years of experience in fixed
income investments at PaineWebber and Continental Bank.
o BS from Wharton School of Business; MBA from University of Chicago.
Daniel R. Taylor, CFA
Senior portfolio manager for asset-backed and commercial mortgage fixed income
investments: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1998 after six years of experience as fixed
income portfolio manager and senior credit analyst for CoreStates
Investment Advisors.
o BS from Villanova University.
Timothy C. Vile, CFA
Senior portfolio manager for Core Fixed Income and Global Aggregate Fixed
Income: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1991 as member of Core Fixed Income; seconded
to the London office from January 1999 to June 2002 to design and develop
the firm's European Credit and Global Aggregate capabilities; before
joining Deutsche Asset Management, he had six years of experience that
included portfolio manager for fixed income portfolios at Equitable
Capital Management.
o BS from Susquehanna University.
William T. Lissenden
Portfolio manager for Core Fixed Income: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2004.
o Formerly, Director of Deutsche Asset Management; joined Deutsche Asset
Management in 2002 after 31 years of experience, including fixed income
strategist and director of research at Conseco Capital Management,
director of fixed income research and product management at Prudential
Securities and national sales manager for fixed income securities at
Prudential Securities.
o BS from St. Peter's College; MBA from Baruch College.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
8 DWS BOND VIP
<PAGE>
The following portfolio managers of the subadvisor are responsible for the
day-to-day management of the foreign securities, foreign currencies and related
investments for the portfolio:
Brett Diment
Head of Emerging Markets and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management, joined Deutsche
Asset Management 1991. Head of Emerging Markets.
o BSc from London School of Economics.
Annette Fraser
Client Portfolio Manager and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management and the portfolio in 2005.
o Formerly, Managing Director of Deutsche Asset Management; joined Deutsche
Asset Management in 1990.
o Portfolio Manager in the fixed income team for 10 years specializing in
the global fixed income product.
o MA from St. Andrews University.
Anthony Fletcher
Client Portfolio Manager and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management and the portfolio in 2005.
o Formerly, Managing Director of Deutsche Asset Management; joined Deutsche
Asset Management in 1996 as a portfolio manager covering global and UK
fixed income products.
o Over 19 years investment industry experience, including serving as the
Head of global fixed income at the Saudi American Bank and as a fund
manager for the Industrial Bank of Japan.
o BSc Geology from University of London.
Nik Hart
Head of European Investment Grade and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management and the portfolio in 2005.
o Formerly, Managing Director of Deutsche Asset Management; joined Deutsche
Asset Management in 1992.
o Head of European Investment Grade, analyst specializing in investing
credit and managing sterling portfolios.
o Joined the fund in 2002.
Stephen Ilott
Head of Fixed Income and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management in 2005 as head of the fixed income
business globally.
o Joined the portfolio in 2004.
o Formerly, Managing Director of Deutsche Asset Management; joined Deutsche
Asset Management in 1998.
o Prior to 1998, managed global fixed income and currency portfolios on
behalf of central banks, corporations and pension funds at Robert Fleming
& Company from 1986 to 1997.
Ian Winship
Head of Global Interest Rates and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management in 2005 and the portfolio in 2004.
o Formerly, Director of Deutsche Asset Management; joined Deutsche Asset
Management in 1999 as a member of the fixed income team.
o Previously had nine years of experience as a fixed income portfolio
manager at Scottish Amicable Investment Managers, Murray Johnstone, and
Hill Samuel Asset Managers.
o BA from University of Strathclyde.
Matthew Cobon
Head of Currency and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management and the portfolio in 2005.
o Formerly, Director of Deutsche Asset Management; joined Deutsche Asset
Management in 2001 as a member of the fixed income currency desk.
o Previously had five years of experience at Citibank advising global fixed
income and currency fund managers on the active management of their
currency exposure.
o BA from Warwick University.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS BOND VIP 9
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS BOND VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
<S> <C> <C> <C> <C> <C>
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SELECTED PER SHARE DATA
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.99 $ 7.13 $ 7.04 $ 6.98 $ 6.89
----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income a .33 .29 .29 .26 .34
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment ( .01) ( .10) .08 .09 .17
transactions
----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .32 .19 .37 .35 .51
----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .27) ( .26) ( .28) ( .29) ( .42)
----------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions ( .01) ( .07) - - -
----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ( .28) ( .33) ( .28) ( .29) ( .42)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.03 $ 6.99 $ 7.13 $ 7.04 $ 6.98
----------------------------------------------------------------------------------------------------------------
Total Return (%) 4.72c 2.60 5.38 5.06 7.66
----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 218 209 177 176 165
----------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions(%) .66 .68 .60 .58 .55
----------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions(%) .62 .68 .60 .58 .55
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income(%) 4.82 4.11 4.18 3.78 5.03
----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%)b 179 187 223 242 262
----------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b The portfolio turnover rate including mortgage dollar roll transactions was
186%, 197%, 245%, 286% and 276% for the periods ended December 31, 2006,
December 31, 2005, December 31, 2004, December 31, 2003 and December 31,
2002, respectively.
c Total return would have been lower had certain expenses not been reduced.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
10 DWS BOND VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS BOND VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
----------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.63% 4.37% $ 10,437.00 $ 64.38
----------------------------------------------------------------------------------------------------------------
2 10.25% 0.66% 8.90% $ 10,889.97 $ 70.38
----------------------------------------------------------------------------------------------------------------
3 15.76% 0.66% 13.63% $ 11,362.59 $ 73.43
----------------------------------------------------------------------------------------------------------------
4 21.55% 0.66% 18.56% $ 11,855.73 $ 76.62
----------------------------------------------------------------------------------------------------------------
5 27.63% 0.66% 23.70% $ 12,370.27 $ 79.95
----------------------------------------------------------------------------------------------------------------
6 34.01% 0.66% 29.07% $ 12,907.13 $ 83.42
----------------------------------------------------------------------------------------------------------------
7 40.71% 0.66% 34.67% $ 13,467.30 $ 87.04
----------------------------------------------------------------------------------------------------------------
8 47.75% 0.66% 40.52% $ 14,051.79 $ 90.81
----------------------------------------------------------------------------------------------------------------
9 55.13% 0.66% 46.62% $ 14,661.63 $ 94.75
----------------------------------------------------------------------------------------------------------------
10 62.89% 0.66% 52.98% $ 15,297.95 $ 98.87
----------------------------------------------------------------------------------------------------------------
TOTAL $ 819.65
----------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS BOND VIP 11
<PAGE>
DWS GROWTH & INCOME VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks long-term growth of capital, current income and growth of
income. The portfolio invests at least 65% of total assets in equities, mainly
common stocks. Although the portfolio can invest in companies of any size and
from any country, it invests primarily in large US companies. The managers may
favor securities from different industries and companies at different times.
The managers use quantitative stock techniques and fundamental equity analysis
to evaluate each company's stock price relative to the company's earnings,
operating trends, market outlook and other measures of performance potential.
Portfolio management will normally sell a stock when it believes the stock's
fundamental factors have changed, other investments offer better opportunities
or in the course of adjusting the portfolio's emphasis on or within a given
industry.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval.
OTHER INVESTMENTS
While most of the portfolio's investments are common stocks, some may be other
types of equities, such as convertible securities and preferred stocks.
The portfolio is permitted, but not required, to use various types of
derivatives (contracts whose value is based on, for example, indexes,
currencies or securities). The portfolio may use derivatives in circumstances
where the managers believe they offer an economical means of gaining exposure
to a particular asset class or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets into investments such as money market securities. This measure could
prevent losses, but, while engaged in a temporary defensive position, the
portfolio will not be pursuing its investment objective. However, the portfolio
managers may choose not to use these strategies for various reasons, even in
very volatile market conditions.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
INDUSTRY RISK. While the portfolio does not concentrate in any industry, to the
extent that the portfolio has exposure to a given industry or sector, any
factors affecting that industry or sector could affect the value of portfolio
securities. For example, manufacturers of consumer goods could be hurt by a
rise in unemployment or technology companies could be hurt by such factors as
market saturation, price competition and rapid obsolescence.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
12 DWS GROWTH & INCOME VIP
<PAGE>
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
Another factor that could affect performance is:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
This portfolio may make sense for investors interested in an equity fund to
provide long-term growth and some current income.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS GROWTH & INCOME VIP 13
<PAGE>
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30.47 7.18 5.80 -2.10 -11.30 -23.13 26.74 10.16 6.07 13.63
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 15.86%, Q2 1997 WORST QUARTER: -16.73%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: -0.73%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
----------------------------------------------------------------------------------
Portfolio - Class A 13.63 5.28 5.21
----------------------------------------------------------------------------------
Russell 1000 Index 15.46 6.82 8.64
----------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 8.42
----------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
The Russell 1000 Index replaces the S&P 500 as the portfolio's benchmark index
because the Advisor believes that it more accurately reflects the portfolio's
investment strategy.
RUSSELL 1000 (Reg. TM) INDEX is an unmanaged price-only index of the 1,000
largest capitalized companies that are domiciled in the US and whose common
stocks are traded.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
14 DWS GROWTH & INCOME VIP
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
FEE TABLE CLASS A
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 0.48%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses 2, 3 0.06
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 0.54
--------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 4, 5 0.01
--------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 4, 5 0.53
--------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Restated and estimated to reflect the acquisition of DWS Large Cap Core VIP
on December 11, 2006.
4 Through April 30, 2010, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 0.54% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
5 Additionally, the Advisor has contractually agreed to waive a portion of
its fees in the amount of 0.01% of average daily net assets until April
27, 2010.
Based on the costs above (including one year of capped expenses in the "1 Year"
period and three years of capped expenses in the "3 Years," "5 Years" and "10
Years" periods), this example helps you compare the expenses of Class A shares
to those of other mutual funds. This example assumes the expenses above remain
the same. It also assumes that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the end of
each period. This is only an example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $54 $171 $300 $675
--------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS GROWTH & INCOME VIP 15
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio:
Robert Wang
Managing Director of Deutsche Asset Management and Portfolio Manager of the
portfolio.
o Joined Deutsche Asset Management in 1995 as portfolio manager for asset
allocation after 13 years of experience of trading fixed income, foreign
exchange and derivative products at J.P. Morgan.
o Global Head of Quantitative Strategies Portfolio Management: New York.
o Joined the portfolio in 2007.
o BS, The Wharton School, University of Pennsylvania.
Jin Chen, CFA
Director of Deutsche Asset Management and Portfolio Manager of the portfolio.
o Senior portfolio manager for Global Strategies: New York.
o Joined Deutsche Asset Management in 1999; prior to that, served as
portfolio manager for Absolute Return Strategies and as a fundamental
equity analyst and portfolio manager for Thomas White Asset Management.
o Joined the portfolio in 2007.
o BS, Nanjing University; MS, Michigan State University.
Julie Abbett
Director of Deutsche Asset Management and Portfolio Manager of the portfolio.
o Senior portfolio manager for Global Quantitative Equity: New York.
o Joined Deutsche Asset Management in 2000 after four years of combined
experience as a consultant with equity trading services for BARRA, Inc.
and a product developer for FactSet Research.
o Joined the portfolio in 2007.
o BA, University of Connecticut.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
16 DWS GROWTH & INCOME VIP
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS GROWTH & INCOME VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.72 $ 9.29 $ 8.50 $ 6.77 $ 8.90
------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) a .13c .10 .12 .07 .07
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 1.19 .45 .74 1.74 ( 2.12)
transactions
------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.32 .55 .86 1.81 ( 2.05)
------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .10) ( .12) ( .07) ( .08) ( .08)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.94 $ 9.72 $ 9.29 $ 8.50 $ 6.77
------------------------------------------------------------------------------------------------------------------
Total Return (%) 13.63b,c 6.07b 10.16 26.74 (23.13)
------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 280 294 172 161 135
------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions(%) .56 .57 .56 .59 .57
_______________________________________________________ _________ _______ _______ _______ ________
Ratio of expenses after expense reductions(%) .54 .54 .56 .59 .57
_______________________________________________________ _________ _______ _______ _______ ________
Ratio of net investment income(loss) (%) 1.24c 1.10 1.37 .91 .92
_______________________________________________________ _________ _______ _______ _______ ________
Portfolio turnover rate(%) 105 115 33 37 66
------------------------------------------------------- --------- ------- ------- ------- --------
</TABLE>
a Based on average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
c Includes non-recurring income from the Advisor recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation
practices in connection with sales of DWS Scudder Funds. The non-recurring
income resulted in an increase in net investment income of $0.007 per
share and an increase in the ratio of net investment income of 0.07%.
Excluding this non-recurring income, total return would have been 0.06%
lower.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS GROWTH & INCOME VIP 17
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS GROWTH & INCOME VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
----------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.53% 4.47% $ 10,447.00 $ 54.18
----------------------------------------------------------------------------------------------------------------
2 10.25% 0.53% 9.14% $ 10,913.98 $ 56.61
----------------------------------------------------------------------------------------------------------------
3 15.76% 0.54% 14.01% $ 11,400.74 $ 60.25
----------------------------------------------------------------------------------------------------------------
4 21.55% 0.54% 19.09% $ 11,909.22 $ 62.94
----------------------------------------------------------------------------------------------------------------
5 27.63% 0.54% 24.40% $ 12,440.37 $ 65.74
----------------------------------------------------------------------------------------------------------------
6 34.01% 0.54% 29.95% $ 12,995.21 $ 68.68
----------------------------------------------------------------------------------------------------------------
7 40.71% 0.54% 35.75% $ 13,574.80 $ 71.74
----------------------------------------------------------------------------------------------------------------
8 47.75% 0.54% 41.80% $ 14,180.23 $ 74.94
----------------------------------------------------------------------------------------------------------------
9 55.13% 0.54% 48.13% $ 14,812.67 $ 78.28
----------------------------------------------------------------------------------------------------------------
10 62.89% 0.54% 54.73% $ 15,473.31 $ 81.77
----------------------------------------------------------------------------------------------------------------
TOTAL $ 675.13
----------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
18 DWS GROWTH & INCOME VIP
<PAGE>
DWS CAPITAL GROWTH VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks to provide long-term growth of capital.
The portfolio normally invests at least 65% of total assets in common stocks of
US companies. Although the portfolio can invest in companies of any size, it
generally focuses on established companies that are similar in size to the
companies in the Standard & Poor's 500 (Reg. TM) Composite Stock Price Index
(the "S&P 500 Index") or the Russell 1000 (Reg. TM) Growth Index (as of
February 28, 2007, the S&P 500 Index and the Russell 1000 (Reg. TM) Growth
Index had median market capitalizations of $13.6 billion and $5.6 billion,
respectively). Although the portfolio may invest in companies of any size, the
portfolio intends to invest primarily in companies whose market capitalizations
fall within the normal range of these indexes. The portfolio may also invest in
other types of equities, such as preferred stocks or convertible securities.
In choosing stocks, the portfolio managers look for individual companies that
have the potential to display above-average earnings growth compared to other
growth companies and that have strong product lines, effective management and
leadership positions within core markets. The managers also analyze each
company's valuation, stock price movements and other factors.
The managers will normally sell a stock when they believe its potential risks
have increased, its price is unlikely to go higher, its fundamental factors
have changed, other investments offer better opportunities or in the course of
adjusting the portfolio's emphasis on or within a given industry.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval.
OTHER INVESTMENTS
Although not one of its principal investment strategies, the portfolio is
permitted, but not required, to use various types of derivatives (contracts
whose value is based on, for example, indexes, currencies or securities). The
portfolio may use derivatives in circumstances where the managers believe they
offer an economical means of gaining exposure to a particular asset class or to
keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the market. In particular, the portfolio may use
futures, options and covered call options.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets in cash and cash equivalents, US government securities, money market
instruments and high quality debt securities without equity features. This
measure could prevent losses, but, while engaged in a temporary defensive
position, the portfolio will not be pursuing its investment objective. However,
the portfolio mangers may choose not to use these strategies for various
reasons, even in very volatile market conditions.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS CAPITAL GROWTH VIP 19
<PAGE>
GROWTH INVESTING RISK. Since growth stocks usually reinvest a large portion of
earnings in their own businesses, they may lack the dividends associated with
value stocks that might otherwise cushion their decline in a falling market.
Earnings disappointments in growth stocks often result in sharp price declines
because investors buy these stocks because of their potential for superior
earnings growth. Growth stocks may also be out of favor for certain periods in
relation to value stocks.
INDUSTRY RISK. While the portfolio does not concentrate in any industry, to the
extent that the portfolio has exposure to a given industry or sector, any
factors affecting that industry or sector could affect the value of portfolio
securities. For example, manufacturers of consumer goods could be hurt by a
rise in unemployment or technology companies could be hurt by such factors as
market saturation, price competition and rapid obsolescence.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
Another factor that could affect performance is:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
This portfolio may make sense for investors seeking long-term growth.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
20 DWS CAPITAL GROWTH VIP
<PAGE>
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35.76 23.23 35.23 -9.90 -19.36 -29.18 26.89 7.99 8.96 8.53
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 25.80%, Q4 1998 WORST QUARTER: -19.94%, Q3 2001
2007 TOTAL RETURN AS OF MARCH 31: 0.77%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
--------------------------------------------------------------------------------
Portfolio - Class A 8.53 2.79 6.55
--------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 8.42
--------------------------------------------------------------------------------
Russell 1000 Growth Index 9.07 2.69 5.44
--------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
RUSSELL 1000 (Reg. TM) GROWTH INDEX is an unmanaged index that consists of
those stocks in the Russell 1000 (Reg. TM) Index with higher price-to-book
ratios and higher forecasted growth values.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS CAPITAL GROWTH VIP 21
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS A
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee1 0.47%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses 2, 3 0.03
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 0.50
--------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 4 0.01
--------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 4 0.49
--------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Restated and estimated to reflect the acquisition of DWS All Cap Growth
VIP, DWS Oak Strategic Equity VIP and DWS Janus Growth Opportunities VIP
on December 11, 2006.
4 Through April 30, 2010, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 0.49% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in the "1 Year"
period and three years of capped expenses in the "3 Years," "5 Years" and "10
Years" periods), this example helps you compare the expenses of Class A shares
to those of other mutual funds. This example assumes the expenses above remain
the same. It also assumes that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the end of
each period. This is only an example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $50 $157 $277 $625
--------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
22 DWS CAPITAL GROWTH VIP
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio:
Julie M. Van Cleave, CFA
Managing Director of Deutsche Asset Management and Lead Portfolio Manager of
the portfolio.
o Joined Deutsche Asset Management and the portfolio in 2002.
o Head of Large Cap Growth Portfolio Selection Team.
o Previous experience includes 18 years of investment industry experience
at Mason Street Advisors, most recently serving as Managing Director and
team leader for the large cap investment team.
o BBA, MBA, University of Wisconsin - Madison.
Jack A. Zehner
Director of Deutsche Asset Management and Portfolio Manager of the portfolio.
o Joined Deutsche Asset Management and the portfolio in 2002.
o Previous experience includes nine years of investment industry experience
at Mason Street Advisors where he served most recently as Director -
Common Stock.
o BBA, University of Wisconsin - Madison; MBA, Marquette University.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS CAPITAL GROWTH VIP 23
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS CAPITAL GROWTH VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.90 $ 15.67 $ 14.59 $ 11.54 $ 16.36
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) a .13c .10 .14 .08 .05
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 1.31 1.29 1.02 3.03 ( 4.82)
transactions
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.44 1.39 1.16 3.11 ( 4.77)
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .10) ( .16) ( .08) ( .06) ( .05)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.24 $ 16.90 $ 15.67 $ 14.59 $ 11.54
---------------------------------------------------------------------------------------------------------------------
Total Return (%) 8.53b,c 8.96b 7.99 26.89 (29.18)
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 1,131 1,031 698 705 558
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions(%) .52 .50 .50 .51 .51
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions(%) .49 .49 .50 .51 .51
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)(%) .73c .61 .98 .61 .38
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 16 17 15 13 25
---------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Total return would have been less had certain expenses not been reduced.
c Includes non-recurring income from the Advisor recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation
practices in connection with sales of DWS Scudder Funds. The non-recurring
income resulted in an increase in net investment income of $0.007 per
share and an increase in the ratio of net investment income of 0.04%.
Excluding this non-recurring income, total return would have been 0.03%
lower.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
24 DWS CAPITAL GROWTH VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS CAPITAL GROWTH VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
---------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.49% 4.51% $ 10,451.00 $ 50.10
---------------------------------------------------------------------------------------------------------------------
2 10.25% 0.49% 9.22% $ 10,922.34 $ 52.36
---------------------------------------------------------------------------------------------------------------------
3 15.76% 0.49% 14.15% $ 11,414.94 $ 54.73
---------------------------------------------------------------------------------------------------------------------
4 21.55% 0.50% 19.29% $ 11,928.61 $ 58.36
---------------------------------------------------------------------------------------------------------------------
5 27.63% 0.50% 24.65% $ 12,465.40 $ 60.99
---------------------------------------------------------------------------------------------------------------------
6 34.01% 0.50% 30.26% $ 13,026.34 $ 63.73
---------------------------------------------------------------------------------------------------------------------
7 40.71% 0.50% 36.13% $ 13,612.53 $ 66.60
---------------------------------------------------------------------------------------------------------------------
8 47.75% 0.50% 42.25% $ 14,225.09 $ 69.59
---------------------------------------------------------------------------------------------------------------------
9 55.13% 0.50% 48.65% $ 14,865.22 $ 72.73
---------------------------------------------------------------------------------------------------------------------
10 62.89% 0.50% 55.34% $ 15,534.15 $ 76.00
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 625.19
---------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS CAPITAL GROWTH VIP 25
<PAGE>
DWS GLOBAL OPPORTUNITIES VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks above-average capital appreciation over the long term.
The portfolio invests at least 65% of total assets in common stocks and other
equities of small companies throughout the world (companies with market values
similar to the smallest 20% of the Citigroup Broad Market Index). While the
portfolio may invest in securities in any country, it generally focuses on
countries with developed economies (including the US). As of March 31, 2007,
companies in which the portfolio invests typically have a market capitalization
of between $500 million and $5 billion. As part of the investment process (and
low turnover strategy) the portfolio may own stocks even though they exceed the
market capitalization level.
The portfolio may invest up to 35% of total assets in common stocks and other
equities of large companies or in debt securities (of which 5% of net assets
may be junk bonds, i.e., grade BB/Ba and below). Compared to investment-grade
bonds, junk bonds may pay higher yields, have higher volatility and a higher
risk of default.
In choosing securities, the portfolio managers use a combination of three
analytical disciplines:
BOTTOM-UP RESEARCH. The managers look for individual companies with a history
of above-average growth, strong competitive positioning, attractive prices
relative to potential growth, sound financial strength and effective
management, among other factors.
GROWTH ORIENTATION. The managers generally look for companies that they believe
have above-average potential for sustainable growth of revenue or earnings and
whose market value appears reasonable in light of their business prospects.
ANALYSIS OF GLOBAL THEMES. The managers consider global economic outlooks,
seeking to identify industries and companies that they believe are likely to
benefit from social, political and economic changes.
The managers will normally sell a stock when they believe its price is unlikely
to go much higher, its fundamentals have deteriorated, other investments offer
better opportunities or in the course of adjusting the portfolio's exposure to
a given country.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval.
OTHER INVESTMENTS
Although not one of its principal investment strategies, the portfolio is
permitted, but not required, to use various types of derivatives (contracts
whose value is based on, for example, indexes, currencies or securities).
Derivatives may be used for hedging and for risk management or for non-hedging
purposes to seek to enhance potential gains. The portfolio may use derivatives
in circumstances where portfolio management believes they offer an economical
means of gaining exposure to a particular asset class or to keep cash on hand
to meet shareholder redemptions or other needs while maintaining exposure to
the market.
In particular, the portfolio may use futures, options and yield curve options.
To the extent the portfolio invests in foreign securities, the portfolio may
enter into forward currency exchange contracts and buy and sell currency
options to hedge against currency exchange rate fluctuations.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets into investments such as money market securities. This measure could
prevent losses, but, while engaged in a temporary defensive position, the
portfolio will not be pursuing its investment objective. However, the portfolio
managers may choose not to use these strategies for various reasons, even in
very volatile market conditions.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
26 DWS GLOBAL OPPORTUNITIES VIP
<PAGE>
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, an important factor with this
portfolio is how stock markets perform - in this case US and foreign stock
markets. When US and foreign stock prices fall, you should expect the value of
your investment to fall as well. Compared to large company stocks, small
company stocks tend to be more volatile, in part because these companies tend
to be less established and the valuation of their stocks often depends on
future expectations. Because a stock represents ownership in its issuer, stock
prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies. In addition, movements in financial markets may adversely affect a
stock's price, regardless of how well the company performs. The market as a
whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get attractive prices for them.
FOREIGN INVESTMENT RISK. Foreign investments involve certain special risks,
including:
o POLITICAL RISK. Some foreign governments have limited the outflow of profits
to investors abroad, imposed restrictions on the exchange or export of
foreign currency, extended diplomatic disputes to include trade and
financial relations, seized foreign investment and imposed high taxes.
o INFORMATION RISK. Companies based in foreign markets are usually not subject
to accounting, auditing and financial reporting standards and practices as
stringent as those in the US. Therefore, their financial reports may present
an incomplete, untimely or misleading picture of a foreign company, as
compared to the financial reports of US companies.
o LIQUIDITY RISK. Investments that trade less can be more difficult or more
costly to buy, or to sell, than more liquid or active investments. This
liquidity risk is a factor of the trading volume of a particular investment,
as well as the size and liquidity of the entire local market. On the whole,
foreign exchanges are smaller and less liquid than the US market. This can
make buying and selling certain investments more difficult and costly.
Relatively small transactions in some instances can have a
disproportionately large effect on the price and supply of securities. In
certain situations, it may become virtually impossible to sell an investment
in an orderly fashion at a price that approaches portfolio management's
estimate of its value. For the same reason, it may at times be difficult to
value the portfolio's foreign investments.
o REGULATORY RISK. There is generally less government regulation of foreign
markets, companies and securities dealers than in the US.
o CURRENCY RISK. The portfolio invests in securities denominated in foreign
currencies. This creates the possibility that changes in exchange rates
between foreign currencies and the US dollar will affect the US dollar value
of foreign securities or the income or gain received on these securities.
o LIMITED LEGAL RECOURSE RISK. Legal remedies for investors may be more limited
than the remedies available in the US.
o TRADING PRACTICE RISK. Brokerage commissions and other fees are generally
higher for foreign investments than for US investments. The procedures and
rules governing foreign transactions and custody may also involve delays in
payment, delivery or recovery of money or investments.
o TAXES. Foreign withholding and certain other taxes may reduce the amount of
income available to distribute to shareholders of the portfolio. In
addition, special US tax considerations may apply to the portfolio's foreign
investments.
EMERGING MARKET RISK. All of the risks of investing in foreign securities are
increased in connection with investments in emerging markets securities. In
addition, profound social changes and business practices that depart from norms
in developed countries' economies have hindered the orderly growth of emerging
economies and their markets in the past and have caused instability. High
levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. These countries are also more likely
to experience high levels of inflation, deflation or currency devaluation,
which could also hurt their economies and securities markets. For these and
other reasons, investments in emerging markets are often considered
speculative.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS GLOBAL OPPORTUNITIES VIP 27
<PAGE>
SMALL COMPANY CAPITALIZATION RISK. Small company stocks tend to experience
steeper price fluctuations - down as well as up - than the stocks of larger
companies. A shortage of reliable information - the same information gap that
creates opportunity in small company investing - can also pose added risk.
Industry-wide reversals may have a greater impact on small companies, since
they lack a large company's financial resources. Small company stocks are
typically less liquid than large company stocks. Accordingly, it may be harder
to find a buyer for a small company's shares.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
Other factors that could affect performance include:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
o growth stocks may be out of favor for certain periods.
o a bond could fall in credit quality, go into default, or decrease in value
for various reasons, including a change in prevailing interest rates; this
risk is greater with junk bonds and foreign bonds.
This portfolio may interest long-term investors interested in diversifying a
large-cap or domestic portfolio of investments.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
28 DWS GLOBAL OPPORTUNITIES VIP
<PAGE>
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.38 16.44 65.88 -5.29 -24.59 -19.89 49.09 23.35 18.19 22.08
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 40.96%, Q4 1999 WORST QUARTER: -21.29%, Q3 2001
2007 TOTAL RETURN AS OF MARCH 31: 5.51%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------------------------------------
Portfolio - Class A 22.08 16.28 12.67
--------------------------------------------------------------------------------
S&P/Citigroup Extended Market
Index 22.39 17.62 11.16
--------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
The S&P/CITIGROUP EXTENDED MARKET INDEX is an unmanaged index of
small-capitalization stocks within 26 countries around the globe.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS GLOBAL OPPORTUNITIES VIP 29
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS A
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 0.99%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses 2 0.13
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 1.12
--------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect
on June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect
on October 1, 2006.
Based on the costs above, this example helps you compare the expenses of Class
A shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold your shares
at the end of each period. This is only an example; actual expenses will be
different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $114 $356 $617 $1,363
--------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio:
Joseph Axtell, CFA
Managing Director of Deutsche Asset Management and Lead Portfolio Manager of
the portfolio.
o Joined Deutsche Asset Management in 2001 and the portfolio in 2002.
o Senior analyst at Merrill Lynch Investment Managers for the international
equity portion of a global balanced portfolio (1996-2001).
o Director, International Research at PCM International (1989-1996).
o Associate manager, structured debt and equity group at Prudential Capital
Corporation (1988-1989).
o Analyst at Prudential-Bache Capital Funding in London (1987-1988).
o Equity analyst in the healthcare sector at Prudential Equity Management
Associates (1985-1987).
o BS, University of Minnesota - Carlson School of Management.
Terrence S. Gray, CFA
Managing Director of Deutsche Asset Management and Portfolio Manager of the
portfolio.
o Joined Deutsche Asset Management in 1993 and the portfolio in 2003.
o Over 14 years of investment industry experience.
o Head of global portfolio selection team for Pacific Basin Equity: New
York.
o BS, Boston College.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
30 DWS GLOBAL OPPORTUNITIES VIP
<PAGE>
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS GLOBAL OPPORTUNITIES VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.00 $ 12.77 $ 10.38 $ 6.97 $ 8.70
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) a .03c .04 .01 .02 ( .00)b
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 3.28 2.27 2.41 3.40 ( 1.73)
transactions
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.31 2.31 2.42 3.42 ( 1.73)
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .16) ( .08) ( .03) ( .01) -
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.15 $ 15.00 $ 12.77 $ 10.38 $ 6.97
---------------------------------------------------------------------------------------------------------------------
Total Return (%) 22.08c 18.19 23.35 49.09 (19.89)
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 331 285 232 183 121
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 1.12 1.17 1.18 1.18 1.19
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .16c .32 .09 .28 ( .03)
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 28 30 24 41 47
---------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Amount is less than $.005.
c Includes non-recurring income from the Advisor recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation
practices in connection with sales of DWS Scudder Funds. The non-recurring
income resulted in an increase in net investment income of $0.002 per
share and an increase in the ratio of net investment income of 0.01%.
Excluding this non-recurring income, total return would have been 0.01%
lower.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS GLOBAL OPPORTUNITIES VIP 31
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS GLOBAL OPPORTUNITIES VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
---------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 1.12% 3.88% $ 10,388.00 $ 114.17
---------------------------------------------------------------------------------------------------------------------
2 10.25% 1.12% 7.91% $ 10,791.05 $ 118.60
---------------------------------------------------------------------------------------------------------------------
3 15.76% 1.12% 12.10% $ 11,209.75 $ 123.20
---------------------------------------------------------------------------------------------------------------------
4 21.55% 1.12% 16.45% $ 11,644.69 $ 127.98
---------------------------------------------------------------------------------------------------------------------
5 27.63% 1.12% 20.96% $ 12,096.50 $ 132.95
---------------------------------------------------------------------------------------------------------------------
6 34.01% 1.12% 25.66% $ 12,565.84 $ 138.11
---------------------------------------------------------------------------------------------------------------------
7 40.71% 1.12% 30.53% $ 13,053.40 $ 143.47
---------------------------------------------------------------------------------------------------------------------
8 47.75% 1.12% 35.60% $ 13,559.87 $ 149.03
---------------------------------------------------------------------------------------------------------------------
9 55.13% 1.12% 40.86% $ 14,085.99 $ 154.82
---------------------------------------------------------------------------------------------------------------------
10 62.89% 1.12% 46.33% $ 14,632.53 $ 160.82
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,363.15
---------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
32 DWS GLOBAL OPPORTUNITIES VIP
<PAGE>
DWS INTERNATIONAL VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks long-term growth of capital primarily through diversified
holdings of marketable foreign equity investments (equities issued by
foreign-based companies and listed on foreign exchanges.) Although the
portfolio can invest in companies of any size and from any country (other than
the United States), it invests mainly in common stocks of established companies
in countries with developed economies.
The portfolio manager uses a bottom-up approach, emphasizing individual stock
selection, with any active allocation among countries, regions or industries as
a residual of the strategy. The portfolio manager's process begins with a broad
universe of equity securities of issuers primarily, but not exclusively,
located in the countries that make up the MSCI EAFE (Reg. TM) Index. The MSCI
EAFE (Reg. TM) Index tracks stocks in Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. The universe includes all securities in the
Index and a large number of securities not included in the Index but whose
issuers are located in the countries that make up the Index.
The team screens for companies seeking to identify those with high or
improving, and sustainable, returns on capital and long-term prospects for
growth. The portfolio manager focuses on companies with real cash flow on
investment rather than published earnings. The team utilizes information
gleaned from a variety of sources and perspectives, including broad trends such
as lifestyle, demographic and technological changes, industry cycles and
regulatory changes, quantitative screening and individual company analysis.
Based on this fundamental research, the portfolio manager sets a target price
objective (the portfolio manager's opinion of the intrinsic value of the
security) for each security and ranks the securities based on these target
price objectives. The portfolio manager applies a disciplined approach to risk
management and portfolio construction. Stocks are sold when they meet their
target price objectives, a better investment opportunity has been identified or
there has been a negative change in the outlook for the company, country or
industry. In implementing this strategy, the portfolio may experience a high
portfolio turnover rate.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval.
OTHER INVESTMENTS
While most of the portfolio's foreign equities are common stocks, some may be
other types of equities, such as convertible securities, preferred stocks and
depositary receipts. The portfolio is permitted, but not required, to use
various types of derivatives (contracts whose value is based on, for example,
indexes, currencies or securities). The portfolio may use derivatives in
circumstances where the managers believe they offer an economical means of
gaining exposure to a particular asset class or to keep cash on hand to meet
shareholder redemptions or other needs while maintaining exposure to the
market. In particular, the portfolio may use futures, currency options and
forward currency transactions.
For temporary defensive purposes, the portfolio may invest up to 100% of its
assets in Canadian and US Government obligations or currencies, securities of
companies incorporated in and having their principal place of business in
Canada or the US or in relatively stable investments, such as money market
securities. In such a case, the portfolio would not be pursuing its investment
objective. However, the portfolio manager may choose not to use these
strategies for various reasons, even in very volatile market conditions.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS INTERNATIONAL VIP 33
<PAGE>
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock funds, an important factor with this
portfolio is how stock markets perform - in this case, foreign markets. When
foreign stock prices fall, you should expect the value of your investment to
fall as well. Because a stock represents ownership in its issuer, stock prices
can be hurt by poor management, shrinking product demand and other business
risks. These may affect single companies as well as groups of companies. In
addition, movements in financial markets may adversely affect a stock's price,
regardless of how well the company performs. The market as a whole may not
favor the types of investments the portfolio makes and the portfolio may not be
able to get attractive prices for them.
FOREIGN INVESTMENT RISK. Foreign investments involve certain special risks,
including:
o POLITICAL RISK. Some foreign governments have limited the outflow of profits
to investors abroad, imposed restrictions on the exchange or export of
foreign currency, extended diplomatic disputes to include trade and
financial relations, seized foreign investment and imposed high taxes.
o INFORMATION RISK. Companies based in foreign markets are usually not subject
to accounting, auditing and financial reporting standards and practices as
stringent as those in the US. Therefore, their financial reports may present
an incomplete, untimely or misleading picture of a foreign company, as
compared to the financial reports of US companies.
o LIQUIDITY RISK. Investments that trade less can be more difficult or more
costly to buy, or to sell, than more liquid or active investments. This
liquidity risk is a factor of the trading volume of a particular investment,
as well as the size and liquidity of the entire local market. On the whole,
foreign exchanges are smaller and less liquid than the US market. This can
make buying and selling certain investments more difficult and costly.
Relatively small transactions in some instances can have a
disproportionately large effect on the price and supply of securities. In
certain situations, it may become virtually impossible to sell an investment
in an orderly fashion at a price that approaches portfolio management's
estimate of its value. For the same reason, it may at times be difficult to
value the portfolio's foreign investments.
o REGULATORY RISK. There is generally less government regulation of foreign
markets, companies and securities dealers than in the US.
o CURRENCY RISK. The portfolio invests in securities denominated in foreign
currencies. This creates the possibility that changes in exchange rates
between foreign currencies and the US dollar will affect the US dollar value
of foreign securities or the income or gain received on these securities.
o LIMITED LEGAL RECOURSE RISK. Legal remedies for investors may be more limited
than the remedies available in the US.
o TRADING PRACTICE RISK. Brokerage commissions and other fees are generally
higher for foreign investments than for US investments. The procedures and
rules governing foreign transactions and custody may also involve delays in
payment, delivery or recovery of money or investments.
o TAXES. Foreign withholding and certain other taxes may reduce the amount of
income available to distribute to shareholders of the portfolio. In
addition, special US tax considerations may apply to the portfolio's foreign
investments.
EMERGING MARKET RISK. All of the risks of investing in foreign securities are
increased in connection with investments in emerging markets securities. In
addition, profound social changes and business practices that depart from norms
in developed countries' economies have hindered the orderly growth of emerging
economies and their markets in the past and have caused instability. High
levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. These countries are also more likely
to experience high levels of inflation, deflation or currency devaluation,
which could also hurt their economies and securities markets. For these and
other reasons, investments in emerging markets are often considered
speculative.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
34 DWS INTERNATIONAL VIP
<PAGE>
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
Other factors that could affect performance include:
o portfolio management could be wrong in the analysis of foreign governments,
industries, companies, economic trends, the relative attractiveness of
different sizes of stocks, geographical trends or other matters.
This portfolio is designed for investors who are interested in a broadly
diversified international investment with the emphasis on long-term growth of
capital.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS INTERNATIONAL VIP 35
<PAGE>
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.07 18.49 54.51 -21.70 -30.86 -18.37 27.75 16.53 16.17 25.91
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 29.06%, Q4 1999 WORST QUARTER: -18.80%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: 3.73%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
---------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------------------------
Portfolio - Class A 25.91 12.19 6.75
---------------------------------------------------------------------------------
MSCI EAFE (Reg. TM) Index 26.34 14.98 7.71
---------------------------------------------------------------------------------
</TABLE>
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE, AUSTRALASIA AND THE FAR
EAST (EAFE) INDEX is an unmanaged index that tracks international stock
performance in the 21 developed markets of Europe, Australasia and the Far
East.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
36 DWS INTERNATIONAL VIP
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS A
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 0.84
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses 2, 3 0.12
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 4 0.96
--------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Restated and estimated to reflect the acquisition of DWS Foreign Value VIP
on December 11, 2006.
4 Through April 30, 2010, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 0.96% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
Based on the costs above, this example helps you compare the expenses of Class
A shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold your shares
at the end of each period. This is only an example; actual expenses will be
different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Class A shares $98 $306 $531 $1,178
--------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO MANAGER
The following person handles the day-to-day management of the portfolio:
Matthias Knerr, CFA
Director, Deutsche Asset Management and Manager of the portfolio.
o Joined Deutsche Asset Management in 1995 and the portfolio in 2004.
o Portfolio manager for EAFE Equities and Global Equities.
o BS, Pennsylvania State University.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS INTERNATIONAL VIP 37
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS INTERNATIONAL VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.85 $ 9.50 $ 8.26 $ 6.52 $ 8.05
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) a .28b .15 .09 .09 .05
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 2.51 1.36 1.26 1.70 ( 1.52)
transactions
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.79 1.51 1.35 1.79 ( 1.47)
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .22) ( .16) ( .11) ( .05) ( .06)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.42 $ 10.85 $ 9.50 $ 8.26 $ 6.52
---------------------------------------------------------------------------------------------------------------------
Total Return (%) 25.91 16.17 16.53 27.75 (18.37)
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 702 558 533 485 412
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) .98 1.02 1.04 1.05 1.03
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.32b 1.59 1.05 1.32 .73
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 105 59 73 119 123
---------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Net investment income per share and the ratio of net investment income
include non-recurring dividend income amounting to $0.11 per share and
0.92% of average daily net assets, respectively.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
38 DWS INTERNATIONAL VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS INTERNATIONAL VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
---------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.96% 4.04% $ 10,404.00 $ 97.94
---------------------------------------------------------------------------------------------------------------------
2 10.25% 0.96% 8.24% $ 10,824.32 $ 101.90
---------------------------------------------------------------------------------------------------------------------
3 15.76% 0.96% 12.62% $ 11,261.62 $ 106.01
---------------------------------------------------------------------------------------------------------------------
4 21.55% 0.96% 17.17% $ 11,716.59 $ 110.30
---------------------------------------------------------------------------------------------------------------------
5 27.63% 0.96% 21.90% $ 12,189.94 $ 114.75
---------------------------------------------------------------------------------------------------------------------
6 34.01% 0.96% 26.82% $ 12,682.42 $ 119.39
---------------------------------------------------------------------------------------------------------------------
7 40.71% 0.96% 31.95% $ 13,194.79 $ 124.21
---------------------------------------------------------------------------------------------------------------------
8 47.75% 0.96% 37.28% $ 13,727.86 $ 129.23
---------------------------------------------------------------------------------------------------------------------
9 55.13% 0.96% 42.82% $ 14,282.46 $ 134.45
---------------------------------------------------------------------------------------------------------------------
10 62.89% 0.96% 48.59% $ 14,859.47 $ 139.88
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,178.06
---------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS INTERNATIONAL VIP 39
<PAGE>
DWS HEALTH CARE VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
Under normal circumstances, the portfolio seeks long-term growth of capital by
investing at least 80% of total assets, plus the amount of any borrowings for
investment purposes, in common stocks of companies in the health care sector.
For purposes of the portfolio's 80% investment policy, to be considered part of
the health care sector, companies must commit at least half of their assets to,
or derive at least half of their revenues or net income from, that sector. The
industries in the health care sector include pharmaceuticals, biotechnology,
medical products and supplies, and health care services. The companies may be
of any size. The portfolio will invest primarily in securities of US companies,
but may invest in foreign companies as well.
In choosing stocks, the portfolio managers use a combination of three
analytical disciplines:
BOTTOM-UP RESEARCH. The managers look for individual companies with a history
of above-average growth, strong competitive positioning, new tests or
treatments, the ability to take advantage of demographic trends, attractive
prices relative to potential growth, sound financial strength and effective
management, among other factors.
GROWTH ORIENTATION. The managers generally look for companies that they believe
have above-average potential for sustainable growth of revenue or earnings and
whose market value appears reasonable in light of their business prospects.
TOP-DOWN ANALYSIS. The managers consider the economic outlooks for various
industries within the health care sector while looking for those that may
benefit from changes in the overall business environment.
Portfolio management will normally sell a stock when it believes the stock's
price is unlikely to go higher, its fundamental factors have changed, other
investments offer better opportunities or in the course of adjusting the
portfolio's emphasis on or within a given health care industry.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval. However, the Board will provide shareholders with at least 60 days'
notice prior to making any changes to the portfolio's 80% investment policy.
OTHER INVESTMENTS
While the portfolio invests mainly in common stocks, it may also invest up to
20% of total assets in US Treasury and agency debt securities.
Although not one of its principal investment strategies, the portfolio is
permitted, but not required, to use various types of derivatives (contracts
whose value is based on, for example, indexes, currencies or securities).
Derivatives may be used for hedging and for risk management or for non-hedging
purposes to seek to enhance potential gains. The portfolio may use derivatives
in circumstances where portfolio management believes they offer an economical
means of gaining exposure to a particular asset class or to keep cash on hand
to meet shareholder redemptions or other needs while maintaining exposure to
the market. In particular, the portfolio may use futures and options, including
sales of covered put and call options.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets into investments such as money market securities. This measure could
prevent losses, but, while engaged in a temporary defensive position, the
portfolio will not be pursuing its investment objective. However, the portfolio
managers may choose not to use these strategies for various reasons, even in
very volatile market conditions.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
40 DWS HEALTH CARE VIP
<PAGE>
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
GROWTH INVESTING RISK. Since growth stocks usually reinvest a large portion of
earnings in their own businesses, they may lack the dividends associated with
value stocks that might otherwise cushion their decline in a falling market.
Earnings disappointments in growth stocks often result in sharp price declines
because investors buy these stocks because of their potential for superior
earnings growth. Growth stocks may also be out of favor for certain periods in
relation to value stocks.
CONCENTRATION RISK. The portfolio concentrates its investments in the
industries of the health care sector. As a result, factors affecting that
sector, such as rapid product obsolescence and the unpredictability of winning
government approvals, will have a significant impact on the portfolio's
performance.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS HEALTH CARE VIP 41
<PAGE>
Other factors that could affect performance include:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
o foreign securities may be more volatile than their US counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty.
The portfolio may make sense for investors who are comfortable with higher
risks of a portfolio that focuses on an often volatile sector and are
interested in gaining exposure to the health care sector.
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C>
-23.10 33.70 9.59 8.50 6.17
2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 15.08%, Q2 2003 WORST QUARTER: -15.62%, Q2 2002
2007 TOTAL RETURN AS OF MARCH 31: 3.41%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class A 6.17 5.35 5.86
-----------------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 4.05
-----------------------------------------------------------------------------------------
Goldman Sachs Healthcare Index 5.42 4.09 4.04
-----------------------------------------------------------------------------------------
</TABLE>
* Inception: May 1, 2001. Index comparisons begin April 30, 2001.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
GOLDMAN SACHS HEALTHCARE INDEX is an unmanaged market capitalization-weighted
index of 114 stocks designed to measure the performance of companies in the
health care sector.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
42 DWS HEALTH CARE VIP
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS A
----------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
----------------------------------------------------------------------------------
Management Fee 1 0.77%
----------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee None
----------------------------------------------------------------------------------
Other Expenses 2 0.12
----------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 0.89
----------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
Based on the costs above, this example helps you compare the expenses of Class
A shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold your shares
at the end of each period. This is only an example; actual expenses will be
different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Class A shares $91 $284 $493 $1,096
--------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio:
Leefin Lai, CFA
Managing Director of Deutsche Asset Management and Portfolio Manager of the
portfolio.
o Joined Deutsche Asset Management in 2001 and the portfolio in 2001,
previously serving as an analyst for Salomon Smith Barney and Paine Webber
and as Vice President/analyst for Citigroup Global Asset Management and
Scudder Kemper Investments.
o Over 15 years of investment industry experience.
o BS, MBA, University of Illinois.
Thomas E. Bucher, CFA
Managing Director of Deutsche Asset Management and Consultant to the portfolio.
o Joined Deutsche Asset Management in 1995 and the portfolio in 2002,
previously serving as analyst for European Chemical, Oil, Steel and
Engineering sectors and analyst/
portfolio manager for Eastern European equity.
o Head of global equity research team for health care sector and portfolio
manager for European Equity: Frankfurt.
o MA, University of Tuegingen, Germany.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS HEALTH CARE VIP 43
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS HEALTH CARE VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.02 $ 12.00 $ 10.95 $ 8.19 $ 10.65
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)a ( .01)b ( .02) ( .03) ( .02) ( .03)
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment .81 1.04 1.08 2.78 ( 2.43)
transactions
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .80 1.02 1.05 2.76 ( 2.46)
---------------------------------------------------------------------------------------------------------------------
Less Distributions from:
Net realized gain on transactions ( .05) - - - -
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.77 $ 13.02 $ 12.00 $ 10.95 $ 8.19
---------------------------------------------------------------------------------------------------------------------
Total Return (%) 6.17b 8.50 9.59 33.70 (23.10)
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 101 109 109 101 69
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) .89 .88 .88 .87 .91
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) ( .03)b ( .18) ( .29) ( .24) ( .38)
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 43 77 64 53
---------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Includes non-recurring income from the Advisor recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation
practices in connection with sales of DWS Scudder Funds. The non-recurring
income resulted in an increase in net investment income of $0.003 per
share and an increase in the ratio of net investment income of 0.02%.
Excluding this non-recurring income, total return would have been 0.02%
lower.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
44 DWS HEALTH CARE VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS HEALTH CARE VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
---------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.89% 4.11% $ 10,411.00 $ 90.83
---------------------------------------------------------------------------------------------------------------------
2 10.25% 0.89% 8.39% $ 10,838.89 $ 94.56
---------------------------------------------------------------------------------------------------------------------
3 15.76% 0.89% 12.84% $ 11,284.37 $ 98.45
---------------------------------------------------------------------------------------------------------------------
4 21.55% 0.89% 17.48% $ 11,748.16 $ 102.49
---------------------------------------------------------------------------------------------------------------------
5 27.63% 0.89% 22.31% $ 12,231.01 $ 106.71
---------------------------------------------------------------------------------------------------------------------
6 34.01% 0.89% 27.34% $ 12,733.70 $ 111.09
---------------------------------------------------------------------------------------------------------------------
7 40.71% 0.89% 32.57% $ 13,257.06 $ 115.66
---------------------------------------------------------------------------------------------------------------------
8 47.75% 0.89% 38.02% $ 13,801.92 $ 120.41
---------------------------------------------------------------------------------------------------------------------
9 55.13% 0.89% 43.69% $ 14,369.18 $ 125.36
---------------------------------------------------------------------------------------------------------------------
10 62.89% 0.89% 49.60% $ 14,959.75 $ 130.51
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,096.07
---------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS HEALTH CARE VIP 45
<PAGE>
DWS RREEF REAL ESTATE SECURITIES VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio's investment objectives are long-term capital appreciation and
current income.
The portfolio invests primarily in real estate securities. Under normal
circumstances, the portfolio will invest at least 80% of its net assets, plus
the amount of any borrowing for investment purposes (calculated at the time of
an investment), in equity securities of real estate investment trusts ("REITs")
and real estate companies. Equity securities include common stock, preferred
stock and securities convertible into common stock.
A company is considered to be a real estate company if, in the opinion of the
portfolio managers, at least 50% of its revenues or 50% of the market value of
its assets at the time its securities are purchased by the portfolio are
attributed to the ownership, construction, management or sale of real estate.
The portfolio managers look for real estate securities they believe will
provide superior returns to the portfolio over the long term, and attempt to
focus on companies with the potential for stock price appreciation and a record
of paying dividends.
To find these issuers, the portfolio managers track economic conditions and
real estate market performance in major metropolitan areas and analyze
performance of various property types within those regions. To perform this
analysis, the portfolio managers use information from a nationwide network of
real estate professionals to evaluate the holdings of real estate companies and
REITs in which the portfolio may invest. Their analysis also includes the
companies' management structure, financial structure and business strategies.
The goal of this analysis is to determine which of the issuers the portfolio
managers believe will be the most profitable to the portfolio over the long
term. The portfolio managers also consider the effect of the real estate
securities markets in general when making investment decisions. The portfolio
managers do not attempt to time the market.
A REIT invests primarily in income-producing real estate or makes loans to
persons involved in the real estate industry.
Some REITs, called equity REITs, buy real estate and pay investors income from
the rents received from the real estate owned by the REIT and from any profits
on the sale of its properties. Other REITs, called mortgage REITs, lend money
to building developers and other real estate companies and pay investors income
from the interest paid on those loans. There are also hybrid REITs which engage
in both owning real estate and making loans.
Based on its recent purchases, the portfolio managers expect that the
portfolio's assets will be invested primarily in equity REITs. In changing
market conditions, the portfolio may invest in other types of REITs.
If a REIT meets certain requirements, it is not taxed on the income it
distributes to its investors.
The portfolio managers may choose to sell a security for a variety of reasons,
but typically the portfolio managers will sell if they believe that one or more
of the following is true:
o a security is not fulfilling its investment purpose;
o a security has reached its optimum valuation; or
o a particular company or general economic conditions have changed.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objectives without seeking shareholder
approval. However, the Board will provide shareholders with at least 60 days'
notice prior to making any changes to the portfolio's 80% investment policy.
OTHER INVESTMENTS
When the portfolio managers believe that it is prudent, the portfolio may
invest a portion of its assets in other types of instruments. These instruments
may include short-term securities, bonds, notes, equity securities of companies
not principally engaged in the real estate industry, non-leveraged stock index
futures contracts and other similar instruments. Stock index futures contracts,
a type of derivative security, can help the portfolio's
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
46 DWS RREEF REAL ESTATE SECURITIES VIP
<PAGE>
cash assets remain liquid while performing more like stocks. The portfolio has
a policy governing derivatives which prohibits leverage of the portfolio's
assets by investing in a derivative. For example, the portfolio managers cannot
invest in a derivative if it would be possible for the portfolio to lose more
money than it invested.
As a temporary defensive measure, the portfolio managers could shift up to 100%
of assets into investments such as money market securities and investment grade
income producing debt securities. This measure could prevent losses, but, while
engaged in a temporary defensive position, the portfolio will not be pursuing
its investment objectives. However, the portfolio managers may choose not to
use these strategies for various reasons, even in very volatile market
conditions.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
CONCENTRATION RISK. The portfolio concentrates its investments in real estate
securities, including REITs. A portfolio with a concentrated investment
portfolio is vulnerable to the risks of the industry in which it invests and is
subject to greater risks and market fluctuations than a portfolio investing in
a broader range of industries. Real estate securities are susceptible to the
risks associated with direct ownership of real estate, such as:
o declines in property values;
o increases in property taxes, operating expenses, interest rates or
competition;
o overbuilding;
o zoning changes; and
o losses from casualty or condemnation.
In addition, many real estate companies, including REITs, utilize leverage (and
some may be highly leveraged), which increases stock market risk.
NON-DIVERSIFICATION RISK. The portfolio is classified as non-diversified under
the Investment Company Act of 1940. This means that it may invest in securities
of relatively few issuers. Thus, the performance of one or a small number of
portfolio holdings can affect overall performance more than if the portfolio
invested in a larger number of issuers.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS RREEF REAL ESTATE SECURITIES VIP 47
<PAGE>
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
Other factors that could affect performance include:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
o the market value of the individual securities the portfolio owns will go up
and down depending on the performance of the companies that issued them,
general market and economic conditions and investor confidence.
The portfolio is designed for investors interested in an investment that seeks
long-term capital appreciation and current income through investment in real
estate securities.
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C>
11.72 37.64
2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 14.45%, Q2 2005 WORST QUARTER: -6.74%, Q1 2005
2007 TOTAL RETURN AS OF MARCH 31: 3.30%
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
48 DWS RREEF REAL ESTATE SECURITIES VIP
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION*
--------------------------------------------------------------------------------
<S> <C> <C>
Portfolio - Class A Shares 37.64 30.70
--------------------------------------------------------------------------------
MSCI US REIT Index 35.92 27.31
--------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 13.41
--------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
* Inception 8/16/2004. Index comparisons begin 8/31/2004.
MSCI US REIT INDEX is an unmanaged free float-adjusted market capitalization
weighted index that is comprised of equity REITs that are included in the MSCI
US Investable Market 2500 Index, with the exception of specialty equity REITs
that do not generate a majority of their revenue and income from real estate
rental and leasing operations.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy, variable annuity contract, or tax-qualified
plan for which the portfolio is an investment option. These charges and fees
will increase expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS A
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 1.00%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses 2 0.30
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 1.30
--------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 3, 4 0.28
--------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 3, 4 1.02
--------------------------------------------------------------------------------
</TABLE>
1 Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through September 30, 2007, the Advisor has contractually agreed to waive
all or a portion of its management fee and reimburse or pay certain
operating expenses of the portfolio to the extent necessary to maintain
the portfolio's total operating expenses at 0.99% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
4 Through April 30, 2008, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary so that the portfolio's
total operating expenses will not exceed 1.02% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in each
period), this example helps you compare the expenses of Class A shares to those
of other mutual funds. This example assumes the expenses above remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, and
reinvested all dividends and distributions. This is only an example; actual
expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $104 $384 $686 $1,543
--------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS RREEF REAL ESTATE SECURITIES VIP 49
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio.
John F. Robertson, CFA
Managing Director of RREEF and Manager of the portfolio.
o Joined RREEF in 1997, Deutsche Asset Management, Inc. in 2002 and the
portfolio in 2003.
o Prior to that, Assistant Vice President of Lincoln Investment Management
responsible for REIT research.
o Over 16 years of investment industry experience.
o MBA, Indiana University.
Jerry W. Ehlinger, CFA
Managing Director of RREEF and Manager of the portfolio.
o Joined RREEF, Deutsche Asset Management, Inc. and the portfolio in 2004.
o Prior to that, Senior Vice President at Heitman Real Estate Investment
Management from 2000-2004.
o Prior to that, Senior Research Associate at Morgan Stanley Asset
Management from 1995-2000.
o Over 11 years of investment industry experience.
o MS, University of Wisconsin-Madison.
John W. Vojticek
Managing Director of RREEF and Manager of the portfolio.
o Joined RREEF, Deutsche Asset Management, Inc. and the portfolio in
September 2004.
o Prior to that, Principal at KG Redding and Associates, March
2004-September 2004.
o Prior to that, Director of RREEF from 1996-March 2004 and Deutsche Asset
Management, Inc. from 2002-March 2004.
o Over 11 years of investment industry experience.
Asad Kazim
Director of RREEF and Manager of the portfolio.
o Joined RREEF and Deutsche Asset Management, Inc. in 2002 and the
portfolio in 2005.
o Prior to that, Financial Analyst at Clarion CRA Securities from
2000-2002.
o Over seven years of investment industry experience.
o BS, The College of New Jersey.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
50 DWS RREEF REAL ESTATE SECURITIES VIP
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
Information for the periods ended prior to December 31, 2005 was audited by
Ernst & Young LLP, an independent registered public accounting firm.
DWS RREEF REAL ESTATE SECURITIES VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004a
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SELECTED PER SHARE DATA
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.58 $ 16.33 $ 13.32
----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) b .25 .30 .07
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 5.91 1.61 2.94
transactions
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 6.16 1.91 3.01
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - ( .49) -
---------------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions ( .32) ( 1.17) -
---------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ( .32) ( 1.66) -
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.42 $ 16.58 $ 16.33
---------------------------------------------------------------------------------------------------------------------
Total Return (%)c 37.64 11.72 22.60**
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 8 9 1
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.32 1.35 1.27*
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.07 1.10 1.10*
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.31 1.79 1.24*
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61 70 84*
---------------------------------------------------------------------------------------------------------------------
</TABLE>
a For the period August 16, 2004 (commencement of sales of Class A shares) to
December 31, 2004.
b Based on average shares outstanding during the period.
c Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS RREEF REAL ESTATE SECURITIES VIP 51
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS RREEF REAL ESTATE SECURITIES VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
---------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 1.02% 3.98% $ 10,398.00 $ 104.03
---------------------------------------------------------------------------------------------------------------------
2 10.25% 1.30% 7.83% $ 10,782.73 $ 137.67
---------------------------------------------------------------------------------------------------------------------
3 15.76% 1.30% 11.82% $ 11,181.69 $ 142.77
---------------------------------------------------------------------------------------------------------------------
4 21.55% 1.30% 15.95% $ 11,595.41 $ 148.05
---------------------------------------------------------------------------------------------------------------------
5 27.63% 1.30% 20.24% $ 12,024.44 $ 153.53
---------------------------------------------------------------------------------------------------------------------
6 34.01% 1.30% 24.69% $ 12,469.34 $ 159.21
---------------------------------------------------------------------------------------------------------------------
7 40.71% 1.30% 29.31% $ 12,930.71 $ 165.10
---------------------------------------------------------------------------------------------------------------------
8 47.75% 1.30% 34.09% $ 13,409.15 $ 171.21
---------------------------------------------------------------------------------------------------------------------
9 55.13% 1.30% 39.05% $ 13,905.28 $ 177.54
---------------------------------------------------------------------------------------------------------------------
10 62.89% 1.30% 44.20% $ 14,419.78 $ 184.11
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,543.22
---------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
52 DWS RREEF REAL ESTATE SECURITIES VIP
<PAGE>
DWS EQUITY 500 INDEX VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks to replicate, as closely as possible, before the deduction
of expenses, the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index"), which emphasizes stocks of large US companies. The
S&P 500 Index is a well-known stock market index that includes common stocks of
500 companies from several industrial sectors representing a significant
portion of the market value of all stocks publicly traded in the United States.
Stocks in the S&P 500 Index are weighted according to their market
capitalization (the number of shares outstanding multiplied by the stock's
current price).
The portfolio invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its objective. While the
portfolio manager gives priority to replicating the S&P 500 Index's
performance, there is no assurance of achieving this objective.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the portfolio management team buying and selling
securities based on research and analysis. Unlike a portfolio that is actively
managed, an index portfolio tries to replicate, as closely as possible, the
performance of a target index by holding either all, or a representative
sample, of the securities in the index. Indexing appeals to many investors for
the following reasons:
o indexing provides simplicity because it is a straightforward
market-replicating strategy;
o index portfolios generally provide diversification by investing in a wide
variety of companies and industries;
o an index portfolio's performance is generally predictable in that the
portfolio's value is expected to move in the same direction, up or down, as
the target index;
o index portfolios tend to have lower costs because they do not have many of
the expenses of actively managed funds, such as research. Also, index
portfolios usually have relatively low trading activity and therefore
brokerage commissions tend to be lower; and
o index portfolios generally realize low capital gains.
STRATEGY
The portfolio will pursue its objective by investing primarily in the
securities of the companies included in the benchmark and derivative
instruments, such as futures contracts and options, relating to the benchmark.
Futures contracts and options are used as a low-cost method of gaining exposure
to a particular securities market without investing directly in those
securities. The portfolio management team uses quantitative analysis techniques
to structure the portfolio to obtain a high correlation to the S&P 500 Index,
while keeping the portfolio as fully invested as possible in all market
environments. To attempt to replicate the risk and return characteristics of
the S&P 500 Index as closely as possible, the portfolio invests in a
statistically selected sample of the securities found in the S&P 500 Index,
using a process known as "optimization." This process selects stocks for the
portfolio so that industry weightings, market capitalizations and fundamental
characteristics (price-to-book ratios, price-to-earnings ratios, debt-to-asset
ratios and dividend yields), closely replicate those of the securities in the
S&P 500 Index. Over the long term, the portfolio seeks a correlation between
the performance of the portfolio, before expenses, and the S&P 500 Index of 98%
or better. A figure of 100% would indicate perfect correlation.
PRINCIPAL INVESTMENTS
Under normal circumstances, the portfolio intends to invest at least 80% of its
assets, determined at the time of purchase, in stocks of companies included in
the S&P 500 Index and in derivative instruments, such as futures contracts and
options, that provide exposure to the stocks of companies in the S&P 500 Index.
The portfolio's securities are weighted to attempt to make the portfolio's
total investment characteristics similar to those of the S&P 500 Index as a
whole. We may exclude or remove any S&P stock from the portfolio if we believe
that the stock is illiquid or that the merit of the investment has been
impaired by financial conditions or other extraordinary events. At times, the
portfolio management team may purchase a stock not included in the
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS EQUITY 500 INDEX VIP 53
<PAGE>
S&P 500 Index when it is believed to be a cost-efficient way of approximating
the S&P 500 Index's performance, for example, in anticipation of a stock being
added to the S&P 500 Index. The portfolio may hold assets in short-term debt
securities or money market instruments for liquidity purposes.
SECURITIES LENDING. The portfolio may lend its investment securities up to 30%
of its total assets to approved institutional borrowers who need to borrow
securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board could change the
portfolio's investment goal without seeking shareholder approval. In addition,
the portfolio's Board will provide shareholders with at least 60 days' notice
prior to making any changes to the portfolio's 80% investment policy, as
described herein.
INVESTMENT PROCESS
In an effort to run an efficient and effective strategy, the portfolio uses the
process of "optimization," a statistical sampling technique. First, the
portfolio buys the stocks that make up the larger portions of the S&P 500
Index's value in roughly the same proportion as the S&P 500 Index. Second,
smaller stocks are analyzed and selected based on liquidity. In selecting
smaller stocks, the portfolio management team tries to replicate the industry
and risk characteristics of all of the smaller companies in the S&P 500 Index
without buying all of those stocks. This approach attempts to maximize the
portfolio's liquidity and returns while minimizing its costs. Historically,
this portfolio has had a low portfolio turnover rate. Portfolio turnover
measures the frequency that the portfolio sells and replaces the value of its
securities within a given period.
INFORMATION REGARDING THE INDEX
The portfolio is not sponsored, endorsed, sold or promoted by the Standard &
Poor's Division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the owners of the portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the portfolio is the licensing of certain trademarks and trade names of S&P and
of the S&P 500 Index, which is determined, composed and calculated by S&P
without regard to the portfolio.
S&P has no obligation to take the needs of the portfolio or the owners of the
portfolio into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the portfolio to be
issued or in the determination or calculation of the equation by which shares
of the portfolio are redeemable for cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the portfolio.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the portfolio, owners of the
portfolio, or any other person or entity from the use of the S&P 500 Index or
any data included therein. S&P makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any data
included therein. Without limiting any of the foregoing, in no event shall S&P
have any liability for any special, punitive, indirect or consequential damages
(including lost profits), even if notified of the possibility of such damages.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
54 DWS EQUITY 500 INDEX VIP
<PAGE>
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
TRACKING ERROR RISK. There are several reasons that the portfolio's performance
may not replicate the S&P 500 Index exactly:
o Unlike the S&P 500 Index, the portfolio incurs fees and administrative
expenses and transaction costs in trading stocks.
o The composition of the S&P 500 Index and the stocks held by the portfolio may
occasionally diverge.
o The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the portfolio's
performance to deviate from that of the "fully invested" S&P 500 Index which
does not include a cash component.
INDEX FUND RISK. Because the portfolio invests at least 80% of its assets in
the stocks of companies included in the S&P 500 Index and in derivative
instruments that provide exposure to the stocks of companies in the S&P 500
Index, it has a limited ability to adjust its portfolio in response to
fluctuations in the market segment represented by the Index.
FUTURES AND OPTIONS RISK. The portfolio may invest, to a limited extent, in
stock index futures or options, which are types of derivatives. The portfolio
will not use these derivatives for speculative purposes. Rather, the portfolio
invests in derivatives to keep cash on hand to meet shareholder redemptions or
other needs while maintaining exposure to the stock market. Risks associated
with derivatives include: the risk that the derivative is not well correlated
with the security, index or currency to which it relates; the risk that
derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities; the risk that the portfolio will be
unable to sell the derivative because of an illiquid secondary market; the risk
that a counterparty is unwilling or unable to meet its obligation; the risk of
interest rate movements; and the risk that the derivatives transaction could
expose the portfolio to the effects of leverage, which could increase the
portfolio's exposure to the market and magnify potential losses.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
This portfolio is designed for investors interested in capital appreciation
over the long term; exposure to the US equity markets as represented by larger
companies; and investment returns that track the performance of the S&P 500
Index.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS EQUITY 500 INDEX VIP 55
<PAGE>
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
28.71 20.39 -9.24 -12.18 -22.31 28.16 10.59 4.68 15.52
1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 21.22%, Q4 1998 WORST QUARTER: -17.24%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: 0.60%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class A Shares 15.52 5.89 5.74
--------------------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 6.11
--------------------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
* Inception: October 1, 1997. Index comparisons begin September 30, 1997.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
56 DWS EQUITY 500 INDEX VIP
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the fund or any
variable life insurance policy, variable annuity contract or tax-qualified plan
for which the portfolio is an investment option. These charges and fees will
increase expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS A
-------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
-------------------------------------------------------------------------------
Management Fee 1 0.29%
-------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee None
-------------------------------------------------------------------------------
Other Expenses 2 0.02
-------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 0.31
-------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 3 0.03
-------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 3 0.28
-------------------------------------------------------------------------------
</TABLE>
1 Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through April 30, 2009, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 0.28% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in the "1 Year"
period and two years of capped expenses in the "3 Years," "5 Years" and "10
Years" periods), this example helps you compare the expenses of Class A shares
to those of other mutual funds. This example assumes the expenses above remain
the same. It also assumes that you invested $10,000, earned 5% annual returns,
and reinvested all dividends and distributions. This is only an example; actual
expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $29 $93 $168 $387
--------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO MANAGER
Brent Reeder is a Vice President at Northern Trust Investments, NA. Mr. Reeder
has had responsibility for the portfolio since May 2007. Mr. Reeder joined NTI
in 1993. For the past five years, he has managed quantitative equity
portfolios.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS EQUITY 500 INDEX VIP 57
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
Information for the periods ended prior to December 31, 2005 was audited by
Ernst & Young LLP, an independent registered public accounting firm.
DWS EQUITY 500 INDEX VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.11 $ 12.73 $ 11.64 $ 9.20 $ 11.98
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) a .24 .21 .21 .15 .14
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 1.78 .37 1.01 2.41 ( 2.81)
transactions
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.02 .58 1.22 2.56 ( 2.67)
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .16) ( .20) ( .13) ( .12) ( .11)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.97 $ 13.11 $ 12.73 $ 11.64 $ 9.20
---------------------------------------------------------------------------------------------------------------------
Total Return (%) 15.52b 4.68 10.59b 28.16b (22.31)b
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 1,412 1,102 790 627 395
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions and/or
recoupments (%) .28 .27 .28 .30 .32
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions and/or
recoupments (%) .27 .27 .29 .30 .30
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.73 1.62 1.76 1.50 1.33
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 9 15 1 1 10
---------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
58 DWS EQUITY 500 INDEX VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS EQUITY 500 INDEX VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
---------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.28% 4.72% $ 10,472.00 $ 28.66
---------------------------------------------------------------------------------------------------------------------
2 10.25% 0.28% 9.66% $ 10,966.28 $ 30.01
---------------------------------------------------------------------------------------------------------------------
3 15.76% 0.31% 14.81% $ 11,480.60 $ 34.79
---------------------------------------------------------------------------------------------------------------------
4 21.55% 0.31% 20.19% $ 12,019.04 $ 36.42
---------------------------------------------------------------------------------------------------------------------
5 27.63% 0.31% 25.83% $ 12,582.73 $ 38.13
---------------------------------------------------------------------------------------------------------------------
6 34.01% 0.31% 31.73% $ 13,172.86 $ 39.92
---------------------------------------------------------------------------------------------------------------------
7 40.71% 0.31% 37.91% $ 13,790.67 $ 41.79
---------------------------------------------------------------------------------------------------------------------
8 47.75% 0.31% 44.37% $ 14,437.45 $ 43.75
---------------------------------------------------------------------------------------------------------------------
9 55.13% 0.31% 51.15% $ 15,114.57 $ 45.81
---------------------------------------------------------------------------------------------------------------------
10 62.89% 0.31% 58.23% $ 15,823.44 $ 47.95
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 387.23
---------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS EQUITY 500 INDEX VIP 59
<PAGE>
DWS SMALL CAP INDEX VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks to replicate, as closely as possible, before the deduction
of expenses, the performance of the Russell 2000 (Reg. TM) Index, which
emphasizes stocks of small US companies. The Russell 2000 (Reg. TM) Index is a
widely accepted benchmark of small company stock performance. The Russell 2000
(Reg. TM) Index measures the performance of the 2,000 smallest companies in the
Russell 3000 (Reg. TM) Index which represents approximately 8% of the market
capitalization of the Russell 3000 (Reg. TM) Index. Stocks in the Russell 2000
(Reg. TM) Index are weighted according to their market capitalization (the
number of shares outstanding multiplied by the stock's current price).
The portfolio invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its objective. While the
portfolio manager gives priority to replicating the Russell 2000 (Reg. TM)
Index's performance, there is no assurance of achieving this objective.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the portfolio management team buying and selling
securities based on research and analysis. Unlike a portfolio that is actively
managed, an index fund tries to replicate, as closely as possible, the
performance of a target index by holding either all, or a representative
sample, of the securities in the index. Indexing appeals to many investors for
the following reasons:
o indexing provides simplicity because it is a straightforward
market-replicating strategy;
o index portfolios generally provide diversification by investing in a wide
variety of companies and industries;
o an index portfolio's performance is generally predictable in that the
portfolio's value is expected to move in the same direction, up or down, as
the target index;
o index portfolios tend to have lower costs because they do not have many of
the expenses of actively managed funds, such as research. Also, index
portfolios usually have relatively low trading activity and therefore
brokerage commissions tend to be lower; and
o index portfolios generally realize low capital gains.
STRATEGY
The portfolio will pursue its objective by investing primarily in the
securities of the companies included in the benchmark and derivative
instruments, such as futures contracts and options, relating to the benchmark.
Futures contracts and options are used as a low-cost method of gaining exposure
to a particular securities market without investing directly in those
securities. The portfolio management team uses quantitative analysis techniques
to structure the portfolio to obtain a high correlation to the Russell 2000
(Reg. TM) Index while keeping the portfolio as fully invested as possible in
all market environments. To attempt to replicate the risk and return
characteristics of the Russell 2000 (Reg. TM) Index as closely as possible, the
portfolio invests in a statistically selected sample of the securities found in
the Russell 2000 (Reg. TM) Index, using a process known as "optimization." This
process selects stocks for the portfolio so that industry weightings, market
capitalizations and fundamental characteristics (price-to-book ratios,
price-to-earnings ratios, debt-to-asset ratios and dividend yields) closely
replicate those of the securities in the Russell 2000 (Reg. TM) Index. Over the
long term, the portfolio seeks a correlation between the performance of the
portfolio, before expenses, and the Russell 2000 (Reg. TM) Index of 95% or
better. A figure of 100% would indicate perfect correlation.
PRINCIPAL INVESTMENTS
Under normal circumstances, the portfolio intends to invest at least 80% of its
assets, determined at the time of purchase, in stocks of companies included in
the Russell 2000 (Reg. TM) Index and in derivative instruments, such as stock
index futures contracts and options, that provide exposure to the stocks of
companies in the Russell 2000 (Reg. TM) Index. The portfolio's securities are
weighted to attempt to make the portfolio's total investment characteristics
similar to those of the Russell 2000 (Reg. TM) Index as a whole. We may exclude
or remove any Russell 2000 (Reg. TM) Index stock from the portfolio if we
believe that the stock is illiquid or has impaired financial conditions brought
on by extraordinary events. At times, the portfolio management team may
purchase a stock not
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
60 DWS SMALL CAP INDEX VIP
<PAGE>
included in the Russell 2000 (Reg. TM) Index when it is believed to be a
cost-efficient way of approximating the Russell 2000 (Reg. TM) Index's
performance, for example, in anticipation of a stock being added to the Russell
2000 (Reg. TM) Index. The portfolio may hold assets in short-term debt
securities or money market instruments for liquidity purposes.
SECURITIES LENDING. The portfolio may lend its investment securities up to 30%
of its total assets to approved institutional borrowers who need to borrow
securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board could change the
portfolio's investment objective without seeking shareholder approval. In
addition, the portfolio's Board will provide shareholders with at least 60
days' notice prior to making any changes to the portfolio's 80% investment
policy, as described herein.
INVESTMENT PROCESS
In an effort to run an efficient and effective strategy, the portfolio uses the
process of "optimization," a statistical sampling technique. First, the
portfolio buys the stocks that make up the larger portions of the Russell 2000
(Reg. TM) Index's value in roughly the same proportion as the Russell 2000
(Reg. TM) Index. Second, smaller stocks are analyzed and selected based on
liquidity. In selecting smaller stocks, the portfolio management team tries to
replicate the industry and risk characteristics of all of the smaller companies
in the Russell 2000 (Reg. TM) Index without buying all of those stocks. This
approach attempts to maximize the portfolio's liquidity and returns while
minimizing its costs. Historically, this portfolio has had a low portfolio
turnover rate. Portfolio turnover measures the frequency that the fund sells
and replaces the value of its securities within a given period. High turnover
can increase a portfolio's transaction costs, thereby lowering its returns.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
TRACKING ERROR RISK. There are several reasons that the portfolio's performance
may not replicate the Russell 2000 (Reg. TM) Index exactly:
o Unlike the Russell 2000 (Reg. TM) Index, the portfolio incurs fees and
administrative expenses and transaction costs in trading stocks.
o The composition of the Russell 2000 (Reg. TM) Index and the stocks held by
the portfolio may occasionally diverge.
o The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the portfolio's
performance to deviate from the "fully invested" Russell 2000 (Reg. TM)
Index, which does not include a cash component.
INDEX FUND RISK. Because the portfolio invests at least 80% of its assets in
the stocks of companies included in the Russell 2000 (Reg. TM) Index and in
derivative instruments that provide exposure to the stocks of companies in the
Russell 2000 (Reg. TM) Index, it cannot alter its investment strategy in
response to fluctuations in the market segment represented by the Index.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS SMALL CAP INDEX VIP 61
<PAGE>
SMALL COMPANY CAPITALIZATION RISK. Small company stocks tend to experience
steeper price fluctuations - down as well as up - than the stocks of larger
companies. A shortage of reliable information - the same information gap that
creates opportunity in small company investing - can also pose added risk.
Industry-wide reversals may have a greater impact on small companies, since
they lack a large company's financial resources. Small company stocks are
typically less liquid than large company stocks. Accordingly, it may be harder
to find a buyer for a small company's shares.
FUTURES AND OPTIONS RISK. The portfolio may invest, to a limited extent, in
stock index futures or options, which are types of derivatives. The portfolio
will not use these derivatives for speculative purposes. Rather, the portfolio
invests in derivatives to keep cash on hand to meet shareholder redemptions or
other needs while maintaining exposure to the stock market. Risks associated
with derivatives include: the risk that the derivative is not well correlated
with the security, index or currency to which it relates; the risk that
derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities; the risk that the portfolio will be
unable to sell the derivative because of an illiquid secondary market; the risk
that a counterparty is unwilling or unable to meet its obligation; the risk of
interest rate movements; and the risk that the derivatives transaction could
expose the portfolio to the effects of leverage, which could increase the
portfolio's exposure to the market and magnify potential losses.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
This portfolio is designed for investors interested in capital appreciation
over the long term; exposure to the US equity markets as represented by smaller
companies; and investment returns that track the performance of the Russell
2000 (Reg. TM) Index.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
62 DWS SMALL CAP INDEX VIP
<PAGE>
PERFORMANCE - CLASS A
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class A shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS A
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-2.18 20.16 -3.87 2.07 -20.58 46.42 17.76 4.26 17.49
1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 23.16%, Q2 2003 WORST QUARTER: -21.37%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: 1.86%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
Portfolio - Class A shares 17.49 10.90 7.88
----------------------------------------------------------------------------------------
Russell 2000 Index 18.37 11.39 8.21
----------------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
* Inception: August 22, 1997. Index comparisons begin August 31, 1997.
The RUSSELL 2000 (Reg. TM) INDEX is an unmanaged capitalization-weighted
measure of approximately 2,000 small US stocks.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS SMALL CAP INDEX VIP 63
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy, variable annuity contract or tax-qualified plan
for which the portfolio is an investment option. These charges and fees will
increase expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS A
-------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
-------------------------------------------------------------------------------
Management Fee 1 0.45%
-------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee None
-------------------------------------------------------------------------------
Other Expenses 2 0.05
-------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 3 0.50
-------------------------------------------------------------------------------
</TABLE>
1 Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through September 30, 2007, the Advisor has contractually agreed to waive
all or a portion of its management fee and reimburse or pay certain
operating expenses of the portfolio to the extent necessary to maintain
the portfolio's total operating expenses at 0.48% for Class A shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
Although there can be no assurance that the current waiver/expense
reimbursement arrangement will be maintained beyond September 30, 2007,
the Advisor has committed to review the continuance of waiver/expense
reimbursement arrangements by September 30, 2007.
Based on the costs above, this example helps you compare the expenses of Class
A shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $51 $160 $280 $628
---------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO MANAGER
Brent Reeder is a Vice President at Northern Trust Investments, NA. Mr. Reeder
has had responsibility for the portfolio since May 2007. Mr. Reeder joined NTI
in 1993. For the past five years, he has managed quantitative equity
portfolios.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
64 DWS SMALL CAP INDEX VIP
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
Information for the periods ended prior to December 31, 2005 was audited by
Ernst & Young LLP, an independent registered public accounting firm.
DWS SMALL CAP INDEX VIP - CLASS A
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.40 $ 14.35 $ 12.24 $ 8.45 $ 10.73
---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) a .14 .11 .11 .09 .10
---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 2.34 .42 2.06 3.79 ( 2.31)
transactions
---------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.48 .53 2.17 3.88 ( 2.21)
---------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .10) ( .09) ( .06) ( .09) ( .06)
---------------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions ( .66) ( .39) - - ( .01)
---------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ( .76) ( .48) ( .06) ( .09) ( .07)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.12 $ 14.40 $ 14.35 $ 12.24 $ 8.45
---------------------------------------------------------------------------------------------------------------------
Total Return (%)b 17.49 4.26 17.76 46.42 (20.58)
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 536 449 450 316 144
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .47 .46 .48 .61 .61
---------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .45 .45 .45 .45 .45
---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .93 .78 .87 .91 1.09
---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 42 26 22 28 40
---------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
DWS SMALL CAP INDEX VIP 65
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS SMALL CAP INDEX VIP - CLASS A
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
---------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.50% 4.50% $ 10,450.00 $ 51.13
---------------------------------------------------------------------------------------------------------------------
2 10.25% 0.50% 9.20% $ 10,920.25 $ 53.43
---------------------------------------------------------------------------------------------------------------------
3 15.76% 0.50% 14.12% $ 11,411.66 $ 55.83
---------------------------------------------------------------------------------------------------------------------
4 21.55% 0.50% 19.25% $ 11,925.19 $ 58.34
---------------------------------------------------------------------------------------------------------------------
5 27.63% 0.50% 24.62% $ 12,461.82 $ 60.97
---------------------------------------------------------------------------------------------------------------------
6 34.01% 0.50% 30.23% $ 13,022.60 $ 63.71
---------------------------------------------------------------------------------------------------------------------
7 40.71% 0.50% 36.09% $ 13,608.62 $ 66.58
---------------------------------------------------------------------------------------------------------------------
8 47.75% 0.50% 42.21% $ 14,221.01 $ 69.57
---------------------------------------------------------------------------------------------------------------------
9 55.13% 0.50% 48.61% $ 14,860.95 $ 72.70
---------------------------------------------------------------------------------------------------------------------
10 62.89% 0.50% 55.30% $ 15,529.69 $ 75.98
---------------------------------------------------------------------------------------------------------------------
TOTAL $ 628.24
---------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
66 DWS SMALL CAP INDEX VIP
<PAGE>
OTHER POLICIES AND RISKS
While the previous pages describe the main points of each portfolio's strategy
and risks, there are a few other issues to know about:
o Each portfolio may trade securities actively. This could raise transaction
costs and, accordingly, lower performance.
o The Advisor or a subadvisor will establish a debt security's credit quality
when it buys a security, using independent ratings, or for unrated
securities, its own credit determination. When ratings don't agree, a
portfolio may use the higher rating. If a security's credit quality falls,
the advisor or subadvisor will determine whether selling it would be in a
portfolio's best interest.
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in
each portfolio.
If you want more information on each portfolio's allowable securities and
investment practices and the characteristics and risks of each one, you may
want to request a copy of the Statement of Additional Information (the back
cover tells you how to do this).
Keep in mind that there is no assurance that a portfolio will achieve its goal.
A complete list of each portfolio's portfolio holdings is posted on
www.dws-scudder.com (the Web site does not form a part of this prospectus) as
of the month-end on or after the last day of the following month. This posted
information generally remains accessible at least until the date on which a
portfolio files its Form N-CSR or N-Q with the Securities and Exchange
Commission for the period that includes the date as of which the posted
information is current. In addition, each portfolio's (except DWS Bond VIP) top
ten holdings and other information about each portfolio is posted on
www.dws-scudder.com as of the calendar quarter-end on or after the 15th day
following quarter end. Each portfolio's Statement of Additional Information
includes a description of a portfolio's policies and procedures with respect to
the disclosure of a portfolio's portfolio holdings.
THE INVESTMENT ADVISOR
Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), is the
investment advisor for each portfolio. Under the supervision of the Board
Members, the Advisor, with headquarters at 345 Park Avenue, New York, NY 10154,
or a subadvisor makes portfolio investment decisions, buys and sells securities
for each portfolio and conducts research that leads to these purchase and sale
decisions. The Advisor provides a full range of global investment advisory
services to institutional and retail clients.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name
in the US for the asset management activities of Deutsche Bank AG, DIMA,
Deutsche Bank Trust Company Americas and DWS Trust Company.
Deutsche Asset Management is a global asset management organization that offers
a wide range of investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that reaches the world's
major investment centers. This well-resourced global investment platform brings
together a wide variety of experience and investment insight across industries,
regions, asset classes and investing styles.
The Advisor is an indirect, wholly owned subsidiary of Deutsche Bank AG.
Deutsche Bank AG is a major global banking institution that is engaged in a
wide range of financial services, including investment management, mutual
funds, retail, private and commercial banking, investment banking and
insurance.
Prior to January 1, 2007, Deutsche Asset Management, Inc. ("DAMI") was the
investment advisor for DWS RREEF Real Estate Securities VIP, DWS Equity 500
Index VIP and DWS Small Cap Index VIP. Effective December 31, 2006, DAMI was
merged into DIMA. The new investment management agreements with DIMA were
approved by the Board and are identical in substance to each portfolio's prior
investment management agreement with DAMI.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
OTHER POLICIES AND RISKS 67
<PAGE>
The Advisor receives a management fee from each portfolio. Below is the
management rate paid by each portfolio for the most recent fiscal year, as a
percentage of each portfolio's average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO NAME FEE PAID
--------------------------------------------------------------------------------
<S> <C>
DWS Bond VIP 0.38%*
--------------------------------------------------------------------------------
DWS Growth & Income VIP 0.40%*
--------------------------------------------------------------------------------
DWS Capital Growth VIP 0.38%*
--------------------------------------------------------------------------------
DWS Global Opportunities VIP 0.93 %
--------------------------------------------------------------------------------
DWS International VIP 0.79 %
--------------------------------------------------------------------------------
DWS Health Care VIP 0.70 %
--------------------------------------------------------------------------------
DWS RREEF Real Estate Securities VIP 0.66%*
--------------------------------------------------------------------------------
DWS Equity 500 Index VIP 0.18%*
--------------------------------------------------------------------------------
DWS Small Cap Index VIP 0.33%*
--------------------------------------------------------------------------------
</TABLE>
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
Effective June 1, 2006, DWS Bond VIP pays the Advisor under the investment
management agreement a fee, calculated daily and paid monthly, at the annual
rate of 0.390% of the portfolio's average daily net assets up to $250 million,
0.365% of the next $750 million and 0.340% thereafter.
Effective June 1, 2006, DWS Growth & Income VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.390% of the portfolio's average daily net assets up to
$250 million, 0.365% of the next $750 million and 0.340% thereafter.
Effective June 1, 2006, DWS Capital Growth VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.390% of the portfolio's average daily net assets up to
$250 million, 0.365% of the next $750 million and 0.340% thereafter.
Effective June 1, 2006, DWS Global Opportunities VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.890% of the portfolio's average daily net assets up to
$500 million, 0.875% of the next $500 million, 0.860% of the next $1 billion
and 0.845% thereafter.
Effective June 1, 2006, DWS International VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.790% of the portfolio's average daily net assets up to
$500 million and 0.640% thereafter.
Effective June 1, 2006, DWS Health Care VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.665% of the portfolio's average daily net assets up to
$250 million, 0.640% of the next $750 million, 0.615% of the next $1.5 billion,
0.595% of the next $2.5 billion, 0.565% of the next $2.5 billion, 0.555% of the
next $2.5 billion, 0.545% of the next $2.5 billion and 0.535% thereafter.
A discussion regarding the basis for the Board renewal of each portfolio's
investment management agreement and, as applicable, subadvisory agreement, and
sub-subadvisory agreement is contained in the shareholder reports for the
annual period ended December 31, 2006 (see "Shareholder reports" on the back
cover).
In addition, under a separate administrative services agreement between each
portfolio and Deutsche Investment Management Americas Inc., each portfolio pays
the Advisor for providing most of each portfolio's administrative services.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
68 THE INVESTMENT ADVISOR
<PAGE>
PORTFOLIO SUBADVISORS
SUBADVISOR FOR DWS BOND VIP
Pursuant to an investment subadvisory agreement between the Advisor and
Aberdeen Asset Management Inc. ("AAMI"), a US registered investment advisor,
AAMI acts as subadvisor. As the subadvisor, AAMI, under the supervision of the
Board and the Advisor, makes investment decisions, buys and sells securities
and conducts the research that leads to these purchase and sale decisions. AAMI
provides a full range of international investment advisory services to
institutional and retail clients.
AAMI is a direct, wholly owned subsidiary of Aberdeen Asset Management PLC, the
parent company of an asset management group formed in 1983. AAMI is located at
1735 Market Street, Philadelphia, PA 19103.
SUB-SUBADVISOR FOR DWS BOND VIP
Pursuant to an investment sub-subadvisory agreement between AAMI and Aberdeen
Asset Management Investment Services Limited ("AAMISL"), a US registered
investment advisor, AAMISL acts as the sub-subadvisor for the portfolio. As the
sub-subadvisor, AAMISL, under the supervision of the Board of Trustees, DIMA
and AAMI, manages the portfolio's investments in foreign securities, foreign
currencies and related investments and conducts the research that leads to
these investments. AAMISL provides a full range of international investment
advisory services to institutional and retail clients. AAMI continues to manage
the core bond and active fixed income strategies of the portfolio.
AAMISL will be paid for its sub-subadvisory services by AAMI, the portfolio's
subadvisor, from AAMI's subadvisory fee paid by DIMA to AAMI.
SUBADVISOR FOR DWS RREEF REAL ESTATE SECURITIES VIP
RREEF America LLC ("RREEF"), an indirect, wholly owned subsidiary of Deutsche
Bank AG, is the subadvisor for DWS RREEF Real Estate Securities VIP. DIMA pays
a fee to RREEF for acting as subadvisor to DWS RREEF Real Estate Securities
VIP.
RREEF makes the investment decisions, buys and sells securities for DWS RREEF
Real Estate Securities VIP and conducts research that leads to these purchase
and sale decisions.
RREEF has provided real estate investment management services to institutional
investors since 1975 across a diversified portfolio of industrial properties,
office buildings, residential apartments and shopping centers. RREEF has also
been an investment advisor of real estate securities since 1993.
SUBADVISOR FOR DWS EQUITY 500 INDEX VIP AND DWS SMALL CAP INDEX VIP
Northern Trust Investments, N.A. ("NTI"), the subadvisor for DWS Equity 500
Index VIP and DWS Small Cap Index VIP, is located at 50 South LaSalle Street,
Chicago, IL 60603. NTI is an investment adviser registered under the Investment
Advisers Act of 1940, as amended. NTI primarily manages assets for defined
contribution and benefit plans, investment companies and other institutional
investors. NTI is a subsidiary of The Northern Trust Company ("TNTC"), an
Illinois state chartered banking organization and a member of the Federal
Reserve System. Formed in 1889, TNTC administers and manages assets for
individuals, personal trusts, defined contribution and benefit plans and other
institutional and corporate clients. TNTC is the principal subsidiary of
Northern Trust Corporation, a bank holding company. Northern Trust Corporation,
through its subsidiaries, has for more than 100 years managed the assets of
individuals, charitable organizations, foundations and large corporate
investors. As of December 31, 2006, NTI and its affiliates had assets under
custody of $3.5 trillion, and assets under investment management of $697
billion.
LEGAL PROCEEDINGS
On December 21, 2006, Deutsche Asset Management ("DeAM") settled proceedings
with the Securities and Exchange Commission ("SEC") and the New York Attorney
General on behalf of Deutsche Asset Management, Inc. ("DAMI") and DIMA, the
investment advisors to many of the DWS Scudder funds, regarding allegations of
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
PORTFOLIO SUBADVISORS 69
<PAGE>
improper trading of fund shares at DeAM and at the legacy Scudder and Kemper
organizations prior to their acquisition by DeAM in April 2002. These
regulators alleged that although the prospectuses for certain funds in the
regulators' view indicated that the funds did not permit market timing, DAMI
and DIMA breached their fiduciary duty to those funds in that their efforts to
limit trading activity in the funds were not effective at certain times. The
regulators also alleged that DAMI and DIMA breached their fiduciary duty to
certain funds by entering into certain market timing arrangements with
investors. These trading arrangements originated in businesses that existed
prior to the currently constituted DeAM organization, which came together as a
result of various mergers of the legacy Scudder, Kemper and Deutsche fund
groups, and all of the arrangements were terminated prior to the start of the
regulatory investigations that began in the summer of 2003. No current DeAM
employee approved these trading arrangements. Under the terms of the
settlements, DAMI and DIMA neither admitted nor denied any wrongdoing.
The terms of the SEC settlement, which identified improper trading in the
legacy Deutsche and Kemper mutual funds only, provide for payment of
disgorgement in the amount of $17.2 million. The terms of the settlement with
the New York Attorney General provide for payment of disgorgement in the amount
of $102.3 million, which is inclusive of the amount payable under the SEC
settlement, plus a civil penalty in the amount of $20 million. The total amount
payable by DeAM, approximately $122.3 million, will be distributed to funds
and/or shareholders of the affected funds in accordance with a distribution
plan to be developed by a distribution consultant. The funds' investment
advisors do not believe these amounts will have a material adverse financial
impact on them or materially affect their ability to perform under their
investment management agreements with the DWS funds. The above-described
amounts are not material to Deutsche Bank, and have already been reserved.
Among the terms of the settled orders, DeAM is subject to certain undertakings
regarding the conduct of its business in the future, including formation of a
Code of Ethics Oversight Committee to oversee all matters relating to issues
arising under the advisors' Code of Ethics; establishment of an Internal
Compliance Controls Committee having overall compliance oversight
responsibility of the advisors; engagement of an Independent Compliance
Consultant to conduct a comprehensive review of the advisors' supervisory
compliance and other policies and procedures designed to prevent and detect
breaches of fiduciary duty, breaches of the Code of Ethics and federal
securities law violations by the advisors and their employees; and commencing
in 2008, the advisors shall undergo a compliance review by an independent third
party.
In addition, DeAM is subject to certain further undertakings relating to the
governance of the mutual funds, including that at least 75% of the members of
the Boards of Trustees/Directors overseeing the DWS Funds continue to be
independent of DeAM; the Chairmen of the DWS Funds' Boards of
Trustees/Directors continue to be independent of DeAM; DeAM maintain existing
management fee reductions for certain funds for a period of five years and not
increase management fees for certain funds during this period; the funds retain
a senior officer (or independent consultants) responsible for assisting in the
review of fee arrangements and monitoring compliance by the funds and the
investment advisors with securities laws, fiduciary duties, codes of ethics and
other compliance policies, the expense of which shall be borne by DeAM; and
periodic account statements, fund prospectuses and the mutual funds' web site
contain additional disclosure and/or tools that assist investors in
understanding the fees and costs associated with an investment in the funds and
the impact of fees and expenses on fund returns.
DeAM has also settled proceedings with the Illinois Secretary of State
regarding market timing matters. The terms of the Illinois settlement provide
for investor education contributions totaling approximately $4 million and a
payment in the amount of $2 million to the Securities Audit and Enforcement
Fund.
The matters alleged in the regulatory settlements described above also serve as
the general basis of a number of private class action lawsuits involving the
DWS funds. These lawsuits name as defendants various persons, including certain
DWS funds, the funds' investment advisors and their affiliates, and certain
individuals, including in some cases fund Trustees/Directors, officers, and
other parties. Each DWS fund's investment advisor has agreed to indemnify the
applicable DWS funds in connection with these lawsuits, or other lawsuits or
regulatory actions that may be filed making similar allegations.
Based on currently available information, the funds' investment advisors
believe the likelihood that the pending lawsuits will have a material adverse
financial impact on a DWS fund is remote and such actions are not likely to
materially affect their ability to perform under their investment management
agreements with the DWS funds.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
70 PORTFOLIO SUBADVISORS
<PAGE>
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YOUR INVESTMENT IN THE PORTFOLIOS
The information in this section may affect anyone who selects one or more
portfolios as an investment option in a variable annuity contract or variable
life insurance policy that offers one or more portfolios. These contracts and
policies are described in separate prospectuses issued by participating
insurance companies. Each portfolio assumes no responsibility for such
prospectuses.
POLICIES ABOUT TRANSACTIONS
The information in this prospectus applies to Class A shares of each portfolio.
Each portfolio offers two classes of shares (except DWS Equity 500 Index VIP,
which offers three classes of shares). Class A shares are offered at net asset
value and are not subject to 12b-1 fees.
Technically, the shareholders of DWS Variable Series I and DWS Investments VIT
Funds (which include each portfolio just described) are the participating
insurance companies (the "insurance companies") that offer each portfolio as
choices for holders of certain variable annuity contracts or variable life
insurance policies (the "contract(s)") issued or sponsored by the insurance
companies. The insurance companies effectively pass through the ownership of
portfolio shares to their contract owners and some may pass through voting
rights as well. Each portfolio does not sell shares directly to the public.
Each portfolio sells shares only to separate accounts of insurance companies.
As a contract owner, your premium payments are allocated to a portfolio by the
insurance companies in accordance with your contract. Please see the contract
prospectus that accompanies this prospectus for a detailed explanation of your
contract.
Please bear in mind that there are important differences between funds
available to any investor (a "Retail Fund") and those that are only available
through certain financial institutions, such as insurance companies. For
example, Retail Funds, unlike a portfolio, are not sold to insurance company
separate accounts to support investments in variable insurance contracts. In
addition, the investment objectives, policies and strategies of a portfolio,
while similar to those of a Retail Fund, are not identical. Retail Funds may be
smaller or larger than a portfolio and have different expense ratios than the
portfolios. As a result, the performance of a portfolio and a Retail Fund will
differ.
Should any conflict between contract owners arise that would require that a
substantial amount of net assets be withdrawn from a portfolio, orderly
portfolio management could be disrupted to the potential detriment of contract
owners in that portfolio.
Each portfolio has a verification process for new insurance company accounts to
help the government fight the funding of terrorism and money laundering
activities. Federal law requires all financial institutions to obtain, verify
and record information that identifies each insurance company that opens an
account. This means that when an insurance company opens an account, a
portfolio will ask for its name, address and other information that will allow
a portfolio to identify the company. This information will be verified to
ensure the identity of all insurance companies opening an account.
For certain insurance companies, a portfolio might request additional
information (for instance, a portfolio would ask for documents such as the
insurance company's articles of incorporation) to help a portfolio verify the
insurance company's identity.
Each portfolio will not complete the purchase of any shares for an account
until all information has been provided and the application has been submitted
in "good order." Once the application is determined to be in good order, the
purchase(s) will be effected at the net asset value per share next calculated.
Each portfolio may reject a new account application if the insurance company
doesn't provide any required or requested identifying information, or for other
reasons.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
YOUR INVESTMENT IN THE PORTFOLIOS 71
<PAGE>
BUYING AND SELLING SHARES
Each PORTFOLIO IS OPEN FOR BUSINESS each day the New York Stock Exchange is
open. Each portfolio calculates its share price every business day, as of the
close of regular trading on the New York Stock Exchange (typically 4 p.m.
Eastern time, but sometimes earlier, as in the case of scheduled half-day
trading or unscheduled suspensions of trading).
Each portfolio continuously sells shares to each insurance company, without a
sales charge, at the net asset value per share next determined after a proper
purchase order is placed with the insurance company. The insurance company
offers contract owners units in its separate accounts which directly correspond
to shares in a portfolio. Each insurance company submits purchase and
redemption orders to a portfolio based on allocation instructions for premium
payments, transfer instructions and surrender or partial withdrawal requests
for contract owners, as set forth in the accompanying prospectus for the
contracts. These orders reflect the amount of premium payments to be invested,
surrender and transfer requests, and other matters. Redemption orders are
effected at the next net asset value per share determined after a proper
redemption order is placed with the insurance company. Contract owners should
look at their contract prospectuses for redemption procedures and fees.
IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES
o After receiving a contract owner's order, the insurance company buys or sells
shares at the net asset value next calculated on any day a portfolio is open
for business.
o Unless otherwise instructed, a portfolio normally makes payment of the
proceeds from the sale of shares the next business day but always within
seven calendar days.
o Each portfolio does not issue share certificates.
o Each portfolio reserves the right to reject purchases of shares for any
reason.
o Each portfolio reserves the right to withdraw or suspend the offering of
shares at any time.
o Each portfolio reserves the right to reject purchases of shares or to suspend
or postpone redemptions at times when the New York Stock Exchange is closed
(other than customary closings), trading is restricted or when an emergency
exists that prevents a portfolio from disposing of its portfolio securities
or pricing its shares.
o Each portfolio may refuse, cancel or rescind any purchase order; freeze any
account (meaning the insurance company will not be able to purchase shares
in its account); suspend account services; and/or involuntarily redeem the
account if we think that the account is being used for fraudulent or illegal
purposes by the insurance company; one or more of these actions will be
taken when, at the sole discretion of a portfolio, they are deemed to be in
a portfolio's best interest or when a portfolio is requested or compelled to
do so by governmental authority or by applicable law.
o Each portfolio may close and liquidate an account if a portfolio is unable to
verify provided information, or for other reasons; if a portfolio decides to
close the account, the shares will be redeemed at the net asset value per
share next calculated after we determine to close the account; the insurance
company may be subject to gain or loss on the redemption of the portfolio
shares and may incur tax liability.
o Each portfolio may pay you for shares you sell by "redeeming in kind," that
is, by giving you marketable securities (which typically will involve
brokerage costs for you to liquidate) rather than cash, but which will be
taxable to the same extent as a redemption for cash; a portfolio generally
won't make a redemption in kind unless your requests over a 90-day period
total more than $250,000 or 1% of the value of a portfolio's net assets,
whichever is less.
o A contract owner's purchase order may not be accepted if the sale of
portfolio shares has been suspended or if it is determined that the purchase
would be detrimental to the interests of a portfolio's shareholders.
MARKET TIMING POLICIES AND PROCEDURES. Short-term and excessive trading of
portfolio shares may present risks to each portfolio's long-term shareholders,
including potential dilution in the value of portfolio shares, interference
with the efficient management of a portfolio (including losses on the sale of
investments), taxable gains to remaining shareholders and increased brokerage
and administrative costs. These risks may be more pronounced if a portfolio
invests in certain securities such as those that trade in foreign markets, are
illiquid or
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
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72 YOUR INVESTMENT IN THE PORTFOLIOS
<PAGE>
do not otherwise have "readily available market quotations." Certain investors
may seek to employ short-term trading strategies aimed at exploiting variations
in portfolio valuation that arise from the nature of the securities held by a
portfolio (e.g., "time zone arbitrage").
Each portfolio discourages short-term and excessive trading. Each portfolio
will take steps to detect and deter short-term and excessive trading pursuant
to a portfolio's policies as described in this prospectus and approved by the
Board.
Portfolio policies include:
o each portfolio reserves the right to reject or cancel a purchase or exchange
order for any reason when, in the opinion of the Advisor, there appears to
be a pattern of short-term or excessive trading activity by a shareholder or
any other trading activity deemed harmful or disruptive to a portfolio; and
o for each portfolio that invests some portion of its assets in foreign
securities - each portfolio has adopted certain fair valuation practices
reasonably designed to protect the portfolio from "time zone arbitrage" with
respect to its foreign securities holdings and other trading practices that
seek to exploit variations in portfolio valuation that arise from the nature
of the securities held by a portfolio. (See "How each Portfolio Calculates
Share Price.")
When a pattern of short-term or excessive trading activity or other trading
activity deemed harmful or disruptive to a portfolio is detected in a
particular separate account, the Advisor will take steps to stop this activity
by contacting the insurance company that maintains the accounts for the
underlying contract holders and seeking to have the insurance company enforce
the separate account's policies on short-term or excessive trading, if any. In
addition, the Advisor and each portfolio reserve the right to terminate a
separate account's ability to invest in a portfolio if apparent short-term or
excessive trading activity persists. The detection of these patterns and the
banning of further trading are inherently subjective and therefore involve some
selectivity in their application. The Advisor seeks to make such determinations
in a manner consistent with the interests of each portfolio's long-term
shareholders.
There is no assurance that these policies and procedures will be effective in
limiting short-term and excessive trading in all cases. For example, the
Advisor may not be able to effectively monitor, detect or limit short-term or
excessive trading by underlying shareholders that occurs through separate
accounts maintained by insurance companies or other financial intermediaries.
Depending on the amount of portfolio shares held in a particular separate
account (which may represent most of a portfolio's shares) short-term and/or
excessive trading of portfolio shares could adversely affect long-term
shareholders in a portfolio. It is important to note that the Advisor and each
portfolio do not have access to underlying shareholders' trading activity and
that investors will be subject to the policies and procedures of their
insurance company with respect to short-term and excessive trading in a
portfolio.
These policies and procedures may be modified and terminated at any time.
HOW TO RECEIVE ACCOUNT INFORMATION
If you are a contract owner, you should contact your insurance company or the
organization that provides record keeping services for information about your
account.
Please see the contract prospectus that accompanies this prospectus for the
customer service phone number.
HOW TO BUY AND SELL SHARES
Each insurance company has different provisions about how and when their
contract owners may buy and sell portfolio shares. Each insurance company is
responsible for communicating its contract owners' instructions to a portfolio.
Contract owners should contact their insurance company to effect transactions
in any portfolio.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
YOUR INVESTMENT IN THE PORTFOLIOS 73
<PAGE>
FINANCIAL INTERMEDIARY SUPPORT PAYMENTS
The Advisor, DWS Scudder Distributors, Inc. (the "Distributor") and/or their
affiliates may pay additional compensation, out of their own assets and not as
an additional charge to each portfolio, to selected affiliated and unaffiliated
brokers, dealers, participating insurance companies or other financial
intermediaries ("financial advisors") in connection with the sale and/or
distribution of portfolio shares or the retention and/or servicing of fund
investors and fund shares ("revenue sharing"). Such revenue sharing payments
are in addition to any distribution or service fees payable under any Rule
12b-1 or service plan of each portfolio, any record keeping/
sub-transfer agency/networking fees payable by each portfolio (generally
through the Distributor or an affiliate) and/or the Distributor to certain
financial advisors for performing such services and any sales charges,
commissions, non-cash compensation arrangements expressly permitted under
applicable rules of the NASD or other concessions described in the fee table or
elsewhere in this prospectus or the Statement of Additional Information as
payable to all financial advisors. For example, the Advisor, the Distributor
and/or their affiliates may compensate financial advisors for providing a
portfolio with "shelf space" or access to a third party platform or portfolio
offering list or other marketing programs including, without limitation,
inclusion of the portfolio on preferred or recommended sales lists, mutual fund
"supermarket" platforms and other formal sales programs; granting the
Distributor access to the financial advisor's sales force; granting the
Distributor access to the financial advisor's conferences and meetings;
assistance in training and educating the financial advisor's personnel; and
obtaining other forms of marketing support. The level of revenue sharing
payments made to financial advisors may be a fixed fee or based upon one or
more of the following factors: gross sales, current assets and/or number of
accounts of each portfolio attributable to the financial advisor, the
particular portfolio or portfolio type or other measures as agreed to by the
Advisor, the Distributor and/or their affiliates and the financial advisors or
any combination thereof. The amount of these revenue sharing payments is
determined at the discretion of the Advisor, the Distributor and/or their
affiliates from time to time, may be substantial, and may be different for
different financial advisors based on, for example, the nature of the services
provided by the financial advisor.
The Advisor, the Distributor and/or their affiliates currently make revenue
sharing payments from their own assets in connection with the sale and/or
distribution of DWS Fund shares or the retention and/or servicing of investors
and DWS Fund shares to financial advisors in amounts that generally range from
.01% up to .50% of assets of each portfolio serviced and maintained by the
financial advisor, .05% to .40% of sales of each portfolio attributable to the
financial advisor, a flat fee of $12,500 up to $500,000, or any combination
thereof. These amounts are subject to change at the discretion of the Advisor,
the Distributor and/or their affiliates. Receipt of, or the prospect of
receiving, this additional compensation may influence your financial advisor's
recommendation of each portfolio or of any particular share class of each
portfolio. You should review your financial advisor's compensation disclosure
and/or talk to your financial advisor to obtain more information on how this
compensation may have influenced your financial advisor's recommendation of
each portfolio. Additional information regarding these revenue sharing payments
is included in each portfolio's Statement of Additional Information, which is
available to you on request at no charge (see the back cover of this prospectus
for more information on how to request a copy of the Statement of Additional
Information).
The Advisor, the Distributor and/or their affiliates may also make such revenue
sharing payments to financial advisors under the terms discussed above in
connection with the distribution of both DWS funds and non-DWS funds by
financial advisors to retirement plans that obtain record keeping services from
ADP, Inc. on the DWS Scudder branded retirement plan platform (the "Platform")
with the level of revenue sharing payments being based upon sales of both the
DWS funds and the non-DWS funds by the financial advisor on the Platform or
current assets of both the DWS funds and the non-DWS funds serviced and
maintained by the financial advisor on the Platform.
It is likely that broker-dealers that execute portfolio transactions for each
portfolio will include firms that also sell shares of the DWS funds to their
customers. However, the Advisor will not consider sales of DWS fund shares as a
factor in the selection of broker-dealers to execute portfolio transactions for
the DWS funds. Accordingly, the Advisor has implemented policies and procedures
reasonably designed to prevent its traders from considering sales of DWS fund
shares as a factor in the selection of broker-dealers to execute portfolio
transactions for each portfolio. In addition, the Advisor, the Distributor
and/or their affiliates will not use fund brokerage to pay for their obligation
to provide additional compensation to financial advisors as described above.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
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74 YOUR INVESTMENT IN THE PORTFOLIOS
<PAGE>
HOW EACH PORTFOLIO CALCULATES SHARE PRICE
To calculate net asset value per share, or NAV, each portfolio uses the
following equation:
<TABLE>
<S> <C>
TOTAL ASSETS - TOTAL LIABILITIES
--------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
</TABLE>
The price at which you buy and sell shares for each portfolio is the NAV.
We typically value securities using information furnished by an independent
pricing service or market quotations, where appropriate. However, we may use
methods approved by the Board, such as a fair valuation model, which are
intended to reflect fair value when pricing service information or market
quotations are not readily available or when a security's value or a meaningful
portion of the value of a portfolio is believed to have been materially
affected by a significant event, such as a natural disaster, an economic event
like a bankruptcy filing, or a substantial fluctuation in domestic or foreign
markets, that has occurred between the close of the exchange or market on which
the security is principally traded (for example, a foreign exchange or market)
and the close of the New York Stock Exchange. In such a case, a portfolio's
value for a security is likely to be different from the last quoted market
price or pricing service information. In addition, due to the subjective and
variable nature of fair value pricing, it is possible that the value determined
for a particular asset may be materially different from the value realized upon
such asset's sale. It is expected that the greater the percentage of portfolio
assets that is invested in non-US securities, the more extensive will be a
portfolio's use of fair value pricing. This is intended to reduce a portfolio's
exposure to "time zone arbitrage" and other harmful trading practices. (See
"Market Timing Policies and Procedures.")
To the extent that a portfolio invests in securities that are traded primarily
in foreign markets, the value of its holdings could change at a time when you
aren't able to buy or sell portfolio shares through the contract. This is
because some foreign markets are open on days and at times when each portfolio
doesn't price the shares.
DISTRIBUTIONS
Each portfolio intends to declare and distribute dividends from their net
investment income and capital gains, if any, annually. Each portfolio may make
additional distributions if necessary.
All distributions will be reinvested in shares of a portfolio unless we are
informed by an insurance company that they should be paid out in cash. The
insurance companies will be informed about the amount and character of
distributions from the relevant portfolio for federal income tax purposes.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
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YOUR INVESTMENT IN THE PORTFOLIOS 75
<PAGE>
TAXES
Each portfolio intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended, (the
"Code") and to meet all requirements necessary to avoid paying any federal
income or excise taxes.
Generally, owners of variable annuity and variable life contracts are not taxed
currently on income or gains realized with respect to such contracts. However,
some distributions from such contracts, whether made prior to or during the
annuity payment period, may be taxable at ordinary income tax rates. In
addition, distributions made to an owner who is younger than 59 1/2 may be
subject to a 10% penalty tax. For further information concerning federal income
tax consequences for the holders of variable annuity contracts and variable
life insurance policies, such holders should consult the prospectus used in
connection with the issuance of their particular contracts or policies.
In order for investors to receive the favorable tax treatment available to
holders of variable annuity and variable life contracts, the separate accounts
underlying such contracts, as well as the funds in which such accounts invest,
must meet certain diversification requirements. Each portfolio intends to
comply with these requirements. If a portfolio or separate account does not
meet such requirements or otherwise fails to qualify as a regulated investment
company for any taxable year, income allocable to the contracts associated with
the separate account would be taxable currently to the holders of such
contracts and income from prior periods with respect to such contracts also
could be taxable, most likely in the year of the failure.
Under Treasury regulations, insurance companies holding the separate accounts
must report to the Internal Revenue Service losses above a certain amount
resulting from a sale or disposition of a portfolio's share.
The discussion above is generally based on the assumption that shares of a
portfolio will be respected as owned by insurance company separate accounts. If
this is not the case (for example, because the Internal Revenue Service finds
an impermissible level of "investor control" over the investment options
underlying variable contracts), the advantageous tax treatment provided in
respect of insurance company separate accounts under the Code will no longer be
available, and the person or persons determined to own the portfolio shares
will be currently taxed on portfolio distributions, and on the proceeds of any
redemption of portfolio shares, under the Code rules.
Portfolio investments in securities of foreign issuers may be subject to
withholding and other taxes at the source, including on dividend or interest
payments. Participating insurance companies should consult their own tax
advisors as to whether such distributions are subject to federal income tax if
they are retained as part of policy reserves.
A portfolio's investments in certain debt obligations may cause the portfolio
to recognize taxable income in excess of the cash generated by such obligation.
Thus, a portfolio could be required at times to liquidate other investments in
order to satisfy its distribution requirements.
The preceding is a brief summary of certain of the relevant tax considerations.
Because each shareholder and contract holder's tax situation is unique, ask
your tax professional about the tax consequences of your investments, including
possible foreign, state or local taxes.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS A SHARES
76 DISTRIBUTIONS
<PAGE>
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TO GET MORE INFORMATION
SHAREHOLDER REPORTS - These include commentary from each portfolio's management
team about recent market conditions and the effects of each portfolio's
strategies on its performance. They also have detailed performance figures, a
list of everything each portfolio owns, and its financial statements.
Shareholders get these reports automatically.
STATEMENT OF ADDITIONAL INFORMATION (SAI) - This tells you more about each
portfolio's features and policies, including additional risk information. The
SAI is incorporated by reference into this document (meaning that it's legally
part of this prospectus).
For a free copy of any of these documents or to request other information about
a portfolio, call (800) 621-1048, or contact DWS Scudder at the address listed
below. Each portfolio's SAI and shareholder reports are also available through
the DWS Scudder Web site at www.dws-scudder.com. These documents and other
information about the portfolio are available from the EDGAR Database on the
SEC's Internet site at www.sec.gov. If you like, you may obtain copies of this
information, after paying a copying fee, by e-mailing a request to
publicinfo@sec.gov or by writing the SEC at the address listed below. You can
also review and copy these documents and other information about the portfolio,
including the portfolio's SAI, at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the SEC's Public Reference
Room may be obtained by calling (800) SEC-0330.
<TABLE>
<CAPTION>
DWS SCUDDER DISTRIBUTORS, INC. SEC
<S> <C>
222 South Riverside Plaza 100 F Street, N.E.
Chicago, IL 60606-5808 Washington, D.C. 20549-0102
(800) 621-1148 WWW.SEC.GOV
(800) SEC-0330
</TABLE>
<TABLE>
<CAPTION>
SEC FILE NUMBER:
-------------------------------------
<S> <C>
DWS Variable Series I 811-04257
DWS Investments VIT Funds 811-07507
</TABLE>
<PAGE>
<PAGE>
MAY 1, 2007
PROSPECTUS
CLASS B
DWS VARIABLE SERIES I
DWS BOND VIP
DWS GROWTH & INCOME VIP
DWS CAPITAL GROWTH VIP
DWS GLOBAL OPPORTUNITIES VIP
DWS INTERNATIONAL VIP
DWS HEALTH CARE VIP
DWS INVESTMENTS VIT FUNDS
DWS RREEF REAL ESTATE SECURITIES VIP
DWS EQUITY 500 INDEX VIP
DWS EQUITY 500 INDEX VIP - CLASS B2
DWS SMALL CAP INDEX VIP
This prospectus should be read in conjunction with the variable life insurance
or variable annuity contract prospectus and plan documents for tax-qualified
plans. These shares are available and are being marketed exclusively as a
pooled funding vehicle for life insurance companies writing all types of
variable life insurance policies and variable annuity contracts.
The Securities and Exchange Commission (SEC) does not approve or disapprove
these shares or determine whether the information in this prospectus is
truthful or complete. It is a criminal offense for anyone to inform you
otherwise.
[DWS SCUDDER LOGO APPEARS HERE]
<PAGE>
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TABLE OF CONTENTS
HOW EACH PORTFOLIO WORKS
<TABLE>
<S> <C>
3 DWS Bond VIP
12 DWS Growth & Income VIP
19 DWS Capital Growth VIP
26 DWS Global Opportunities VIP
34 DWS International VIP
41 DWS Health Care VIP
48 DWS RREEF Real Estate Securities VIP
55 DWS Equity 500 Index VIP
66 DWS Small Cap Index VIP
73 Other Policies and Risks
73 The Investment Advisor
75 Portfolio Subadvisors
</TABLE>
YOUR INVESTMENT IN THE PORTFOLIOS
<TABLE>
<S> <C>
78 Buying and Selling Shares
81 How each Portfolio Calculates Share Price
81 Distributions
82 Taxes
</TABLE>
HOW EACH PORTFOLIO WORKS
Each portfolio is designed to serve as an investment option for certain
variable annuity contracts, variable life insurance policies and tax-qualified
plans. Your investment in a portfolio is made in conjunction with one of these
contracts or policies. Each portfolio has its own goal and strategy.
Remember that each portfolio is not a bank deposit. Each portfolio is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Share prices will go up and down and you could lose money by
investing.
Please read this prospectus in conjunction with the prospectus for your
variable life insurance policy or variable annuity contract or plan documents
for tax-qualified plans.
<PAGE>
DWS BOND VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks to maximize total return consistent with preservation of
capital and prudent investment management, by investing for both current income
and capital appreciation. Under normal circumstances, the portfolio invests at
least 80% of net assets, plus the amount of any borrowings for investment
purposes, in bonds of any maturity.
The portfolio primarily invests in US dollar-denominated investment grade fixed
income securities, including corporate bonds, US government and agency bonds
and mortgage- and asset-backed securities. A significant portion of the
portfolio's assets may also be allocated among foreign investment grade fixed
income securities, high yield bonds of US and foreign issuers (including high
yield bonds of issuers in countries with new or emerging securities markets),
or, to maintain liquidity, in cash or money market instruments.
The portfolio normally invests at least 65% of total assets in high grade US
bonds (those considered to be in the top three grades of credit quality). The
portfolio may invest up to 25% of its total assets in foreign investment grade
bonds (those considered to be in the top four grades of credit quality).
In addition, the portfolio may also invest up to 20% of total assets in
securities of US and foreign issuers that are below investment grade (rated as
low as the sixth credit grade, i.e., grade B, otherwise known as junk bonds),
including investments in US dollar or foreign currency denominated bonds of
issuers located in countries with new or emerging securities markets. The
portfolio considers an emerging securities market to be one where the sovereign
debt issued by the government in local currency terms is rated below investment
grade. Compared to investment grade bonds, junk bonds generally pay higher
yields and have higher volatility and higher risk of default.
The subadvisor has a dedicated Core Plus Investment Team which is responsible
for portfolio oversight, plus sector allocation decisions, product design, and
risk management. This team is comprised of senior investment professionals from
each of the subadvisor's sector specialist investment teams (US Core, High
Yield, Emerging Debt, and International Bonds). The sector specialist teams are
responsible for identifying value within each sector and for contributing to
plus sector level relative value analysis.
Once allocation targets for each broad fixed income sector are set, the sector
specialist teams consider the relative value of purchase candidates given the
distinct characteristics of that particular asset class. Company research and
fundamental analysis are used to select the best securities within each asset
class. The techniques used by the sector specialists in evaluating each asset
class include those described below:
US INVESTMENT GRADE SECURITIES. In selecting these securities for investment,
the subadvisor typically:
o assigns a relative value to each bond, based on creditworthiness, cash flow
and price;
o determines the value of each issue by examining the issuer's credit quality,
debt structure, option value and liquidity risks. The portfolio managers
look to take advantage of any inefficiencies between this value and market
trading price;
o uses credit analysis to determine the issuer's ability to fulfill its
contracts; and
o uses a bottom-up approach which subordinates sector weightings to individual
bonds that the investment advisor believes may add above-market value.
The subadvisor generally sells these securities when they reach their target
price or when there is a negative change in their outlook relative to the other
securities held by the portfolio. Bonds may also be sold to facilitate the
purchase of an issue with more attractive risk/return characteristics.
HIGH YIELD SECURITIES (EXCLUDING EMERGING MARKET SOVEREIGN DEBT). In selecting
these securities for investment, the US Core Credit team broadens the
opportunity set to include the full credit spectrum (AAA to BB/B). Portfolio
construction is driven by bottom-up issue selection consistent with the
investment grade process.
FOREIGN INVESTMENT GRADE SECURITIES AND EMERGING MARKETS HIGH YIELD SECURITIES.
In selecting these securities for investment, the subadvisor follows a
bottom-up, relative value strategy. The subadvisor looks to purchase foreign
securities that offer incremental value over US Treasuries. The subadvisor
invests in a focused
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
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DWS BOND VIP 3
<PAGE>
fashion, so that it is not simply investing in a basket of all non-US fixed
income markets, but instead only those markets that its relative value process
has identified as being the most attractive. The subadvisor sells securities or
exchanges currencies when they meet their target price objectives or when the
subadvisor revises price objectives downward. In selecting emerging market
securities, the subadvisor also considers short-term factors such as market
sentiment, capital flows, and new issue programs.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval. However, the Board will provide shareholders with at least 60 days'
notice prior to making any changes to the portfolio's 80% investment policy.
OTHER INVESTMENTS
The portfolio may have exposure of up to 10% of total assets in foreign
currencies measured by the market value of non-US dollar holdings netted with
the market value of currency forward contracts. Currency forward contracts are
permitted for both hedging and non-hedging purposes.
In addition, the portfolio is permitted, but not required, to use other various
types of derivatives (contracts whose value is based on, for example, indexes,
currencies or securities). Derivatives may be used for hedging and for risk
management or for non-hedging purposes to seek to enhance potential gains. The
portfolio may use these derivatives in circumstances where the managers believe
they offer an economical means of gaining exposure to a particular asset class
or to keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the market.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets in cash and cash equivalents, US government securities, money market
instruments and high quality debt securities without equity features. This
measure could prevent losses, but, while engaged in a temporary defensive
position, the portfolio will not be pursuing its investment objective. However,
the portfolio mangers may choose not to use these strategies for various
reasons, even in very volatile market conditions.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
INTEREST RATE RISK. Generally, fixed income securities will decrease in value
when interest rates rise. The longer the effective maturity of the portfolio's
securities, the more sensitive it will be to interest rate changes. (As a
general rule, a 1% rise in interest rates means a 1% fall in value for every
year of duration.) As interest rates decline, the issuers of securities held by
the portfolio may prepay principal earlier than scheduled, forcing the
portfolio to reinvest in lower-yielding securities. Prepayment may reduce the
portfolio's income. As interest rates increase, slower than expected principal
payments may extend the average life of fixed income securities. This will have
the effect of locking in a below-market interest rate, increasing the
portfolio's duration and reducing the value of such a security. Because the
portfolio may invest in mortgage-related securities, it is more vulnerable to
both of these risks.
CREDIT RISK. A portfolio purchasing bonds faces the risk that the
creditworthiness of an issuer may decline, causing the value of its bonds to
decline. In addition, an issuer may not be able to make timely payments on the
interest and principal on the bonds it has issued. Because the issuers of
high-yield bonds or junk bonds (rated below the fourth highest category) may be
in uncertain financial health, the prices of their bonds can be more vulnerable
to bad economic news or even the expectation of bad news, than investment-grade
bonds. In some cases, bonds, particularly high-yield bonds, may decline in
credit quality or go into default. Because this portfolio may invest in
securities not paying current interest or in securities already in default,
these risks may be more pronounced.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
4 DWS BOND VIP
<PAGE>
MARKET RISK. Deteriorating market conditions might cause a general weakness in
the market that reduces the overall level of securities prices in that market.
Developments in a particular class of bonds or the stock market could also
adversely affect the portfolio by reducing the relative attractiveness of bonds
as an investment. Also, to the extent that the portfolio emphasizes bonds from
any given industry, it could be hurt if that industry does not do well.
FOREIGN INVESTMENT RISK. Foreign investments involve certain special risks,
including:
o POLITICAL RISK. Some foreign governments have limited the outflow of profits
to investors abroad, imposed restrictions on the exchange or export of
foreign currency, extended diplomatic disputes to include trade and
financial relations, seized foreign investment and imposed high taxes.
o INFORMATION RISK. Companies based in foreign markets are usually not subject
to accounting, auditing and financial reporting standards and practices as
stringent as those in the US. Therefore, their financial reports may present
an incomplete, untimely or misleading picture of a foreign company, as
compared to the financial reports of US companies.
o LIQUIDITY RISK. Investments that trade less can be more difficult or more
costly to buy, or to sell, than more liquid or active investments. This
liquidity risk is a factor of the trading volume of a particular investment,
as well as the size and liquidity of the entire local market. On the whole,
foreign exchanges are smaller and less liquid than the US market. This can
make buying and selling certain investments more difficult and costly.
Relatively small transactions in some instances can have a
disproportionately large effect on the price and supply of securities. In
certain situations, it may become virtually impossible to sell an investment
in an orderly fashion at a price that approaches portfolio management's
estimate of its value. For the same reason, it may at times be difficult to
value the portfolio's foreign investments.
o REGULATORY RISK. There is generally less government regulation of foreign
markets, companies and securities dealers than in the US.
o CURRENCY RISK. The portfolio invests in securities denominated in foreign
currencies. This creates the possibility that changes in exchange rates
between foreign currencies and the US dollar will affect the US dollar value
of foreign securities or the income or gain received on these securities.
o LIMITED LEGAL RECOURSE RISK. Legal remedies for investors may be more limited
than the remedies available in the US.
o TRADING PRACTICE RISK. Brokerage commissions and other fees are generally
higher for foreign investments than for US investments. The procedures and
rules governing foreign transactions and custody may also involve delays in
payment, delivery or recovery of money or investments.
o TAXES. Foreign withholding and certain other taxes may reduce the amount of
income available to distribute to shareholders of the portfolio. In
addition, special US tax considerations may apply to the portfolio's foreign
investments.
EMERGING MARKET RISK. All of the risks of investing in foreign securities are
increased in connection with investments in emerging markets securities. In
addition, profound social changes and business practices that depart from norms
in developed countries' economies have hindered the orderly growth of emerging
economies and their markets in the past and have caused instability. High
levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. These countries are also more likely
to experience high levels of inflation, deflation or currency devaluation,
which could also hurt their economies and securities markets. For these and
other reasons, investments in emerging markets are often considered
speculative.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS BOND VIP 5
<PAGE>
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
Another factor that could affect performance is:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
This portfolio is designed for investors who are looking for a relatively high
level of income and can accept a moderate level of risk to their investment.
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B was May 2, 2005. In the bar chart and table, the
performance figures for Class B before that date are based on the historical
performance of the portfolio's original share class (Class A), adjusted to
reflect the higher gross total annual operating expenses of Class B. Class A is
offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.25 5.29 4.99 6.21 3.88 1.49 0.82 0.90 2.72 4.33
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 3.92%, Q4 2000 WORST QUARTER: -2.33%, Q2 2004
2007 TOTAL RETURN AS OF MARCH 31: 1.43%
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
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6 DWS BOND VIP
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class B 4.33 4.78 5.32
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Lehman Brothers Aggregate Bond
Index 4.33 5.06 6.24
--------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
LEHMAN BROTHERS AGGREGATE BOND (LBAB) INDEX is an unmanaged market
value-weighted measure of Treasury issues, agency issues, corporate bond issues
and mortgage securities.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 0.49%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25
--------------------------------------------------------------------------------
Other Expenses 2 0.30
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 1.04
--------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 3, 4 0.01
--------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 3, 4 1.03
--------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through September 30, 2007, the Advisor has contractually agreed to waive
all or a portion of its management fee and reimburse or pay certain
operating expenses of the portfolio to the extent necessary to maintain
the portfolio's total operating expenses at 1.00% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
4 Through April 30, 2008, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary so that the portfolio's
total operating expenses will not exceed 1.03% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in each
period), this example helps you compare the expenses of Class B shares to those
of other mutual funds. This example assumes the expenses above remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions and sold your shares at the end of each period.
This is only an example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B shares $105 $330 $573 $1,270
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</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
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DWS BOND VIP 7
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio's subadvisor is Aberdeen Asset Management, Inc. A team approach
is utilized with respect to the day-to-day management of the portfolio.
Portfolio decisions are made jointly by the senior members of the management
team. The following members of the management team handle the day-to-day
operations of the core bond, active fixed income and high yield portions of the
portfolio:
Gary W. Bartlett, CFA
Head of US Fixed Income and senior portfolio manager specializing in taxable
municipal, utility and government fixed income investments: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1992 after nine years of experience as an
analyst and fixed income portfolio manager at PNC Financial and credit
analyst at First Pennsylvania Bank.
o BA from Bucknell University; MBA from Drexel University.
Warren S. Davis, III
Senior portfolio manager for mortgage- and asset-backed fixed income
investments: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1995 after nine years of experience as a
trader, analyst and developer of analytical and risk management systems
for PaineWebber and Merrill Lynch.
o BS from Pennsylvania State University; MBA from Drexel University.
Thomas J. Flaherty
Senior portfolio manager for corporate and taxable municipal fixed income
investments: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1995 after 10 years of fixed income
experience, including vice president for US taxable fixed income
securities at Prudential Securities.
o BA from SUNY Stony Brook.
J. Christopher Gagnier
Head of Core Plus Fixed Income product and senior portfolio manager for
corporate and commercial mortgages: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1997 after 17 years of experience in fixed
income investments at PaineWebber and Continental Bank.
o BS from Wharton School of Business; MBA from University of Chicago.
Daniel R. Taylor, CFA
Senior portfolio manager for asset-backed and commercial mortgage fixed income
investments: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1998 after six years of experience as fixed
income portfolio manager and senior credit analyst for CoreStates
Investment Advisors.
o BS from Villanova University.
Timothy C. Vile, CFA
Senior portfolio manager for Core Fixed Income and Global Aggregate Fixed
Income: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management; joined
Deutsche Asset Management in 1991 as member of Core Fixed Income; seconded
to the London office from January 1999 to June 2002 to design and develop
the firm's European Credit and Global Aggregate capabilities; before
joining Deutsche Asset Management, he had six years of experience that
included portfolio manager for fixed income portfolios at Equitable
Capital Management.
o BS from Susquehanna University.
William T. Lissenden
Portfolio manager for Core Fixed Income: Philadelphia.
o Joined Aberdeen Asset Management Inc. in 2005 and the portfolio in 2004.
o Formerly, Director of Deutsche Asset Management; joined Deutsche Asset
Management in 2002 after 31 years of experience, including fixed income
strategist and director of research at Conseco Capital Management,
director of fixed income research and product management at Prudential
Securities and national sales manager for fixed income securities at
Prudential Securities.
o BS from St. Peter's College; MBA from Baruch College.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
8 DWS BOND VIP
<PAGE>
The following portfolio managers of the subadvisor are responsible for the
day-to-day management of the foreign securities, foreign currencies and related
investments for the portfolio:
Brett Diment
Head of Emerging Markets and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management in 2005 and the portfolio in 2002.
o Formerly, Managing Director of Deutsche Asset Management, joined Deutsche
Asset Management 1991. Head of Emerging Markets.
o BSc from London School of Economics.
Annette Fraser
Client Portfolio Manager and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management and the portfolio in 2005.
o Formerly, Managing Director of Deutsche Asset Management; joined Deutsche
Asset Management in 1990.
o Portfolio Manager in the fixed income team for 10 years specializing in
the global fixed income product.
o MA from St. Andrews University.
Anthony Fletcher
Client Portfolio Manager and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management and the portfolio in 2005.
o Formerly, Managing Director of Deutsche Asset Management; joined Deutsche
Asset Management in 1996 as a portfolio manager covering global and UK
fixed income products.
o Over 19 years investment industry experience, including serving as the
Head of global fixed income at the Saudi American Bank and as a fund
manager for the Industrial Bank of Japan.
o BSc Geology from University of London.
Nik Hart
Head of European Investment Grade and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management and the portfolio in 2005.
o Formerly, Managing Director of Deutsche Asset Management; joined Deutsche
Asset Management in 1992.
o Head of European Investment Grade, analyst specializing in investing
credit and managing sterling portfolios.
o Joined the fund in 2002.
Stephen Ilott
Head of Fixed Income and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management in 2005 as head of the fixed income
business globally.
o Joined the portfolio in 2004.
o Formerly, Managing Director of Deutsche Asset Management; joined Deutsche
Asset Management in 1998.
o Prior to 1998, managed global fixed income and currency portfolios on
behalf of central banks, corporations and pension funds at Robert Fleming
& Company from 1986 to 1997.
Ian Winship
Head of Global Interest Rates and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management in 2005 and the portfolio in 2004.
o Formerly, Director of Deutsche Asset Management; joined Deutsche Asset
Management in 1999 as a member of the fixed income team.
o Previously had nine years of experience as a fixed income portfolio
manager at Scottish Amicable Investment Managers, Murray Johnstone, and
Hill Samuel Asset Managers.
o BA from University of Strathclyde.
Matthew Cobon
Head of Currency and Co-Manager of the portfolio.
o Joined Aberdeen Asset Management and the portfolio in 2005.
o Formerly, Director of Deutsche Asset Management; joined Deutsche Asset
Management in 2001 as a member of the fixed income currency desk.
o Previously had five years of experience at Citibank advising global fixed
income and currency fund managers on the active management of their
currency exposure.
o BA from Warwick University.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS BOND VIP 9
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS BOND VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005A
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.97 $ 6.88
-------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income b .30 .18
-------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment ( .01) ( .09)
transactions
-------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .29 .09
-------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .24) -
-------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions ( .01) -
-------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ( .25) -
-------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 7.01 $ 6.97
-------------------------------------------------------------------------------------------------------
Total Return (%) 4.33d 1.31**
-------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 1 .5
-------------------------------------------------------------------------------------------------------
Ratio of expenses, before expense reductions(%) 1.04 1.04*
-------------------------------------------------------------------------------------------------------
Ratio of expenses, after expense reductions(%) .99 1.04*
-------------------------------------------------------------------------------------------------------
Ratio of net investment income(%) 4.45 3.86*
-------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%)c 179 187
-------------------------------------------------------------------------------------------------------
</TABLE>
a For the period May 2, 2005 (commencement of operations of Class B shares)
to December 31, 2005.
b Based on average shares outstanding during the period.
c The portfolio turnover rate including mortgage dollar roll transactions was
186% and 197% for the years ended December 31, 2006 and December 31, 2005,
respectively.
d Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
10 DWS BOND VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS BOND VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.0% 1.03% 3.97% $ 10,397.00 $ 105.04
-------------------------------------------------------------------------------------------------------------------
2 10.25% 1.04% 8.09% $ 10,808.72 $ 110.27
-------------------------------------------------------------------------------------------------------------------
3 15.76% 1.04% 12.37% $ 11,236.75 $ 114.64
-------------------------------------------------------------------------------------------------------------------
4 21.55% 1.04% 16.82% $ 11,681.72 $ 119.18
-------------------------------------------------------------------------------------------------------------------
5 27.63% 1.04% 21.44% $ 12,144.32 $ 123.90
-------------------------------------------------------------------------------------------------------------------
6 34.01% 1.04% 26.25% $ 12,625.23 $ 128.80
-------------------------------------------------------------------------------------------------------------------
7 40.71% 1.04% 31.25% $ 13,125.19 $ 133.90
-------------------------------------------------------------------------------------------------------------------
8 47.75% 1.04% 36.45% $ 13,644.95 $ 139.20
-------------------------------------------------------------------------------------------------------------------
9 55.13% 1.04% 41.85% $ 14,185.29 $ 144.72
-------------------------------------------------------------------------------------------------------------------
10 62.89% 1.04% 47.47% $ 14,747.03 $ 150.45
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,270.10
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS BOND VIP 11
<PAGE>
DWS GROWTH & INCOME VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks long-term growth of capital, current income and growth of
income. The portfolio invests at least 65% of total assets in equities, mainly
common stocks. Although the portfolio can invest in companies of any size and
from any country, it invests primarily in large US companies. The managers may
favor securities from different industries and companies at different times.
The managers use quantitative stock techniques and fundamental equity analysis
to evaluate each company's stock price relative to the company's earnings,
operating trends, market outlook and other measures of performance potential.
Portfolio management will normally sell a stock when it believes the stock's
fundamental factors have changed, other investments offer better opportunities
or in the course of adjusting the portfolio's emphasis on or within a given
industry.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval.
OTHER INVESTMENTS
While most of the portfolio's investments are common stocks, some may be other
types of equities, such as convertible securities and preferred stocks.
The portfolio is permitted, but not required, to use various types of
derivatives (contracts whose value is based on, for example, indexes,
currencies or securities). The portfolio may use derivatives in circumstances
where the managers believe they offer an economical means of gaining exposure
to a particular asset class or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets into investments such as money market securities. This measure could
prevent losses, but, while engaged in a temporary defensive position, the
portfolio will not be pursuing its investment objective. However, the portfolio
managers may choose not to use these strategies for various reasons, even in
very volatile market conditions.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
INDUSTRY RISK. While the portfolio does not concentrate in any industry, to the
extent that the portfolio has exposure to a given industry or sector, any
factors affecting that industry or sector could affect the value of portfolio
securities. For example, manufacturers of consumer goods could be hurt by a
rise in unemployment or technology companies could be hurt by such factors as
market saturation, price competition and rapid obsolescence.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
12 DWS GROWTH & INCOME VIP
<PAGE>
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
Another factor that could affect performance is:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
This portfolio may make sense for investors interested in an equity fund to
provide long-term growth and some current income.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS GROWTH & INCOME VIP 13
<PAGE>
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B was May 1, 1997. In the bar chart and table, the
performance figures for Class B before that date are based on the historical
performance of the portfolio's original share class (Class A), adjusted to
reflect the higher gross total annual operating expenses of Class B. Class A is
offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30.15 6.95 5.48 -2.33 -11.56 -23.40 26.55 9.78 5.73 13.28
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 15.70%, Q2 1997 WORST QUARTER: -16.88%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: -0.83%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class B 13.28 4.97 4.93
--------------------------------------------------------------------------------------
Russell 1000 Index 15.46 6.82 8.64
--------------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 8.42
--------------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
The Russell 1000 Index replaces the S&P 500 as the portfolio's benchmark index
because the Advisor believes that it more accurately reflects the portfolio's
investment strategy.
RUSSELL 1000 (Reg. TM) INDEX is an unmanaged price-only index of the 1,000
largest capitalized companies that are domiciled in the US and whose common
stocks are traded.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
14 DWS GROWTH & INCOME VIP
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 0.48%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25
--------------------------------------------------------------------------------
Other Expenses 2, 3 0.17
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 0.90
--------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 4, 5 0.03
--------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 4, 5 0.87
--------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Restated and estimated to reflect the acquisition of DWS Large Cap Core VIP
on December 11, 2006.
4 Through April 30, 2010, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 0.87% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
5 Additionally, the Advisor has contractually agreed to waive a portion of
its fees in the amount of 0.01% of average daily net assets until April
27, 2010.
Based on the costs above (including one year of capped expenses in the "1 Year"
period and three years of capped expenses in the "3 Years," "5 Years" and "10
Years" periods), this example helps you compare the expenses of Class B shares
to those of other mutual funds. This example assumes the expenses above remain
the same. It also assumes that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the end of
each period. This is only an example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B shares $89 $278 $489 $1,099
--------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS GROWTH & INCOME VIP 15
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio:
Robert Wang
Managing Director of Deutsche Asset Management and Portfolio Manager of the
portfolio.
o Joined Deutsche Asset Management in 1995 as portfolio manager for asset
allocation after 13 years of experience of trading fixed income, foreign
exchange and derivative products at J.P. Morgan.
o Global Head of Quantitative Strategies Portfolio Management: New York.
o Joined the portfolio in 2007.
o BS, The Wharton School, University of Pennsylvania.
Jin Chen, CFA
Director of Deutsche Asset Management and Portfolio Manager of the portfolio.
o Senior portfolio manager for Global Strategies: New York.
o Joined Deutsche Asset Management in 1999; prior to that, served as
portfolio manager for Absolute Return Strategies and as a fundamental
equity analyst and portfolio manager for Thomas White Asset Management.
o Joined the portfolio in 2007.
o BS, Nanjing University; MS, Michigan State University.
Julie Abbett
Director of Deutsche Asset Management and Portfolio Manager of the portfolio.
o Senior portfolio manager for Global Quantitative Equity: New York.
o Joined Deutsche Asset Management in 2000 after four years of combined
experience as a consultant with equity trading services for BARRA, Inc.
and a product developer for FactSet Research.
o Joined the portfolio in 2007.
o BA, University of Connecticut.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
16 DWS GROWTH & INCOME VIP
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS GROWTH & INCOME VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.68 $ 9.25 $ 8.47 $ 6.75 $ 8.87
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)a .09c .07 .09 .05 .05
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 1.19 .45 .73 1.73 ( 2.12)
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.28 .52 .82 1.78 ( 2.07)
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .06) ( .09) ( .04) ( .06) ( .05)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.90 $ 9.68 $ 9.25 $ 8.47 $ 6.75
-------------------------------------------------------------------------------------------------------------------
Total Return (%) 13.28b,c 5.73b 9.78 26.55 (23.40)
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 52 47 33 18 7
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions(%) .94 .95 .89 .85 .82
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions(%) .89 .89 .89 .85 .82
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)(%) .89c .75 1.04 .65 .67
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 105 115 33 37 66
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
c Includes non-recurring income from the Advisor recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation
practices in connection with sales of DWS Scudder Funds. The non-recurring
income resulted in an increase in net investment income of $0.007 per
share and an increase in the ratio of net investment income of 0.07%.
Excluding this non-recurring income, total return would have been 0.06%
lower.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS GROWTH & INCOME VIP 17
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS GROWTH & INCOME VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.87% 4.13% $ 10,413.00 $ 88.80
-------------------------------------------------------------------------------------------------------------------
2 10.25% 0.87% 8.43% $ 10,843.06 $ 92.46
-------------------------------------------------------------------------------------------------------------------
3 15.76% 0.87% 12.91% $ 11,290.88 $ 96.28
-------------------------------------------------------------------------------------------------------------------
4 21.55% 0.90% 17.54% $ 11,753.80 $ 103.70
-------------------------------------------------------------------------------------------------------------------
5 27.63% 0.90% 22.36% $ 12,235.71 $ 107.95
-------------------------------------------------------------------------------------------------------------------
6 34.01% 0.90% 27.37% $ 12,737.37 $ 112.38
-------------------------------------------------------------------------------------------------------------------
7 40.71% 0.90% 32.60% $ 13,259.60 $ 116.99
-------------------------------------------------------------------------------------------------------------------
8 47.75% 0.90% 38.03% $ 13,803.25 $ 121.78
-------------------------------------------------------------------------------------------------------------------
9 55.13% 0.90% 43.69% $ 14,369.18 $ 126.78
-------------------------------------------------------------------------------------------------------------------
10 62.89% 0.90% 49.58% $ 14,958.32 $ 131.97
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,099.09
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
18 DWS GROWTH & INCOME VIP
<PAGE>
DWS CAPITAL GROWTH VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks to provide long-term growth of capital.
The portfolio normally invests at least 65% of total assets in common stocks of
US companies. Although the portfolio can invest in companies of any size, it
generally focuses on established companies that are similar in size to the
companies in the Standard & Poor's 500 (Reg. TM) Composite Stock Price Index
(the "S&P 500 Index") or the Russell 1000 (Reg. TM) Growth Index (as of
February 28, 2007, the S&P 500 Index and the Russell 1000 (Reg. TM) Growth
Index had median market capitalizations of $13.6 billion and $5.6 billion,
respectively). Although the portfolio may invest in companies of any size, the
portfolio intends to invest primarily in companies whose market capitalizations
fall within the normal range of these indexes. The portfolio may also invest in
other types of equities, such as preferred stocks or convertible securities.
In choosing stocks, the portfolio managers look for individual companies that
have the potential to display above-average earnings growth compared to other
growth companies and that have strong product lines, effective management and
leadership positions within core markets. The managers also analyze each
company's valuation, stock price movements and other factors.
The managers will normally sell a stock when they believe its potential risks
have increased, its price is unlikely to go higher, its fundamental factors
have changed, other investments offer better opportunities or in the course of
adjusting the portfolio's emphasis on or within a given industry.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval.
OTHER INVESTMENTS
Although not one of its principal investment strategies, the portfolio is
permitted, but not required, to use various types of derivatives (contracts
whose value is based on, for example, indexes, currencies or securities). The
portfolio may use derivatives in circumstances where the managers believe they
offer an economical means of gaining exposure to a particular asset class or to
keep cash on hand to meet shareholder redemptions or other needs while
maintaining exposure to the market. In particular, the portfolio may use
futures, options and covered call options.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets in cash and cash equivalents, US government securities, money market
instruments and high quality debt securities without equity features. This
measure could prevent losses, but, while engaged in a temporary defensive
position, the portfolio will not be pursuing its investment objective. However,
the portfolio mangers may choose not to use these strategies for various
reasons, even in very volatile market conditions.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS CAPITAL GROWTH VIP 19
<PAGE>
GROWTH INVESTING RISK. Since growth stocks usually reinvest a large portion of
earnings in their own businesses, they may lack the dividends associated with
value stocks that might otherwise cushion their decline in a falling market.
Earnings disappointments in growth stocks often result in sharp price declines
because investors buy these stocks because of their potential for superior
earnings growth. Growth stocks may also be out of favor for certain periods in
relation to value stocks.
INDUSTRY RISK. While the portfolio does not concentrate in any industry, to the
extent that the portfolio has exposure to a given industry or sector, any
factors affecting that industry or sector could affect the value of portfolio
securities. For example, manufacturers of consumer goods could be hurt by a
rise in unemployment or technology companies could be hurt by such factors as
market saturation, price competition and rapid obsolescence.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
Another factor that could affect performance is:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
This portfolio may make sense for investors seeking long-term growth.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
20 DWS CAPITAL GROWTH VIP
<PAGE>
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B was May 12, 1997. In the bar chart and table,
the performance figures for Class B before that date are based on the
historical performance of the portfolio's original share class (Class A),
adjusted to reflect the higher gross total annual operating expenses of Class
B. Class A is offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
35.45 22.94 34.88 -10.13 -19.64 -29.37 26.51 7.56 8.51 8.17
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 25.75%, Q4 1998 WORST QUARTER: -20.09%, Q3 2001
2007 TOTAL RETURN AS OF MARCH 31: 0.72%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class B 8.17 2.44 6.23
-----------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 8.42
-----------------------------------------------------------------------------------
Russell 1000 Growth Index 9.07 2.69 5.44
-----------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
RUSSELL 1000 (Reg. TM) GROWTH INDEX is an unmanaged index that consists of
those stocks in the Russell 1000 (Reg. TM) Index with higher price-to-book
ratios and higher forecasted growth values.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS CAPITAL GROWTH VIP 21
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
-------------------------------------------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio
assets
-------------------------------------------------------------------------------------------------------------------
Management Fee 1 0.47%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25
--------------------------------------------------------------------------------
Other Expenses 2, 3 0.10
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 4 0.82
--------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Restated and estimated to reflect the acquisition of DWS All Cap Growth
VIP, DWS Oak Strategic Equity VIP and DWS Janus Growth Opportunities VIP
on December 11, 2006.
4 Through April 30, 2010, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 0.86% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
Based on the costs above, this example helps you compare the expenses of Class
B shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold your shares
at the end of each period. This is only an example; actual expenses will be
different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B shares $84 $262 $455 $1,014
--------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
22 DWS CAPITAL GROWTH VIP
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio:
Julie M. Van Cleave, CFA
Managing Director of Deutsche Asset Management and Lead Portfolio Manager of
the portfolio.
o Joined Deutsche Asset Management and the portfolio in 2002.
o Head of Large Cap Growth Portfolio Selection Team.
o Previous experience includes 18 years of investment industry experience
at Mason Street Advisors, most recently serving as Managing Director and
team leader for the large cap investment team.
o BBA, MBA, University of Wisconsin - Madison.
Jack A. Zehner
Director of Deutsche Asset Management and Portfolio Manager of the portfolio.
o Joined Deutsche Asset Management and the portfolio in 2002.
o Previous experience includes nine years of investment industry experience
at Mason Street Advisors where he served most recently as Director -
Common Stock.
o BBA, University of Wisconsin - Madison; MBA, Marquette University.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS CAPITAL GROWTH VIP 23
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS CAPITAL GROWTH VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.81 $ 15.59 $ 14.52 $ 11.49 $ 16.29
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)a .06c .04 .09 .03 .02
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 1.31 1.28 1.01 3.02 ( 4.81)
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.37 1.32 1.10 3.05 ( 4.79)
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .03) ( .10) ( .03) ( .02) ( .01)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.15 $ 16.81 $ 15.59 $ 14.52 $ 11.49
-------------------------------------------------------------------------------------------------------------------
Total Return (%) 8.17b,c 8.51b 7.56 26.51 (29.37)
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 107 73 23 15 .89
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions(%) .91 .89 .88 .87 .76
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions(%) .86 .86 .88 .87 .76
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)(%) .36c .24 .60 .25 .13
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 16 17 15 13 25
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Total return would have been less had certain expenses not been reduced.
c Includes non-recurring income from the Advisor recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation
practices in connection with sales of DWS Scudder Funds. The non-recurring
income resulted in an increase in net investment income of $0.007 per
share and an increase in the ratio of net investment income of 0.04%.
Excluding this non-recurring income, total return would have been 0.03%
lower.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
24 DWS CAPITAL GROWTH VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS CAPITAL GROWTH VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.82% 4.18% $ 10,418.00 $ 83.71
-------------------------------------------------------------------------------------------------------------------
2 10.25% 0.82% 8.53% $ 10,853.47 $ 87.21
-------------------------------------------------------------------------------------------------------------------
3 15.76% 0.82% 13.07% $ 11,307.15 $ 90.86
-------------------------------------------------------------------------------------------------------------------
4 21.55% 0.82% 17.80% $ 11,779.79 $ 94.66
-------------------------------------------------------------------------------------------------------------------
5 27.63% 0.82% 22.72% $ 12,272.18 $ 98.61
-------------------------------------------------------------------------------------------------------------------
6 34.01% 0.82% 27.85% $ 12,785.16 $ 102.74
-------------------------------------------------------------------------------------------------------------------
7 40.71% 0.82% 33.20% $ 13,319.58 $ 107.03
-------------------------------------------------------------------------------------------------------------------
8 47.75% 0.82% 38.76% $ 13,876.34 $ 111.50
-------------------------------------------------------------------------------------------------------------------
9 55.13% 0.82% 44.56% $ 14,456.37 $ 116.16
-------------------------------------------------------------------------------------------------------------------
10 62.89% 0.82% 50.61% $ 15,060.64 $ 121.02
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,013.50
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS CAPITAL GROWTH VIP 25
<PAGE>
DWS GLOBAL OPPORTUNITIES VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks above-average capital appreciation over the long term.
The portfolio invests at least 65% of total assets in common stocks and other
equities of small companies throughout the world (companies with market values
similar to the smallest 20% of the Citigroup Broad Market Index). While the
portfolio may invest in securities in any country, it generally focuses on
countries with developed economies (including the US). As of March 31, 2007,
companies in which the portfolio invests typically have a market capitalization
of between $500 million and $5 billion. As part of the investment process (and
low turnover strategy) the portfolio may own stocks even though they exceed the
market capitalization level.
The portfolio may invest up to 35% of total assets in common stocks and other
equities of large companies or in debt securities (of which 5% of net assets
may be junk bonds, i.e., grade BB/Ba and below). Compared to investment-grade
bonds, junk bonds may pay higher yields, have higher volatility and a higher
risk of default.
In choosing securities, the portfolio managers use a combination of three
analytical disciplines:
BOTTOM-UP RESEARCH. The managers look for individual companies with a history
of above-average growth, strong competitive positioning, attractive prices
relative to potential growth, sound financial strength and effective
management, among other factors.
GROWTH ORIENTATION. The managers generally look for companies that they believe
have above-average potential for sustainable growth of revenue or earnings and
whose market value appears reasonable in light of their business prospects.
ANALYSIS OF GLOBAL THEMES. The managers consider global economic outlooks,
seeking to identify industries and companies that they believe are likely to
benefit from social, political and economic changes.
The managers will normally sell a stock when they believe its price is unlikely
to go much higher, its fundamentals have deteriorated, other investments offer
better opportunities or in the course of adjusting the portfolio's exposure to
a given country.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval.
OTHER INVESTMENTS
Although not one of its principal investment strategies, the portfolio is
permitted, but not required, to use various types of derivatives (contracts
whose value is based on, for example, indexes, currencies or securities).
Derivatives may be used for hedging and for risk management or for non-hedging
purposes to seek to enhance potential gains. The portfolio may use derivatives
in circumstances where portfolio management believes they offer an economical
means of gaining exposure to a particular asset class or to keep cash on hand
to meet shareholder redemptions or other needs while maintaining exposure to
the market.
In particular, the portfolio may use futures, options and yield curve options.
To the extent the portfolio invests in foreign securities, the portfolio may
enter into forward currency exchange contracts and buy and sell currency
options to hedge against currency exchange rate fluctuations.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets into investments such as money market securities. This measure could
prevent losses, but, while engaged in a temporary defensive position, the
portfolio will not be pursuing its investment objective. However, the portfolio
managers may choose not to use these strategies for various reasons, even in
very volatile market conditions.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
26 DWS GLOBAL OPPORTUNITIES VIP
<PAGE>
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, an important factor with this
portfolio is how stock markets perform - in this case US and foreign stock
markets. When US and foreign stock prices fall, you should expect the value of
your investment to fall as well. Compared to large company stocks, small
company stocks tend to be more volatile, in part because these companies tend
to be less established and the valuation of their stocks often depends on
future expectations. Because a stock represents ownership in its issuer, stock
prices can be hurt by poor management, shrinking product demand and other
business risks. These may affect single companies as well as groups of
companies. In addition, movements in financial markets may adversely affect a
stock's price, regardless of how well the company performs. The market as a
whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get attractive prices for them.
FOREIGN INVESTMENT RISK. Foreign investments involve certain special risks,
including:
o POLITICAL RISK. Some foreign governments have limited the outflow of profits
to investors abroad, imposed restrictions on the exchange or export of
foreign currency, extended diplomatic disputes to include trade and
financial relations, seized foreign investment and imposed high taxes.
o INFORMATION RISK. Companies based in foreign markets are usually not subject
to accounting, auditing and financial reporting standards and practices as
stringent as those in the US. Therefore, their financial reports may present
an incomplete, untimely or misleading picture of a foreign company, as
compared to the financial reports of US companies.
o LIQUIDITY RISK. Investments that trade less can be more difficult or more
costly to buy, or to sell, than more liquid or active investments. This
liquidity risk is a factor of the trading volume of a particular investment,
as well as the size and liquidity of the entire local market. On the whole,
foreign exchanges are smaller and less liquid than the US market. This can
make buying and selling certain investments more difficult and costly.
Relatively small transactions in some instances can have a
disproportionately large effect on the price and supply of securities. In
certain situations, it may become virtually impossible to sell an investment
in an orderly fashion at a price that approaches portfolio management's
estimate of its value. For the same reason, it may at times be difficult to
value the portfolio's foreign investments.
o REGULATORY RISK. There is generally less government regulation of foreign
markets, companies and securities dealers than in the US.
o CURRENCY RISK. The portfolio invests in securities denominated in foreign
currencies. This creates the possibility that changes in exchange rates
between foreign currencies and the US dollar will affect the US dollar value
of foreign securities or the income or gain received on these securities.
o LIMITED LEGAL RECOURSE RISK. Legal remedies for investors may be more limited
than the remedies available in the US.
o TRADING PRACTICE RISK. Brokerage commissions and other fees are generally
higher for foreign investments than for US investments. The procedures and
rules governing foreign transactions and custody may also involve delays in
payment, delivery or recovery of money or investments.
o TAXES. Foreign withholding and certain other taxes may reduce the amount of
income available to distribute to shareholders of the portfolio. In
addition, special US tax considerations may apply to the portfolio's foreign
investments.
EMERGING MARKET RISK. All of the risks of investing in foreign securities are
increased in connection with investments in emerging markets securities. In
addition, profound social changes and business practices that depart from norms
in developed countries' economies have hindered the orderly growth of emerging
economies and their markets in the past and have caused instability. High
levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. These countries are also more likely
to experience high levels of inflation, deflation or currency devaluation,
which could also hurt their economies and securities markets. For these and
other reasons, investments in emerging markets are often considered
speculative.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS GLOBAL OPPORTUNITIES VIP 27
<PAGE>
SMALL COMPANY CAPITALIZATION RISK. Small company stocks tend to experience
steeper price fluctuations - down as well as up - than the stocks of larger
companies. A shortage of reliable information - the same information gap that
creates opportunity in small company investing - can also pose added risk.
Industry-wide reversals may have a greater impact on small companies, since
they lack a large company's financial resources. Small company stocks are
typically less liquid than large company stocks. Accordingly, it may be harder
to find a buyer for a small company's shares.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
Other factors that could affect performance include:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
o growth stocks may be out of favor for certain periods.
o a bond could fall in credit quality, go into default, or decrease in value
for various reasons, including a change in prevailing interest rates; this
risk is greater with junk bonds and foreign bonds.
This portfolio may interest long-term investors interested in diversifying a
large-cap or domestic portfolio of investments.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
28 DWS GLOBAL OPPORTUNITIES VIP
<PAGE>
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B was May 12, 1997. In the bar chart and table,
the performance figures for Class B before that date are based on the
historical performance of the portfolio's original share class (Class A),
adjusted to reflect the higher gross total annual operating expenses of Class
B. Class A is offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.10 16.18 65.63 -5.42 -24.96 -20.07 48.77 23.12 18.06 21.88
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 40.82%, Q4 1999 WORST QUARTER: -21.44%, Q3 2001
2007 TOTAL RETURN AS OF MARCH 31: 5.35%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class B 21.88 16.07 12.42
--------------------------------------------------------------------------------
S&P/Citigroup Extended Market
Index 22.39 17.62 11.16
--------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
The S&P/CITIGROUP EXTENDED MARKET INDEX is an unmanaged index of
small-capitalization stocks within 26 countries around the globe.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS GLOBAL OPPORTUNITIES VIP 29
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
---------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio
assets
---------------------------------------------------------------------------------
Management Fee 1 0.99%
---------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25
---------------------------------------------------------------------------------
Other Expenses 2 0.27
---------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 3 1.51
---------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through September 30, 2007, the Advisor has contractually agreed to waive
all or a portion of its management fee and reimburse or pay certain
operating expenses of the portfolio to the extent necessary to maintain
the portfolio's total operating expenses at 1.52% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
Although there can be no assurance that the current waiver/expense
reimbursement arrangement will be maintained beyond September 30, 2007,
the Advisor has committed to review the continuance of waiver/expense
reimbursement arrangements by September 30, 2007.
Based on the costs above, this example helps you compare the expenses of Class
B shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold your shares
at the end of each period. This is only an example; actual expenses will be
different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Class B shares $154 $477 $824 $1,802
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
30 DWS GLOBAL OPPORTUNITIES VIP
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio:
Joseph Axtell, CFA
Managing Director of Deutsche Asset Management and Lead Portfolio Manager of
the portfolio.
o Joined Deutsche Asset Management in 2001 and the portfolio in 2002.
o Senior analyst at Merrill Lynch Investment Managers for the international
equity portion of a global balanced portfolio (1996-2001).
o Director, International Research at PCM International (1989-1996).
o Associate manager, structured debt and equity group at Prudential Capital
Corporation (1988-1989).
o Analyst at Prudential-Bache Capital Funding in London (1987-1988).
o Equity analyst in the healthcare sector at Prudential Equity Management
Associates (1985-1987).
o BS, University of Minnesota - Carlson School of Management.
Terrence S. Gray, CFA
Managing Director of Deutsche Asset Management and Portfolio Manager of the
portfolio.
o Joined Deutsche Asset Management in 1993 and the portfolio in 2003.
o Over 14 years of investment industry experience.
o Head of global portfolio selection team for Pacific Basin Equity: New
York.
o BS, Boston College.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS GLOBAL OPPORTUNITIES VIP 31
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS GLOBAL OPPORTUNITIES VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.84 $ 12.62 $ 10.25 $ 6.89 $ 8.62
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)a ( .00)b,d .03 ( .01) .00b ( .02)
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 3.24 2.24 2.38 3.36 ( 1.71)
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.24 2.27 2.37 3.36 ( 1.73)
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .15) ( .05) - - -
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.93 $ 14.84 $ 12.62 $ 10.25 $ 6.89
-------------------------------------------------------------------------------------------------------------------
Total Return (%) 21.88c,d 18.06c 23.12c 48.77 (20.07)
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 37 33 24 13 4
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.51 1.54 1.52 1.43 1.44
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.31 1.24 1.39 1.43 1.44
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) ( .03)d .25 ( .12) .03 ( .28)
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 28 30 24 41 47
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Amount is less than $.005.
c Total return would have been lower had certain expenses not been reduced.
d Includes non-recurring income from the Advisor recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation
practices in connection with sales of DWS Scudder Funds. The non-recurring
income resulted in an increase in net investment income of $0.002 per
share and an increase in the ratio of net investment income of 0.01%.
Excluding this non-recurring income, total return would have been 0.01%
lower.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
32 DWS GLOBAL OPPORTUNITIES VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS GLOBAL OPPORTUNITIES VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 1.51% 3.49% $ 10,349.00 $ 153.63
-------------------------------------------------------------------------------------------------------------------
2 10.25% 1.51% 7.10% $ 10,710.18 $ 159.00
-------------------------------------------------------------------------------------------------------------------
3 15.76% 1.51% 10.84% $ 11,083.97 $ 164.55
-------------------------------------------------------------------------------------------------------------------
4 21.55% 1.51% 14.71% $ 11,470.80 $ 170.29
-------------------------------------------------------------------------------------------------------------------
5 27.63% 1.51% 18.71% $ 11,871.13 $ 176.23
-------------------------------------------------------------------------------------------------------------------
6 34.01% 1.51% 22.85% $ 12,285.43 $ 182.38
-------------------------------------------------------------------------------------------------------------------
7 40.71% 1.51% 27.14% $ 12,714.19 $ 188.75
-------------------------------------------------------------------------------------------------------------------
8 47.75% 1.51% 31.58% $ 13,157.92 $ 195.33
-------------------------------------------------------------------------------------------------------------------
9 55.13% 1.51% 36.17% $ 13,617.13 $ 202.15
-------------------------------------------------------------------------------------------------------------------
10 62.89% 1.51% 40.92% $ 14,092.36 $ 209.21
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,801.52
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS GLOBAL OPPORTUNITIES VIP 33
<PAGE>
DWS INTERNATIONAL VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks long-term growth of capital primarily through diversified
holdings of marketable foreign equity investments (equities issued by
foreign-based companies and listed on foreign exchanges.) Although the
portfolio can invest in companies of any size and from any country (other than
the United States), it invests mainly in common stocks of established companies
in countries with developed economies.
The portfolio manager uses a bottom-up approach, emphasizing individual stock
selection, with any active allocation among countries, regions or industries as
a residual of the strategy. The portfolio manager's process begins with a broad
universe of equity securities of issuers primarily, but not exclusively,
located in the countries that make up the MSCI EAFE (Reg. TM) Index. The MSCI
EAFE (Reg. TM) Index tracks stocks in Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. The universe includes all securities in the
Index and a large number of securities not included in the Index but whose
issuers are located in the countries that make up the Index.
The team screens for companies seeking to identify those with high or
improving, and sustainable, returns on capital and long-term prospects for
growth. The portfolio manager focuses on companies with real cash flow on
investment rather than published earnings. The team utilizes information
gleaned from a variety of sources and perspectives, including broad trends such
as lifestyle, demographic and technological changes, industry cycles and
regulatory changes, quantitative screening and individual company analysis.
Based on this fundamental research, the portfolio manager sets a target price
objective (the portfolio manager's opinion of the intrinsic value of the
security) for each security and ranks the securities based on these target
price objectives. The portfolio manager applies a disciplined approach to risk
management and portfolio construction. Stocks are sold when they meet their
target price objectives, a better investment opportunity has been identified or
there has been a negative change in the outlook for the company, country or
industry. In implementing this strategy, the portfolio may experience a high
portfolio turnover rate.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval.
OTHER INVESTMENTS
While most of the portfolio's foreign equities are common stocks, some may be
other types of equities, such as convertible securities, preferred stocks and
depositary receipts. The portfolio is permitted, but not required, to use
various types of derivatives (contracts whose value is based on, for example,
indexes, currencies or securities). The portfolio may use derivatives in
circumstances where the managers believe they offer an economical means of
gaining exposure to a particular asset class or to keep cash on hand to meet
shareholder redemptions or other needs while maintaining exposure to the
market. In particular, the portfolio may use futures, currency options and
forward currency transactions.
For temporary defensive purposes, the portfolio may invest up to 100% of its
assets in Canadian and US Government obligations or currencies, securities of
companies incorporated in and having their principal place of business in
Canada or the US or in relatively stable investments, such as money market
securities. In such a case, the portfolio would not be pursuing its investment
objective. However, the portfolio manager may choose not to use these
strategies for various reasons, even in very volatile market conditions.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
34 DWS INTERNATIONAL VIP
<PAGE>
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock funds, an important factor with this
portfolio is how stock markets perform - in this case, foreign markets. When
foreign stock prices fall, you should expect the value of your investment to
fall as well. Because a stock represents ownership in its issuer, stock prices
can be hurt by poor management, shrinking product demand and other business
risks. These may affect single companies as well as groups of companies. In
addition, movements in financial markets may adversely affect a stock's price,
regardless of how well the company performs. The market as a whole may not
favor the types of investments the portfolio makes and the portfolio may not be
able to get attractive prices for them.
FOREIGN INVESTMENT RISK. Foreign investments involve certain special risks,
including:
o POLITICAL RISK. Some foreign governments have limited the outflow of profits
to investors abroad, imposed restrictions on the exchange or export of
foreign currency, extended diplomatic disputes to include trade and
financial relations, seized foreign investment and imposed high taxes.
o INFORMATION RISK. Companies based in foreign markets are usually not subject
to accounting, auditing and financial reporting standards and practices as
stringent as those in the US. Therefore, their financial reports may present
an incomplete, untimely or misleading picture of a foreign company, as
compared to the financial reports of US companies.
o LIQUIDITY RISK. Investments that trade less can be more difficult or more
costly to buy, or to sell, than more liquid or active investments. This
liquidity risk is a factor of the trading volume of a particular investment,
as well as the size and liquidity of the entire local market. On the whole,
foreign exchanges are smaller and less liquid than the US market. This can
make buying and selling certain investments more difficult and costly.
Relatively small transactions in some instances can have a
disproportionately large effect on the price and supply of securities. In
certain situations, it may become virtually impossible to sell an investment
in an orderly fashion at a price that approaches portfolio management's
estimate of its value. For the same reason, it may at times be difficult to
value the portfolio's foreign investments.
o REGULATORY RISK. There is generally less government regulation of foreign
markets, companies and securities dealers than in the US.
o CURRENCY RISK. The portfolio invests in securities denominated in foreign
currencies. This creates the possibility that changes in exchange rates
between foreign currencies and the US dollar will affect the US dollar value
of foreign securities or the income or gain received on these securities.
o LIMITED LEGAL RECOURSE RISK. Legal remedies for investors may be more limited
than the remedies available in the US.
o TRADING PRACTICE RISK. Brokerage commissions and other fees are generally
higher for foreign investments than for US investments. The procedures and
rules governing foreign transactions and custody may also involve delays in
payment, delivery or recovery of money or investments.
o TAXES. Foreign withholding and certain other taxes may reduce the amount of
income available to distribute to shareholders of the portfolio. In
addition, special US tax considerations may apply to the portfolio's foreign
investments.
EMERGING MARKET RISK. All of the risks of investing in foreign securities are
increased in connection with investments in emerging markets securities. In
addition, profound social changes and business practices that depart from norms
in developed countries' economies have hindered the orderly growth of emerging
economies and their markets in the past and have caused instability. High
levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. These countries are also more likely
to experience high levels of inflation, deflation or currency devaluation,
which could also hurt their economies and securities markets. For these and
other reasons, investments in emerging markets are often considered
speculative.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS INTERNATIONAL VIP 35
<PAGE>
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
Other factors that could affect performance include:
o portfolio management could be wrong in the analysis of foreign governments,
industries, companies, economic trends, the relative attractiveness of
different sizes of stocks, geographical trends or other matters.
This portfolio is designed for investors who are interested in a broadly
diversified international investment with the emphasis on long-term growth of
capital.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
36 DWS INTERNATIONAL VIP
<PAGE>
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B was May 8, 1997. In the bar chart and table, the
performance figures for Class B before that date are based on the historical
performance of the portfolio's original share class (Class A), adjusted to
reflect the higher gross total annual operating expenses of Class B. Class A is
offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.79 18.28 54.13 -21.89 -30.81 -18.62 27.52 16.24 15.71 25.44
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 29.00%, Q4 1999 WORST QUARTER: -18.82%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: 3.66%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class B 25.44 11.85 6.50
--------------------------------------------------------------------------------
MSCI EAFE (Reg. TM) Index 26.34 14.98 7.71
--------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE, AUSTRALASIA AND THE FAR
EAST (EAFE) INDEX is an unmanaged index that tracks international stock
performance in the 21 developed markets of Europe, Australasia and the Far
East.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS INTERNATIONAL VIP 37
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
-------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
-------------------------------------------------------------------------------
Management Fee 1 0.84%
-------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25
-------------------------------------------------------------------------------
Other Expenses 2, 3 0.27
-------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 1.36
-------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 4 0.02
-------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 4 1.34
-------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Restated and estimated to reflect the acquisition of DWS Foreign Value VIP
on December 11, 2006.
4 Through April 30, 2010, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 1.34% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in the "1 Year"
period and three years of capped expenses in the "3 Years," "5 Years" and "10
Years" periods), this example helps you compare the expenses of Class B shares
to those of other mutual funds. This example assumes the expenses above remain
the same. It also assumes that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the end of
each period. This is only an example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B shares $136 $425 $739 $1,630
--------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO MANAGER
The following person handles the day-to-day management of the portfolio:
Matthias Knerr, CFA
Director, Deutsche Asset Management and Manager of the portfolio.
o Joined Deutsche Asset Management in 1995 and the portfolio in 2004.
o Portfolio manager for EAFE Equities and Global Equities.
o BS, Pennsylvania State University.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
38 DWS INTERNATIONAL VIP
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS INTERNATIONAL VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.82 $ 9.48 $ 8.24 $ 6.50 $ 8.03
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)a .24c .12 .06 .07 .04
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 2.50 1.35 1.27 1.71 ( 1.53)
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.74 1.47 1.33 1.78 ( 1.49)
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .18) ( .13) ( .09) ( .04) ( .04)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.38 $ 10.82 $ 9.48 $ 8.24 $ 6.50
-------------------------------------------------------------------------------------------------------------------
Total Return (%) 25.44b 15.71b 16.24b 27.52 (18.62)
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 51 40 35 24 8
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.37 1.41 1.38 1.32 1.28
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.36 1.37 1.35 1.32 1.28
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.94c 1.24 .74 1.05 .48
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 105 59 73 119 123
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a Based on average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
c Net investment income per share and the ratio of net investment income
include non-recurring dividend income amounting to $0.11 per share and
0.92% of average daily net assets, respectively.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS INTERNATIONAL VIP 39
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS INTERNATIONAL VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 1.34% 3.66% $ 10,366.00 $ 136.45
-------------------------------------------------------------------------------------------------------------------
2 10.25% 1.34% 7.45% $ 10,745.40 $ 141.45
-------------------------------------------------------------------------------------------------------------------
3 15.76% 1.34% 11.39% $ 11,138.68 $ 146.62
-------------------------------------------------------------------------------------------------------------------
4 21.55% 1.36% 15.44% $ 11,544.12 $ 154.24
-------------------------------------------------------------------------------------------------------------------
5 27.63% 1.36% 19.64% $ 11,964.33 $ 159.86
-------------------------------------------------------------------------------------------------------------------
6 34.01% 1.36% 24.00% $ 12,399.83 $ 165.68
-------------------------------------------------------------------------------------------------------------------
7 40.71% 1.36% 28.51% $ 12,851.19 $ 171.71
-------------------------------------------------------------------------------------------------------------------
8 47.75% 1.36% 33.19% $ 13,318.97 $ 177.96
-------------------------------------------------------------------------------------------------------------------
9 55.13% 1.36% 38.04% $ 13,803.78 $ 184.43
-------------------------------------------------------------------------------------------------------------------
10 62.89% 1.36% 43.06% $ 14,306.24 $ 191.15
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,629.55
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
40 DWS INTERNATIONAL VIP
<PAGE>
DWS HEALTH CARE VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
Under normal circumstances, the portfolio seeks long-term growth of capital by
investing at least 80% of total assets, plus the amount of any borrowings for
investment purposes, in common stocks of companies in the health care sector.
For purposes of the portfolio's 80% investment policy, to be considered part of
the health care sector, companies must commit at least half of their assets to,
or derive at least half of their revenues or net income from, that sector. The
industries in the health care sector include pharmaceuticals, biotechnology,
medical products and supplies, and health care services. The companies may be
of any size. The portfolio will invest primarily in securities of US companies,
but may invest in foreign companies as well.
In choosing stocks, the portfolio managers use a combination of three
analytical disciplines:
BOTTOM-UP RESEARCH. The managers look for individual companies with a history
of above-average growth, strong competitive positioning, new tests or
treatments, the ability to take advantage of demographic trends, attractive
prices relative to potential growth, sound financial strength and effective
management, among other factors.
GROWTH ORIENTATION. The managers generally look for companies that they believe
have above-average potential for sustainable growth of revenue or earnings and
whose market value appears reasonable in light of their business prospects.
TOP-DOWN ANALYSIS. The managers consider the economic outlooks for various
industries within the health care sector while looking for those that may
benefit from changes in the overall business environment.
Portfolio management will normally sell a stock when it believes the stock's
price is unlikely to go higher, its fundamental factors have changed, other
investments offer better opportunities or in the course of adjusting the
portfolio's emphasis on or within a given health care industry.
SECURITIES LENDING. The portfolio may lend its investment securities in an
amount up to 33 1/3% of its total assets to approved institutional borrowers
who need to borrow securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objective without seeking shareholder
approval. However, the Board will provide shareholders with at least 60 days'
notice prior to making any changes to the portfolio's 80% investment policy.
OTHER INVESTMENTS
While the portfolio invests mainly in common stocks, it may also invest up to
20% of total assets in US Treasury and agency debt securities.
Although not one of its principal investment strategies, the portfolio is
permitted, but not required, to use various types of derivatives (contracts
whose value is based on, for example, indexes, currencies or securities).
Derivatives may be used for hedging and for risk management or for non-hedging
purposes to seek to enhance potential gains. The portfolio may use derivatives
in circumstances where portfolio management believes they offer an economical
means of gaining exposure to a particular asset class or to keep cash on hand
to meet shareholder redemptions or other needs while maintaining exposure to
the market. In particular, the portfolio may use futures and options, including
sales of covered put and call options.
As a temporary defensive measure, the portfolio could shift up to 100% of
assets into investments such as money market securities. This measure could
prevent losses, but, while engaged in a temporary defensive position, the
portfolio will not be pursuing its investment objective. However, the portfolio
managers may choose not to use these strategies for various reasons, even in
very volatile market conditions.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS HEALTH CARE VIP 41
<PAGE>
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
GROWTH INVESTING RISK. Since growth stocks usually reinvest a large portion of
earnings in their own businesses, they may lack the dividends associated with
value stocks that might otherwise cushion their decline in a falling market.
Earnings disappointments in growth stocks often result in sharp price declines
because investors buy these stocks because of their potential for superior
earnings growth. Growth stocks may also be out of favor for certain periods in
relation to value stocks.
CONCENTRATION RISK. The portfolio concentrates its investments in the
industries of the health care sector. As a result, factors affecting that
sector, such as rapid product obsolescence and the unpredictability of winning
government approvals, will have a significant impact on the portfolio's
performance.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
IPO RISK. Securities purchased in initial public offerings (IPOs) may be very
volatile, rising and falling rapidly, often based, among other reasons, on
investor perceptions rather than on economic reasons. Additionally, investments
in IPOs may magnify the portfolio's performance if it has a small asset base.
The portfolio is less likely to experience a similar impact on its performance
as its assets grow because it is unlikely that the portfolio will be able to
obtain proportionately larger IPO allocations.
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
42 DWS HEALTH CARE VIP
<PAGE>
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
Other factors that could affect performance include:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
o foreign securities may be more volatile than their US counterparts, for
reasons such as currency fluctuations and political and economic
uncertainty.
The portfolio may make sense for investors who are comfortable with higher
risks of a portfolio that focuses on an often volatile sector and are
interested in gaining exposure to the health care sector.
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B was July 1, 2002. In the bar chart and table,
the performance figures for Class B before that date are based on the
historical performance of the portfolio's original share class (Class A),
adjusted to reflect the higher gross total annual operating expenses of Class
B. Class A is offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C>
-23.21 33.21 9.17 8.06 5.77
2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 14.98%, Q2 2003 WORST QUARTER: -15.67%, Q2 2002
2007 TOTAL RETURN AS OF MARCH 31: 3.32%
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS HEALTH CARE VIP 43
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class B 5.77 5.00 5.51
-----------------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 4.05
-----------------------------------------------------------------------------------------
Goldman Sachs Healthcare Index 5.42 4.09 4.04
-----------------------------------------------------------------------------------------
</TABLE>
* Portfolio inception: May 1, 2001. Index comparisons begin April 30, 2001.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
GOLDMAN SACHS HEALTHCARE INDEX is an unmanaged market capitalization-weighted
index of 114 stocks designed to measure the performance of companies in the
health care sector.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy or variable annuity contract for which the
portfolio is an investment option. These charges and fees will increase
expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio
assets
--------------------------------------------------------------------------------
Management Fee 1 0.77%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25
--------------------------------------------------------------------------------
Other Expenses 2 0.26
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 1.28
--------------------------------------------------------------------------------
</TABLE>
1 Restated on an annualized basis to reflect fee changes which took effect on
June 1, 2006. Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
Based on the costs above, this example helps you compare the expenses of Class
B shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold your shares
at the end of each period. This is only an example; actual expenses will be
different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B shares $130 $406 $702 $1,545
-------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
44 DWS HEALTH CARE VIP
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio:
Leefin Lai, CFA
Managing Director of Deutsche Asset Management and Portfolio Manager of the
portfolio.
o Joined Deutsche Asset Management in 2001 and the portfolio in 2001,
previously serving as an analyst for Salomon Smith Barney and Paine Webber
and as Vice President/analyst for Citigroup Global Asset Management and
Scudder Kemper Investments.
o Over 15 years of investment industry experience.
o BS, MBA, University of Illinois.
Thomas E. Bucher, CFA
Managing Director of Deutsche Asset Management and Consultant to the portfolio.
o Joined Deutsche Asset Management in 1995 and the portfolio in 2002,
previously serving as analyst for European Chemical, Oil, Steel and
Engineering sectors and analyst/
portfolio manager for Eastern European equity.
o Head of global equity research team for health care sector and portfolio
manager for European Equity: Frankfurt.
o MA, University of Tuegingen, Germany.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS HEALTH CARE VIP 45
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS HEALTH CARE VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002A
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.87 $ 11.91 $ 10.91 $ 8.19 $ 8.09
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)b ( .06)c ( .07) ( .08) ( .07) ( .04)
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment .79 1.03 1.08 2.79 .14
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .73 .96 1.00 2.72 .10
-------------------------------------------------------------------------------------------------------------------
Less Distributions from:
Net realized gain on transactions ( .05) - - - -
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.55 $ 12.87 $ 11.91 $ 10.91 $ 8.19
-------------------------------------------------------------------------------------------------------------------
Total Return (%) 5.77c 8.06 9.17 33.21 1.24**
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 21 23 20 11 .3
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses (%) 1.28 1.27 1.27 1.26 1.16*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) ( .42)c ( .57) ( .68) ( .63) ( .92)*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 47 43 77 64 53
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a For the period July 1, 2002 (commencement of operations of Class B shares)
to December 31, 2002.
b Based on average shares outstanding during the period.
c Includes non-recurring income from the Advisor recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation
practices in connection with sales of DWS Scudder Funds. The non-recurring
income resulted in an increase in net investment income of $0.003 per
share and an increase in the ratio of net investment income of 0.02%.
Excluding this non-recurring income, total return would have been 0.02%
lower.
* Annualized
** Not annualized
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
46 DWS HEALTH CARE VIP
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS HEALTH CARE VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 1.28% 3.72% $ 10,372.00 $ 130.38
-------------------------------------------------------------------------------------------------------------------
2 10.25% 1.28% 7.58% $ 10,757.84 $ 135.23
-------------------------------------------------------------------------------------------------------------------
3 15.76% 1.28% 11.58% $ 11,158.03 $ 140.26
-------------------------------------------------------------------------------------------------------------------
4 21.55% 1.28% 15.73% $ 11,573.11 $ 145.48
-------------------------------------------------------------------------------------------------------------------
5 27.63% 1.28% 20.04% $ 12,003.63 $ 150.89
-------------------------------------------------------------------------------------------------------------------
6 34.01% 1.28% 24.50% $ 12,450.16 $ 156.50
-------------------------------------------------------------------------------------------------------------------
7 40.71% 1.28% 29.13% $ 12,913.31 $ 162.33
-------------------------------------------------------------------------------------------------------------------
8 47.75% 1.28% 33.94% $ 13,393.68 $ 168.36
-------------------------------------------------------------------------------------------------------------------
9 55.13% 1.28% 38.92% $ 13,891.93 $ 174.63
-------------------------------------------------------------------------------------------------------------------
10 62.89% 1.28% 44.09% $ 14,408.71 $ 181.12
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,545.18
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS HEALTH CARE VIP 47
<PAGE>
DWS RREEF REAL ESTATE SECURITIES VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio's investment objectives are long-term capital appreciation and
current income.
The portfolio invests primarily in real estate securities. Under normal
circumstances, the portfolio will invest at least 80% of its net assets, plus
the amount of any borrowing for investment purposes (calculated at the time of
an investment), in equity securities of real estate investment trusts ("REITs")
and real estate companies. Equity securities include common stock, preferred
stock and securities convertible into common stock.
A company is considered to be a real estate company if, in the opinion of the
portfolio managers, at least 50% of its revenues or 50% of the market value of
its assets at the time its securities are purchased by the portfolio are
attributed to the ownership, construction, management or sale of real estate.
The portfolio managers look for real estate securities they believe will
provide superior returns to the portfolio over the long term, and attempt to
focus on companies with the potential for stock price appreciation and a record
of paying dividends.
To find these issuers, the portfolio managers track economic conditions and
real estate market performance in major metropolitan areas and analyze
performance of various property types within those regions. To perform this
analysis, the portfolio managers use information from a nationwide network of
real estate professionals to evaluate the holdings of real estate companies and
REITs in which the portfolio may invest. Their analysis also includes the
companies' management structure, financial structure and business strategies.
The goal of this analysis is to determine which of the issuers the portfolio
managers believe will be the most profitable to the portfolio over the long
term. The portfolio managers also consider the effect of the real estate
securities markets in general when making investment decisions. The portfolio
managers do not attempt to time the market.
A REIT invests primarily in income-producing real estate or makes loans to
persons involved in the real estate industry.
Some REITs, called equity REITs, buy real estate and pay investors income from
the rents received from the real estate owned by the REIT and from any profits
on the sale of its properties. Other REITs, called mortgage REITs, lend money
to building developers and other real estate companies and pay investors income
from the interest paid on those loans. There are also hybrid REITs which engage
in both owning real estate and making loans.
Based on its recent purchases, the portfolio managers expect that the
portfolio's assets will be invested primarily in equity REITs. In changing
market conditions, the portfolio may invest in other types of REITs.
If a REIT meets certain requirements, it is not taxed on the income it
distributes to its investors.
The portfolio managers may choose to sell a security for a variety of reasons,
but typically the portfolio managers will sell if they believe that one or more
of the following is true:
o a security is not fulfilling its investment purpose;
o a security has reached its optimum valuation; or
o a particular company or general economic conditions have changed.
Although major changes tend to be infrequent, the Board of Trustees could
change the portfolio's investment objectives without seeking shareholder
approval. However, the Board will provide shareholders with at least 60 days'
notice prior to making any changes to the portfolio's 80% investment policy.
OTHER INVESTMENTS
When the portfolio managers believe that it is prudent, the portfolio may
invest a portion of its assets in other types of instruments. These instruments
may include short-term securities, bonds, notes, equity securities of companies
not principally engaged in the real estate industry, non-leveraged stock index
futures contracts and other similar instruments. Stock index futures contracts,
a type of derivative security, can help the portfolio's
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
48 DWS RREEF REAL ESTATE SECURITIES VIP
<PAGE>
cash assets remain liquid while performing more like stocks. The portfolio has
a policy governing derivatives which prohibits leverage of the portfolio's
assets by investing in a derivative. For example, the portfolio managers cannot
invest in a derivative if it would be possible for the portfolio to lose more
money than it invested.
As a temporary defensive measure, the portfolio managers could shift up to 100%
of assets into investments such as money market securities and investment grade
income producing debt securities. This measure could prevent losses, but, while
engaged in a temporary defensive position, the portfolio will not be pursuing
its investment objectives. However, the portfolio managers may choose not to
use these strategies for various reasons, even in very volatile market
conditions.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
CONCENTRATION RISK. The portfolio concentrates its investments in real estate
securities, including REITs. A portfolio with a concentrated investment
portfolio is vulnerable to the risks of the industry in which it invests and is
subject to greater risks and market fluctuations than a portfolio investing in
a broader range of industries. Real estate securities are susceptible to the
risks associated with direct ownership of real estate, such as:
o declines in property values;
o increases in property taxes, operating expenses, interest rates or
competition;
o overbuilding;
o zoning changes; and
o losses from casualty or condemnation.
In addition, many real estate companies, including REITs, utilize leverage (and
some may be highly leveraged), which increases stock market risk.
NON-DIVERSIFICATION RISK. The portfolio is classified as non-diversified under
the Investment Company Act of 1940. This means that it may invest in securities
of relatively few issuers. Thus, the performance of one or a small number of
portfolio holdings can affect overall performance more than if the portfolio
invested in a larger number of issuers.
SECURITY SELECTION RISK. A risk that pervades all investing is the risk that
the securities in the portfolio's portfolio may decline in value.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS RREEF REAL ESTATE SECURITIES VIP 49
<PAGE>
DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives used for risk management may not have the
intended effects and may result in losses or missed opportunities; the risk
that the portfolio will be unable to sell the derivative because of an illiquid
secondary market; the risk that a counterparty is unwilling or unable to meet
its obligation and the risk that the derivative transaction could expose the
portfolio to the effects of leverage, which could increase the portfolio's
exposure to the market and magnify potential losses. There is no guarantee that
these derivatives, to the extent employed, will work, and their use could cause
lower returns or even losses to the portfolio.
Other factors that could affect performance include:
o portfolio management could be wrong in the analysis of industries, companies,
economic trends, the relative attractiveness of different securities or
other matters.
o the market value of the individual securities the portfolio owns will go up
and down depending on the performance of the companies that issued them,
general market and economic conditions and investor confidence.
The portfolio is designed for investors interested in an investment that seeks
long-term capital appreciation and current income through investment in real
estate securities.
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C>
30.73 11.31 37.13
2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 15.92%, Q4 2004 WORST QUARTER: -6.81%, Q1 2005
2007 TOTAL RETURN AS OF MARCH 31: 3.18%
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
50 DWS RREEF REAL ESTATE SECURITIES VIP
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION*
-------------------------------------------------------------------------------
<S> <C> <C>
Portfolio - Class B Shares 37.13 28.59
-------------------------------------------------------------------------------
MSCI US REIT Index 35.92 29.80
-------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 14.70
-------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
* Inception 5/1/2003. Index comparisons begin 4/30/2003.
MSCI US REIT INDEX is an unmanaged free float-adjusted market capitalization
weighted index that is comprised of equity REITs that are included in the MSCI
US Investable Market 2500 Index, with the exception of specialty equity REITs
that do not generate a majority of their revenue and income from real estate
rental and leasing operations.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy, variable annuity contract, or tax-qualified
plan for which the portfolio is an investment option. These charges and fees
will increase expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 1.00%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25
--------------------------------------------------------------------------------
Other Expenses 2 0.43
--------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 1.68
--------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 3, 4 0.26
--------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 3, 4 1.42
--------------------------------------------------------------------------------
</TABLE>
1 Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through September 30, 2007, the Advisor has contractually agreed to waive
all or a portion of its management fee and reimburse or pay certain
operating expenses of the portfolio to the extent necessary to maintain
the portfolio's total operating expenses at 1.39% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
4 Through April 30, 2008, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary so that the portfolio's
total operating expenses will not exceed 1.42% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in each
period), this example helps you compare the expenses of Class B shares to those
of other mutual funds. This example assumes the expenses above remain the same.
It also assumes that you invested $10,000, earned 5% annual returns, and
reinvested all dividends and distributions. This is only an example; actual
expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B shares $145 $504 $888 $1,965
--------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS RREEF REAL ESTATE SECURITIES VIP 51
<PAGE>
THE PORTFOLIO MANAGERS
The portfolio is managed by a team of investment professionals who collaborate
to implement the portfolio's investment strategy. The team is led by a lead
portfolio manager who is responsible for developing the portfolio's investment
strategy. Each portfolio manager on the team has authority over all aspects of
the portfolio's investment portfolio, including but not limited to, purchases
and sales of individual securities, portfolio construction techniques,
portfolio risk assessment and the management of daily cash flows in accordance
with portfolio holdings.
The following people handle the day-to-day management of the portfolio.
John F. Robertson, CFA
Managing Director of RREEF and Manager of the portfolio.
o Joined RREEF in 1997, Deutsche Asset Management, Inc. in 2002 and the
portfolio in 2003.
o Prior to that, Assistant Vice President of Lincoln Investment Management
responsible for REIT research.
o Over 16 years of investment industry experience.
o MBA, Indiana University.
Jerry W. Ehlinger, CFA
Managing Director of RREEF and Manager of the portfolio.
o Joined RREEF, Deutsche Asset Management, Inc. and the portfolio in 2004.
o Prior to that, Senior Vice President at Heitman Real Estate Investment
Management from 2000-2004.
o Prior to that, Senior Research Associate at Morgan Stanley Asset
Management from 1995-2000.
o Over 11 years of investment industry experience.
o MS, University of Wisconsin-Madison.
John W. Vojticek
Managing Director of RREEF and Manager of the portfolio.
o Joined RREEF, Deutsche Asset Management, Inc. and the portfolio in
September 2004.
o Prior to that, Principal at KG Redding and Associates, March
2004-September 2004.
o Prior to that, Director of RREEF from 1996-March 2004 and Deutsche Asset
Management, Inc. from 2002-March 2004.
o Over 11 years of investment industry experience.
Asad Kazim
Director of RREEF and Manager of the portfolio.
o Joined RREEF and Deutsche Asset Management, Inc. in 2002 and the
portfolio in 2005.
o Prior to that, Financial Analyst at Clarion CRA Securities from
2000-2002.
o Over seven years of investment industry experience.
o BS, The College of New Jersey.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
52 DWS RREEF REAL ESTATE SECURITIES VIP
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
Information for the periods ended prior to December 31, 2005 was audited by
Ernst & Young LLP, an independent registered public accounting firm.
DWS RREEF REAL ESTATE SECURITIES VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003A
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.59 $ 16.31 $ 12.59 $ 10.00
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)b .17 .25 .27 .24
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 5.91 1.60 3.56 2.35
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 6.08 1.85 3.83 2.59
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - ( .40) ( .09) -
-------------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions ( .32) ( 1.17) ( .02) -
-------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ( .32) ( 1.57) ( .11) -
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.35 $ 16.59 $ 16.31 $ 12.59
-------------------------------------------------------------------------------------------------------------------
Total Return (%)c 37.13 11.31 30.73 25.90**
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 40 34 31 10
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.70 1.71 1.67 2.61*
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.46 1.46 1.50 1.50*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .92 1.43 1.99 3.07*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61 70 84 10*
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a For the period May 1, 2003 (commencement of sales of Class B shares) to
December 31, 2003.
b Based on average shares outstanding during the period.
c Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS RREEF REAL ESTATE SECURITIES VIP 53
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS RREEF REAL ESTATE SECURITIES VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 1.42% 3.58% $ 10,358.00 $ 144.54
-------------------------------------------------------------------------------------------------------------------
2 10.25% 1.68% 7.02% $ 10,701.89 $ 176.90
-------------------------------------------------------------------------------------------------------------------
3 15.76% 1.68% 10.57% $ 11,057.19 $ 182.78
-------------------------------------------------------------------------------------------------------------------
4 21.55% 1.68% 14.24% $ 11,424.29 $ 188.84
-------------------------------------------------------------------------------------------------------------------
5 27.63% 1.68% 18.04% $ 11,803.57 $ 195.11
-------------------------------------------------------------------------------------------------------------------
6 34.01% 1.68% 21.95% $ 12,195.45 $ 201.59
-------------------------------------------------------------------------------------------------------------------
7 40.71% 1.68% 26.00% $ 12,600.34 $ 208.28
-------------------------------------------------------------------------------------------------------------------
8 47.75% 1.68% 30.19% $ 13,018.67 $ 215.20
-------------------------------------------------------------------------------------------------------------------
9 55.13% 1.68% 34.51% $ 13,450.89 $ 222.34
-------------------------------------------------------------------------------------------------------------------
10 62.89% 1.68% 38.97% $ 13,897.46 $ 229.73
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,965.31
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
54 DWS RREEF REAL ESTATE SECURITIES VIP
<PAGE>
DWS EQUITY 500 INDEX VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks to replicate, as closely as possible, before the deduction
of expenses, the performance of the Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index"), which emphasizes stocks of large US companies. The
S&P 500 Index is a well-known stock market index that includes common stocks of
500 companies from several industrial sectors representing a significant
portion of the market value of all stocks publicly traded in the United States.
Stocks in the S&P 500 Index are weighted according to their market
capitalization (the number of shares outstanding multiplied by the stock's
current price).
The portfolio invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its objective. While the
portfolio manager gives priority to replicating the S&P 500 Index's
performance, there is no assurance of achieving this objective.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the portfolio management team buying and selling
securities based on research and analysis. Unlike a portfolio that is actively
managed, an index portfolio tries to replicate, as closely as possible, the
performance of a target index by holding either all, or a representative
sample, of the securities in the index. Indexing appeals to many investors for
the following reasons:
o indexing provides simplicity because it is a straightforward
market-replicating strategy;
o index portfolios generally provide diversification by investing in a wide
variety of companies and industries;
o an index portfolio's performance is generally predictable in that the
portfolio's value is expected to move in the same direction, up or down, as
the target index;
o index portfolios tend to have lower costs because they do not have many of
the expenses of actively managed funds, such as research. Also, index
portfolios usually have relatively low trading activity and therefore
brokerage commissions tend to be lower; and
o index portfolios generally realize low capital gains.
STRATEGY
The portfolio will pursue its objective by investing primarily in the
securities of the companies included in the benchmark and derivative
instruments, such as futures contracts and options, relating to the benchmark.
Futures contracts and options are used as a low-cost method of gaining exposure
to a particular securities market without investing directly in those
securities. The portfolio management team uses quantitative analysis techniques
to structure the portfolio to obtain a high correlation to the S&P 500 Index,
while keeping the portfolio as fully invested as possible in all market
environments. To attempt to replicate the risk and return characteristics of
the S&P 500 Index as closely as possible, the portfolio invests in a
statistically selected sample of the securities found in the S&P 500 Index,
using a process known as "optimization." This process selects stocks for the
portfolio so that industry weightings, market capitalizations and fundamental
characteristics (price-to-book ratios, price-to-earnings ratios, debt-to-asset
ratios and dividend yields), closely replicate those of the securities in the
S&P 500 Index. Over the long term, the portfolio seeks a correlation between
the performance of the portfolio, before expenses, and the S&P 500 Index of 98%
or better. A figure of 100% would indicate perfect correlation.
PRINCIPAL INVESTMENTS
Under normal circumstances, the portfolio intends to invest at least 80% of its
assets, determined at the time of purchase, in stocks of companies included in
the S&P 500 Index and in derivative instruments, such as futures contracts and
options, that provide exposure to the stocks of companies in the S&P 500 Index.
The portfolio's securities are weighted to attempt to make the portfolio's
total investment characteristics similar to those of the S&P 500 Index as a
whole. We may exclude or remove any S&P stock from the portfolio if we believe
that the stock is illiquid or that the merit of the investment has been
impaired by financial conditions or other extraordinary events. At times, the
portfolio management team may purchase a stock not included in the
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS EQUITY 500 INDEX VIP 55
<PAGE>
S&P 500 Index when it is believed to be a cost-efficient way of approximating
the S&P 500 Index's performance, for example, in anticipation of a stock being
added to the S&P 500 Index. The portfolio may hold assets in short-term debt
securities or money market instruments for liquidity purposes.
SECURITIES LENDING. The portfolio may lend its investment securities up to 30%
of its total assets to approved institutional borrowers who need to borrow
securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board could change the
portfolio's investment goal without seeking shareholder approval. In addition,
the portfolio's Board will provide shareholders with at least 60 days' notice
prior to making any changes to the portfolio's 80% investment policy, as
described herein.
INVESTMENT PROCESS
In an effort to run an efficient and effective strategy, the portfolio uses the
process of "optimization," a statistical sampling technique. First, the
portfolio buys the stocks that make up the larger portions of the S&P 500
Index's value in roughly the same proportion as the S&P 500 Index. Second,
smaller stocks are analyzed and selected based on liquidity. In selecting
smaller stocks, the portfolio management team tries to replicate the industry
and risk characteristics of all of the smaller companies in the S&P 500 Index
without buying all of those stocks. This approach attempts to maximize the
portfolio's liquidity and returns while minimizing its costs. Historically,
this portfolio has had a low portfolio turnover rate. Portfolio turnover
measures the frequency that the portfolio sells and replaces the value of its
securities within a given period.
INFORMATION REGARDING THE INDEX
The portfolio is not sponsored, endorsed, sold or promoted by the Standard &
Poor's Division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the owners of the portfolio
or any member of the public regarding the advisability of investing in
securities generally or in the portfolio particularly or the ability of the S&P
500 Index to track general stock market performance. S&P's only relationship to
the portfolio is the licensing of certain trademarks and trade names of S&P and
of the S&P 500 Index, which is determined, composed and calculated by S&P
without regard to the portfolio.
S&P has no obligation to take the needs of the portfolio or the owners of the
portfolio into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the portfolio to be
issued or in the determination or calculation of the equation by which shares
of the portfolio are redeemable for cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the portfolio.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the portfolio, owners of the
portfolio, or any other person or entity from the use of the S&P 500 Index or
any data included therein. S&P makes no express or implied warranties, and
expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any data
included therein. Without limiting any of the foregoing, in no event shall S&P
have any liability for any special, punitive, indirect or consequential damages
(including lost profits), even if notified of the possibility of such damages.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
56 DWS EQUITY 500 INDEX VIP
<PAGE>
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
TRACKING ERROR RISK. There are several reasons that the portfolio's performance
may not replicate the S&P 500 Index exactly:
o Unlike the S&P 500 Index, the portfolio incurs fees and administrative
expenses and transaction costs in trading stocks.
o The composition of the S&P 500 Index and the stocks held by the portfolio may
occasionally diverge.
o The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the portfolio's
performance to deviate from that of the "fully invested" S&P 500 Index which
does not include a cash component.
INDEX FUND RISK. Because the portfolio invests at least 80% of its assets in
the stocks of companies included in the S&P 500 Index and in derivative
instruments that provide exposure to the stocks of companies in the S&P 500
Index, it has a limited ability to adjust its portfolio in response to
fluctuations in the market segment represented by the Index.
FUTURES AND OPTIONS RISK. The portfolio may invest, to a limited extent, in
stock index futures or options, which are types of derivatives. The portfolio
will not use these derivatives for speculative purposes. Rather, the portfolio
invests in derivatives to keep cash on hand to meet shareholder redemptions or
other needs while maintaining exposure to the stock market. Risks associated
with derivatives include: the risk that the derivative is not well correlated
with the security, index or currency to which it relates; the risk that
derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities; the risk that the portfolio will be
unable to sell the derivative because of an illiquid secondary market; the risk
that a counterparty is unwilling or unable to meet its obligation; the risk of
interest rate movements; and the risk that the derivatives transaction could
expose the portfolio to the effects of leverage, which could increase the
portfolio's exposure to the market and magnify potential losses.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
This portfolio is designed for investors interested in capital appreciation
over the long term; exposure to the US equity markets as represented by larger
companies; and investment returns that track the performance of the S&P 500
Index.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS EQUITY 500 INDEX VIP 57
<PAGE>
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B was April 30, 2002. In the bar chart and table,
the performance figures for Class B before that date are based on the
historical performance of the portfolio's original share class (Class A),
adjusted to reflect the higher gross total annual operating expenses of Class
B. Class A is offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
28.39 20.08 -9.46 -12.40 -22.51 27.83 10.32 4.42 15.24
1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 21.14%, Q4 1998 WORST QUARTER: -17.26%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: 0.53%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
Portfolio - Class B Shares 15.24 5.63 5.48
----------------------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 6.11
----------------------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
* Portfolio inception: October 1, 1997. Index comparisons begin September 30,
1997.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
58 DWS EQUITY 500 INDEX VIP
<PAGE>
PERFORMANCE - CLASS B2
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B2 shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures on this page assume reinvestment of dividends and
distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B2 was September 16, 2005. In the bar chart and
table, the performance figures for Class B2 before that date are based on the
historical performance of the portfolio's original share class (Class A),
adjusted to reflect the higher gross total annual operating expenses of Class
B2. Class A is offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B2
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
28.24 19.94 -9.57 -12.51 -22.60 27.68 10.18 4.23 15.20
1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 21.11%, Q4 1998 WORST QUARTER: -17.32%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: 0.47%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Portfolio - Class B2 Shares 15.20 5.51 5.35
-------------------------------------------------------------------------------------------
Standard & Poor's (S&P) 500 Index 15.79 6.19 6.11
-------------------------------------------------------------------------------------------
</TABLE>
* Portfolio inception: October 1, 1997. Index comparisons begin September 30,
1997.
STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged capitalization-weighted
index of 500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS EQUITY 500 INDEX VIP 59
<PAGE>
HOW MUCH INVESTORS PAY - CLASS B
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the fund or any
variable life insurance policy, variable annuity contract or tax-qualified plan
for which the portfolio is an investment option. These charges and fees will
increase expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 0.29%
--------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.25
--------------------------------------------------------------------------------
Other Expenses 2 0.02
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.56
--------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 3 0.03
--------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 3 0.53
--------------------------------------------------------------------------------
</TABLE>
1 Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through April 30, 2009, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 0.53% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in the "1 Year"
period and two years of capped expenses in the "3 Years," "5 Years" and
"10 Years" periods), this example helps you compare the expenses of Class
B shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned
5% annual returns, and reinvested all dividends and distributions. This is
only an example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B shares $54 $173 $307 $696
--------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
60 DWS EQUITY 500 INDEX VIP
<PAGE>
HOW MUCH INVESTORS PAY - CLASS B2
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the fund or any
variable life insurance policy, variable annuity contract or tax-qualified plan
for which the portfolio is an investment option. These charges and fees will
increase expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B2
--------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio assets
--------------------------------------------------------------------------------
Management Fee 1 0.29%
--------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.25
--------------------------------------------------------------------------------
Other Expenses 2 0.16
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.70
--------------------------------------------------------------------------------
Less Fee Waiver/Expense Reimbursement 3 0.07
--------------------------------------------------------------------------------
NET ANNUAL OPERATING EXPENSES 3 0.63
--------------------------------------------------------------------------------
</TABLE>
1 Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
3 Through April 30, 2009, the Advisor has contractually agreed to waive all
or a portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
portfolio's total operating expenses at 0.63% for Class B2 shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest, proxy and organizational and offering expenses.
Based on the costs above (including one year of capped expenses in the "1 Year"
period and two years of capped expenses in the "3 Years," "5 Years" and
"10 Years" periods), this example helps you compare the expenses of Class
B2 shares to those of other mutual funds. This example assumes the
expenses above remain the same. It also assumes that you invested $10,000,
earned 5% annual returns, and reinvested all dividends and distributions.
This is only an example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B2 shares $64 $209 $375 $857
--------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO MANAGER
Brent Reeder is a Vice President at Northern Trust Investments, NA. Mr. Reeder
has had responsibility for the portfolio since May 2007. Mr. Reeder joined NTI
in 1993. For the past five years, he has managed quantitative equity
portfolios.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS EQUITY 500 INDEX VIP 61
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
Information for the periods ended prior to December 31, 2005 was audited by
Ernst & Young LLP, an independent registered public accounting firm.
DWS EQUITY 500 INDEX VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002A
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.10 $ 12.72 $ 11.63 $ 9.20 $ 11.27
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)b .21 .17 .20 .14 .09
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 1.78 .38 .99 2.40 ( 2.07)
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.99 .55 1.19 2.54 ( 1.98)
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .13) ( .17) ( .10) ( .11) ( .09)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.96 $ 13.10 $ 12.72 $ 11.63 $ 9.20
-------------------------------------------------------------------------------------------------------------------
Total Return (%) 15.24c 4.42 10.32c 27.83 (17.56)**
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 84 68 53 17 3
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions and/or
recoupments (%) .53 .52 .53 .55 .55*
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions and/or
recoupments (%) .52 .52 .54 .55 .55*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.48 1.37 1.71 1.29 1.45*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 9 15 1 1 10
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a For the period April 30, 2002 (commencement of operations) to December 31,
2002.
b Based on average shares outstanding during the period.
c Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
62 DWS EQUITY 500 INDEX VIP
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
DWS EQUITY 500 INDEX VIP - CLASS B2
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005A
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.09 $ 12.94
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)b .19 .05
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 1.79 .10
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.98 .15
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .11) -
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.96 $ 13.09
-------------------------------------------------------------------------------------------------------------------
Total Return (%)c 15.20 1.16**
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 57 59
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .67 .66*
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .63 .63*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 1.37 1.34*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 9 15
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a For the period September 16, 2005 (commencement of operations) to December
31, 2005.
b Based on average shares outstanding during the period.
c Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS EQUITY 500 INDEX VIP 63
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS EQUITY 500 INDEX VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.53% 4.47% $ 10,447.00 $ 54.18
-------------------------------------------------------------------------------------------------------------------
2 10.25% 0.53% 9.14% $ 10,913.98 $ 56.61
-------------------------------------------------------------------------------------------------------------------
3 15.76% 0.56% 13.99% $ 11,398.56 $ 62.48
-------------------------------------------------------------------------------------------------------------------
4 21.55% 0.56% 19.05% $ 11,904.66 $ 65.25
-------------------------------------------------------------------------------------------------------------------
5 27.63% 0.56% 24.33% $ 12,433.22 $ 68.15
-------------------------------------------------------------------------------------------------------------------
6 34.01% 0.56% 29.85% $ 12,985.26 $ 71.17
-------------------------------------------------------------------------------------------------------------------
7 40.71% 0.56% 35.62% $ 13,561.81 $ 74.33
-------------------------------------------------------------------------------------------------------------------
8 47.75% 0.56% 41.64% $ 14,163.95 $ 77.63
-------------------------------------------------------------------------------------------------------------------
9 55.13% 0.56% 47.93% $ 14,792.83 $ 81.08
-------------------------------------------------------------------------------------------------------------------
10 62.89% 0.56% 54.50% $ 15,449.63 $ 84.68
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 695.56
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
64 DWS EQUITY 500 INDEX VIP
<PAGE>
DWS EQUITY 500 INDEX VIP - CLASS B2
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.63% 4.37% $ 10,437.00 $ 64.38
-------------------------------------------------------------------------------------------------------------------
2 10.25% 0.63% 8.93% $ 10,893.10 $ 67.19
-------------------------------------------------------------------------------------------------------------------
3 15.76% 0.70% 13.62% $ 11,361.50 $ 77.89
-------------------------------------------------------------------------------------------------------------------
4 21.55% 0.70% 18.50% $ 11,850.04 $ 81.24
-------------------------------------------------------------------------------------------------------------------
5 27.63% 0.70% 23.60% $ 12,359.60 $ 84.73
-------------------------------------------------------------------------------------------------------------------
6 34.01% 0.70% 28.91% $ 12,891.06 $ 88.38
-------------------------------------------------------------------------------------------------------------------
7 40.71% 0.70% 34.45% $ 13,445.37 $ 92.18
-------------------------------------------------------------------------------------------------------------------
8 47.75% 0.70% 40.24% $ 14,023.53 $ 96.14
-------------------------------------------------------------------------------------------------------------------
9 55.13% 0.70% 46.27% $ 14,626.54 $ 100.28
-------------------------------------------------------------------------------------------------------------------
10 62.89% 0.70% 52.55% $ 15,255.48 $ 104.59
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 857.00
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS EQUITY 500 INDEX VIP 65
<PAGE>
DWS SMALL CAP INDEX VIP
THE PORTFOLIO'S MAIN INVESTMENT STRATEGY
The portfolio seeks to replicate, as closely as possible, before the deduction
of expenses, the performance of the Russell 2000 (Reg. TM) Index, which
emphasizes stocks of small US companies. The Russell 2000 (Reg. TM) Index is a
widely accepted benchmark of small company stock performance. The Russell 2000
(Reg. TM) Index measures the performance of the 2,000 smallest companies in the
Russell 3000 (Reg. TM) Index which represents approximately 8% of the market
capitalization of the Russell 3000 (Reg. TM) Index. Stocks in the Russell 2000
(Reg. TM) Index are weighted according to their market capitalization (the
number of shares outstanding multiplied by the stock's current price).
The portfolio invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its objective. While the
portfolio manager gives priority to replicating the Russell 2000 (Reg. TM)
Index's performance, there is no assurance of achieving this objective.
INDEX INVESTING VERSUS ACTIVE MANAGEMENT
Active management involves the portfolio management team buying and selling
securities based on research and analysis. Unlike a portfolio that is actively
managed, an index fund tries to replicate, as closely as possible, the
performance of a target index by holding either all, or a representative
sample, of the securities in the index. Indexing appeals to many investors for
the following reasons:
o indexing provides simplicity because it is a straightforward
market-replicating strategy;
o index portfolios generally provide diversification by investing in a wide
variety of companies and industries;
o an index portfolio's performance is generally predictable in that the
portfolio's value is expected to move in the same direction, up or down, as
the target index;
o index portfolios tend to have lower costs because they do not have many of
the expenses of actively managed funds, such as research. Also, index
portfolios usually have relatively low trading activity and therefore
brokerage commissions tend to be lower; and
o index portfolios generally realize low capital gains.
STRATEGY
The portfolio will pursue its objective by investing primarily in the
securities of the companies included in the benchmark and derivative
instruments, such as futures contracts and options, relating to the benchmark.
Futures contracts and options are used as a low-cost method of gaining exposure
to a particular securities market without investing directly in those
securities. The portfolio management team uses quantitative analysis techniques
to structure the portfolio to obtain a high correlation to the Russell 2000
(Reg. TM) Index while keeping the portfolio as fully invested as possible in
all market environments. To attempt to replicate the risk and return
characteristics of the Russell 2000 (Reg. TM) Index as closely as possible, the
portfolio invests in a statistically selected sample of the securities found in
the Russell 2000 (Reg. TM) Index, using a process known as "optimization." This
process selects stocks for the portfolio so that industry weightings, market
capitalizations and fundamental characteristics (price-to-book ratios,
price-to-earnings ratios, debt-to-asset ratios and dividend yields) closely
replicate those of the securities in the Russell 2000 (Reg. TM) Index. Over the
long term, the portfolio seeks a correlation between the performance of the
portfolio, before expenses, and the Russell 2000 (Reg. TM) Index of 95% or
better. A figure of 100% would indicate perfect correlation.
PRINCIPAL INVESTMENTS
Under normal circumstances, the portfolio intends to invest at least 80% of its
assets, determined at the time of purchase, in stocks of companies included in
the Russell 2000 (Reg. TM) Index and in derivative instruments, such as stock
index futures contracts and options, that provide exposure to the stocks of
companies in the Russell 2000 (Reg. TM) Index. The portfolio's securities are
weighted to attempt to make the portfolio's total investment characteristics
similar to those of the Russell 2000 (Reg. TM) Index as a whole. We may exclude
or remove any Russell 2000 (Reg. TM) Index stock from the portfolio if we
believe that the stock is illiquid or has impaired financial conditions brought
on by extraordinary events. At times, the portfolio management team may
purchase a stock not
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
66 DWS SMALL CAP INDEX VIP
<PAGE>
included in the Russell 2000 (Reg. TM) Index when it is believed to be a
cost-efficient way of approximating the Russell 2000 (Reg. TM) Index's
performance, for example, in anticipation of a stock being added to the Russell
2000 (Reg. TM) Index. The portfolio may hold assets in short-term debt
securities or money market instruments for liquidity purposes.
SECURITIES LENDING. The portfolio may lend its investment securities up to 30%
of its total assets to approved institutional borrowers who need to borrow
securities in order to complete certain transactions.
Although major changes tend to be infrequent, the Board could change the
portfolio's investment objective without seeking shareholder approval. In
addition, the portfolio's Board will provide shareholders with at least 60
days' notice prior to making any changes to the portfolio's 80% investment
policy, as described herein.
INVESTMENT PROCESS
In an effort to run an efficient and effective strategy, the portfolio uses the
process of "optimization," a statistical sampling technique. First, the
portfolio buys the stocks that make up the larger portions of the Russell 2000
(Reg. TM) Index's value in roughly the same proportion as the Russell 2000
(Reg. TM) Index. Second, smaller stocks are analyzed and selected based on
liquidity. In selecting smaller stocks, the portfolio management team tries to
replicate the industry and risk characteristics of all of the smaller companies
in the Russell 2000 (Reg. TM) Index without buying all of those stocks. This
approach attempts to maximize the portfolio's liquidity and returns while
minimizing its costs. Historically, this portfolio has had a low portfolio
turnover rate. Portfolio turnover measures the frequency that the fund sells
and replaces the value of its securities within a given period. High turnover
can increase a portfolio's transaction costs, thereby lowering its returns.
THE MAIN RISKS OF INVESTING IN THE PORTFOLIO
There are several risk factors that could hurt the portfolio's performance,
cause you to lose money or cause the portfolio's performance to trail that of
other investments.
STOCK MARKET RISK. As with most stock portfolios, the most important factor
affecting this portfolio is how the stock market performs (to the extent the
portfolio invests in a particular capitalization or market sector, the
portfolio's performance may be proportionately affected by that segment's
general performance). When stock prices fall, you should expect the value of
your investment to fall as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product demand
and other business risks. These factors may affect single companies as well as
groups of companies. In addition, movements in financial markets may adversely
affect a stock's price, regardless of how well the company performs. The market
as a whole may not favor the types of investments the portfolio makes and the
portfolio may not be able to get an attractive price for them.
TRACKING ERROR RISK. There are several reasons that the portfolio's performance
may not replicate the Russell 2000 (Reg. TM) Index exactly:
o Unlike the Russell 2000 (Reg. TM) Index, the portfolio incurs fees and
administrative expenses and transaction costs in trading stocks.
o The composition of the Russell 2000 (Reg. TM) Index and the stocks held by
the portfolio may occasionally diverge.
o The timing and magnitude of cash inflows from investors buying shares could
create balances of uninvested cash. Conversely, the timing and magnitude of
cash outflows to investors selling shares could require ready reserves of
uninvested cash. Either situation would likely cause the portfolio's
performance to deviate from the "fully invested" Russell 2000 (Reg. TM)
Index, which does not include a cash component.
INDEX FUND RISK. Because the portfolio invests at least 80% of its assets in
the stocks of companies included in the Russell 2000 (Reg. TM) Index and in
derivative instruments that provide exposure to the stocks of companies in the
Russell 2000 (Reg. TM) Index, it cannot alter its investment strategy in
response to fluctuations in the market segment represented by the Index.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS SMALL CAP INDEX VIP 67
<PAGE>
SMALL COMPANY CAPITALIZATION RISK. Small company stocks tend to experience
steeper price fluctuations - down as well as up - than the stocks of larger
companies. A shortage of reliable information - the same information gap that
creates opportunity in small company investing - can also pose added risk.
Industry-wide reversals may have a greater impact on small companies, since
they lack a large company's financial resources. Small company stocks are
typically less liquid than large company stocks. Accordingly, it may be harder
to find a buyer for a small company's shares.
FUTURES AND OPTIONS RISK. The portfolio may invest, to a limited extent, in
stock index futures or options, which are types of derivatives. The portfolio
will not use these derivatives for speculative purposes. Rather, the portfolio
invests in derivatives to keep cash on hand to meet shareholder redemptions or
other needs while maintaining exposure to the stock market. Risks associated
with derivatives include: the risk that the derivative is not well correlated
with the security, index or currency to which it relates; the risk that
derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities; the risk that the portfolio will be
unable to sell the derivative because of an illiquid secondary market; the risk
that a counterparty is unwilling or unable to meet its obligation; the risk of
interest rate movements; and the risk that the derivatives transaction could
expose the portfolio to the effects of leverage, which could increase the
portfolio's exposure to the market and magnify potential losses.
PRICING RISK. At times, market conditions might make it hard to value some
investments, and the portfolio may use certain valuation methodologies for some
of its investments, such as fair value pricing. Given the subjective nature of
such methodologies, it is possible that the value determined for an investment
may be different than the value realized upon such investment's sale. If the
portfolio has valued its securities too highly, you may end up paying too much
for portfolio shares when you buy into the portfolio. If the portfolio
underestimates the price of its securities, you may not receive the full market
value for your portfolio shares when you sell.
SECURITIES LENDING RISK. Any loss in the market price of securities loaned by
the portfolio that occurs during the term of the loan would be borne by the
portfolio and would adversely affect the portfolio's performance. Also, there
may be delays in recovery of securities loaned or even a loss of rights in the
collateral should the borrower of the securities fail financially while the
loan is outstanding. However, loans will be made only to borrowers selected by
the portfolio's delegate after a review of relevant facts and circumstances,
including the creditworthiness of the borrower.
This portfolio is designed for investors interested in capital appreciation
over the long term; exposure to the US equity markets as represented by smaller
companies; and investment returns that track the performance of the Russell
2000 (Reg. TM) Index.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
68 DWS SMALL CAP INDEX VIP
<PAGE>
PERFORMANCE - CLASS B
While a portfolio's past performance isn't necessarily a sign of how it will do
in the future, it can be valuable for an investor to know.
The bar chart shows how the returns for the portfolio's Class B shares have
varied from year to year, which may give some idea of risk. The table shows
average annual returns for the portfolio and comparable index information
(which, unlike the portfolio, does not have any fees or expenses). The
performance of both the portfolio and the comparable index information varies
over time. All figures assume reinvestment of dividends and distributions.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
The inception date for Class B was April 30, 2002. In the bar chart and table,
the performance figures for Class B before that date are based on the
historical performance of the portfolio's original share class (Class A),
adjusted to reflect the higher gross total annual operating expenses of Class
B. Class A is offered in a different prospectus.
ANNUAL TOTAL RETURN (%) as of 12/31 each year - CLASS B
[BARGRAPHIC APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-2.43 19.86 -4.11 1.82 -20.78 46.05 17.48 3.99 17.19
1998 1999 2000 2001 2002 2003 2004 2005 2006
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:
<S> <C>
BEST QUARTER: 22.95%, Q2 2003 WORST QUARTER: -21.30%, Q3 2002
2007 TOTAL RETURN AS OF MARCH 31: 1.80%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2006
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
Portfolio - Class B Shares 17.19 10.62 7.61
--------------------------------------------------------------------------------------
Russell 2000 Index 18.37 11.39 8.21
--------------------------------------------------------------------------------------
</TABLE>
Total returns would have been lower if operating expenses hadn't been reduced.
* Portfolio inception: August 22, 1997. Index comparisons begin August 31,
1997.
The RUSSELL 2000 (Reg. TM) INDEX is an unmanaged capitalization-weighted
measure of approximately 2,000 small US stocks.
Current performance information may be higher or lower than the performance
data quoted above. For more recent performance information, contact your
participating insurance company.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS SMALL CAP INDEX VIP 69
<PAGE>
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
portfolio shares. The information in the table does not reflect charges and
fees associated with the separate account that invests in the portfolio or any
variable life insurance policy, variable annuity contract or tax-qualified plan
for which the portfolio is an investment option. These charges and fees will
increase expenses.
<TABLE>
<CAPTION>
FEE TABLE CLASS B
-------------------------------------------------------------------------------
<S> <C>
ANNUAL OPERATING EXPENSES, deducted from portfolio
assets
-------------------------------------------------------------------------------
Management Fee 1 0.45%
-------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee 0.25
-------------------------------------------------------------------------------
Other Expenses 2 0.05
-------------------------------------------------------------------------------
TOTAL ANNUAL OPERATING EXPENSES 0.75
-------------------------------------------------------------------------------
</TABLE>
1 Includes a 0.10% administrative services fee.
2 Restated on an annualized basis to reflect fee changes which took effect on
October 1, 2006.
Based on the costs above, this example helps you compare the expenses of Class
B shares to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B shares $77 $240 $417 $930
---------------------------------------------------------------------------------
</TABLE>
THE PORTFOLIO MANAGER
Brent Reeder is a Vice President at Northern Trust Investments, NA. Mr. Reeder
has had responsibility for the portfolio since May 2007. Mr. Reeder joined NTI
in 1993. For the past five years, he has managed quantitative equity
portfolios.
The portfolio's Statement of Additional Information provides additional
information about a portfolio manager's investments in the portfolio, a
description of the portfolio management compensation structure, and information
regarding other accounts managed.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
70 DWS SMALL CAP INDEX VIP
<PAGE>
FINANCIAL HIGHLIGHTS
This table is designed to help you understand the portfolio's financial
performance. The figures in the first part of the table are for a single share.
The total return figures represent the percentage that an investor in the
portfolio would have earned (or lost), assuming all dividends and distributions
were reinvested. This information has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, whose report, along with
the portfolio's financial statements, is included in the portfolio's annual
report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
This information doesn't reflect charges and fees associated with the separate
account that invests in the portfolio or any variable life insurance policy or
variable annuity contract for which the portfolio is an investment option.
These charges and fees will reduce returns.
Information for the periods ended prior to December 31, 2005 was audited by
Ernst & Young LLP, an independent registered public accounting firm.
DWS SMALL CAP INDEX VIP - CLASS B
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 2006 2005 2004 2003 2002A
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.39 $ 14.34 $ 12.23 $ 8.44 $ 11.23
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)b .10 .07 .08 .07 .06
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment 2.34 .43 2.05 3.80 ( 2.79)
transactions
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.44 .50 2.13 3.87 ( 2.73)
-------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ( .06) ( .06) ( .02) ( .08) ( .05)
-------------------------------------------------------------------------------------------------------------------
Net realized gain on investment transactions ( .66) ( .39) - - ( .01)
-------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ( .72) ( .45) ( .02) ( .08) ( .06)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 16.11 $ 14.39 $ 14.34 $ 12.23 $ 8.44
-------------------------------------------------------------------------------------------------------------------
Total Return (%)c 17.19 3.99 17.48 46.05 (24.34)**
-------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 68 45 35 18 2
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) .72 .71 .73 .87 .88*
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) .70 .70 .70 .70 .70*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .68 .53 .66 .66 1.11*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 42 26 22 28 40
-------------------------------------------------------------------------------------------------------------------
</TABLE>
a For the period April 30, 2002 (commencement of operations) to December 31,
2002.
b Based on average shares outstanding during the period.
c Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DWS SMALL CAP INDEX VIP 71
<PAGE>
HYPOTHETICAL EXPENSE SUMMARY
Using the annual portfolio operating expense ratios presented in the fee tables
in the portfolio prospectus, the Hypothetical Expense Summary shows the
estimated fees and expenses, in actual dollars, that would be charged on a
hypothetical investment of $10,000 in the indicated portfolio held for the next
10 years and the impact of such fees and expenses on portfolio returns for each
year and cumulatively, assuming a 5% return for each year. The tables also
assume that all dividends and distributions are reinvested. The annual
portfolio expense ratios shown are net of any contractual fee waivers or
expense reimbursements, if any, for the period of the contractual commitment.
Also, please note that if you are investing through a third party provider,
that provider may have fees and expenses separate from those of the portfolio
that are not reflected here. Mutual fund fees and expenses fluctuate over time
and actual expenses may be higher or lower than those shown.
The Hypothetical Expense Summary should not be used or construed as an offer to
sell, a solicitation of an offer to buy or a recommendation or endorsement of
any specific mutual fund. You should carefully review the portfolio's
prospectus to consider the investment objectives, risks, expenses and charges
of the portfolio prior to investing.
DWS SMALL CAP INDEX VIP - CLASS B
<TABLE>
<CAPTION>
MAXIMUM INITIAL HYPOTHETICAL ASSUMED RATE
SALES CHARGE: INVESTMENT: OF RETURN:
0.00% $10,000 5%
-------------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE HYPOTHETICAL
RETURN BEFORE RETURN AFTER YEAR-END BALANCE ANNUAL
FEES AND ANNUAL FUND FEES AND AFTER FEES AND FEES AND
YEAR EXPENSES EXPENSE RATIOS EXPENSES EXPENSES EXPENSES
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 5.00% 0.75% 4.25% $ 10,425.00 $ 76.59
-------------------------------------------------------------------------------------------------------------------
2 10.25% 0.75% 8.68% $ 10,868.06 $ 79.85
-------------------------------------------------------------------------------------------------------------------
3 15.76% 0.75% 13.30% $ 11,329.96 $ 83.24
-------------------------------------------------------------------------------------------------------------------
4 21.55% 0.75% 18.11% $ 11,811.48 $ 86.78
-------------------------------------------------------------------------------------------------------------------
5 27.63% 0.75% 23.13% $ 12,313.47 $ 90.47
-------------------------------------------------------------------------------------------------------------------
6 34.01% 0.75% 28.37% $ 12,836.79 $ 94.31
-------------------------------------------------------------------------------------------------------------------
7 40.71% 0.75% 33.82% $ 13,382.35 $ 98.32
-------------------------------------------------------------------------------------------------------------------
8 47.75% 0.75% 39.51% $ 13,951.10 $ 102.50
-------------------------------------------------------------------------------------------------------------------
9 55.13% 0.75% 45.44% $ 14,544.02 $ 106.86
-------------------------------------------------------------------------------------------------------------------
10 62.89% 0.75% 51.62% $ 15,162.14 $ 111.40
-------------------------------------------------------------------------------------------------------------------
TOTAL $ 930.32
-------------------------------------------------------------------------------------------------------------------
</TABLE>
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
72 DWS SMALL CAP INDEX VIP
<PAGE>
OTHER POLICIES AND RISKS
While the previous pages describe the main points of each portfolio's strategy
and risks, there are a few other issues to know about:
o Each portfolio may trade securities actively. This could raise transaction
costs and, accordingly, lower performance.
o The Advisor or a subadvisor will establish a debt security's credit quality
when it buys a security, using independent ratings, or for unrated
securities, its own credit determination. When ratings don't agree, a
portfolio may use the higher rating. If a security's credit quality falls,
the advisor or subadvisor will determine whether selling it would be in a
portfolio's best interest.
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in
each portfolio.
If you want more information on each portfolio's allowable securities and
investment practices and the characteristics and risks of each one, you may
want to request a copy of the Statement of Additional Information (the back
cover tells you how to do this).
Keep in mind that there is no assurance that a portfolio will achieve its goal.
A complete list of each portfolio's portfolio holdings is posted on
www.dws-scudder.com (the Web site does not form a part of this prospectus) as
of the month-end on or after the last day of the following month. This posted
information generally remains accessible at least until the date on which a
portfolio files its Form N-CSR or N-Q with the Securities and Exchange
Commission for the period that includes the date as of which the posted
information is current. In addition, each portfolio's (except DWS Bond VIP) top
ten holdings and other information about each portfolio is posted on
www.dws-scudder.com as of the calendar quarter-end on or after the 15th day
following quarter end. Each portfolio's Statement of Additional Information
includes a description of a portfolio's policies and procedures with respect to
the disclosure of a portfolio's portfolio holdings.
THE INVESTMENT ADVISOR
Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), is the
investment advisor for each portfolio. Under the supervision of the Board
Members, the Advisor, with headquarters at 345 Park Avenue, New York, NY 10154,
or a subadvisor makes portfolio investment decisions, buys and sells securities
for each portfolio and conducts research that leads to these purchase and sale
decisions. The Advisor provides a full range of global investment advisory
services to institutional and retail clients.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name
in the US for the asset management activities of Deutsche Bank AG, DIMA,
Deutsche Bank Trust Company Americas and DWS Trust Company.
Deutsche Asset Management is a global asset management organization that offers
a wide range of investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that reaches the world's
major investment centers. This well-resourced global investment platform brings
together a wide variety of experience and investment insight across industries,
regions, asset classes and investing styles.
The Advisor is an indirect, wholly owned subsidiary of Deutsche Bank AG.
Deutsche Bank AG is a major global banking institution that is engaged in a
wide range of financial services, including investment management, mutual
funds, retail, private and commercial banking, investment banking and
insurance.
Prior to January 1, 2007, Deutsche Asset Management, Inc. ("DAMI") was the
investment advisor for DWS RREEF Real Estate Securities VIP, DWS Equity 500
Index VIP and DWS Small Cap Index VIP. Effective December 31, 2006, DAMI was
merged into DIMA. The new investment management agreements with DIMA were
approved by the Board and are identical in substance to each portfolio's prior
investment management agreement with DAMI.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
OTHER POLICIES AND RISKS 73
<PAGE>
The Advisor receives a management fee from each portfolio. Below is the
management rate paid by each portfolio for the most recent fiscal year, as a
percentage of each portfolio's average daily net assets:
<TABLE>
<CAPTION>
PORTFOLIO NAME FEE PAID
--------------------------------------------------------------------------------
<S> <C>
DWS Bond VIP 0.38%*
--------------------------------------------------------------------------------
DWS Growth & Income VIP 0.40%*
--------------------------------------------------------------------------------
DWS Capital Growth VIP 0.38%*
--------------------------------------------------------------------------------
DWS Global Opportunities VIP 0.93 %
--------------------------------------------------------------------------------
DWS International VIP 0.79 %
--------------------------------------------------------------------------------
DWS Health Care VIP 0.70 %
--------------------------------------------------------------------------------
DWS RREEF Real Estate Securities VIP 0.66%*
--------------------------------------------------------------------------------
DWS Equity 500 Index VIP 0.18%*
--------------------------------------------------------------------------------
DWS Small Cap Index VIP 0.33%*
--------------------------------------------------------------------------------
</TABLE>
* Reflecting the effect of expense limitations and/or fee waivers then in
effect.
Effective June 1, 2006, DWS Bond VIP pays the Advisor under the investment
management agreement a fee, calculated daily and paid monthly, at the annual
rate of 0.390% of the portfolio's average daily net assets up to $250 million,
0.365% of the next $750 million and 0.340% thereafter.
Effective June 1, 2006, DWS Growth & Income VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.390% of the portfolio's average daily net assets up to
$250 million, 0.365% of the next $750 million and 0.340% thereafter.
Effective June 1, 2006, DWS Capital Growth VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.390% of the portfolio's average daily net assets up to
$250 million, 0.365% of the next $750 million and 0.340% thereafter.
Effective June 1, 2006, DWS Global Opportunities VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.890% of the portfolio's average daily net assets up to
$500 million, 0.875% of the next $500 million, 0.860% of the next $1 billion
and 0.845% thereafter.
Effective June 1, 2006, DWS International VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.790% of the portfolio's average daily net assets up to
$500 million and 0.640% thereafter.
Effective June 1, 2006, DWS Health Care VIP pays the Advisor under the
investment management agreement a fee, calculated daily and paid monthly, at
the annual rate of 0.665% of the portfolio's average daily net assets up to
$250 million, 0.640% of the next $750 million, 0.615% of the next $1.5 billion,
0.595% of the next $2.5 billion, 0.565% of the next $2.5 billion, 0.555% of the
next $2.5 billion, 0.545% of the next $2.5 billion and 0.535% thereafter.
A discussion regarding the basis for the Board renewal of each portfolio's
investment management agreement and, as applicable, subadvisory agreement, and
sub-subadvisory agreement is contained in the shareholder reports for the
annual period ended December 31, 2006 (see "Shareholder reports" on the back
cover).
In addition, under a separate administrative services agreement between each
portfolio and Deutsche Investment Management Americas Inc., each portfolio pays
the Advisor for providing most of each portfolio's administrative services.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
74 THE INVESTMENT ADVISOR
<PAGE>
PORTFOLIO SUBADVISORS
SUBADVISOR FOR DWS BOND VIP
Pursuant to an investment subadvisory agreement between the Advisor and
Aberdeen Asset Management Inc. ("AAMI"), a US registered investment advisor,
AAMI acts as subadvisor. As the subadvisor, AAMI, under the supervision of the
Board and the Advisor, makes investment decisions, buys and sells securities
and conducts the research that leads to these purchase and sale decisions. AAMI
provides a full range of international investment advisory services to
institutional and retail clients.
AAMI is a direct, wholly owned subsidiary of Aberdeen Asset Management PLC, the
parent company of an asset management group formed in 1983. AAMI is located at
1735 Market Street, Philadelphia, PA 19103.
SUB-SUBADVISOR FOR DWS BOND VIP
Pursuant to an investment sub-subadvisory agreement between AAMI and Aberdeen
Asset Management Investment Services Limited ("AAMISL"), a US registered
investment advisor, AAMISL acts as the sub-subadvisor for the portfolio. As the
sub-subadvisor, AAMISL, under the supervision of the Board of Trustees, DIMA
and AAMI, manages the portfolio's investments in foreign securities, foreign
currencies and related investments and conducts the research that leads to
these investments. AAMISL provides a full range of international investment
advisory services to institutional and retail clients. AAMI continues to manage
the core bond and active fixed income strategies of the portfolio.
AAMISL will be paid for its sub-subadvisory services by AAMI, the portfolio's
subadvisor, from AAMI's subadvisory fee paid by DIMA to AAMI.
SUBADVISOR FOR DWS RREEF REAL ESTATE SECURITIES VIP
RREEF America LLC ("RREEF"), an indirect, wholly owned subsidiary of Deutsche
Bank AG, is the subadvisor for DWS RREEF Real Estate Securities VIP. DIMA pays
a fee to RREEF for acting as subadvisor to DWS RREEF Real Estate Securities
VIP.
RREEF makes the investment decisions, buys and sells securities for DWS RREEF
Real Estate Securities VIP and conducts research that leads to these purchase
and sale decisions.
RREEF has provided real estate investment management services to institutional
investors since 1975 across a diversified portfolio of industrial properties,
office buildings, residential apartments and shopping centers. RREEF has also
been an investment advisor of real estate securities since 1993.
SUBADVISOR FOR DWS EQUITY 500 INDEX VIP AND DWS SMALL CAP INDEX VIP
Northern Trust Investments, N.A. ("NTI"), the subadvisor for DWS Equity 500
Index VIP and DWS Small Cap Index VIP, is located at 50 South LaSalle Street,
Chicago, IL 60603. NTI is an investment adviser registered under the Investment
Advisers Act of 1940, as amended. NTI primarily manages assets for defined
contribution and benefit plans, investment companies and other institutional
investors. NTI is a subsidiary of The Northern Trust Company ("TNTC"), an
Illinois state chartered banking organization and a member of the Federal
Reserve System. Formed in 1889, TNTC administers and manages assets for
individuals, personal trusts, defined contribution and benefit plans and other
institutional and corporate clients. TNTC is the principal subsidiary of
Northern Trust Corporation, a bank holding company. Northern Trust Corporation,
through its subsidiaries, has for more than 100 years managed the assets of
individuals, charitable organizations, foundations and large corporate
investors. As of December 31, 2006, NTI and its affiliates had assets under
custody of $3.5 trillion, and assets under investment management of $697
billion.
LEGAL PROCEEDINGS
On December 21, 2006, Deutsche Asset Management ("DeAM") settled proceedings
with the Securities and Exchange Commission ("SEC") and the New York Attorney
General on behalf of Deutsche Asset Management, Inc. ("DAMI") and DIMA, the
investment advisors to many of the DWS Scudder funds, regarding allegations of
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
PORTFOLIO SUBADVISORS 75
<PAGE>
improper trading of fund shares at DeAM and at the legacy Scudder and Kemper
organizations prior to their acquisition by DeAM in April 2002. These
regulators alleged that although the prospectuses for certain funds in the
regulators' view indicated that the funds did not permit market timing, DAMI
and DIMA breached their fiduciary duty to those funds in that their efforts to
limit trading activity in the funds were not effective at certain times. The
regulators also alleged that DAMI and DIMA breached their fiduciary duty to
certain funds by entering into certain market timing arrangements with
investors. These trading arrangements originated in businesses that existed
prior to the currently constituted DeAM organization, which came together as a
result of various mergers of the legacy Scudder, Kemper and Deutsche fund
groups, and all of the arrangements were terminated prior to the start of the
regulatory investigations that began in the summer of 2003. No current DeAM
employee approved these trading arrangements. Under the terms of the
settlements, DAMI and DIMA neither admitted nor denied any wrongdoing.
The terms of the SEC settlement, which identified improper trading in the
legacy Deutsche and Kemper mutual funds only, provide for payment of
disgorgement in the amount of $17.2 million. The terms of the settlement with
the New York Attorney General provide for payment of disgorgement in the amount
of $102.3 million, which is inclusive of the amount payable under the SEC
settlement, plus a civil penalty in the amount of $20 million. The total amount
payable by DeAM, approximately $122.3 million, will be distributed to funds
and/or shareholders of the affected funds in accordance with a distribution
plan to be developed by a distribution consultant. The funds' investment
advisors do not believe these amounts will have a material adverse financial
impact on them or materially affect their ability to perform under their
investment management agreements with the DWS funds. The above-described
amounts are not material to Deutsche Bank, and have already been reserved.
Among the terms of the settled orders, DeAM is subject to certain undertakings
regarding the conduct of its business in the future, including formation of a
Code of Ethics Oversight Committee to oversee all matters relating to issues
arising under the advisors' Code of Ethics; establishment of an Internal
Compliance Controls Committee having overall compliance oversight
responsibility of the advisors; engagement of an Independent Compliance
Consultant to conduct a comprehensive review of the advisors' supervisory
compliance and other policies and procedures designed to prevent and detect
breaches of fiduciary duty, breaches of the Code of Ethics and federal
securities law violations by the advisors and their employees; and commencing
in 2008, the advisors shall undergo a compliance review by an independent third
party.
In addition, DeAM is subject to certain further undertakings relating to the
governance of the mutual funds, including that at least 75% of the members of
the Boards of Trustees/Directors overseeing the DWS Funds continue to be
independent of DeAM; the Chairmen of the DWS Funds' Boards of
Trustees/Directors continue to be independent of DeAM; DeAM maintain existing
management fee reductions for certain funds for a period of five years and not
increase management fees for certain funds during this period; the funds retain
a senior officer (or independent consultants) responsible for assisting in the
review of fee arrangements and monitoring compliance by the funds and the
investment advisors with securities laws, fiduciary duties, codes of ethics and
other compliance policies, the expense of which shall be borne by DeAM; and
periodic account statements, fund prospectuses and the mutual funds' web site
contain additional disclosure and/or tools that assist investors in
understanding the fees and costs associated with an investment in the funds and
the impact of fees and expenses on fund returns.
DeAM has also settled proceedings with the Illinois Secretary of State
regarding market timing matters. The terms of the Illinois settlement provide
for investor education contributions totaling approximately $4 million and a
payment in the amount of $2 million to the Securities Audit and Enforcement
Fund.
The matters alleged in the regulatory settlements described above also serve as
the general basis of a number of private class action lawsuits involving the
DWS funds. These lawsuits name as defendants various persons, including certain
DWS funds, the funds' investment advisors and their affiliates, and certain
individuals, including in some cases fund Trustees/Directors, officers, and
other parties. Each DWS fund's investment advisor has agreed to indemnify the
applicable DWS funds in connection with these lawsuits, or other lawsuits or
regulatory actions that may be filed making similar allegations.
Based on currently available information, the funds' investment advisors
believe the likelihood that the pending lawsuits will have a material adverse
financial impact on a DWS fund is remote and such actions are not likely to
materially affect their ability to perform under their investment management
agreements with the DWS funds.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
76 PORTFOLIO SUBADVISORS
<PAGE>
--------------------------------------------------------------------------------
YOUR INVESTMENT IN THE PORTFOLIOS
The information in this section may affect anyone who selects one or more
portfolios as an investment option in a variable annuity contract or variable
life insurance policy that offers one or more portfolios. These contracts and
policies are described in separate prospectuses issued by participating
insurance companies. Each portfolio assumes no responsibility for such
prospectuses.
POLICIES ABOUT TRANSACTIONS
The information in this prospectus applies to Class B shares of each portfolio
and for DWS Equity 500 VIP only, Class B2 shares. Each portfolio offers two
classes of shares (except DWS Equity 500 Index VIP, which offers three classes
of shares). Class B and Class B2 shares are offered at net asset value and are
subject to 12b-1 fees.
Technically, the shareholders of DWS Variable Series I and DWS Investments VIT
Funds (which include each portfolio just described) are the participating
insurance companies (the "insurance companies") that offer each portfolio as
choices for holders of certain variable annuity contracts or variable life
insurance policies (the "contract(s)") issued or sponsored by the insurance
companies. The insurance companies effectively pass through the ownership of
portfolio shares to their contract owners and some may pass through voting
rights as well. Each portfolio does not sell shares directly to the public.
Each portfolio sells shares only to separate accounts of insurance companies.
As a contract owner, your premium payments are allocated to a portfolio by the
insurance companies in accordance with your contract. Please see the contract
prospectus that accompanies this prospectus for a detailed explanation of your
contract.
Please bear in mind that there are important differences between funds
available to any investor (a "Retail Fund") and those that are only available
through certain financial institutions, such as insurance companies. For
example, Retail Funds, unlike a portfolio, are not sold to insurance company
separate accounts to support investments in variable insurance contracts. In
addition, the investment objectives, policies and strategies of a portfolio,
while similar to those of a Retail Fund, are not identical. Retail Funds may be
smaller or larger than a portfolio and have different expense ratios than the
portfolios. As a result, the performance of a portfolio and a Retail Fund will
differ.
Should any conflict between contract owners arise that would require that a
substantial amount of net assets be withdrawn from a portfolio, orderly
portfolio management could be disrupted to the potential detriment of contract
owners in that portfolio.
Each portfolio has a verification process for new insurance company accounts to
help the government fight the funding of terrorism and money laundering
activities. Federal law requires all financial institutions to obtain, verify
and record information that identifies each insurance company that opens an
account. This means that when an insurance company opens an account, a
portfolio will ask for its name, address and other information that will allow
a portfolio to identify the company. This information will be verified to
ensure the identity of all insurance companies opening an account.
For certain insurance companies, a portfolio might request additional
information (for instance, a portfolio would ask for documents such as the
insurance company's articles of incorporation) to help a portfolio verify the
insurance company's identity.
Each portfolio will not complete the purchase of any shares for an account
until all information has been provided and the application has been submitted
in "good order." Once the application is determined to be in good order, the
purchase(s) will be effected at the net asset value per share next calculated.
Each portfolio may reject a new account application if the insurance company
doesn't provide any required or requested identifying information, or for other
reasons.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
YOUR INVESTMENT IN THE PORTFOLIOS 77
<PAGE>
BUYING AND SELLING SHARES
Each PORTFOLIO IS OPEN FOR BUSINESS each day the New York Stock Exchange is
open. Each portfolio calculates its share price every business day, as of the
close of regular trading on the New York Stock Exchange (typically 4 p.m.
Eastern time, but sometimes earlier, as in the case of scheduled half-day
trading or unscheduled suspensions of trading).
Each portfolio continuously sells shares to each insurance company, without a
sales charge, at the net asset value per share next determined after a proper
purchase order is placed with the insurance company. The insurance company
offers contract owners units in its separate accounts which directly correspond
to shares in a portfolio. Each insurance company submits purchase and
redemption orders to a portfolio based on allocation instructions for premium
payments, transfer instructions and surrender or partial withdrawal requests
for contract owners, as set forth in the accompanying prospectus for the
contracts. These orders reflect the amount of premium payments to be invested,
surrender and transfer requests, and other matters. Redemption orders are
effected at the next net asset value per share determined after a proper
redemption order is placed with the insurance company. Contract owners should
look at their contract prospectuses for redemption procedures and fees.
IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES
o After receiving a contract owner's order, the insurance company buys or sells
shares at the net asset value next calculated on any day a portfolio is open
for business.
o Unless otherwise instructed, a portfolio normally makes payment of the
proceeds from the sale of shares the next business day but always within
seven calendar days.
o Each portfolio does not issue share certificates.
o Each portfolio reserves the right to reject purchases of shares for any
reason.
o Each portfolio reserves the right to withdraw or suspend the offering of
shares at any time.
o Each portfolio reserves the right to reject purchases of shares or to suspend
or postpone redemptions at times when the New York Stock Exchange is closed
(other than customary closings), trading is restricted or when an emergency
exists that prevents a portfolio from disposing of its portfolio securities
or pricing its shares.
o Each portfolio may refuse, cancel or rescind any purchase order; freeze any
account (meaning the insurance company will not be able to purchase shares
in its account); suspend account services; and/or involuntarily redeem the
account if we think that the account is being used for fraudulent or illegal
purposes by the insurance company; one or more of these actions will be
taken when, at the sole discretion of a portfolio, they are deemed to be in
a portfolio's best interest or when a portfolio is requested or compelled to
do so by governmental authority or by applicable law.
o Each portfolio may close and liquidate an account if a portfolio is unable to
verify provided information, or for other reasons; if a portfolio decides to
close the account, the shares will be redeemed at the net asset value per
share next calculated after we determine to close the account; the insurance
company may be subject to gain or loss on the redemption of the portfolio
shares and may incur tax liability.
o Each portfolio may pay you for shares you sell by "redeeming in kind," that
is, by giving you marketable securities (which typically will involve
brokerage costs for you to liquidate) rather than cash, but which will be
taxable to the same extent as a redemption for cash; a portfolio generally
won't make a redemption in kind unless your requests over a 90-day period
total more than $250,000 or 1% of the value of a portfolio's net assets,
whichever is less.
o A contract owner's purchase order may not be accepted if the sale of
portfolio shares has been suspended or if it is determined that the purchase
would be detrimental to the interests of a portfolio's shareholders.
MARKET TIMING POLICIES AND PROCEDURES. Short-term and excessive trading of
portfolio shares may present risks to each portfolio's long-term shareholders,
including potential dilution in the value of portfolio shares, interference
with the efficient management of a portfolio (including losses on the sale of
investments), taxable gains to remaining shareholders and increased brokerage
and administrative costs. These risks may be more pronounced if a portfolio
invests in certain securities such as those that trade in foreign markets, are
illiquid or
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
78 YOUR INVESTMENT IN THE PORTFOLIOS
<PAGE>
do not otherwise have "readily available market quotations." Certain investors
may seek to employ short-term trading strategies aimed at exploiting variations
in portfolio valuation that arise from the nature of the securities held by a
portfolio (e.g., "time zone arbitrage").
Each portfolio discourages short-term and excessive trading. Each portfolio
will take steps to detect and deter short-term and excessive trading pursuant
to a portfolio's policies as described in this prospectus and approved by the
Board.
Portfolio policies include:
o each portfolio reserves the right to reject or cancel a purchase or exchange
order for any reason when, in the opinion of the Advisor, there appears to
be a pattern of short-term or excessive trading activity by a shareholder or
any other trading activity deemed harmful or disruptive to a portfolio; and
o for each portfolio that invests some portion of its assets in foreign
securities - each portfolio has adopted certain fair valuation practices
reasonably designed to protect the portfolio from "time zone arbitrage" with
respect to its foreign securities holdings and other trading practices that
seek to exploit variations in portfolio valuation that arise from the nature
of the securities held by a portfolio. (See "How each Portfolio Calculates
Share Price.")
When a pattern of short-term or excessive trading activity or other trading
activity deemed harmful or disruptive to a portfolio is detected in a
particular separate account, the Advisor will take steps to stop this activity
by contacting the insurance company that maintains the accounts for the
underlying contract holders and seeking to have the insurance company enforce
the separate account's policies on short-term or excessive trading, if any. In
addition, the Advisor and each portfolio reserve the right to terminate a
separate account's ability to invest in a portfolio if apparent short-term or
excessive trading activity persists. The detection of these patterns and the
banning of further trading are inherently subjective and therefore involve some
selectivity in their application. The Advisor seeks to make such determinations
in a manner consistent with the interests of each portfolio's long-term
shareholders.
There is no assurance that these policies and procedures will be effective in
limiting short-term and excessive trading in all cases. For example, the
Advisor may not be able to effectively monitor, detect or limit short-term or
excessive trading by underlying shareholders that occurs through separate
accounts maintained by insurance companies or other financial intermediaries.
Depending on the amount of portfolio shares held in a particular separate
account (which may represent most of a portfolio's shares) short-term and/or
excessive trading of portfolio shares could adversely affect long-term
shareholders in a portfolio. It is important to note that the Advisor and each
portfolio do not have access to underlying shareholders' trading activity and
that investors will be subject to the policies and procedures of their
insurance company with respect to short-term and excessive trading in a
portfolio.
These policies and procedures may be modified and terminated at any time.
HOW TO RECEIVE ACCOUNT INFORMATION
If you are a contract owner, you should contact your insurance company or the
organization that provides record keeping services for information about your
account.
Please see the contract prospectus that accompanies this prospectus for the
customer service phone number.
HOW TO BUY AND SELL SHARES
Each insurance company has different provisions about how and when their
contract owners may buy and sell portfolio shares. Each insurance company is
responsible for communicating its contract owners' instructions to a portfolio.
Contract owners should contact their insurance company to effect transactions
in any portfolio.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
YOUR INVESTMENT IN THE PORTFOLIOS 79
<PAGE>
FINANCIAL INTERMEDIARY SUPPORT PAYMENTS
The Advisor, DWS Scudder Distributors, Inc. (the "Distributor") and/or their
affiliates may pay additional compensation, out of their own assets and not as
an additional charge to each portfolio, to selected affiliated and unaffiliated
brokers, dealers, participating insurance companies or other financial
intermediaries ("financial advisors") in connection with the sale and/or
distribution of portfolio shares or the retention and/or servicing of fund
investors and fund shares ("revenue sharing"). Such revenue sharing payments
are in addition to any distribution or service fees payable under any Rule
12b-1 or service plan of each portfolio, any record keeping/
sub-transfer agency/networking fees payable by each portfolio (generally
through the Distributor or an affiliate) and/or the Distributor to certain
financial advisors for performing such services and any sales charges,
commissions, non-cash compensation arrangements expressly permitted under
applicable rules of the NASD or other concessions described in the fee table or
elsewhere in this prospectus or the Statement of Additional Information as
payable to all financial advisors. For example, the Advisor, the Distributor
and/or their affiliates may compensate financial advisors for providing a
portfolio with "shelf space" or access to a third party platform or portfolio
offering list or other marketing programs including, without limitation,
inclusion of the portfolio on preferred or recommended sales lists, mutual fund
"supermarket" platforms and other formal sales programs; granting the
Distributor access to the financial advisor's sales force; granting the
Distributor access to the financial advisor's conferences and meetings;
assistance in training and educating the financial advisor's personnel; and
obtaining other forms of marketing support. The level of revenue sharing
payments made to financial advisors may be a fixed fee or based upon one or
more of the following factors: gross sales, current assets and/or number of
accounts of each portfolio attributable to the financial advisor, the
particular portfolio or portfolio type or other measures as agreed to by the
Advisor, the Distributor and/or their affiliates and the financial advisors or
any combination thereof. The amount of these revenue sharing payments is
determined at the discretion of the Advisor, the Distributor and/or their
affiliates from time to time, may be substantial, and may be different for
different financial advisors based on, for example, the nature of the services
provided by the financial advisor.
The Advisor, the Distributor and/or their affiliates currently make revenue
sharing payments from their own assets in connection with the sale and/or
distribution of DWS Fund shares or the retention and/or servicing of investors
and DWS Fund shares to financial advisors in amounts that generally range from
.01% up to .50% of assets of each portfolio serviced and maintained by the
financial advisor, .05% to .40% of sales of each portfolio attributable to the
financial advisor, a flat fee of $12,500 up to $500,000, or any combination
thereof. These amounts are subject to change at the discretion of the Advisor,
the Distributor and/or their affiliates. Receipt of, or the prospect of
receiving, this additional compensation may influence your financial advisor's
recommendation of each portfolio or of any particular share class of each
portfolio. You should review your financial advisor's compensation disclosure
and/or talk to your financial advisor to obtain more information on how this
compensation may have influenced your financial advisor's recommendation of
each portfolio. Additional information regarding these revenue sharing payments
is included in each portfolio's Statement of Additional Information, which is
available to you on request at no charge (see the back cover of this prospectus
for more information on how to request a copy of the Statement of Additional
Information).
The Advisor, the Distributor and/or their affiliates may also make such revenue
sharing payments to financial advisors under the terms discussed above in
connection with the distribution of both DWS funds and non-DWS funds by
financial advisors to retirement plans that obtain record keeping services from
ADP, Inc. on the DWS Scudder branded retirement plan platform (the "Platform")
with the level of revenue sharing payments being based upon sales of both the
DWS funds and the non-DWS funds by the financial advisor on the Platform or
current assets of both the DWS funds and the non-DWS funds serviced and
maintained by the financial advisor on the Platform.
It is likely that broker-dealers that execute portfolio transactions for each
portfolio will include firms that also sell shares of the DWS funds to their
customers. However, the Advisor will not consider sales of DWS fund shares as a
factor in the selection of broker-dealers to execute portfolio transactions for
the DWS funds. Accordingly, the Advisor has implemented policies and procedures
reasonably designed to prevent its traders from considering sales of DWS fund
shares as a factor in the selection of broker-dealers to execute portfolio
transactions for each portfolio. In addition, the Advisor, the Distributor
and/or their affiliates will not use fund brokerage to pay for their obligation
to provide additional compensation to financial advisors as described above.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
80 YOUR INVESTMENT IN THE PORTFOLIOS
<PAGE>
HOW EACH PORTFOLIO CALCULATES SHARE PRICE
To calculate net asset value per share, or NAV, each portfolio uses the
following equation:
<TABLE>
<S> <C>
TOTAL ASSETS - TOTAL LIABILITIES
--------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
</TABLE>
The price at which you buy and sell shares for each portfolio is the NAV.
We typically value securities using information furnished by an independent
pricing service or market quotations, where appropriate. However, we may use
methods approved by the Board, such as a fair valuation model, which are
intended to reflect fair value when pricing service information or market
quotations are not readily available or when a security's value or a meaningful
portion of the value of a portfolio is believed to have been materially
affected by a significant event, such as a natural disaster, an economic event
like a bankruptcy filing, or a substantial fluctuation in domestic or foreign
markets, that has occurred between the close of the exchange or market on which
the security is principally traded (for example, a foreign exchange or market)
and the close of the New York Stock Exchange. In such a case, a portfolio's
value for a security is likely to be different from the last quoted market
price or pricing service information. In addition, due to the subjective and
variable nature of fair value pricing, it is possible that the value determined
for a particular asset may be materially different from the value realized upon
such asset's sale. It is expected that the greater the percentage of portfolio
assets that is invested in non-US securities, the more extensive will be a
portfolio's use of fair value pricing. This is intended to reduce a portfolio's
exposure to "time zone arbitrage" and other harmful trading practices. (See
"Market Timing Policies and Procedures.")
To the extent that a portfolio invests in securities that are traded primarily
in foreign markets, the value of its holdings could change at a time when you
aren't able to buy or sell portfolio shares through the contract. This is
because some foreign markets are open on days and at times when each portfolio
doesn't price the shares.
DISTRIBUTIONS
Each portfolio intends to declare and distribute dividends from their net
investment income and capital gains, if any, annually. Each portfolio may make
additional distributions if necessary.
All distributions will be reinvested in shares of a portfolio unless we are
informed by an insurance company that they should be paid out in cash. The
insurance companies will be informed about the amount and character of
distributions from the relevant portfolio for federal income tax purposes.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
YOUR INVESTMENT IN THE PORTFOLIOS 81
<PAGE>
TAXES
Each portfolio intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended, (the
"Code") and to meet all requirements necessary to avoid paying any federal
income or excise taxes.
Generally, owners of variable annuity and variable life contracts are not taxed
currently on income or gains realized with respect to such contracts. However,
some distributions from such contracts, whether made prior to or during the
annuity payment period, may be taxable at ordinary income tax rates. In
addition, distributions made to an owner who is younger than 59 1/2 may be
subject to a 10% penalty tax. For further information concerning federal income
tax consequences for the holders of variable annuity contracts and variable
life insurance policies, such holders should consult the prospectus used in
connection with the issuance of their particular contracts or policies.
In order for investors to receive the favorable tax treatment available to
holders of variable annuity and variable life contracts, the separate accounts
underlying such contracts, as well as the funds in which such accounts invest,
must meet certain diversification requirements. Each portfolio intends to
comply with these requirements. If a portfolio or separate account does not
meet such requirements or otherwise fails to qualify as a regulated investment
company for any taxable year, income allocable to the contracts associated with
the separate account would be taxable currently to the holders of such
contracts and income from prior periods with respect to such contracts also
could be taxable, most likely in the year of the failure.
Under Treasury regulations, insurance companies holding the separate accounts
must report to the Internal Revenue Service losses above a certain amount
resulting from a sale or disposition of a portfolio's share.
The discussion above is generally based on the assumption that shares of a
portfolio will be respected as owned by insurance company separate accounts. If
this is not the case (for example, because the Internal Revenue Service finds
an impermissible level of "investor control" over the investment options
underlying variable contracts), the advantageous tax treatment provided in
respect of insurance company separate accounts under the Code will no longer be
available, and the person or persons determined to own the portfolio shares
will be currently taxed on portfolio distributions, and on the proceeds of any
redemption of portfolio shares, under the Code rules.
Portfolio investments in securities of foreign issuers may be subject to
withholding and other taxes at the source, including on dividend or interest
payments. Participating insurance companies should consult their own tax
advisors as to whether such distributions are subject to federal income tax if
they are retained as part of policy reserves.
A portfolio's investments in certain debt obligations may cause the portfolio
to recognize taxable income in excess of the cash generated by such obligation.
Thus, a portfolio could be required at times to liquidate other investments in
order to satisfy its distribution requirements.
The preceding is a brief summary of certain of the relevant tax considerations.
Because each shareholder and contract holder's tax situation is unique, ask
your tax professional about the tax consequences of your investments, including
possible foreign, state or local taxes.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
82 DISTRIBUTIONS
<PAGE>
MARKETING AND DISTRIBUTION FEES
Class B and Class B2 Shares are referred to collectively as "Class B shares."
DWS Scudder Distributors, Inc., a subsidiary of the Advisor, is each
portfolio's distributor.
DWS Variable Series I and DWS Investments VIT Funds have each adopted a 12b-1
plan for all Class B shares. Under this plan, each portfolio pays a fee to the
distributor, which in turn remits fees to participating insurance companies for
various costs incurred or paid by these companies in connection with marketing
and distributing Class B shares of a portfolio. Depending on the participating
insurance company's corporate structure and applicable state law, the
distributor may remit payments to the participating insurance company's
affiliated broker-dealers or another affiliated company rather than to the
participating insurance company itself.
The plan provides that DWS Variable Series I and DWS Investments VIT Funds, on
behalf of each applicable portfolio, will pay DWS Scudder Distributors, Inc.,
as distributor, a fee of up to 0.25% of the average daily net assets of the
portfolio attributable to each applicable portfolio's Class B shares. Under the
plan, a portfolio may make quarterly payments to the distributor for remittance
to a participating insurance company for distribution and shareholder servicing
related expenses incurred or paid by the participating insurance company. No
such payment shall be made with respect to any quarterly period in excess of an
amount determined for such period at the annual rate of 0.25% of the average
daily net assets of Class B shares of the portfolios attributable to that
participating insurance company's variable annuity contracts and variable life
insurance policies during that quarterly period.
Because 12b-1 fees for Class B shares are paid out of portfolio assets on an
ongoing basis, they will, over time, increase the cost of investment in Class B
shares and may cost more than other types of sales charges.
Examples of expenses payable under the plan include the costs of printing and
mailing materials (such as portfolio prospectuses, shareholder reports,
portfolio advertisements and sales literature), holding seminars and sales
meetings, providing customer service to policyholders and sales compensation.
DWS VARIABLE SERIES I - DWS INVESTMENTS VIT FUNDS
CLASS B SHARES
DISTRIBUTIONS 83
<PAGE>
--------------------------------------------------------------------------------
TO GET MORE INFORMATION
SHAREHOLDER REPORTS - These include commentary from each portfolio's management
team about recent market conditions and the effects of each portfolio's
strategies on its performance. They also have detailed performance figures, a
list of everything each portfolio owns, and its financial statements.
Shareholders get these reports automatically.
STATEMENT OF ADDITIONAL INFORMATION (SAI) - This tells you more about each
portfolio's features and policies, including additional risk information. The
SAI is incorporated by reference into this document (meaning that it's legally
part of this prospectus).
For a free copy of any of these documents or to request other information about
a portfolio, call (800) 621-1048, or contact DWS Scudder at the address listed
below. Each portfolio's SAI and shareholder reports are also available through
the DWS Scudder Web site at www.dws-scudder.com. These documents and other
information about the portfolio are available from the EDGAR Database on the
SEC's Internet site at www.sec.gov. If you like, you may obtain copies of this
information, after paying a copying fee, by e-mailing a request to
publicinfo@sec.gov or by writing the SEC at the address listed below. You can
also review and copy these documents and other information about the portfolio,
including the portfolio's SAI, at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the SEC's Public Reference
Room may be obtained by calling (800) SEC-0330.
<TABLE>
<CAPTION>
DWS SCUDDER DISTRIBUTORS, INC. SEC
<S> <C>
222 South Riverside Plaza 100 F Street, N.E.
Chicago, IL 60606-5808 Washington, D.C. 20549-0102
(800) 621-1148 WWW.SEC.GOV
(800) SEC-0330
</TABLE>
<TABLE>
<CAPTION>
SEC FILE NUMBER:
-------------------------------------
<S> <C>
DWS Variable Series I 811-04257
DWS Investments VIT Funds 811-07507
</TABLE>
(05/01/07) 1b-A
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2007
CLASS A AND B SHARES
DWS VARIABLE SERIES I
Two International Place, Boston, Massachusetts 02110
This combined Statement of Additional Information is not a prospectus. It should
be read in conjunction with the applicable prospectuses of DWS Variable Series I
(the "Fund") dated May 1, 2007, as amended from time to time. The prospectuses
may be obtained without charge from the Fund by calling (800) 778-1482, and is
also available along with other related materials on the Securities and Exchange
Commission Internet Web site (http://www.sec.gov). The prospectus is also
available from Participating Insurance Companies.
DWS Variable Series I offers a choice of six portfolios (each a "Portfolio,"
collectively, the "Portfolios"), to holders of certain variable life insurance
and variable annuity contracts offered by Participating Insurance Companies.
The six portfolios are:
DWS BOND VIP
DWS GROWTH & INCOME VIP
DWS CAPITAL GROWTH VIP
DWS GLOBAL OPPORTUNITIES VIP
DWS INTERNATIONAL VIP
DWS HEALTH CARE VIP
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT RESTRICTIONS......................................................1
INVESTMENT POLICIES AND TECHNIQUES...........................................5
General Investment Policies.........................................5
Portfolio Holdings Information.....................................37
MANAGEMENT OF THE FUND......................................................38
Investment Advisor.................................................38
Subadvisor and Sub-subadvisor -- DWS Bond VIP.......................46
Administrative Agreement...........................................47
Compensation of Portfolio Managers.................................48
FUND SERVICE PROVIDERS......................................................66
Principal Underwriter..............................................66
Transfer Agent.....................................................68
Custodian..........................................................69
Independent Registered Public Accounting Firm......................69
Legal Counsel......................................................69
Fund Accounting Agent..............................................69
PORTFOLIO TRANSACTIONS......................................................70
PURCHASES AND REDEMPTIONS...................................................80
DIVIDENDS, CAPITAL GAINS AND TAXES..........................................85
NET ASSET VALUE.............................................................89
TRUSTEES AND OFFICERS.......................................................90
SHAREHOLDER COMMUNICATIONS.................................................121
FUND ORGANIZATION..........................................................121
PROXY VOTING GUIDELINES....................................................123
ADDITIONAL INFORMATION.....................................................124
FINANCIAL STATEMENTS.......................................................125
APPENDIX A.................................................................126
i
<PAGE>
INVESTMENT RESTRICTIONS
The following fundamental policies may not be changed with respect to any
Portfolio without the approval of the majority of outstanding voting securities
of that Portfolio which, under the Investment Company Act of 1940, as amended
(the "1940 Act"), and the rules thereunder and as used in this Statement of
Additional Information, means the lesser of (1) 67% of the shares of that
Portfolio present at a meeting if the holders of more than 50% of the
outstanding shares of that Portfolio are present in person or by proxy, or (2)
more than 50% of the outstanding shares of that Portfolio. Any investment
restrictions which involve a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by or on behalf of, a Portfolio.
As a matter of fundamental policy, the Fund may not on behalf of any Portfolio:
1. borrow money, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time;
2. issue senior securities, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time;
3. For all Portfolios (except DWS Health Care VIP): concentrate its
investments in a particular industry, as that term is used in the 1940
Act, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
4. purchase or sell commodities, except as permitted by the 1940 Act, as
amended, and as interpreted or modified by the regulatory authority
having jurisdiction from time to time.
5. engage in the business of underwriting securities issued by others,
except to the extent that the Portfolio may be deemed to be an
underwriter in connection with the disposition of portfolio securities;
6. purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured
by real estate or interests therein, except that the Portfolio reserves
freedom of action to hold and to sell real estate acquired as a result
of the Portfolio's ownership of securities; or
7. make loans except as permitted under the 1940 Act, and as interpreted
or modified by regulatory authority having jurisdiction, from time to
time.
Other Investment Policies. The Board of Trustees of the Fund has voluntarily
adopted policies and restrictions which are observed in the conduct of the
Fund's affairs. These represent intentions of the Board based upon current
circumstances. They differ from fundamental investment policies in that they may
be changed or amended by action of the Board without prior notice to or approval
of shareholders.
As a matter of nonfundamental policy, the Fund currently does not intend on
behalf of the indicated Portfolio(s):
1. to borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging in
reverse repurchase agreements, dollar rolls, or other investments or
transactions described in the Portfolio's registration statement which
may be deemed to be borrowings;
<PAGE>
2. For all Portfolios (except DWS Bond VIP): to enter into either of
reverse repurchase agreements or dollar rolls in an amount greater than
5% of its total assets;
3. to purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage transactions,
(iii) for margin deposits in connection with futures contracts, options
or other permitted investments, (iv) that transactions in futures
contracts and options shall not be deemed to constitute selling
securities short, and (v) that the Portfolio may obtain such short-term
credits as may be necessary for the clearance of securities
transactions;
4. to purchase options, unless the aggregate premiums paid on all such
options held by the Portfolio at any time do not exceed 20% of its
total assets; or sell put options, if as a result, the aggregate value
of the obligations underlying such put options would exceed 50% of its
total assets;
5. For all Portfolios (except DWS Bond VIP): to enter into futures
contracts or purchase options thereon, unless immediately after the
purchase, the value of the aggregate initial margin with respect to
such futures contracts entered into on behalf of the Portfolio and the
premiums paid for such options on futures contracts does not exceed 5%
of the fair market value of the Portfolio's total assets; provided that
in the case of an option that is in-the-money at the time of purchase,
and in-the-money amount may be excluded in computing the 5% limit;
6. For Bond VIP: to invest more than 15% of its total assets in futures
contracts and interest rate swaps contracts based on the notional
amount of the contracts;
7. to purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Portfolio's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have no
value);
8. to lend portfolio securities in an amount greater than 33 1/3% of its
total assets;
9. to acquire securities of registered, open-end investment companies or
registered unit investment trusts in reliance on Sections 12(d)(1)(F)
or 12(d)(1)(G) of the Investment Company Act of 1940, as amended.
"Value" for the purposes of all investment restrictions shall mean the value
used in determining a Portfolio's net asset value. (See "NET ASSET VALUE.")
Master/feeder Fund Structure
The Fund's Board of Trustees has the discretion with respect to each Portfolio
to retain the current distribution arrangement for the Portfolio while investing
in a master fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests most or all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
2
<PAGE>
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
3
<PAGE>
DWS Bond VIP. DWS Bond VIP seeks to maximize total return consistent with
preservation of capital and prudent investment management, by investing for both
current income and capital appreciation.
DWS Growth & Income VIP. DWS Growth & Income VIP seeks long-term growth of
capital, current income and growth of income. The portfolio may invest up to 25%
of its total assets in foreign securities.
DWS Capital Growth VIP. DWS Capital Growth VIP seeks to maximize long-term
capital growth through a broad and flexible investment program.
The Portfolio, as a matter of nonfundamental policy, may invest up to 20% of its
net assets in intermediate to longer term debt securities. Generally, these
securities will be in the top four grades of credit quality (i.e. BBB/Baa and
above). In order to reduce risk, as market or economic conditions periodically
warrant, the Portfolio may also invest up to 25% of its assets in short-term
debt instruments. The Portfolio's intermediate to longer-term debt securities
may also include those which are rated below investment grade as long as no more
than 5% of its net assets are invested in such securities. While the portfolio
invests mainly in US stocks, it could invest up to 25% of total assets in
foreign equity securities.
Should the rating of any security held by the Portfolio be downgraded after the
time of purchase, the Advisor will determine whether it is in the best interest
of the Portfolio to retain or dispose of the security.
DWS Global Opportunities VIP. DWS Global Opportunities VIP seeks above-average
capital appreciation over the long term. The Portfolio may purchase
investment-grade bonds, those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A
or BBB by S&P or, if unrated, of equivalent quality as determined by the
Advisor.
The Portfolio invests in no less than five foreign countries; provided that, (i)
if foreign securities comprise less than 80% of the value of the Portfolio's net
assets, the Portfolio shall invest in no less than four foreign countries; (ii)
if foreign securities comprise less than 60% of the value of the Portfolio's net
assets, the Portfolio shall invest in no less than three foreign countries;
(iii) if foreign securities comprise less than 40% of the value of the
Portfolio's net assets, the Portfolio shall invest in no less than two foreign
countries; and (iv) if foreign securities comprise less than 20% of the value of
the Portfolio's net assets the Portfolio may invest in a single foreign country.
The Portfolio shall invest no more than 20% of the value of its net assets in
securities of issuers located in any one country; provided that an additional
15% of the value of the Portfolio's net assets may be invested in securities of
issuers located in any one of the following countries: Australia, Canada,
France, Japan, the United Kingdom and Germany; and provided further that 100% of
the Portfolio's assets may be invested in securities of issuers located in the
United States. The Portfolio will limit investments in securities of issuers
located in Eastern Europe to 5% of its total assets.
DWS International VIP. DWS International VIP seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity investments.
The Portfolio typically will invest in companies in at least three different
countries, excluding the United States.
Under exceptional economic or market conditions abroad, the Portfolio may
temporarily, until normal conditions return, invest all or a major portion of
its assets in Canadian or US Government obligations or currencies, or securities
of companies incorporated in and having their principal activities in Canada or
the United States.
DWS Health Care VIP. Under normal circumstances, DWS Health Care VIP seeks
long-term growth of capital by investing at least 80% of total assets, plus the
amount of any borrowings for investment purposes, in common stocks of companies
in the health care sector. The Portfolio "concentrates," for purposes of the
1940 Act, its assets in securities related to a particular industry or group of
related industries, which means that at least 25% of its net assets will be
invested in these assets at all times.
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A security will be considered appropriate for the Portfolio if at least 50% of
its total assets, revenues, or net income is related to or derived from the
industry or industries designated for the Portfolio. DWS Health Care VIP may
invest up to 20% of total assets in debt securities, including bonds of private
issuers. The Portfolio may invest up to 20% of its total assets in US Treasury
securities, and agency and instrumentality obligations.
Temporary Defensive Policy. For temporary defensive purposes, each Portfolio may
invest, without limit, in cash and cash equivalents, US government securities,
money market instruments and high quality debt securities without equity
features. In such a case, a Portfolio would not be pursuing, and may not
achieve, its investment objective.
INVESTMENT POLICIES AND TECHNIQUES
General Investment Policies
DWS Variable Series I is an open-end, registered management investment company
established as a Massachusetts business trust. The Fund is a series fund
consisting of six diversified portfolios: DWS Bond VIP, DWS Growth & Income VIP,
DWS Capital Growth VIP, DWS Global Opportunities VIP, DWS Health Care VIP and
DWS International VIP: (individually or collectively hereinafter referred to as
a "Portfolio" or the "Portfolios"). Additional portfolios may be created from
time to time. The Fund is intended to be the funding vehicle for variable
annuity contracts ("VA contracts") and variable life insurance policies ("VLI
policies") to be offered to the separate accounts of certain life insurance
companies ("Participating Insurance Companies").
Two classes of shares of each Portfolio of the Fund are currently offered
through Participating Insurance Companies. Class A shares are offered at net
asset value and are not subject to a Rule 12b-1 Distribution Plan. Class B
shares are offered at net asset value and are subject to a Rule 12b-1
Distribution Plan.
Each Portfolio has a different investment objective which it pursues through
separate investment policies, as described below. The differences in objectives
and policies among the Portfolios can be expected to affect the degree of market
and financial risk to which each Portfolio is subject and the return of each
Portfolio. The investment objectives and policies of each Portfolio may, unless
otherwise specifically stated, be changed by the Trustees of the Fund without a
vote of shareholders. There is no assurance that the objectives of any Portfolio
will be achieved.
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which a Portfolio may engage (such as short
selling, hedging, etc.) or a financial instrument which a Portfolio may purchase
(such as options, forward foreign currency contracts, etc.) are meant to
describe the spectrum of investments that Deutsche Investment Management
Americas Inc. ("DIMA" or the "Advisor"), in its discretion, might, but is not
required to, use in managing each Portfolio's assets. The Advisor may, in its
discretion, at any time employ such practice, technique or instrument for one or
more Portfolios but not for all investment companies advised by it. Furthermore,
it is possible that certain types of financial instruments or investment
techniques described herein may not be available, permissible, economically
feasible or effective for their intended purposes in all markets. Certain
practices, techniques, or instruments may not be principal activities of a
Portfolio but, to the extent employed, could from time to time have a material
impact on the Portfolio's performance.
It is possible that certain investment practices and techniques described below
may not be permissible for a Portfolio based on its investment restrictions, as
described herein, and in the Portfolio's applicable prospectus.
Borrowing. As a matter of fundamental policy, each Portfolio will not borrow
money, except as permitted under the 1940 Act, and as interpreted by regulatory
authority having jurisdiction, from time to time. While the Trustees do not
currently intend to borrow for investment leveraging purposes, if such a
strategy were implemented in the future it would increase a Portfolio's
volatility and the risk of loss in a declining market. Borrowing by a Portfolio
will involve special risk considerations. Although the principal of a
Portfolio's borrowings will be fixed, the Portfolio's assets may change in value
during the time that a borrowing is outstanding, thus increasing exposure to
capital risk.
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Asset-Backed Securities. Asset backed securities may include pools of mortgages
("mortgage-backed securities"), loans, receivables or other assets. Payment of
principal and interest may be largely dependent upon the cash flows generated by
the assets backing the securities. For purposes of determining the percentage of
a Portfolio's total assets invested in securities of issuers having their
principal business activities in a particular industry, asset backed securities
will be classified separately. Asset-backed securities present certain risks
that are not presented by mortgage-backed securities. Primarily, these
securities may not have the benefit of any security interest in the related
assets. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. There is the possibility
that recoveries on repossessed collateral may not, in some cases, be available
to support payments on these securities. Asset-backed securities are often
backed by a pool of assets representing the obligations of a number of different
parties. To lessen the effect of failures by obligors on underlying assets to
make payments, the securities may contain elements of credit support which fall
into two categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
results from payment of the insurance obligations on at least a portion of the
assets in the pool. This protection may be provided through guarantees, policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination of
such approaches. The Portfolios will not pay any additional or separate fees for
credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security. The availability of asset-backed securities
may be affected by legislative or regulatory developments. It is possible that
such developments may require the funds to dispose of any then existing holdings
of such securities.
Asset-Indexed Securities. DWS Health Care VIP may purchase asset-indexed
securities which are debt securities usually issued by companies in precious
metals related businesses such as mining, the principal amount, redemption
terms, or interest rates of which are related to the market price of a specified
precious metal. The Portfolio will only enter into transactions in publicly
traded asset-indexed securities. Market prices of asset-indexed securities will
relate primarily to changes in the market prices of the precious metals to which
the securities are indexed rather than to changes in market rates of interest.
However, there may not be a perfect correlation between the price movements of
the asset-indexed securities and the underlying precious metals. Asset-indexed
securities typically bear interest or pay dividends at below market rates (and
in certain cases at nominal rates). The Portfolio may purchase asset-indexed
securities to the extent permitted by law.
Bank and Savings and Loan Obligations. These obligations include negotiable
certificates of deposit, bankers' acceptances, deposit notes, fixed time
deposits or other short-term bank obligations. Certificates of deposit are
negotiable certificates evidencing the obligations of a bank to repay funds
deposited with it for a specified period of time. The Portfolios may invest in
certificates of deposit of large domestic banks and their foreign branches,
large US regulated subsidiaries of large foreign banks (i.e., banks which at the
time of their most recent annual financial statements show total assets in
excess of $1 billion) and smaller banks as described below. Although the
Portfolios recognize that the size of a bank is important, this fact alone is
not necessarily indicative of its creditworthiness. Investment in certificates
of deposit issued by foreign branches of domestic banks involves investment
risks that are different in some respects from those associated with investment
in certificates of deposit issued by domestic branches of domestic banks,
including the possible imposition of withholding taxes on interest income, the
possible adoption of foreign governmental restrictions which might adversely
affect the payment of principal and interest on such certificates of deposit, or
other adverse political or economic developments. In addition, it might be more
difficult to obtain and enforce a judgment against a foreign branch of a
domestic bank. Further, foreign branches of foreign banks are not regulated by
US banking authorities, and generally are not bound by accounting, auditing and
financial reporting standards comparable to US banks.
Certificates of Deposit and Bankers' Acceptances. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter
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or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Banker's acceptances are credit instruments evidencing the obligations of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by a Portfolio will not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation. Fixed time deposits may be withdrawn on
demand by the investor, but may be subject to early withdrawal penalties that
vary with market conditions and the remaining maturity of the obligation. Fixed
time deposits subject to withdrawal penalties maturing in more than seven
calendar days are subject to a fund's limitation on investments in illiquid
securities.
Collateralized Mortgage Obligations ("CMOs"). CMOs are hybrids between a
mortgage-backed bond and mortgage pass-through securities. Similar to a bond,
interest and prepaid principal are paid, in most cases, semiannually. CMOs may
be collateralized by whole mortgage loans but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
Fannie Mae, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments. The prices of certain CMOs,
depending on their structure and the rate of prepayments, can be volatile. Some
CMOs may also not be as liquid as other securities.
In a typical CMO transaction, a corporation issues multiple series, (e.g., A, B,
C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase
mortgages or mortgage pass-through certificates ("Collateral"). The Collateral
is pledged to a third party trustee as security for the Bonds. Principal and
interest payments from the Collateral are used to pay principal on the Bonds in
the order A, B, C, Z. The Series A, B, and C bonds all bear current interest.
Interest on the Series Z Bond is accrued and added to principal and a like
amount is paid as principal on the Series A, B, or C Bond currently being paid
off. When the Series A, B, and C Bonds are paid in full, interest and principal
on the Series Z Bond begins to be paid currently. With some CMOs, the issuer
serves as a conduit to allow loan originators (primarily builders or savings and
loan associations) to borrow against their loan portfolios.
Commercial Paper. Commercial paper consists of short-term, unsecured promissory
notes issued to finance short-term credit needs. The commercial paper purchased
by a fund will consist only of direct obligations issued by domestic and foreign
entities.
Common Stocks. DWS Growth & Income VIP, DWS Capital Growth VIP, DWS Global
Opportunities VIP, DWS International VIP and DWS Health Care VIP invest in
common stocks. Common stock is issued by companies to raise cash for business
purposes and represents a proportionate interest in the issuing companies.
Therefore, the Portfolios may participate in the success or failure of any
company in which it holds stock. The market values of common stock can fluctuate
significantly, reflecting the business performance of the issuing company,
investor perception and general economic or financial market movements. Despite
the risk of price volatility, however, common stocks have historically offered a
greater potential for long-term gain on investment, compared to other classes of
financial assets such as bonds or cash equivalents, although there can be no
assurance that this will be true in the future.
Convertible Securities. Each Portfolio may invest in convertible
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securities; that is, bonds, notes, debentures, preferred stocks and other
securities which are convertible into common stock. Investments in convertible
securities can provide an opportunity for capital appreciation and/or income
through interest and dividend payments by virtue of their conversion or exchange
features.
The convertible securities in which a Portfolio may invest include fixed-income
or zero coupon debt securities which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. The
exchange ratio for any particular convertible security may be adjusted from time
to time due to stock splits, dividends, spin-offs, other corporate distributions
or scheduled changes in the exchange ratio. Convertible securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market values of convertible securities
tends to decline as interest rates increase and, conversely, tend to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market values of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tend
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.
Of course, like all debt securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations.
Convertible securities are generally subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs").
Corporate Obligations. Investment in corporate debt obligations involves credit
and interest rate risk. The value of fixed-income investments will fluctuate
with changes in interest rates and bond market conditions, tending to rise as
interest rates decline and to decline as interest rates rise. Corporate debt
obligations generally offer less current yield than securities of lower quality,
but lower-quality securities generally have less liquidity, greater credit and
market risk, and as a result, more price volatility. Longer-term bonds are,
however, generally more volatile than bonds with shorter maturities.
Depositary Receipts. DWS Global Opportunities VIP, DWS International VIP and DWS
Health Care VIP may each invest in sponsored or unsponsored American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs"), International Depositary Receipts ("IDRs") and other types of
Depositary Receipts (which, together with ADRs, EDRs, GDRs and IDRs are
hereinafter referred to as "Depositary Receipts"). Depositary receipts provide
indirect investment in securities of foreign issuers. Prices of unsponsored
Depositary Receipts may be more volatile than if they were sponsored by the
issuer of the underlying securities. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depositary Receipts. ADRs are Depositary
Receipts which are bought and sold in the United States and are typically issued
by a bank or trust company which evidence ownership of
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underlying securities issued by a foreign corporation. GDRs and IDRs and other
types of Depositary Receipts are typically issued by foreign banks or trust
companies, although they also may be issued by United States banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a United States corporation. Generally, Depositary Receipts in
registered form are designed for use in the United States securities markets and
Depositary Receipts in bearer form are designed for use in securities markets
outside the United States. For purposes of the DWS Growth & Income VIP, DWS
Capital Growth VIP and DWS International VIP investment policies, the
Portfolios' investments in ADRs, GDRs and other types of Depositary Receipts
will be deemed to be investments in the underlying securities. Depositary
Receipts including those denominated in US dollars will be subject to foreign
currency exchange rate risk. However, by investing in US dollar-denominated ADRs
rather than directly in foreign issuers' stock, a Portfolio avoids currency
risks during the settlement period. In general, there is a large, liquid market
in the United States for most ADRs. However, certain Depositary Receipts may not
be listed on an exchange and therefore may be illiquid securities.
Direct Debt Instruments. Direct debt instruments are interests in amounts owed
by a corporate, governmental or other borrower to lenders (direct loans), to
suppliers of goods or services (trade claims or other receivables) or to other
parties. DWS Bond VIP may invest in all types of direct debt investments, but
among these investments the Portfolio currently intends to invest primarily in
direct loans and trade claims.
When the Portfolio participates in a direct loan it will be lending money
directly to an issuer. Direct loans generally do not have an underwriter or
agent bank, but instead, are negotiated between a company's management team and
a lender or group of lenders. Direct loans typically offer better security and
structural terms than other types of high yield securities. Direct debt
obligations are often the most senior-obligations in an issuer's capital
structure or are well-collateralized so that overall risk is lessened.
Trade claims are unsecured rights of payment arising from obligations other than
borrowed funds. Trade claims include vendor claims and other receivables that
are adequately documented and available for purchase from high yield
broker-dealers. Trade claims typically may sell at a discount. In addition to
the risks otherwise associated with low-quality obligations, trade claims have
other risks, including the possibility that the amount of the claim may be
disputed by the obligor. Trade claims normally would be considered illiquid and
pricing can be volatile.
Direct debt instruments involve a risk of loss in case of default or insolvency
of the borrower. The Portfolio will rely primarily upon the creditworthiness of
the borrower and/or the collateral for payment of interest and repayment of
principal. The value of the Portfolio's investments may be adversely affected if
scheduled interest or principal payments are not made. Because most direct loans
will be secured, there will be a smaller risk of loss with direct loans than
with an investment in unsecured high yield bonds or trade claims. Indebtedness
of borrowers whose creditworthiness is poor involves substantially greater risks
and may be highly speculative. Borrowers that are in bankruptcy or restructuring
may never pay off their indebtedness or may pay only a small fraction of the
amount owed. Investments in direct debt instruments also involve interest rate
risk and liquidity risk. However, interest rate risk is lessened by the
generally short-term nature of direct debt instruments and their interest rate
structure, which typically floats. To the extent the direct debt instruments in
which the Portfolio invests are considered illiquid, the lack of a liquid
secondary market (1) will have an adverse impact on the value of such
instruments, (2) will have an adverse impact on the Portfolio's ability to
dispose of them when necessary to meet the Portfolio's liquidity needs or in
response to a specific economic event, such as a decline in creditworthiness of
the issuer, and (3) may make it more difficult for the Portfolio to assign a
value of these instruments for purposes of valuing the Portfolio's portfolio and
calculating its net asset value. In order to lessen liquidity risk, the
Portfolio anticipates investing primarily in direct debt instruments that are
quoted and traded in the high yield market and will not invest in these
instruments if it would cause more than 15% of the Portfolio's net assets to be
illiquid. Trade claims may also present a tax risk to the Portfolio. The
Portfolio will not invest in trade claims if it effects the Portfolio's
qualification as a regulated investment company under Subchapter M of the
Internal Revenue Code.
Dollar Roll Transactions. Dollar roll transactions consist of the sale by a
Portfolio to a bank or broker/dealer (the "counterparty") of GNMA certificates
or other mortgage-backed securities together with a commitment to purchase from
the counterparty similar, but not identical, securities at a future date, at the
same price. The counterparty receives all principal and interest payments,
including prepayments, made on the security while it is the holder. A Portfolio
receives a fee from the counterparty as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed over a period of several
months with a different purchase and repurchase price fixed and a cash
settlement made at each renewal without physical delivery of securities.
Moreover, the transaction may be preceded by a firm commitment agreement
pursuant to which a Portfolio agrees to buy a security on a future date.
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Each Portfolio will segregate cash, US Government securities or other liquid
assets in an amount sufficient to meet their purchase obligations under the
transactions. The Portfolios will also maintain asset coverage of at least 300%
for all outstanding firm commitments, dollar rolls and other borrowings.
Dollar rolls may be treated for purposes of the 1940 Act, as amended, as
borrowings of each Portfolio because they involve the sale of a security coupled
with an agreement to repurchase. A dollar roll involves costs to the Portfolio.
For example, while a Portfolio receives a fee as consideration for agreeing to
repurchase the security, the Fund forgoes the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed the fee received by the Portfolio, thereby
effectively charging the Portfolio interest on its borrowing. Further, although
a Portfolio can estimate the amount of expected principal prepayment over the
term of the dollar roll, a variation in the actual amount of prepayment could
increase or decrease the cost of the Portfolio's borrowing.
The entry into dollar rolls involves potential risks of loss that are different
from those related to the securities underlying the transactions. For example,
if the counterparty becomes insolvent, a Portfolio's right to purchase from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before a Fund is able to purchase them. Similarly, a Portfolio
may be required to purchase securities in connection with a dollar roll at a
higher price than may otherwise be available on the open market. Since, as noted
above, the counterparty is required to deliver a similar, but not identical
security to a Portfolio, the security that the Portfolio is required to buy
under the dollar roll may be worth less than an identical security. Finally,
there can be no assurance that each Portfolio's use of the cash that it receives
from a dollar roll will provide a return that exceeds borrowing costs.
Eurodollar Instruments. Each Portfolio may make investments in Eurodollar
instruments. Eurodollar instruments are US dollar-denominated futures contracts
or options thereon which are linked to the London Interbank Offered Rate
("LIBOR"), although foreign currency-denominated instruments are available from
time to time. Eurodollar futures contracts enable purchasers to obtain a fixed
rate for the lending of funds and sellers to obtain a fixed rate for borrowings.
Each Portfolio might use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Eurodollar Obligations. Eurodollar bank obligations are US dollar-denominated
certificates of deposit and time deposits issued outside the US capital markets
by foreign branches of US banks and US branches of foreign banks. Eurodollar
obligations are subject to the same risks that pertain to domestic issues,
notably credit risk, market risk and liquidity risk. Additionally, Eurodollar
obligations are subject to certain sovereign risks.
FHLMC Collateralized Mortgage Obligations. Federal Home Loan Mortgage
Corporation ("FHLMC") CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC
Participation Certificates ("PCs"), payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans during
any semiannual payment period is not sufficient to meet FHLMC's minimum sinking
fund obligation on the next sinking fund payment date, FHLMC agrees to make up
the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are identical to
those of FHLMC PCs. FHLMC has the right to substitute collateral in the event of
delinquencies and/or defaults.
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Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because a Portfolio may hold
foreign currencies and forward contracts, futures contracts and options on
foreign currencies and foreign currency futures contracts, the value of the
assets of a Portfolio as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and a Portfolio may incur costs and experience conversion
difficulties and uncertainties in connection with conversions between various
currencies. Fluctuations in exchange rates may also affect the earning power and
asset value of the foreign entity issuing the security.
The strength or weakness of the U.S. dollar against these currencies is
responsible for part of a Portfolio's investment performance. If the dollar
falls in value relative to the Japanese yen, for example, the dollar value of a
Japanese stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the Japanese stock will fall. Many foreign
currencies have experienced significant devaluation relative to the dollar.
Although each Portfolio values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will do so from time to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio
at one rate, while offering a lesser rate of exchange should a Portfolio desire
to resell that currency to the dealer. A Portfolio will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into options or forward or futures contracts to purchase or sell foreign
currencies.
Foreign Fixed Income Securities. Since most foreign fixed income securities are
not rated, a Portfolio will invest in foreign fixed income securities based on
the Advisor's analysis without relying on published ratings. Since such
investments will be based upon the Advisor's analysis rather than upon published
ratings, achievement of a Portfolio's goals may depend more upon the abilities
of the Advisor than would otherwise be the case.
The value of the foreign fixed income securities held by a Portfolio, and thus
the net asset value of a Portfolio's shares, generally will fluctuate with (a)
changes in the perceived creditworthiness of the issuers of those securities,
(b) movements in interest rates, and (c) changes in the relative values of the
currencies in which a Portfolio's investments in fixed income securities are
denominated with respect to the US dollar. The extent of the fluctuation will
depend on various factors, such as the average maturity of a Portfolio's
investments in foreign fixed income securities, and the extent to which a
Portfolio hedges its interest rate, credit and currency exchange rate risks. A
longer average maturity generally is associated with a higher level of
volatility in the market value of such securities in response to changes in
market conditions.
Investments in sovereign debt, including Brady Bonds (Brady Bonds are debt
securities issued under a plan implemented to allow debtor nations to
restructure their outstanding commercial bank indebtedness), involve special
risks. Foreign governmental issuers of debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay principal
or pay interest when due. In the event of default, there may be limited or no
legal recourse in that, generally, remedies for defaults must be pursued in the
courts of the defaulting party. Political conditions, especially a sovereign
entity's willingness to meet the terms of its fixed income securities, are of
considerable significance. Also, there can be no assurance that the holders of
commercial bank loans to the same sovereign entity may not contest payments to
the holders of sovereign debt in the event of default under commercial bank loan
agreements. In addition, there is no bankruptcy proceeding with respect to
sovereign debt on which a sovereign has defaulted, and a Portfolio may be unable
to collect all or any part of its investment in a particular issue. Foreign
investment in certain sovereign debt is restricted or controlled to varying
degrees, including requiring governmental approval for the repatriation of
income, capital or proceeds of sales by foreign investors. These restrictions or
controls may at times limit or preclude foreign investment in certain sovereign
debt or increase the costs and expenses of a Portfolio.
Sovereign debt of emerging market governmental issuers is to be considered
speculative. Emerging market governmental issuers are among the largest debtors
to commercial banks, foreign governments, international financial organizations
and other financial institutions. Certain emerging market governmental issuers
have not been able to make
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payments of interest on or principal of debt obligations as those payments have
come due. There is a history of defaults with respect to commercial bank loans
by public and private entities issuing sovereign debt. All or a portion of the
interest payments and/or principal repayment with respect to sovereign debt may
be uncollateralized. Obligations arising from past restructuring agreements may
affect the economic performance and political and social stability of those
issuers.
The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country. Fluctuations
in the level of these reserves affect the amount of foreign exchange readily
available for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these debt
obligations.
To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign governments
and inflows of foreign investment. The access of emerging markets to these forms
of external funding may not be certain, and a withdrawal of external funding
could adversely affect the capacity of emerging market country governmental
issuers to make payments on their obligations. In addition, the cost of
servicing emerging market debt obligations can be affected by a change in
international interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon international rates.
Foreign Investment. DWS Bond VIP, DWS Growth & Income VIP, DWS Capital Growth
VIP, DWS Global Opportunities VIP and DWS International VIP may each invest,
except as applicable to debt securities generally, in US dollar-denominated
foreign debt securities (including those issued by the Dominion of Canada and
its provinces and other debt securities which meet the criteria applicable to
the Portfolio's domestic investments), and in certificates of deposit issued by
foreign banks and foreign branches of United States banks, to any extent deemed
appropriate by the Advisor. DWS Bond VIP may invest up to 25% of its assets in
non-US dollar-denominated foreign debt securities. DWS Growth & Income VIP may
invest up to 25% of its assets in non-US dollar denominated equity securities of
foreign issuers. DWS Capital Growth VIP may invest up to 25% of its assets, and
DWS Global Opportunities VIP and DWS International VIP may invest without limit,
in non-US dollar-denominated equity securities of foreign issuers.
Foreign Securities. Foreign securities are normally denominated and traded in
foreign currencies. As a result, the value of the fund's foreign investments and
the value of its shares may be affected favorably or unfavorably by changes in
currency exchange rates relative to the US dollar. There may be less information
publicly available about a foreign issuer than about a US issuer, and foreign
issuers may not be subject to accounting, auditing and financial reporting
standards and practices comparable to those in the US. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable US issuers. Foreign brokerage commissions and other fees are also
generally higher than in the US. Foreign settlement procedures and trade
regulations may involve certain risks (such as delay in payment or delivery of
securities or in the recovery of the fund's assets held abroad) and expenses not
present in the settlement of investments in US markets. Payment for securities
without delivery may be required in certain foreign markets.
In addition, foreign securities may be subject to the risk of nationalization or
expropriation of assets, imposition of currency exchange controls or
restrictions on the repatriation of foreign currency, confiscatory taxation,
political or financial instability and diplomatic developments which could
affect the value of the fund's investments in certain foreign countries.
Governments of many countries have exercised and continue to exercise
substantial influence over many aspects of the private sector through the
ownership or control of many companies, including some of the largest in
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these countries. As a result, government actions in the future could have a
significant effect on economic conditions which may adversely affect prices of
certain portfolio securities. There is also generally less government
supervision and regulation of stock exchanges, brokers, and listed companies
than in the US. Dividends or interest on, or proceeds from the sale of, foreign
securities may be subject to foreign withholding taxes, and special US tax
considerations may apply. Moreover, foreign economies may differ favorably or
unfavorably from the US economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the US or in other
foreign countries. The laws of some foreign countries may limit the fund's
ability to invest in securities of certain issuers organized under the laws of
those foreign countries.
Of particular importance, many foreign countries are heavily dependent upon
exports, particularly to developed countries, and, accordingly, have been and
may continue to be adversely affected by trade barriers, managed adjustments in
relative currency values, and other protectionist measures imposed or negotiated
by the US and other countries with which they trade. These economies also have
been and may continue to be negatively impacted by economic conditions in the US
and other trading partners, which can lower the demand for goods produced in
those countries.
The risks described above, including the risks of nationalization or
expropriation of assets, typically are increased in connection with investments
in "emerging markets." For example, political and economic structures in these
countries may be in their infancy and developing rapidly, and such countries may
lack the social, political and economic stability characteristic of more
developed countries (including amplified risk of war and terrorism). Certain of
these countries have in the past failed to recognize private property rights and
have at times nationalized and expropriated the assets of private companies.
Investments in emerging markets may be considered speculative.
The currencies of certain emerging market countries have experienced
devaluations relative to the US dollar, and future devaluations may adversely
affect the value of assets denominated in such currencies. In addition, currency
hedging techniques may be unavailable in certain emerging market countries. Many
emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation or deflation for many years, and future
inflation may adversely affect the economies and securities markets of such
countries.
In addition, unanticipated political or social developments may affect the value
of investments in emerging markets and the availability of additional
investments in these markets. Any change in the leadership or politics of
emerging market countries, or the countries that exercise a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and adversely affect
existing investment opportunities. The small size, limited trading volume and
relative inexperience of the securities markets in these countries may make
investments in securities traded in emerging markets illiquid and more volatile
than investments in securities traded in more developed countries. For example,
limited market size may cause prices to be unduly influenced by traders who
control large positions. In addition, the fund may be required to establish
special custodial or other arrangements before making investments in securities
traded in emerging markets. There may be little financial or accounting
information available with respect to issuers of emerging market securities, and
it may be difficult as a result to assess the value of prospects of an
investment in such securities.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for a fund's securities in such markets may
not be readily available. A fund may suspend redemption of its shares for any
period during which an emergency exists, as determined by the SEC. Accordingly
if a fund believes that appropriate circumstances exist, it will promptly apply
to the SEC for a determination that an emergency is present. During the period
commencing from a fund's identification of such condition until the date of the
SEC action, a fund's securities in the affected markets will be valued at fair
value determined in good faith by or under the direction of a fund's Board.
Certain of the foregoing risks may also apply to some extent to securities of US
issuers that are denominated in foreign currencies or that are traded in foreign
markets, or securities of US issuers having significant foreign operations.
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High Yield/High Risk Bonds. DWS Bond VIP, DWS Capital Growth VIP and DWS Global
Opportunities VIP may also purchase debt securities which are rated below
investment-grade (commonly referred to as "junk bonds"), that is, rated below Ba
by Moody's or below BB by S&P and unrated securities judged to be of equivalent
quality as determined by the Advisor. These securities usually entail greater
risk (including the possibility of default or bankruptcy of the issuers of such
securities), generally involve greater volatility of price and risk to principal
and income, and may be less liquid, than securities in the higher rating
categories. The lower the ratings of such debt securities, the more their risks
render them like equity securities. Securities rated D may be in default with
respect to payment of principal or interest. See the Appendix to this Statement
of Additional Information for a more complete description of the ratings
assigned by ratings organizations and their respective characteristics.
Issuers of such high yielding securities often are highly leveraged and may not
have available to them more traditional methods of financing. Therefore, the
risk associated with acquiring the securities of such issuers generally is
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
or the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss from default by the
issuer is significantly greater for the holders of high yield securities because
such securities are generally unsecured and are often subordinated to other
creditors of the issuer. Prices and yields of high yield securities will
fluctuate over time and, during periods of economic uncertainty, volatility of
high yield securities may adversely affect a Portfolio's net asset value. In
addition, investments in high yield zero coupon or pay-in-kind bonds, rather
than income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
A Portfolio may have difficulty disposing of certain high yield (high risk)
securities because they may have a thin trading market. Because not all dealers
maintain markets in all high yield securities, a Portfolio anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid secondary market may have an adverse effect on
the market price and a Portfolio's ability to dispose of particular issues and
may also make it more difficult for a Portfolio to obtain accurate market
quotations for purposes of valuing a Portfolio's assets. Market quotations
generally are available on many high yield issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales. Adverse publicity and investor perceptions may decrease the
values and liquidity of high yield securities. These securities may also involve
special registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
generally the policy of the Advisor not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a
Portfolio's investment objective by investment in such securities may be more
dependent on the Advisor's credit analysis than is the case for higher quality
bonds. Should the rating of a portfolio security be downgraded, the Advisor will
determine whether it is in the best interests of the Fund to retain or dispose
of such security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments. Also, Congress has from time to time considered
legislation which would restrict or eliminate the corporate tax deduction for
interest payments in these securities and regulate corporate restructurings.
Such legislation may significantly depress the prices of outstanding securities
of this type.
Illiquid Securities and Restricted Securities. A Portfolio may purchase
securities that are subject to legal or contractual restrictions on resale
("restricted securities"). Generally speaking, restricted securities may be sold
(i) only to qualified institutional buyers; (ii) in a privately negotiated
transaction to a limited number of purchasers; (iii) in limited quantities after
they have been held for a specified period of time and other conditions are met
pursuant to an exemption from registration; or (iv) in a public offering for
which a registration statement is in effect under the Securities Act of 1933, as
amended. Issuers of restricted securities may not be subject to the disclosure
and other investor protection requirements that would be applicable if their
securities were publicly traded.
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Restricted securities are often illiquid, but they may also be liquid. For
example, restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid.
A Portfolio's Board has approved guidelines for use by the Advisor in
determining whether a security is liquid or illiquid. Among the factors the
Advisor may consider in reaching liquidity decisions relating to Rule 144A
securities are: (1) the frequency of trades and quotes for the security; (2) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the market for
the security (i.e., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of the transfer). Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirement that would be applicable if their securities were publicly traded.
Where a registration statement is required for the resale of restricted
securities, a Portfolio may be required to bear all or part of the registration
expenses. A Portfolio may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933, as amended when selling restricted securities to the
public and, in such event, a Portfolio may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.
A Portfolio may also purchase securities that are not subject to legal or
contractual restrictions on resale, but that are deemed illiquid. Such
securities may be illiquid, for example, because there is a limited trading
market for them.
A Portfolio may be unable to sell a restricted or illiquid security. In
addition, it may be more difficult to determine a market value for restricted or
illiquid securities. Moreover, if adverse market conditions were to develop
during the period between a Portfolio's decision to sell a restricted or
illiquid security and the point at which a Portfolio is permitted or able to
sell such security, a Portfolio might obtain a price less favorable than the
price that prevailed when it decided to sell. This investment practice,
therefore, could have the effect of increasing the level of illiquidity of a
Portfolio.
Impact of Large Redemptions and Purchases of Portfolio shares. From time to
time, shareholders of the Portfolio may make relatively large redemptions or
purchases of Portfolio shares. These transactions may cause the Portfolio to
have to sell securities or invest additional cash, as the case may be. While it
is impossible to predict the overall impact of these transactions over time,
there could be adverse effects on the Portfolio's performance to the extent that
the Portfolio may be required to sell securities or invest cash at times when it
would not otherwise do so. These transactions could also accelerate the
realization of taxable income if sales of securities resulted in gains and could
also increase transaction costs, which may impact a Portfolio's expense ratio.
Indexed Securities. DWS Bond VIP may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.
Indexed securities differ from other types of debt securities in which a
Portfolio may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a US dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
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Interfund Borrowing and Lending Program. The Fund, on behalf of each Portfolio,
has received exemptive relief from the Securities and Exchange Commission
("SEC") which permits the Portfolios to participate in an interfund lending
program among certain investment companies advised by the Advisor. The interfund
lending program allows the participating funds to borrow money from and loan
money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, a fund
may participate in the program only if and to the extent that such participation
is consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings may extend overnight,
but could have a maximum duration of seven days. Loans may be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent a Portfolio is actually engaged in borrowing
through the interfund lending program, the Portfolio, as a matter of
nonfundamental policy, may not borrow for other than temporary or emergency
purposes (and not for leveraging), except that a Portfolio may engage in reverse
repurchase agreements and dollar rolls for any purpose.
Investment Company Securities. Each Portfolio may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. Each Portfolio will indirectly bear
its proportionate share of any management fees and other expenses paid by such
other investment companies.
For example, a Portfolio may invest in a variety of investment companies which
seek to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their Net Asset Value
("NAVs"). Index-based investments may not replicate exactly the performance of
their specified index because of transaction costs and because of the temporary
unavailability of certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500. They are issued by the SPDR Trust, a unit investment trust
that holds shares of substantially all the companies in the S&P 500 in
substantially the same weighting and seeks to closely track the price
performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the S&P 500. They are issued by The Select Sector SPDR Trust, an open-end
management investment company with nine portfolios that each seeks to closely
track the price performance and dividend yield of a particular Select Sector
Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
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Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Investment-Grade Bonds. Each Portfolio may purchase "investment-grade" bonds,
which are those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P
or, if unrated, judged to be of equivalent quality as determined by the Advisor.
Moody's considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. To the extent that a Portfolio invests in
higher-grade securities, a Portfolio will not be able to avail itself of
opportunities for higher income which may be available at lower grades.
Investment of Uninvested Cash Balances. Each Portfolio may have cash balances
that have not been invested in portfolio securities ("Uninvested Cash").
Uninvested Cash may result from a variety of sources, including dividends or
interest received from portfolio securities, unsettled securities transactions,
reserves held for investment strategy purposes, scheduled maturity of
investments, liquidation of investment securities to meet anticipated
redemptions and dividend payments, and new cash received from investors.
Uninvested Cash may be invested directly in money market instruments or other
short-term debt obligations. Pursuant to an Exemptive Order issued by the SEC,
each Portfolio may use Uninvested Cash to purchase shares of affiliated funds
including money market funds, short-term bond funds and Cash Management QP Trust
and DWS Trust Company, or one or more future entities for which Deutsche Asset
Management acts as trustee or investment advisor that operate as cash management
investment vehicles and that are excluded from the definition of investment
company pursuant to section 3(c)(1) or 3(c)(7) of the 1940 Act (collectively,
the "Central Funds") in excess of the limitations of Section 12(d)(1) of the
1940 Act. Investment by a Portfolio in shares of the Central Funds will be in
accordance with the Portfolio's investment policies and restrictions as set
forth in its registration statement.
Certain of the Central Funds comply with rule 2a-7 under the Act. The other
Central Funds are or will be short-term bond funds that invest in fixed-income
securities and maintain a dollar weighted average maturity of three years or
less. Each of the Central Funds will be managed specifically to maintain a
highly liquid portfolio, and access to them will enhance a Portfolio's ability
to manage Uninvested Cash.
Each Portfolio will invest Uninvested Cash in Central Funds only to the extent
that the Portfolio's aggregate investment in the Central Funds does not exceed
25% of its total assets in shares of the Central Funds. Purchase and sales of
shares of Central Funds are made at net asset value.
IPO Risk. Securities issued through an initial public offering (IPO) can
experience an immediate drop in value if the demand for the securities does not
continue to support the offering price. Information about the issuers of IPO
securities is also difficult to acquire since they are new to the market and may
not have lengthy operating histories. The DWS Health Care VIP may engage in
short-term trading in connection with its IPO investments, which could produce
higher trading costs and adverse tax consequences. The number of securities
issued in an IPO is limited, so it is likely that IPO securities will represent
a smaller component of the Portfolio's portfolio as its assets increase (and
thus have a more limited effect on the Portfolio's performance).
Lending of Portfolio Securities. Each Portfolio may lend its investment
securities to approved institutional borrowers who need to borrow securities in
order to complete certain transactions, such as covering short sales, avoiding
failures to deliver securities or completing arbitrage operations. By lending
its investment securities, a portfolio attempts to increase its net investment
income through the receipt of interest on the loan. Any gain or loss in the
market price of the securities loaned that might occur during the term of the
loan would belong to a portfolio. A portfolio may lend its investment securities
so long as the terms, structure and the aggregate amount of such
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loans are not inconsistent with the 1940 Act or the rules and regulations or
interpretations of the SEC thereunder, which currently require that (a) the
borrower pledge and maintain with the portfolio collateral consisting of liquid,
unencumbered assets having a value at all times not less than 100% of the value
of the securities loaned, (b) the borrower add to such collateral whenever the
price of the securities loaned rises (i.e., the borrower "marks to the market"
on a daily basis), (c) the loan be made subject to termination by a portfolio at
any time, and (d) a portfolio receives reasonable interest on the loan (which
may include the portfolio investing any cash collateral in interest bearing
short-term investments), and distributions on the loaned securities and any
increase in their market value. There may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans will be made only to borrowers
selected by a portfolio's delegate after a commercially reasonable review of
relevant facts and circumstances, including the creditworthiness of the
borrower.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Board of Trustees. In addition, voting rights may pass with
the loaned securities, but if a material event occurs affecting an investment on
loan, the loan must be called and the securities voted. Pursuant to an exemptive
order granted by the SEC, cash collateral received by a portfolio may be
invested in a money market fund managed by the Advisor (or one of its
affiliates).
Letters of Credit. Municipal obligations, including certificates of
participation, commercial paper and other short-term obligations, may be backed
by an irrevocable letter of credit of a bank which assumes the obligation for
payment of principal and interest in the event of default by the issuer. Only
banks which, in the opinion of the Advisor, are of investment quality comparable
to other permitted investments of the Fund may be used for letter of credit
backed investments.
Micro-Cap Company Risk. While, historically, micro-capitalization company stocks
have outperformed the stocks of large companies, the former have customarily
involved more investment risk as well. There can be no assurance that this will
continue to be true in the future. Micro-capitalization companies may have
limited product lines, markets or financial resources; may lack management depth
or experience; and may be more vulnerable to adverse general market or economic
developments than large companies. The prices of micro-capitalization company
securities are often more volatile than prices associated with large company
issues, and can display abrupt or erratic movements at times, due to limited
trading volumes and less publicly available information.
Also, because micro-capitalization companies normally have fewer shares
outstanding and these shares trade less frequently than large companies, it may
be more difficult for a fund to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices.
Some of the companies in which a fund may invest may distribute, sell or produce
products which have recently been brought to market and may be dependent on key
personnel. The securities of micro-capitalization companies are often traded
over-the-counter and may not be traded in the volumes typical on a national
securities exchange. Consequently, in order to sell this type of holding, a fund
may need to discount the securities from recent prices or dispose of the
securities over a long period of time.
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Mortgage-Backed Securities and Mortgage Pass-Through Securities. DWS Bond VIP,
DWS Global Opportunities VIP and DWS Growth & Income VIP may also invest in
mortgage-backed securities, which are interests in pools of mortgage loans,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks, and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related,
and private organizations as further described below. Underlying mortgages may
be of a variety of types, including adjustable rate, conventional 30-year,
graduated payment and 15-year.
A decline in interest rates will often lead to a faster rate of repayment of the
underlying mortgages, and expose the Portfolios to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Portfolios, the prepayment right will tend to limit to some degree the increase
in net asset value of the Portfolios because the value of the mortgage-backed
securities held by the Portfolios may not appreciate as rapidly as the price of
non-callable debt securities. Mortgage-backed securities are subject to the risk
of prepayment and the risk that the underlying loans will not be repaid. Because
principal may be prepaid at any time, mortgage-backed securities may involve
significantly greater price and yield volatility than traditional debt
securities.
When interest rates rise, mortgage prepayment rates tend to decline, thus
lengthening the life of mortgage-related securities and increasing their
volatility, affecting the price volatility of the Fund's shares.
Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-related securities such as securities issued by the
"GNMA" are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether or not
the mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is GNMA.
GNMA is a wholly owned US Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the US Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks, and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. These guarantees, however, do
not apply to the market value or yield of mortgage-backed securities or to the
value of Portfolio shares. Also, GNMA securities often are purchased at a
premium over the maturity value of the underlying mortgages. This premium is not
guaranteed and will be lost if prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and credit of
the US Government) include Fannie Mae and the "FHLMC." Fannie Mae is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
Fannie Mae purchases conventional (i.e., not insured or guaranteed by any
governmental agency) mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, credit unions, and mortgage bankers.
Pass-through securities issued by Fannie Mae are guaranteed as to timely payment
of principal and interest by Fannie Mae but are not backed by the full faith and
credit of the US Government.
FHLMC is a corporate instrumentality of the US Government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues PCs which represent interests in conventional mortgages
from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest
and ultimate collection of principal, but PCs are not backed by the full faith
and credit of the US Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
governmental
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and government-related pools because there are no direct or indirect government
or agency guarantees of payments. However, timely payment of interest and
principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance, and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers, and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Portfolios' investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Portfolios may buy mortgage-related securities without
insurance or guarantees, if through an examination of the loan experience and
practices of the originators/servicers and poolers, the Advisor determines that
the securities meet the Portfolios' quality standards. Although the market for
such securities is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable.
Other Mortgage-Backed Securities. The Advisor expects that governmental,
government-related, or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. DWS Bond VIP will not purchase mortgage-backed securities or any
other assets which, in the opinion of the Advisor, are illiquid if, as a result,
more than 15% of the value of the Portfolio's net assets will be illiquid. As
new types of mortgage-related securities are developed and offered to investors,
the Advisor will, consistent with the Portfolio's investment objectives,
policies, and quality standards, consider making investments in such new types
of mortgage-related securities.
Mortgage Dollar Rolls. DWS Bond VIP may enter into mortgage dollar rolls in
which the Portfolio sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase similar, but not identical,
securities on a fixed date. The Portfolio receives compensation as consideration
for entering into the commitment to repurchase. The compensation is paid in the
form of a fee which is recorded as deferred income and amortized to income over
the roll period, or alternatively, a lower price for the security upon its
repurchase. Mortgage dollar rolls may be renewed with a new sale and repurchase
price and a cash settlement made at each renewal without physical delivery of
the securities subject to the contract.
Municipal Obligations. DWS Bond VIP may invest in municipal obligations.
Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities and the District of Columbia to obtain funds for various
public purposes. The interest on these obligations is generally exempt from
federal income tax in the hands of most investors. The two principal
classifications of municipal obligations are "notes" and "bonds." Municipal
notes are generally used to provide for short-term capital needs and generally
have maturities of one year or less. Municipal notes include: Tax Anticipation
Notes; Revenue Anticipation Notes; Bond Anticipation Notes; and Construction
Loan Notes.
Tax Anticipation Notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenue. Tax Anticipation Notes and
Revenue Anticipation Notes are generally issued in anticipation of various
seasonal revenue such as income, sales, use and business taxes. Bond
Anticipation Notes are sold to provide interim financing and Construction Loan
Notes are sold to provide construction financing. These notes are generally
issued in anticipation of long-term financing in the market. In most cases,
these monies provide for the repayment of the notes. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the FHA under Fannie Mae or GNMA. There are, of course, a number of
other types of notes issued for different purposes and secured differently than
those described above.
Municipal bonds, which meet longer-term capital needs and generally have
maturities of more than one year when issued, have two principal
classifications: "general obligation" bonds and "revenue" bonds.
Issuers of general obligation bonds include states, counties, cities, towns and
regional districts. The proceeds of these obligations are used to fund a wide
range of public projects including the construction or improvement of schools,
highways and roads, water and sewer systems and a variety of other public
purposes. The basic security behind general obligation bonds is the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest.
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The taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount or special assessments.
The principal security for a revenue bond is generally the net revenues derived
from a particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Revenue bonds
have been issued to fund a wide variety of capital projects including: electric,
gas, water and sewer systems; highways, bridges and tunnels; port and airport
facilities; colleges and universities; and hospitals. Although the principal
security behind these bonds varies widely, many provide additional security in
the form of a debt service reserve fund whose monies may also be used to make
principal and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully-insured,
rent-subsidized and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. In addition to a debt service reserve fund,
some authorities provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt reserve fund. Lease
rental bonds issued by a state or local authority for capital projects are
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.
Some issues of municipal bonds are payable from United States Treasury bonds and
notes held in escrow by a trustee, frequently a commercial bank. The interest
and principal on these US Government securities are sufficient to pay all
interest and principal requirements of the municipal securities when due. Some
escrowed Treasury securities are used to retire municipal bonds at their
earliest call date, while others are used to retire municipal bonds at their
maturity.
Securities purchased for a Portfolio may include variable/floating rate
instruments, variable mode instruments, put bonds, and other obligations which
have a specified maturity date but also are payable before maturity after notice
by the holder ("demand obligations"). Demand obligations are considered for a
Portfolio's purposes to mature at the demand date.
There are, in addition, a variety of hybrid and special types of municipal
obligations as well as numerous differences in the security of municipal
obligations both within and between the two principal classifications (i.e.,
notes and bonds) discussed above.
An entire issue of municipal securities may be purchased by one or a small
number of institutional investors such as a Portfolio. Thus, such an issue may
not be said to be publicly offered. Unlike the equity securities of operating
companies or mutual funds which must be registered under the Securities Act of
1933 prior to offer and sale unless an exemption from such registration is
available, municipal securities, whether publicly or privately offered, may
nevertheless be readily marketable. A secondary market exists for municipal
securities which have been publicly offered as well as securities which have not
been publicly offered initially but which may nevertheless be readily
marketable. Municipal securities purchased for a Portfolio are subject to the
limitations on holdings of securities which are not readily marketable based on
whether it may be sold in a reasonable time consistent with the customs of the
municipal markets (usually seven days) at a price (or interest rate) which
accurately reflects its recorded value. A Portfolio believes that the quality
standards applicable to their investments enhance marketability. In addition,
stand-by commitments, participation interests and demand obligations also
enhance marketability.
Provisions of the federal bankruptcy statutes relating to the adjustment of
debts of political subdivisions and authorities of states of the United States
provide that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material and adverse
modification or alteration of the rights of holders of obligations issued by
such subdivisions or authorities.
Litigation challenging the validity under state constitutions of present systems
of financing public education has been initiated or adjudicated in a number of
states, and legislation has been introduced to effect changes in public school
finances in some states. In other instances there has been litigation
challenging the issuance of pollution control revenue bonds or the validity of
their issuance under state or federal law which litigation could ultimately
affect the validity of those Municipal Securities or the tax-free nature of the
interest thereon.
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For the purpose of a Portfolio's investment restrictions, the identification of
the "issuer" of municipal obligations which are not general obligation bonds is
made by the Advisor on the basis of the characteristics of the obligation as
described above, the most significant of which is the source of funds for the
payment of principal and interest on such obligations.
DWS Bond VIP may acquire municipal obligations when, due to disparities in the
debt securities markets, the anticipated total return on such obligations is
higher than that on taxable obligations. DWS Bond VIP has no current intention
of purchasing tax-exempt municipal obligations that would amount to greater than
5% of the Portfolio's total assets.
Participation Interests. A Portfolio may purchase from financial institutions
participation interests in securities in which a Portfolio may invest. A
participation interest gives a Portfolio an undivided interest in the security
in the proportion that a Portfolio's participation interest bears to the
principal amount of the security. These instruments may have fixed, floating or
variable interest rates, with remaining maturities of 397 days or less. If the
participation interest is unrated, or has been given a rating below that which
is permissible for purchase by a Portfolio, the participation interest will be
backed by an irrevocable letter of credit or guarantee of a bank, or the payment
obligation otherwise will be collateralized by US Government securities, or, in
the case of unrated participation interest, determined by the Advisor to be of
comparable quality to those instruments in which a Portfolio may invest. For
certain participation interests, a Portfolio will have the right to demand
payment, on not more than seven days' notice, for all or any part of a
Portfolio's participation interests in the security, plus accrued interest. As
to these instruments, a Portfolio generally intends to exercise its right to
demand payment only upon a default under the terms of the security.
Privatized Enterprises. Investments in foreign securities may include securities
issued by enterprises that have undergone or are currently undergoing
privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or
part of their interests in state enterprises. A Portfolio's investments in the
securities of privatized enterprises may include privately negotiated
investments in a government or state-owned or controlled company or enterprise
that has not yet conducted an initial equity offering, investments in the
initial offering of equity securities of a state enterprise or former state
enterprise and investments in the securities of a state enterprise following its
initial equity offering.
In certain jurisdictions, the ability of foreign entities, such as a Portfolio,
to participate in privatizations may be limited by local law, or the price or
terms on which a Portfolio may be able to participate may be less advantageous
than for local investors. Moreover, there can be no assurance that governments
that have embarked on privatization programs will continue to divest their
ownership of state enterprises, that proposed privatizations will be successful
or that governments will not re-nationalize enterprises that have been
privatized.
In the case of the enterprises in which a Portfolio may invest, large blocks of
the stock of those enterprises may be held by a small group of stockholders,
even after the initial equity offerings by those enterprises. The sale of some
portion or all of those blocks could have an adverse effect on the price of the
stock of any such enterprise.
Prior to making an initial equity offering, most state enterprises or former
state enterprises go through an internal reorganization of management. Such
reorganizations are made in an attempt to better enable these enterprises to
compete in the private sector. However, certain reorganizations could result in
a management team that does not function as well as an enterprise's prior
management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of
years, with the government continuing to hold a controlling position in the
enterprise even after the initial equity offering for the enterprise.
Prior to privatization, most of the state enterprises in which a Portfolio may
invest enjoy the protection of and receive preferential treatment from the
respective sovereigns that own or control them. After making an initial equity
offering, these enterprises may no longer have such protection or receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not be able to
operate effectively in a competitive market and may suffer losses or experience
bankruptcy due to such competition.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgaged-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through
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structures similar to the mortgage pass-through structures or in a structure
similar to the CMO structure. In general, the collateral supporting these
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments with interest rate fluctuations.
Several types of asset-backed securities have already been offered to investors,
including Certificates for Automobile ReceivablesSM ("CARSSM"). CARSSM represent
undivided fractional interests in a trust whose assets consist of a pool of
motor vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts. Payments of principal and interest on CARSSM
are passed through monthly to certificate holders, and are guaranteed up to
certain amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARSSM may be affected by early prepayment of principal
on the underlying vehicle sales contracts. If the letter of credit is exhausted,
the trust may be prevented from realizing the full amount due on a sales
contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments or
losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, the securities may contain
elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses results from payment of the insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. DWS Bond VIP will not
pay any additional or separate fees for credit support. The degree of credit
support provided for each issue is generally based on historical information
respecting the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that anticipated, or failure of the credit
support could adversely affect the return on an investment in such a security.
DWS Bond VIP may also invest in residual interests in asset-backed securities.
In the case of asset-backed securities issued in a pass-through structure, the
cash flow generated by the underlying assets is applied to make required
payments on the securities and to pay related administrative expenses. The
residual interest in an asset-backed security pass-through structure represents
the interest in any excess cash flow remaining after making the foregoing
payments. The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the Securities Act of 1933 may be subject to certain
restrictions on transferability. In addition, there may be no liquid market for
such securities.
The availability of asset-backed securities may be affected by legislative or
regulatory developments. It is possible that such developments may require DWS
Bond VIP to dispose of any then existing holdings of such securities.
Real Estate Investment Trusts ("REITs"). DWS Bond VIP, DWS Growth & Income VIP,
DWS Global Opportunities VIP and DWS Health Care VIP may each invest in REITs.
REITs are sometimes informally categorized as equity REITs, mortgage REITs and
hybrid REITs. Investment in REITs may subject a Portfolio to risks associated
with the direct ownership of real estate, such as decreases in real estate
values, overbuilding, increased competition and other risks related to local or
general economic conditions, increases in operating costs and property taxes,
changes in
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zoning laws, casualty or condemnation losses, possible environmental
liabilities, regulatory limitations on rent and fluctuations in rental income.
Equity REITs generally experience these risks directly through fee or leasehold
interests, whereas mortgage REITs generally experience these risks indirectly
through mortgage interests, unless the mortgage REIT forecloses on the
underlying real estate. Equity REITs may also realize capital gains by selling
properties that have appreciated in value. Changes in interest rates may also
affect the value of a Portfolio's investment in REITs. For instance, during
periods of declining interest rates, certain mortgage REITs may hold mortgages
that the mortgagors elect to prepay, which prepayment may diminish the yield on
securities issued by those REITs.
Certain REITs have relatively small market capitalizations, which may tend to
increase the volatility of the market prices of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended, and to maintain exemption from the registration requirements of the
Investment Company Act of 1940, as amended. By investing in REITs indirectly
through a Portfolio, a shareholder will bear not only his or her proportionate
share of the expenses of a Portfolio, but also, indirectly, similar expenses of
the REITs. In addition, REITs depend generally on their ability to generate cash
flow to make distributions to shareholders.
Repurchase Agreements. On behalf of a Portfolio, the Fund may invest in
repurchase agreements pursuant to its investment guidelines. In a repurchase
agreement, the Fund acquires ownership of a security and simultaneously commits
to resell that security to the seller, typically a bank or broker/dealer.
A repurchase agreement provides a means for a Portfolio to earn income on funds
for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Portfolio) acquires a security ("Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. Securities subject to a repurchase agreement are held in a
segregated account and, as described in more detail below, the value of such
securities is kept at least equal to the repurchase price on a daily basis. The
repurchase price may be higher than the purchase price, the difference being
income to a Portfolio, or the purchase and repurchase prices may be the same,
with interest at a stated rate due to a Portfolio together with the repurchase
price upon repurchase. In either case, the income to a Portfolio is unrelated to
the interest rate on the Obligation itself. Obligations will be held by the
custodian or in the Federal Reserve Book Entry system.
It is not clear whether a court would consider the Obligation purchased by a
Portfolio subject to a repurchase agreement as being owned by a Portfolio or as
being collateral for a loan by a Portfolio to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, a Portfolio may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and a
Portfolio has not perfected a security interest in the Obligation, a Portfolio
may be required to return the Obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, a Portfolio
would be at risk of losing some or all of the principal and income involved in
the transaction. As with any unsecured debt Obligation purchased for the
Portfolio, the Fund seeks to reduce the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation, in which case a Portfolio may incur a loss if the proceeds to a
Portfolio of the sale to a third party are less than the repurchase price.
However, if the market value (including interest) of the Obligation subject to
the repurchase agreement becomes less than the repurchase price (including
interest), a Portfolio will direct the seller of the Obligation to deliver
additional securities so that the market value (including interest) of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price.
Restructuring Instruments. DWS Bond VIP hold distressed securities, which are
securities that are in default or in risk of being in default. In connection
with an exchange or workout of such securities, the Portfolio may accept various
instruments if the investment adviser determines it is in the best interests of
the Portfolio and consistent with the portfolio's investment objective and
policies. Such instruments may include, but not limited to, warrants, rights,
participation interests in assets sales and contingent-interest obligations.
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Reverse Repurchase Agreements. Each Portfolio may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Portfolio, as the seller
of the securities, agrees to repurchase such securities at an agreed upon time
and price. The Portfolio maintains a segregated account in connection with
outstanding reverse repurchase agreements. Each Portfolio will enter into
reverse repurchase agreements only when the Advisor believes that the interest
income to be earned from the investment of the proceeds of the transaction will
be greater than the interest expense of the transaction. Such transactions may
increase fluctuations in the market value of Portfolio assets and its yield.
Securities Index Options. DWS Bond VIP, DWS Growth & Income VIP, DWS Capital
Growth VIP and DWS International VIP may each purchase call and put options on
securities indexes for the purpose of hedging against the risk of unfavorable
price movements adversely affecting the value of a Portfolio's securities.
Options on securities indexes are similar to options on stock except that the
settlement is made in cash. (See "Strategic Transactions and Derivatives.")
Unlike a securities option, which gives the holder the right to purchase or sell
a specified security at a specified price, an option on a securities index gives
the holder the right to receive a cash "exercise settlement amount" equal to (i)
the difference between the exercise price of the option and the value of the
underlying securities index on the exercise date, multiplied by (ii) a fixed
"index multiplier." In exchange for undertaking the obligation to make such cash
payment, the writer of the securities index option receives a premium.
A securities index fluctuates with changes in the market values of the
securities so included. Some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indices are also based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options on securities indexes are currently traded on exchanges
including the Chicago Board Options Exchange, Philadelphia Exchange, New York
Stock Exchange, and American Stock Exchange.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
holdings of a Portfolio will not exactly match the composition of the securities
indexes on which options are written. In addition, the purchase of securities
index options involves essentially the same risks as the purchase of options on
futures contracts. The principal risk is that the premium and transactions costs
paid by a Portfolio in purchasing an option will be lost as a result of
unanticipated
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movements in prices of the securities comprising the securities index on which
the option is written. Options on securities indexes also entail the risk that a
liquid secondary market to close out the option will not exist, although a
Portfolio will generally only purchase or write such an option if the Advisor
believes the option can be closed out.
Short Sales Against the Box. DWS Health Care VIP may make short sales of common
stocks if, at all times when a short position is open, a Portfolio owns the
stock or owns preferred stocks or debt securities convertible or exchangeable,
without payment of further consideration, into the shares of common stock sold
short. Short sales of this kind are referred to as short sales "against the
box." The portfolio will incur a loss as a result of the short sale if the price
of the security increases between the dates of the short sale and the date on
which the Portfolio replaces the borrowed security. The broker/dealer that
executes a short sale generally invests cash proceeds of the sale until they are
paid to the Portfolio. Arrangements may be made with the broker/dealer to obtain
a portion of the interest earned by the broker on the investment of short sale
proceeds. The Portfolio will segregate the common stock or convertible or
exchangeable preferred stock or debt securities in a special account with the
custodian. The Portfolio will incur transaction costs, including interest
expenses in connection with opening, maintaining, and closing short sales
against the box. Uncertainty regarding the tax effects of short sales of
appreciated investments may limit the extent to which a Portfolio may enter into
short sales against the box.
Small Company Risk. The Advisor believes that many small companies often have
sales and earnings growth rates which exceed those of larger companies, and that
such growth rates may in turn be reflected in more rapid share price
appreciation over time. However, investing in smaller company stocks involves
greater risk than is customarily associated with investing in larger, more
established companies. For example, smaller companies can have limited product
lines, markets, or financial and managerial resources. Smaller companies may
also be dependent on one or a few key persons, and may be more susceptible to
losses and risks of bankruptcy. Also, the securities of smaller companies may be
thinly traded (and therefore have to be sold at a discount from current market
prices or sold in small lots over an extended period of time). Transaction costs
in smaller company stocks may be higher than those of larger companies.
Sovereign Debt. Investment in sovereign debt can involve a high degree of risk.
The governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability
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of sufficient foreign exchange on the date a payment is due, the relative size
of the debt service burden to the economy as a whole, the governmental entity's
policy toward the International Monetary Fund, and the political constraints to
which a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt. Holders of sovereign debt may be
requested to participate in the rescheduling of such debt and to extend further
loans to governmental entities. There is no bankruptcy proceeding by which
sovereign debt on which governmental entities have defaulted may be collected in
whole or in part.
Stripped Zero Coupon Securities. Zero coupon securities include securities
issued directly by the US Treasury, and US Treasury bonds or notes and their
unmatured interest coupons and receipts for their underlying principal
("coupons") which have been separated by their holder, typically a custodian
bank or investment brokerage firm. A holder will separate the interest coupons
from the underlying principal (the "corpus") of the US Treasury security. A
number of securities firms and banks have stripped the interest coupons and
receipts and then resold them in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts" ("TIGRS(TM)") and
Certificate of Accrual on Treasuries ("CATS(TM)"). The underlying US Treasury
bonds and notes themselves are held in book-entry form at the Federal Reserve
Bank or, in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder thereof), in trust on behalf of the
owners thereof. The Treasury has facilitated transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under the
STRIPS program, the Portfolio will be able to have its beneficial ownership of
zero coupon securities recorded directly in the book-entry record-keeping system
in lieu of having to hold certificates or other evidences of ownership of the
underlying US Treasury securities.
When US Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (i.e. cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
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Supranational Entities. Supranational entities are international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction
and Development (the World Bank), the European Coal and Steel Community, The
Asian Development Bank and the InterAmerican Development Bank. Obligations of
supranational entities are backed by the guarantee of one or more foreign
governmental parties which sponsor the entity.
Trust Preferred Securities. DWS Bond VIP may invest in Trust Preferred
Securities, which are hybrid instruments issued by a special purpose trust (the
"Special Trust"), the entire equity interest of which is owned by a single
issuer. The proceeds of the issuance to the Portfolios of Trust Preferred
Securities are typically used to purchase a junior subordinated debenture, and
distributions from the Special Trust are funded by the payments of principal and
interest on the subordinated debenture.
If payments on the underlying junior subordinated debentures held by the Special
Trust are deferred by the debenture issuer, the debentures would be treated as
original issue discount ("OID") obligations for the remainder of their term. As
a result, holders of Trust Preferred Securities, such as the Portfolios, would
be required to accrue daily for Federal income tax purposes, their share of the
stated interest and the de minimis OID on the debentures (regardless of whether
a Portfolio receives any cash distributions from the Special Trust), and the
value of Trust Preferred Securities would likely be negatively affected.
Interest payments on the underlying junior subordinated debentures typically may
only be deferred if dividends are suspended on both common and preferred stock
of the issuer. The underlying junior subordinated debentures generally rank
slightly higher in terms of payment priority than both common and preferred
securities of the issuer, but rank below other subordinated debentures and debt
securities. Trust Preferred Securities may be subject to mandatory prepayment
under certain circumstances. The market values of Trust Preferred Securities may
be more volatile than those of conventional debt securities. Trust Preferred
Securities may be issued in reliance on Rule 144A under the Securities Act of
1933, as amended, and, unless and until registered, are restricted securities;
there can be no assurance as to the liquidity of Trust Preferred Securities and
the ability of holders of Trust Preferred Securities, such as the Portfolios, to
sell their holdings.
US Government Securities. There are two broad categories of US
Government-related debt instruments: (a) direct obligations of the US Treasury,
and (b) securities issued or guaranteed by US Government agencies.
Examples of direct obligations of the US Treasury are Treasury Bills, Notes,
Bonds and other debt securities issued by the US Treasury. These instruments are
backed by the "full faith and credit" of the United States. They differ
primarily in interest rates, the length of maturities and the dates of issuance.
Treasury bills have original maturities of one year or less. Treasury notes have
original maturities of one to ten years and Treasury bonds generally have
original maturities of greater than ten years.
Some agency securities are backed by the full faith and credit of the United
States (such as Maritime Administration Title XI Ship Financing Bonds and Agency
for International Development Housing Guarantee Program Bonds) and others are
backed only by the rights of the issuer to borrow from the US Treasury (such as
Federal Home Loan Bank Bonds and Federal National Mortgage Association Bonds),
while still others, such as the securities of the Federal Farm Credit Bank, are
supported only by the credit of the issuer. With respect to securities supported
only by the credit of the issuing agency or by an additional line of credit with
the US Treasury, there is no guarantee that the US Government will provide
support to such agencies and such securities may involve risk of loss of
principal and interest.
US Government Securities may include "zero coupon" securities that have been
stripped by the US Government of their unmatured interest coupons and
collateralized obligations issued or guaranteed by a US Government agency or
instrumentality.
Interest rates on US Government obligations may be fixed or variable. Interest
rates on variable rate obligations are adjusted at regular intervals, at least
annually, according to a formula reflecting then current specified standard
rates,
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such as 91-day US Treasury bill rates. These adjustments generally tend to
reduce fluctuations in the market value of the securities.
The government guarantee of the US Government Securities in a Portfolio's
portfolio does not guarantee the net asset value of the shares of a fund. There
are market risks inherent in all investments in securities and the value of an
investment in a fund will fluctuate over time. Normally, the value of
investments in US Government Securities varies inversely with changes in
interest rates. For example, as interest rates rise the value of investments in
US Government Securities will tend to decline, and as interest rates fall the
value of a fund's investments will tend to increase. In addition, the potential
for appreciation in the event of a decline in interest rates may be limited or
negated by increased principal prepayments with respect to certain
Mortgage-Backed Securities, such as GNMA Certificates. Prepayments of high
interest rate Mortgage-Backed Securities during times of declining interest
rates will tend to lower the return of a fund and may even result in losses to a
fund if some securities were acquired at a premium. Moreover, during periods of
rising interest rates, prepayments of Mortgage-Backed Securities may decline,
resulting in the extension of a Portfolio's average portfolio maturity. As a
result, a Portfolio's portfolio may experience greater volatility during periods
of rising interest rates than under normal market conditions.
Warrants. Each Portfolio may invest in warrants up to 5% of the value of its
total assets. The holder of a warrant has the right, until the warrant expires,
to purchase a given number of shares of a particular issuer at a specified
price. Such investments can provide a greater potential for profit or loss than
an equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by a Portfolio were not exercised by the date of its expiration,
the Portfolio would lose the entire purchase price of the warrant.
When-Issued Securities. A Portfolio may from time to time purchase securities on
a "when-issued" or "forward delivery" basis. Debt securities are often issued on
this basis. The price of such securities, which may be expressed in yield terms,
is generally fixed at the time a commitment to purchase is made, but delivery
and payment for the when-issued or forward delivery securities take place at a
later date. During the period between purchase and settlement, no payment is
made by the Portfolio and no interest accrues to the Portfolio. When a Portfolio
purchases such securities, it immediately assumes the risks of ownership,
including the risk of price fluctuation. Failure to deliver a security purchased
on this basis may result in a loss or missed opportunity to make an alternative
investment.
To the extent that assets of a Portfolio are held in cash pending the settlement
of a purchase of securities, that Portfolio would earn no income. While such
securities may be sold prior to the settlement date, a Portfolio intends to
purchase them with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time a Portfolio makes the commitment
to purchase a security on this basis, it will record the transaction and reflect
the value of the security in determining its net asset value. The market value
of the securities may be more or less than the purchase price. A Portfolio will
establish a segregated account in which it will maintain cash and liquid
securities equal in value to commitments for such securities.
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Zero Coupon Securities. DWS Bond VIP, DWS Growth & Income VIP, DWS Capital
Growth VIP and DWS Global Opportunities VIP may each invest in zero coupon
securities which pay no cash income and are sold at substantial discounts from
their value at maturity. When held to maturity, their entire income, which
consists of accretion of discount, comes from the difference between the issue
price and their value at maturity. The effect of owning instruments which do not
make current interest payments is that a fixed yield is earned not only on the
original investment but also, in effect, on all discount accretion during the
life of the obligation. This implicit reinvestment of earnings at the same rate
eliminates the risk of being unable to reinvest distributions at a rate as high
as the implicit yield on the zero coupon bond, but at the same time eliminates
any opportunity to reinvest earnings at higher rates. For this reason, zero
coupon bonds are subject to substantially greater price fluctuations during
periods of changing market interest rates than those of comparable securities
that pay interest currently, which fluctuation is greater as the period to
maturity is longer. Zero coupon securities which are convertible into common
stock offer the opportunity for capital appreciation (or depreciation) as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks, as they usually are issued with maturities of 15 years
or less and are issued with options and/or redemption features exercisable by
the holder of the obligation entitling the holder to redeem the obligation and
receive a defined cash payment.
Strategic Transactions and Derivatives. A Portfolio may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in its portfolio, or enhancing potential
gain. These strategies may be executed through the use of derivative contracts.
In the course of pursuing these investment strategies, a Portfolio may purchase
and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Portfolio's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect a Portfolio's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in a Portfolio's portfolio, or to establish a position
in the derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Portfolio's assets (10% for DWS Bond VIP
with respect to currency exposure and 15% for DWS Bond VIP with respect to
credit default swaps) will be committed to Strategic Transactions entered into
for non-hedging purposes.
Any or all of these investment techniques may be used at any time and in any
combination, and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of a Portfolio to
utilize these Strategic Transactions successfully will depend on the Advisor's
ability to predict pertinent market movements, which cannot be assured. Each
Portfolio will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. Strategic Transactions will not be
used to alter fundamental investment purposes and characteristics of a
Portfolio, and a Portfolio will segregate assets (or as provided by applicable
regulations, enter into certain offsetting positions) to cover its obligations
under options, futures and swaps to limit leveraging of the Portfolio.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Advisor's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to a Portfolio, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation a Portfolio can realize on its investments or
cause a Portfolio to hold a security it might otherwise sell. The use of
currency transactions can result in a Portfolio incurring losses as a result of
a
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number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Portfolio's position. In addition, futures
and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Portfolio might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of a Portfolio's assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, a Portfolio's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
a Portfolio the right to sell such instrument at the option exercise price. A
call option, upon payment of a premium, gives the purchaser of the option the
right to buy, and the seller the obligation to sell, the underlying instrument
at the exercise price. Each Portfolio's purchase of a call option on a security,
financial future, index, currency or other instrument might be intended to
protect a Portfolio against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. Each Portfolio is authorized to purchase and sell exchange listed
options and over-the-counter options ("OTC options"). Exchange listed options
are issued by a regulated intermediary such as the Options Clearing Corporation
("OCC"), which guarantees the performance of the obligations of the parties to
such options. The discussion below uses the OCC as an example, but is also
applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
Each Portfolio's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
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The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that may not be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. Each
Portfolio will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting a Portfolio to require the
Counterparty to sell the option back to a Portfolio at a formula price within
seven days. Each Portfolio expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, a Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Advisor must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. Each Portfolio will engage in OTC option transactions only with US
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Advisor. The staff of the
SEC currently takes the position that OTC options purchased by a Portfolio, and
portfolio securities "covering" the amount of a Portfolio's obligation pursuant
to an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to a Portfolio's limitation on
investing no more than 15% of its net assets in illiquid securities.
If a Portfolio sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase a Portfolio's income. The sale of put options can also provide income.
Each Portfolio may purchase and sell call options on securities including US
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on US and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by a Portfolio must be
"covered" (i.e., a Portfolio must own the securities or futures contract subject
to the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though a Portfolio will receive the option
premium to help protect it against loss, a call sold by a Portfolio exposes a
Portfolio during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require a Portfolio to hold a security or instrument which it
might otherwise have sold.
Each Portfolio may purchase and sell put options on securities including US
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. Each Portfolio will not sell put options if, as a result, more than
50% of a Portfolio's total assets would be required to be segregated to cover
its potential obligations under such put options other than those with respect
to futures and options thereon. In selling put options, there is a risk that a
Portfolio may be required to buy the underlying security at a disadvantageous
price above the market price. DWS Capital Growth VIP and DWS International VIP
may write covered call and put options on no more than 5% of each Portfolio's
net assets; the value of the aggregate premiums paid for all put and call
options held by each of these Portfolios will not exceed 20% of its total
assets.
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General Characteristics of Futures. Each Portfolio may enter into futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, and for
duration management, risk management and return enhancement purposes. Futures
are generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by a Portfolio, as seller, to deliver
to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such position. In particular cases, however, when it is economically
advantageous to the Portfolio, a long futures position may be terminated (or any
option may expire) without the corresponding purchase of securities.
The Portfolios have claimed exclusion from the definition of the term "commodity
pool operator" adopted by the CFTC and the National Futures Association, which
regulate trading in the futures markets. Therefore, the Portfolios are not
subject to commodity pool operator registration and regulation under the
Commodity Exchange Act. Futures and options on futures may be entered into for
bona fide hedging, risk management (including duration management) or other
portfolio and return enhancement management purposes to the extent consistent
with the exclusion from commodity pool operator registration. Typically,
maintaining a futures contract or selling an option thereon requires a Portfolio
to deposit with a financial intermediary as security for its obligations an
amount of cash or other specified assets (initial margin) which initially is
typically 1% to 10% of the face amount of the contract (but may be higher in
some circumstances). Additional cash or assets (variation margin) may be
required to be deposited thereafter on a daily basis as the marked to market
value of the contract fluctuates. The purchase of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of a Portfolio. If a Portfolio exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur.
Options on Securities Indices and Other Financial Indices. Each Portfolio also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. Each Portfolio (subject to the limitations pertaining to
certain Portfolios described below) may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. Each Portfolio may enter into
currency transactions with Counterparties which have received (or the guarantors
of the obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Advisor.
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Each Portfolio's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of a
Portfolio, which will generally arise in connection with the purchase or sale of
its portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
Each Portfolio generally will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
Each Portfolio may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which a Portfolio has or in which a Portfolio
expects to have portfolio exposure.
DWS Bond VIP will limit its currency exposure to 10% of its total assets
measured by the market value of non-U.S. dollar holdings netted with the market
value of currency forward contracts.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, each Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a
Portfolio's portfolio is exposed is difficult to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Portfolio's portfolio securities are or are
expected to be denominated, in exchange for US dollars. Currency hedging
involves some of the same risks and considerations as other transactions with
similar instruments. Currency transactions can result in losses to a Portfolio
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that a Portfolio is engaging in proxy hedging. If a
Portfolio enters into a currency transaction, a Portfolio will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Portfolio if it is unable to deliver or receive currency or funds
in settlement of obligations and could also cause hedges it has entered into to
be rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
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<PAGE>
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Portfolios may enter are, currency, and other types of swaps and the purchase or
sale of related caps, floors and collars. The Portfolios expect to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. A Portfolio will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income stream a Portfolio
may be obligated to pay. Interest rate swaps involve the exchange by a Portfolio
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as a Portfolio will
segregate assets (or enter into offsetting positions) to cover its obligations
under swaps, the Advisor and a Portfolio believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to its borrowing restrictions. A Portfolio will not enter
into any swap, cap, floor or collar transaction unless, at the time of entering
into such transaction, the unsecured long-term debt of the Counterparty,
combined with any credit enhancements, is rated at least A by S&P or Moody's or
has an equivalent rating from a NRSRO or is determined to be of equivalent
credit quality by the Advisor. If there is a default by the Counterparty, a Fund
may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps. DWS Bond VIP will
not invest more than 15% of its total assets in futures contracts and interest
rate swaps contracts based on the notional amount of the contracts and will
invest in these instruments only for hedging purposes.
DWS Bond VIP may invest up to 15% of its total assets in credit default swaps
for both hedging and non-hedging purposes (measured by the notional amount of
the contract).
A credit default swap is a contract between a buyer and a seller of protection
against a pre-defined credit event. The buyer of protection pays the seller a
fixed regular fee provided that no event of default on an underlying reference
obligation has occurred. If an event of default occurs, the seller must pay the
buyer the full notional value, or "par value", of the reference obligation in
exchange for the reference obligation. Credit default swaps are used as a means
of "buying" credit protection, i.e., attempting to mitigate the risk of default
or credit quality deterioration in some portion of the Portfolio's holdings, or
"selling" credit protection, i.e., attempting to gain exposure to an underlying
issuer's credit quality characteristics without directly investing in that
issuer. No more than 5% of the Portfolio's assets may be invested in credit
default swaps for purposes of buying credit protection on individual securities
if the Portfolio does not own the individual security or securities at the time
of the investment. Where the Portfolio is a seller of credit protection, it
effectively adds leverage to its portfolio because, in addition to its total net
assets, the Portfolio would be subject to investment exposure on the notional
amount of the swap. The Portfolio will only sell credit protection with respect
to securities in which it would be authorized to invest directly. The Portfolio
currently considers credit default swaps to be illiquid and treats the market
value of the contract as illiquid for purposes of determining compliance with
the Portfolio's restrictions on investing in illiquid securities.
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If the Portfolio is a buyer of a credit default swap and no event of default
occurs, the Portfolio will lose its investment and recover nothing. However, if
the Portfolio is a buyer and an event of default occurs, the Portfolio will
receive the full notional value of the reference obligation that may have little
or no value. As a seller, the Portfolio receives a fixed rate of income through
the term of the contract (typically between six months and three years),
provided that there is no default event. If an event of default occurs, the
seller must pay the buyer the full notional value of the reference obligation.
Credit default swaps involve greater risks than if the Portfolio had invested in
the reference obligation directly.
The Portfolio may use credit default swaps to gain exposure to particular
issuers or particular markets through investments in portfolios of credit
default swaps, such as Dow Jones CDX.NA.HY certificates. By investing in
certificates representing interests in a basket of credit default swaps, the
Fund is taking credit risk with respect to an entity or group of entities and
providing credit protection to the swap counterparties. For example, the CDX EM
is a tradable basket of 19 credit default swaps on country credits which seeks
to replicate the returns on the indices of a broad group of emerging markets
countries. The credits are a subset of the countries represented by the JPMorgan
Emerging Markets Bond Index Global Diversified. By purchasing interests in CDX
EM, the Portfolio is gaining emerging markets exposure through a single
investment. Unlike other types of credit default swaps which are generally
considered illiquid, credit default swap certificates generally can be sold
within seven days and are not subject to the Portfolio's restrictions on
investing in illiquid securities.
Risks of Strategic Transactions Outside the US. When conducted outside the US,
Strategic Transactions may not be regulated as rigorously as in the US, may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the US of data on which to
make trading decisions, (iii) delays in a Portfolio's ability to act upon
economic events occurring in foreign markets during non-business hours in the
US, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the US, and (v) lower trading volume
and liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that a Portfolio segregate cash or
liquid assets with its custodian to the extent a Portfolio's obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
a Portfolio to pay or deliver securities or assets must be covered at all times
by the securities, instruments or currency required to be delivered, or, subject
to any regulatory restrictions, an amount of cash or liquid assets at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by a Portfolio will require the
Portfolio to hold the securities subject to the call (or securities convertible
into the needed securities without additional consideration) or to segregate
cash or liquid assets sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by a Portfolio on an index will require
the Portfolio to own portfolio securities which correlate with the index or to
segregate cash or liquid assets equal to the excess of the index value over the
exercise price on a current basis. A put option written by a Portfolio requires
the Portfolio to segregate cash or liquid assets equal to the exercise price.
Except when a Portfolio enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Portfolio to buy or sell
currency will generally require a Portfolio to hold an amount of that currency
or liquid assets denominated in that currency equal to the Portfolio's
obligations or to segregate cash or liquid assets equal to the amount of a
Portfolio's obligation.
OTC options entered into by a Portfolio, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when a
Portfolio sells these instruments it will only segregate an amount of cash or
liquid assets equal to its accrued net obligations, as there is no requirement
for payment or delivery of amounts in excess of the net amount. These amounts
will equal 100% of the exercise price in the case of a non cash-settled put, the
same as an OCC guaranteed listed option sold by a Portfolio, or the in-the-money
amount plus any sell-back formula amount in the case of a cash-settled put or
call. In addition, when a Portfolio sells a call option on an index at a time
when the in-the-money amount exceeds the exercise price, the Portfolio will
segregate, until the option expires or is closed out, cash or cash equivalents
equal in value to
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such excess. OCC issued and exchange listed options sold by a Portfolio other
than those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and a Portfolio will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, a Portfolio must deposit
initial margin and possible daily variation margin in addition to segregating
cash or liquid assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, a Portfolio will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to a Portfolio's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. Each Portfolio may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Portfolio could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Portfolio. Moreover, instead of segregating cash or liquid assets if
a Portfolio held a futures or forward contract, it could purchase a put option
on the same futures or forward contract with a strike price as high or higher
than the price of the contract held. Other Strategic Transactions may also be
offset in combinations. If the offsetting transaction terminates at the time of
or after the primary transaction no segregation is required, but if it
terminates prior to such time, cash or liquid assets equal to any remaining
obligation would need to be segregated.
Risks of Specialized Investment Techniques Outside the US. When conducted
outside the US, the above described specialized investment techniques may not be
regulated as effectively as in the US; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors; (ii) lesser
availability than in the US of data on which to make trading decisions; (iii)
delays in a Portfolio's ability to act upon economic events occurring in foreign
markets during non-business hours in the US; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
US; and (v) lower trading volume and liquidity.
Combined Transactions. Each Portfolio may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Advisor, it is in the best interests of a Portfolio to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Advisor's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
Portfolio Holdings Information
In addition to the public disclosure of portfolio holdings through required
Securities and Exchange Commission ("SEC") quarterly filings, the portfolios may
make their portfolio holdings information publicly available on the DWS Funds
Web site as described in the portfolios' prospectuses. The portfolios do not
disseminate non-public information about portfolio holdings except in accordance
with policies and procedures adopted by a portfolio.
The portfolio's procedures permit non-public portfolio holdings information to
be shared with Deutsche Investment Management Americas Inc. ("DIMA") and its
affiliates (collectively "DeAM"), subadvisors, if any, custodians, independent
registered public accounting firms, attorneys, officers and trustees and each of
their respective affiliates and advisers who require access to this information
to fulfill their duties to a portfolio and are subject to the duties of
confidentiality, including the duty not to trade on non-public information,
imposed by law or contract, or by a portfolio's procedures. This non-public
information may also be disclosed, subject to the requirements described below,
to securities lending agents, financial printers, proxy voting firms, mutual
fund analysts and rating and tracking agencies, or to shareholders in connection
with in-kind redemptions (collectively, "Authorized Third Parties").
Prior to any disclosure of a portfolio's non-public portfolio holdings
information to Authorized Third Parties, a person authorized by a portfolio's
Trustees must make a good faith determination in light of the facts then known
that a portfolio has a legitimate business purpose for providing the
information, that the disclosure is in the best interest of a portfolio, and
that the recipient assents or otherwise has a duty to keep the information
confidential and to not trade
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based on the information received while the information remains non-public. No
compensation is received by a fund or DeAM for disclosing non-public holdings
information. Periodic reports regarding these procedures will be provided to a
portfolio's Trustees.
Portfolio holdings information distributed by the trading desks of DeAM or a
subadvisor for the purpose of facilitating efficient trading of such securities
and receipt of relevant research is not subject to the foregoing requirements.
Non-public portfolio holding information does not include portfolio
characteristics (other than holdings or subsets of holdings) about each
portfolio and information derived therefrom, including, but not limited to, how
each portfolio's investments are divided among various sectors, industries,
countries, value and growth stocks, bonds, currencies and cash, types of bonds,
bond maturities, duration, bond coupons and bond credit quality ratings so long
as a portfolio's holdings could not be derived from such information.
Registered investment companies that are subadvised by DeAM may be subject to
different portfolio holdings disclosure policies, and neither DeAM nor the
portfolios' Trustees exercise control over such policies. In addition, separate
account clients of DeAM have access to their portfolio holdings and are not
subject to a portfolio's portfolio holdings disclosure policy. The portfolio
holdings of some of the funds subadvised by DeAM and some of the separate
accounts managed by DeAM may substantially overlap with the portfolio holdings
of a portfolio.
DeAM also manages certain unregistered commingled trusts and creates model
portfolios, the portfolio holdings of which may substantially overlap with the
portfolio holdings of a portfolio. To the extent that investors in these
commingled trusts or recipients of model portfolio holdings information may
receive portfolio holdings information of their trust or of a model portfolio on
a different basis from that on which portfolio holdings information is made
public, DeAM has implemented procedures reasonably designed to encourage such
investors and recipients to keep such information confidential, and to prevent
those investors from trading on the basis of non-public holdings information.
There is no assurance that a portfolio's policies and procedures with respect to
the disclosure of portfolio holdings information will protect a portfolio from
the potential misuse of portfolio holdings information by those in possession of
that information.
MANAGEMENT OF THE FUND
Investment Advisor
Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is
part of Deutsche Asset Management (DeAM), is the investment advisor for each
Portfolio. Under the supervision of the Board of Trustees of the Fund, DIMA or a
subadvisor, with headquarters at 345 Park Avenue, New York, New York, 10154,
makes the Portfolios' investment decisions, buys and sells securities for each
Portfolio and conducts research that leads to these purchase and sale decisions.
The Advisor manages each Portfolio's daily investment and business affairs
subject to the policies established by the Fund's Board of Trustees. DIMA and
its predecessors have more than 80 years of experience managing mutual funds.
DIMA provides a full range of investment advisory services to institutional and
retail clients. The Fund's investment advisor or a subadvisor is also
responsible for selecting brokers and dealers and for negotiating brokerage
commissions and dealer charges.
Deutsche Asset Management is the marketing name in the US for the asset
management activities of Deutsche Bank AG, DIMA, Deutsche Bank Trust Company
Americas and DWS Trust Company. Deutsche Asset Management is a global asset
management organization that offers a wide range of investing expertise and
resources, including hundreds of portfolio managers and analysts and an office
network that reaches the world's major investment centers. This well-resourced
global investment platform brings together a wide variety of experience and
investment insight, across industries, regions, asset classes and investing
styles. DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG.
Deutsche Bank AG is a major global banking institution that is engaged in a wide
range of financial services, including investment management,
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mutual fund, retail, private and commercial banking, investment banking and
insurance. The term "DWS Scudder" is the designation given to the products and
services provided by DIMA and its affiliates to the DWS Mutual Funds.
Pursuant to an investment management agreement with each Portfolio (each an
"Agreement," and collectively, the Agreements"), the Advisor acts as each
Portfolio's investment advisor, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides clerical
and administrative services and permits its officers and employees to serve
without compensation as trustees or officers of one or both funds if elected to
such positions. To the extent permissible by law, the Advisor may appoint
certain of its affiliates as subadvisors to perform certain of the Advisor's
duties.
The Advisor provides investment counsel for many individuals and institutions,
including insurance companies, industrial corporations, and financial and
banking organizations, as well as providing investment advice to open- and
closed-end SEC registered funds.
In certain cases, the investments for a Portfolio are managed by the same
individuals who manage one or more other mutual funds advised by the Advisor,
that have similar names, objectives and investment styles. You should be aware
that the Portfolios are likely to differ from these other mutual funds in size,
cash flow pattern and tax matters. Accordingly, the holdings and performance of
the Portfolios can be expected to vary from those of these other mutual funds.
The Board and the shareholders recently approved an amended and restated
investment management agreement (the "Investment Management Agreement") for the
Portfolio. Pursuant to the Investment Management Agreement, the Advisor provides
continuing investment management of the assets of the Portfolio. In addition to
the investment management of the assets of the Portfolio, the Advisor determines
the investments to be made for the Portfolio, including what portion of its
assets remain uninvested in cash or cash equivalents, and with whom the orders
for investments are placed, consistent with the Portfolio's policies as stated
in its Prospectus and SAI, or as adopted by the Portfolio's Board. The Advisor
will also monitor, to the extent not monitored by the Portfolio's administrator
or other agent, the Portfolio's compliance with its investment and tax
guidelines and other compliance policies.
The Advisor provides assistance to the Portfolio's Board in valuing the
securities and other instruments held by the Portfolio, to the extent reasonably
required by valuation policies and procedures that may be adopted by the Fund.
Pursuant to the Investment Management Agreement, (unless otherwise provided in
the agreement or as determined by the Portfolio's Board and to the extent
permitted by applicable law), the Advisor pays the compensation and expenses of
all the Board members, officers, and executive employees of the Portfolio,
including the Portfolio's share of payroll taxes, who are affiliated persons of
the Advisor.
The Investment Management Agreement provides that the Portfolio is generally
responsible for expenses that include: fees payable to the Advisor; outside
legal, accounting or auditing expenses, including with respect to expenses
related to negotiation, acquisition or distribution of portfolio investments;
maintenance of books and records that are maintained by the Portfolio, the
Portfolio's custodian, or other agents of the Portfolio; taxes and governmental
fees; fees and expenses of the Portfolio's accounting agent, custodian,
sub-custodians, depositories, transfer agents, dividend reimbursing agents and
registrars; payment for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other instruments of the Portfolio; and litigation expenses and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business.
The Investment Management Agreement allows the Advisor to delegate any of its
duties under the Agreement to a subadvisor, subject to a majority vote of the
Board of the Portfolio, including a majority of the Board who are not interested
persons of the Portfolio, and, if required by applicable law, subject to a
majority vote of the Portfolio's shareholders.
The Investment Management Agreement provides that the Advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with matters to which the agreement relates, except
a loss resulting from willful malfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of
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its duties or from reckless disregard by the Advisor of its obligations and
duties under the agreement. The Investment Management Agreement may be
terminated at any time, without payment of penalty, by either party or by vote
of a majority of the outstanding voting securities of the Portfolio on 60 days'
written notice.
Effective June 1, 2006, for all services provided under the Investment
Management Agreement, the Portfolio pays the Advisor a fee, computed daily and
paid monthly, at the annual rate as a percentage of net assets shown below:
Fund Management Fee Rate
---- -------------------
DWS Bond VIP 0.390% to $250 million
0.365% next $750 million
0.340% thereafter
DWS Capital Growth VIP 0.390% to $250 million
0.365% next $750 million
0.340% thereafter
DWS Global Opportunities VIP 0.890% first $500 million
0.875% next $500 million
0.860% next $1.0 billion
0.845% thereafter
DWS Growth & Income VIP 0.390% to $250 million
0.365% next $750 million
0.340% thereafter
DWS Health Care VIP 0.665% to $250 million
0.640% next $750 million
0.615% next $1.5 billion
0.595% next $2.5 billion
0.565% next $2.5 billion
0.555% next $2.5 billion
0.545% next $2.5 billion
0.535% thereafter
DWS International VIP 0.790% to $500 million
0.640% thereafter
In addition, the Board and shareholders recently approved a new subadvisor
approval policy for the Portfolio (the "Subadvisor Approval Policy"). The
Subadvisor Approval Policy permits the Advisor, subject to the approval of the
Board, including a majority of its independent board members, to appoint and
replace subadvisors and to amend sub-advisory contracts without obtaining
shareholder approval. Under the Subadvisor Approval Policy, the Board, including
its independent board members, will continue to evaluate and approve all new
sub-advisory contracts between the Advisor and any subadvisor, as well as all
changes to any existing sub-advisory contract. The Portfolio cannot implement
the Subadvisor Approval Policy without the SEC either adopting revisions to
current rules (as it proposed to do in October 2003) or granting the Portfolio
exemptive relief from existing rules. The Portfolio and the Advisor would be
subject to certain conditions imposed by the SEC (and certain conditions that
may be imposed in the future within either exemptive relief or a rule) to ensure
that the interests of the Portfolio and its shareholders are adequately
protected whenever the Advisor acts under the Subadvisor Approval Policy,
including any shareholder notice requirements.
The Advisor may enter into arrangements with affiliates and third party service
providers to perform various administrative, back-office and other services
relating to client accounts. Such service providers may be located in the US or
in non-US jurisdictions.
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Certain investments may be appropriate for a Portfolio and also for other
clients advised by the Advisor. Investment decisions for a fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a Portfolio. Purchase and sale orders for a Portfolio may be combined
with those of other clients of the Advisor in the interest of achieving the most
favorable net results to that Portfolio.
The current Investment Management Agreements for all Portfolios, each dated June
1, 2006, were last renewed by the Trustees on September 20, 2006. Each Agreement
continues in effect until September 30, 2007 and from year to year thereafter
only if their continuance is approved annually by the vote of a majority of
those Trustees who are not parties to such Agreements or interested persons of
the Advisor or the Fund, cast in person at a meeting called for the purpose of
voting on such approval, and either by a vote of the Fund's Trustees or of a
majority of the outstanding voting securities of the respective Portfolio. The
Agreements may be terminated at any time without payment of penalty by either
party on sixty days' written notice and automatically terminate in the event of
their assignment.
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For its investment management services, the Advisor received the amounts for the
years as indicated, from each Portfolio:
<TABLE>
<CAPTION>
% of the average daily net asset
values of
Portfolio each Portfolio 2006* 2005* 2004*
--------- -------------- ----- ----- -----
<S> <C> <C> <C> <C>
DWS Bond VIP o 0.380% $910,424^ 865,302 825,230
DWS Growth & Income VIP** 0.400% $1,359,770^ 1,335,546 870,770
DWS Capital Growth VIP*** 0.380% $4,272,143^ 4,421,003 3,322,815
DWS Global Opportunities VIP+ 0.900% $3,165,067 2,754,030 2,073,565
DWS International VIP++ 0.790% $5,225,483 4,841,891 4,489,153
DWS Health Care VIP+++ 0.700% $879,239 959,087 925,788
</TABLE>
* Prior to June 1, 2006, these fees included an administrative service
fee.
^ $90,316 was waived for DWS Bond VIP, $72, 977 was waived for DWS Growth
& Income VIP, and $325,012 was waived for DWS Capital Growth VIP.
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o Prior to June 1, 2006, the investment management fee for DWS Bond VIP
was calculated according to the following schedule: 0.475% of average
daily net assets. Pursuant to their respective agreements with DWS
Variable Series I, the advisor, the underwriter and the accounting
agent had contractually agreed, for the period January 1, 2005 to May
31, 2006, to limit their respective fees and to reimburse other
expenses to the extent necessary to limit total operating expenses of
Class A shares and Class B shares (DWS Bond VIP Class B commenced
operations on May 2, 2005) of DWS Bond VIP to 0.71% and 1.11%,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage and interest. Pursuant to their respective agreements with
DWS Variable Series I, the advisor, the underwriter and the accounting
agent had agreed, for the period June 1, 2006 through September 30,
2006, to limit their respective fees and to reimburse other expenses to
the extent necessary to limit total operating expenses of Class A
Shares and Class B Shares of DWS Bond VIP to 0.58% and 0.95%,
respectively, excluding certain expenses such as extraordinary
expenses, taxes, brokerage and interest. Through September 30, 2007,
the Advisor has contractually agreed to waive all or a portion of its
management fee and reimburse or pay certain operating expenses of the
portfolio to the extent necessary to maintain the portfolio's total
operating expenses at 0.60% for Class A shares and 1.00% for Class B
shares, excluding certain expenses such as extraordinary expenses,
taxes, brokerage, interest, proxy and organizational and offering
expenses. Through April 30, 2008, the Advisor has contractually agreed
to waive all or a portion of its management fee and reimburse or pay
certain operating expenses of the portfolio to the extent necessary so
that the portfolio's total operating expenses will not exceed 0.63% for
Class A shares and 1.03% for Class B shares, excluding certain expenses
such as extraordinary expenses, taxes, brokerage, interest and
organizational and offering expenses.
** Through April 29, 2005 the investment management fee for DWS Growth &
Income VIP was 0.475% of average daily net assets. Effective April 30,
2005 through May 31, 2006 the investment management fee for the DWS
Growth & Income VIP was calculated according to the following schedule:
0.475% of average daily net assets on the first $250 million, 0.450% of
average daily net assets on the next $750 million and 0.425% of average
daily net assets in excess of $1 billion. For the period from January
1, 2005 through April 30, 2005, the Advisor contractually agreed to
waive a portion of its fee to the extent necessary to maintain the
operating expenses of Class A shares and Class B shares of DWS Growth &
Income VIP to 1.08%. Also, pursuant to its agreement with DWS Variable
Series I, the Advisor has contractually agreed, for the three year
period commencing May 1, 2005 through April 30, 2008, to waive a
portion of its fee and to reimburse expenses to the extent necessary to
maintain total operating expenses of Class A shares and Class B shares
of DWS Growth & Income VIP to 0.54% and 0.89%, respectively, excluding
certain expenses such as extraordinary expenses, taxes, brokerage and
interest. Under these arrangements, the Advisor reimbursed DWS Growth &
Income VIP $12,854 for expenses. Through April 30, 2010, the Advisor
has contractually agreed to waive all or a portion of its management
fee and reimburse or pay certain operating expenses of the portfolio to
the extent necessary to maintain the portfolio's total operating
expenses at 0.54% for Class A shares and 0.87% for Class B shares,
excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses.
Additionally, the Advisor has contractually agreed to waive a portion
of its fees in the amount of 0.01% of average daily net assets until
April 27, 2010. For the year ended December 31, 2006, the DWS Growth &
Income VIP waived a portion of its management fees pursuant to the
Management Agreement aggregating $72,977 and the amount charged
aggregated $1,359,770, which was equivalent to an annual effective rate
of 0.40% of the Portfolio's average daily net assets.
*** Through April 29, 2005 the investment management fee for the DWS
Capital Growth VIP was calculated according to the following schedule:
0.475% of average daily net assets on the first $500 million, 0.450% of
average daily net assets on the next $500 million and 0.425% of average
daily net assets in excess of $1 billion. Effective April 30, 2005
through May 31, 2006 the investment management fee for the DWS Capital
Growth VIP was calculated according to the following schedule: 0.475%
of average daily net assets on the first $250 million, 0.450% of
average daily net assets on the next $750 million and 0.425% of average
daily net assets in excess of $1 billion. As a result, the Advisor
received compensation at an annual rate of 0.468% and 0.454% for the
fiscal years ended December 31, 2004 and 2005, respectively. For the
period from January 1, 2005 through April 30, 2005, the Advisor
contractually agreed to waive a portion of its fee to
43
<PAGE>
the extent necessary to maintain the operating expenses of Class A
shares and Class B shares of DWS Capital Growth VIP to 1.09%. Also,
pursuant to its agreement with DWS Variable Series I, the advisor has
contractually agreed, for the three-year period commencing May 1, 2005
through April 30, 2008, to waive a portion of its fee and to reimburse
expenses to the extent necessary to maintain total operating expenses
of Class A shares and Class B shares of DWS Capital Growth VIP to 0.49%
and 0.86%, respectively, excluding certain expenses such as
extraordinary expenses, taxes, brokerage and interest. Under these
arrangements, the Advisor reimbursed DWS Capital Growth VIP $11,870 for
expenses. Through April 30, 2010, the Advisor has contractually agreed
to waive all or a portion of its management fee and reimburse or pay
certain operating expenses of the portfolio to the extent necessary to
maintain the portfolio's total operating expenses at 0.49% for Class A
shares and 0.86% for Class B shares, excluding certain expenses such as
extraordinary expenses, taxes, brokerage, interest and organizational
and offering expenses. For the year ended December 31, 2006, the DWS
Capital Growth VIP waived a portion of its management fees pursuant to
the Management Agreement aggregating $325,012 and the amount charged
aggregated $4,272,143 which was equivalent to an annual effective rate
of 0.38% of the Portfolio's average daily net assets.
+ Prior to June 1, 2006, the investment management fee for DWS Global
Opportunities VIP was calculated according to the following schedule:
0.975% of average daily net assets. The Advisor, the underwriter or the
accounting agent have contractually agreed, for the period January 1,
2005 through May 31, 2006, to limit their respective fees and to
reimburse other expenses to the extent necessary to limit their total
operating expenses at 1.24% of average daily net assets for Class A and
Class B, excluding certain expenses such as extraordinary expenses,
taxes, brokerage and interest. Under this arrangement, for the fiscal
year ended 2004, the Advisor reimbursed the portfolio $22,685. Under
these arrangements, the Advisor reimbursed DWS Global Opportunities VIP
$81,355 for expenses. Pursuant to their respective agreements with DWS
Variable Series I, the advisor, the underwriter and the accounting
agent have agreed, for the period June 1, 2006 through September 30,
2006, to limit their respective fees and to reimburse other expenses to
the extent necessary to limit total operating expenses of Class A
Shares and Class B Shares of DWS Global Opportunities VIP to 1.097% and
1.24%, respectively, excluding certain expenses such as extraordinary
expenses, taxes, brokerage and interest. Through September 30, 2007,
the Advisor has contractually agreed to waive all or a portion of its
management fee and reimburse or pay certain operating expenses of the
portfolio to the extent necessary to maintain the portfolio's total
operating expenses at 1.52% for Class B shares, excluding certain
expenses such as extraordinary expenses, taxes, brokerage, interest,
proxy and organizational and offering expenses. Although there can be
no assurance that the current waiver/expense reimbursement arrangement
will be maintained beyond September 30, 2007, the Advisor has committed
to review the continuance of waiver/expense reimbursement arrangements
by September 30, 2007.
++ Prior to June 1, 2006, the investment management fee for DWS
International VIP was calculated according to the following schedule:
0.875% of average daily net assets on the first $500 million and 0.725%
of average daily net assets in excess of $500 million. As a result, the
Advisor received compensation at an annual rate of 0.87% and 0.858% for
the fiscal years ended December 31, 2004 and 2005, respectively. From
September 1, 2004 through December 31, 2004 the Advisor agreed to waive
a portion of its fee. The Advisor, the underwriter or the accounting
agent had contractually agreed, for the period January 1, 2005 through
May 31, 2006, to limit their respective fees and to reimburse other
expenses to the extent necessary to limit their total operating
expenses at 1.37% for Classes A and B, excluding certain expenses such
as extraordinary expenses, taxes, brokerage and interest. Under this
arrangement, for the fiscal year ended 2004, the Advisor reimbursed the
portfolio $9,159. Under these arrangements, the Advisor reimbursed DWS
International VIP $16,354 for expenses. Prior to September 30, 2005,
Deutsche Asset Management Investment Services Limited ("DeAMIS"), an
indirect wholly owned subsidiary of Deutsche Bank AG, was the
subadvisor for the Fund. The subadvisor was paid by the Advisor for its
services. Effective October 1, 2005, DIMA performs the services
previously performed by DeAMIS. Pursuant to their respective agreements
with DWS Variable Series I, the advisor, the underwriter and the
accounting agent had agreed, for the period June 1, 2006 through
September 30, 2006, to limit their respective fees and to reimburse
other expenses to the extent necessary to limit total operating
expenses of Class A Shares and Class B Shares of DWS International VIP
to 1.15% and 1.55%, respectively, excluding certain expenses such as
extraordinary expenses, taxes, brokerage and interest. Through April
30, 2010, the Advisor has contractually agreed to waive all or a
portion of its management fee and reimburse or pay certain operating
expenses of the portfolio to the extent necessary to maintain the
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<PAGE>
portfolio's total operating expenses at 0.96% for Class A shares and
1.34% for Class B shares, excluding certain expenses such as
extraordinary expenses, taxes, brokerage, interest and organizational
and offering expenses.
+++ Prior to June 1, 2006, the investment management fee for the DWS Health
Care VIP was calculated according to the following schedule: 0.750% of
average daily net assets on the first $250 million, 0.725% of average
daily net assets on the next $750 million, 0.700% of average daily net
assets on the next $1.5 billion, 0.680% of average daily net assets on
the next $2.5 billion, 0.650% of average daily net assets on the next
$2.5 billion, 0.640% of average daily net assets on the next $2.5
billion, 0.630% of average daily net assets on the next $2.5 billion
and 0.620% of average daily net assets over $12.5 billion. The Advisor
received compensation at an annual rate of 0.750% for each of the
fiscal years ended December 31, 2004 and 2005. The Advisor, the
underwriter or the accounting agent have contractually agreed, for the
period January 1, 2005 through May 31, 2006, to limit their respective
fees and to reimburse other expenses to the extent necessary to limit
their total operating expenses at 0.95% of average daily net assets for
Class A and 1.35% of average daily net assets for Class B, excluding
certain expenses such as extraordinary expenses, taxes, brokerage and
interest. Pursuant to their respective agreements with DWS Variable
Series I, the advisor, the underwriter and the accounting agent had
agreed, for the period June 1, 2006 through September 30, 2006, to
limit their respective fees and to reimburse other expenses to the
extent necessary to limit total operating expenses of Class A Shares
and Class B Shares of DWS Health Care VIP to 1.135% and 1.535%,
respectively, excluding certain expenses such as extraordinary
expenses, taxes, brokerage and interest.
Under the Agreements, each Portfolio is responsible for all of its other
expenses, including clerical salaries; fees and expenses incurred in connection
with membership in investment company organizations; brokers' commissions;
legal, auditing and accounting expenses; taxes and governmental fees; the
charges of custodians, transfer agents and other agents; any other expenses,
including clerical expenses, of issue, sale, underwriting, distribution,
redemption or repurchase of shares; the expenses of and fees for registering or
qualifying securities for sale; the fees and expenses of the Trustees of the
Fund who are not affiliated with the Advisor; and the cost of preparing and
distributing reports and notices to shareholders. The Fund may arrange to have
third parties assume all or part of the expense of sale, underwriting and
distribution of a Portfolio's shares. Each Portfolio is also responsible for its
expenses incurred in connection with litigation, proceedings and claims and the
legal obligation it may have to indemnify its officers and Trustees with respect
thereto.
In reviewing the terms of the Agreements and in discussions with the Advisor
concerning the Agreements, Independent Trustees (as defined in the 1940 Act) of
the Fund are represented by independent counsel at the Fund's expense.
The Agreements provide that the Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreements relate, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Advisor in
the performance of its duties or from reckless disregard by the Advisor of its
obligations and duties under the Agreements.
Each Participating Insurance Company has agreed with the Advisor to reimburse
the Advisor for a period of five years to the extent that the aggregate annual
advisory fee paid on behalf of all Portfolios with respect to the average daily
net asset value of the shares of all Portfolios held in that Participating
Insurance Company's general or separate account (or those of affiliates) is less
than $25,000 in any year. It is expected that insurance companies which become
Participating Insurance Companies in the future will be required to enter into
similar arrangements.
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<PAGE>
Officers and employees of the Advisor from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Advisor's
opinion that the terms and conditions of those transactions were not influenced
by existing or potential custodial or other Fund relationships.
The Advisor may serve as Advisor to other funds with investment objectives and
policies similar to those of the Portfolios that may have different distribution
arrangements or expenses, which may affect performance.
None of the Officers and Trustees of the Fund may have dealings with the Fund as
principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Fund.
Subadvisor and Sub-subadvisor -- DWS Bond VIP
Prior to December 2, 2005, Deutsche Asset Management Investment Services Limited
("DeAMIS"), an affiliate of Deutsche Investment Management Americas Inc. ("DIMA"
or the "Advisor"), the investment advisor of the Portfolio, was the subadvisor
for the Portfolio. DeAMIS rendered investment advisory and management services
including services related to foreign securities, foreign currency transactions
and related investments. The Advisor managed all other assets of the Portfolio.
DeAMIS provided a full range of international investment advisory services to
institutional and retail clients.
On December 1, 2005, Aberdeen Asset Management PLC ("Aberdeen PLC") acquired
from Deutsche Bank AG, the parent company of the Advisor, parts of its asset
management business and related assets based in London and Philadelphia.
Effective December 1, 2005, DeAMIS became a direct wholly-owned subsidiary of
Aberdeen PLC and was renamed Aberdeen Asset Management Investment Services
Limited ("AAMISL"), and the individuals at the Advisor's Philadelphia-based
Fixed Income team who managed all or a portion of the assets of the Portfolio
became employees of Aberdeen Asset Management Inc. ("AAMI"). AAMI and AAMISL are
each a direct wholly-owned subsidiary of Aberdeen PLC and each a registered
investment advisor under the Investment Advisers Act of 1940, as amended.
Effective December 2, 2005 and pursuant to a written contract with the Advisor,
AAMI became the subadvisor to the Portfolio (the "Aberdeen Subadvisory
Agreement"). As subadvisor and pursuant to the Aberdeen Subadvisory Agreement,
AAMI may delegate certain of its duties and responsibilities with respect to the
services it is contracted to provide to the Portfolio. Pursuant to such
authority, AAMI has entered into an investment sub-subadvisory agreement with
AAMISL to provide investment services to the Portfolio ("Sub-Subadvisory
Agreement").
Under the terms of the Aberdeen Subadvisory Agreement and the Sub-Subadvisory
Agreement, AAMI and AAMISL, respectively, each agree, subject to the supervision
and control of the Advisor and the Board (and, in the case of the
Sub-Subadvisory Agreement, also subject to the supervision and control of AAMI),
to manage the securities and assets of the Portfolio entrusted to it by the
Advisor (and, in the case of the Sub-Subadvisory Agreement, entrusted to AAMISL
by AAMI), in accordance with the Portfolio's investment objectives, policies and
restrictions.
AAMI is paid for its services by the Advisor, and not the Portfolio, from its
fee as investment advisor to the Portfolio. AAMISL is paid for its services by
AAMI, and not the Portfolio, from its fee as investment subadvisor to the
Portfolio. As compensation for their services under the Aberdeen Subadvisory
Agreement and the Sub-Subadvisory Agreement, the Advisor pays AAMI a fee at the
annual rate of 0.29% of the average daily net assets of the Portfolio, computed
daily and paid monthly. The subadvisory fee paid by DIMA to AAMI for the period
December 2, 2005 to December 31, 2005 was $49,460. AAMI will pay AAMISL a fee
for its services at the annual rate of 0.04% of the average daily net assets of
the Portfolio, computed daily and paid monthly.
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<PAGE>
The Aberdeen Subadvisory Agreement and the Sub-Subadvisory Agreement will each
have an initial term of two years (unless sooner terminated) and will each
remain in effect from year to year thereafter if approved annually (i) by the
Board or by the vote of a "majority of the outstanding voting securities" of the
Portfolio, and (ii) by a majority of the Independent Board Members who are not
parties to the Agreement, cast in person at a meeting called for such purpose.
AAMISL and AAMI are each obligated to pay all expenses (excluding brokerage
costs, custodian fees, fees of independent registered public accounting firms or
other expenses of the Portfolio to be borne by the Portfolio or the Trust in
connection with the performance of its services). The Portfolio bears certain
other expenses incurred in its operation. The services of AAMISL and AAMI are
not deemed to be exclusive and nothing in the Aberdeen Subadvisory Agreement or
Sub-Subadvisory Agreement prevents AAMISL and AAMI or their affiliates from
providing similar services to other investment companies and other clients
(whether or not their investment objective and policies are similar to those of
the Portfolio) or from engaging in other activities.
Under the Aberdeen Subadvisory Agreement and the Sub-Subadvisory Agreement,
AAMISL and AAMI will each be liable (i) if it causes the Portfolio to be in
violation of any applicable federal or state law, rule or regulation or any
investment policy or restriction set forth in the Prospectus or any written
guidelines, policies or instructions provided in writing by the Board or the
Advisor, and (ii) for its willful misfeasance, bad faith or gross negligence in
the performance of its duties or its reckless disregard of its obligations and
duties under the Aberdeen Subadvisory Agreement or the Sub-Subadvisory
Agreement.
Administrative Agreement
The Portfolio recently entered into a new administrative services agreement with
the Advisor (the "Administrative Services Agreement"), pursuant to which the
Advisor provides administrative services to the Portfolio including, among
others, providing the Portfolio with personnel, preparing and making required
filings on behalf of the Portfolio, maintaining books and records for the
Portfolio, and monitoring the valuation of Portfolio securities. For all
services provided under the Administrative Services Agreement, the Portfolio
pays the Advisor a fee, computed daily and paid monthly, of 0.100% of each
Portfolio's average daily net assets.
Under the Administrative Services Agreement, the Advisor is obligated on a
continuous basis to provide such administrative services as the Board of the
Portfolio reasonably deems necessary for the proper administration of the
Portfolio. The Advisor provides the Portfolio with personnel; arranges for the
preparation and filing of the Portfolio's tax returns; prepares and submits
reports and meeting materials to the Board and the shareholders; prepares and
files updates to the Portfolio's prospectus and statement of additional
information as well as other reports required to be filed by the SEC; maintains
the Portfolio's records; provides the Portfolio with office space, equipment and
services; supervises, negotiates the contracts of and monitors the performance
of third parties contractors; oversees the tabulation of proxies; monitors the
valuation of portfolio securities and monitors compliance with Board-approved
valuation procedures; assists in establishing the accounting and tax policies of
the Portfolio; assists in the resolution of accounting issues that may arise
with respect to the Portfolio; establishes and monitors the Portfolio's
operating expense budgets; reviews and processes the Portfolio's bills; assists
in determining the amount of dividends and distributions available to be paid by
the Portfolio, prepares and arranges dividend notifications and provides
information to agents to effect payments thereof; provides to the Board periodic
and special reports; provides assistance with investor and public relations
matters; and monitors the registration of shares under applicable federal and
state law. The Advisor also performs certain fund accounting services under the
Administrative Services Agreement. The Administrative Services Agreement
provides that the Advisor will not be liable under the Administrative Services
Agreement except for willful misfeasance, bad faith or negligence in the
performance of its duties or from the reckless disregard by it of its duties and
obligations thereunder.
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<PAGE>
For the period June 1, 2006 through December 31, 2006, DIMA received the
following amounts as compensation for administrative services to the Portfolios:
Unpaid at December
2006 31, 2006
---- ---------
DWS Bond VIP $126,522 $18,643
DWS Growth & Income VIP $186,676 $28,068
DWS Capital Growth VIP $596,449 $99,375
DWS Global Opportunities VIP $197,914 $31,078
DWS International VIP $393,235 $62,861
DWS Health Care VIP $71,620 $10,435
Pursuant to an agreement between the Administrator and State Street Bank and
Trust Company ("SSB"), the Administrator has delegated certain administrative
functions to SSB. The costs and expenses of such delegation are borne by the
Administrator, not by the Portfolio.
Pursuant to Deutsche Asset Management procedures approved by the Boards on
behalf of the DWS funds, proof of claim forms are routinely filed on behalf of
the DWS funds by a third party service provider, with certain limited
exceptions. The Boards of the DWS funds receive periodic reports regarding the
implementation of these procedures.
Compensation of Portfolio Managers
Each Portfolio has been advised that the Advisor seeks to offer its investment
professionals competitive short-term and long-term compensation. Portfolio
managers and research professionals are paid (i) fixed base salaries, which are
linked to job function, responsibilities and financial services industry peer
comparison and (ii) variable compensation, which is linked to investment
performance, individual contributions to the team and DWS Scudder's and Deutsche
Bank's financial results. Variable compensation may include a cash bonus
incentive and participation in a variety of long-term equity programs (usually
in the form of Deutsche Bank equity).
Bonus and long-term incentives comprise a greater proportion of total
compensation as an investment professional's seniority and compensation levels
increase. Top performing investment professionals earn a total compensation
package that is highly competitive, including a bonus that is a multiple of
their base salary. The amount of equity awarded under the long-term equity
programs is generally based on the individual's total compensation package and
may comprise from 0%-40% of the total compensation award. As incentive
compensation increases, the percentage of compensation awarded in Deutsche Bank
equity also increases. Certain senior investment professionals may be subject to
a mandatory diverting of a portion of their equity compensation into proprietary
mutual funds that they manage.
To evaluate its investment professionals, the Advisor uses a Performance
Management Process. Objectives evaluated by the process are related to
investment performance and generally take into account peer group and benchmark
related data. The ultimate goal of this process is to link the performance of
investment professionals with client investment objectives and to deliver
investment performance that meets or exceeds clients' risk and return
objectives. When determining total compensation, the Advisor considers a number
of quantitative and qualitative factors such as:
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<PAGE>
o DWS Scudder performance and the performance of Deutsche Asset
Management, quantitative measures which include 1, 3 and 5 year pre-tax
returns versus benchmark (such as the benchmark used in the prospectus)
and appropriate peer group, taking into consideration risk targets.
Additionally, the portfolio manager's retail/institutional asset mix is
weighted, as appropriate for evaluation purposes.
o Qualitative measures include adherence to the investment process and
individual contributions to the process, among other things. In
addition, the Advisor assesses compliance, risk management and teamwork
skills.
o Other factors, including contributions made to the investment team as
well as adherence to compliance, risk management, and "living the
values" of the Advisor, are part of a discretionary component which
gives management the ability to reward these behaviors on a subjective
basis through bonus incentives.
In addition, the Advisor analyzes competitive compensation levels through the
use of extensive market data surveys. Portfolio manager compensation is reviewed
and may be modified each year as appropriate to reflect changes in the market,
as well as to adjust the factors used to determine overall compensation to
promote good sustained investment performance.
Compensation of Portfolio Managers of Sub-Advised Portion of the Fund
Remuneration of Personnel for DWS Bond VIP:
Aberdeen's remuneration policy ("Policy") is designed to reflect the importance
of recruiting, retaining and motivating senior executives and portfolio managers
of the caliber necessary to maintain and improve Aberdeen's position in the
asset management industry. The Policy seeks to reward performance in a manner
which aligns the interests of clients, shareholders and executives. The elements
of the Policy as it relates to the Fund's portfolio managers are as follows:
Basic salary. The salaries of all employees are reviewed annually and are
determined by reference to external market research. Aberdeen's Policy is to pay
salaries which, when taken together with other benefits, will provide a
remuneration package that is reasonable and competitive in the asset management
industry. Aberdeen participates in compensation surveys which provide salary
comparisons for a range of employees across Aberdeen. Aberdeen also considers
information included in other publicly available research and survey results.
Staff performance is reviewed formally once a year with mid-term reviews.
The review process looks at all of the ways in which an individual has
contributed to the organization, and specifically, in the case of portfolio
managers, to the investment team.
Annual bonus. The Policy is to recognize corporate and individual achievements
each year through an appropriate annual bonus plan. The aggregate amount of a
cash bonus available in any year is dependent on Aberdeen's overall performance
and profitability. Consideration will also be given to the levels of bonuses
paid in the marketplace. Individual awards, payable to all members of staff, are
determined by a rigorous assessment of achievement against defined objectives,
and are reviewed and approved by Aberdeen's Remuneration Committee.
Portfolio managers' bonuses are based on a combination of the investment team's
overall performance, the individual's performance and the overall performance of
Aberdeen. In calculating a portfolio manager's bonus, Aberdeen takes into
consideration the performance of funds managed by the team as well as more
subjective issues that benefit Aberdeen. Portfolio manager performance on
investment matters is judged over all funds to which the fund manager
contributes. Performance is measured against appropriate market indices as well
as peer universes over various time periods.
Deferred bonus. A deferred bonus plan exists and is designed to encourage the
retention of certain key employees identified as critical to Aberdeen's
achievement of its long-term goals. Deferred bonuses may be in the form of
deferred equity in Aberdeen PLC.
Retention and incentives for former Deutsche Asset Management employees. In
addition to the Policy, appropriate retention and incentive arrangements have
been put into place for certain employees of the former Deutsche Asset
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<PAGE>
Management businesses, including in some cases participation in the Long Term
Incentive Plan. The costs of these arrangements are being borne by both Deutsche
Asset Management and Aberdeen.
Conflicts of Interest for DWS Bond VIP:
In addition to the accounts above, an investment professional may manage
accounts in a personal capacity that may include holdings that are similar to,
or the same as, those of the funds. AAMI and AAMISL have in place a Code of
Ethics that is designed to address conflicts of interest and that, among other
things, imposes restrictions on the ability of portfolio managers and other
"access persons" to invest in securities that may be recommended or traded in
the funds and other client accounts.
Real, potential or apparent conflicts of interest may arise when a portfolio
manager has day-to-day portfolio management responsibilities with respect to
more than one fund or account, including the following:
o Certain investments may be appropriate for the Fund and also for other
clients advised by AAMI and AAMISL, including other client accounts
managed by the Fund's portfolio management team. Investment decisions
for the Fund and other clients are made with a view to achieving their
respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment
and the size of their investments generally. A particular security may
be bought or sold for only one client or in different amounts and at
different times for more than one but less than all clients. Likewise,
because clients of AAMI and AAMISL may have differing investment
strategies, a particular security may be bought for one or more clients
when one or more other clients are selling the security. The investment
results achieved for the Fund may differ from the results achieved for
other clients of AAMI and AAMISL. In addition, purchases or sales of
the same security may be made for two or more clients on the same day.
In such event, such transactions will be allocated among the clients in
a manner believed by AAMI and AAMISL to be most equitable to each
client, generally utilizing a pro rata allocation methodology. In some
cases, the allocation procedure could potentially have an adverse
effect or positive effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund
may be combined with those of other clients of AAMI and AAMISL in the
interest of achieving the most favorable net results to the Fund and
the other clients.
o To the extent that a portfolio manager has responsibilities for
managing multiple client accounts, a portfolio manager will need to
divide time and attention among relevant accounts. The Advisor attempts
to minimize these conflicts by aligning its portfolio management teams
by investment strategy and by employing similar investment models
across multiple client accounts.
In some cases, an apparent conflict may arise where AAMI and AAMISL have an
incentive, such as a performance-based fee, in managing one account and not with
respect to other accounts it manages. The Advisor will not determine allocations
based on whether it receives a performance-based fee from the client.
Additionally, AAMI and AAMISL have in place supervisory oversight processes to
periodically monitor performance deviations for accounts with like strategies.
50
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51
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Fund Ownership of Portfolio Managers
The following table shows the dollar range of shares owned beneficially and of
record by each member of the Portfolios' management team in the applicable
Portfolio as well as in all DWS Funds as a group (i.e. those funds advised by
Deutsche Asset Management or its affiliates), including investments by their
immediate family members sharing the same household and amounts invested through
retirement and deferred compensation plans. This information is provided as of
the Portfolio's most recent fiscal year end.
<TABLE>
<CAPTION>
Dollar Range of Dollar Range of All
Name of Portfolio Shares DWS Fund
Name of Portfolio Portfolio Manager Owned Shares Owned
----------------- ----------------- ----- ------------
<S> <C> <C> <C>
DWS Bond VIP Gary W. Bartlett $0 N/A
Warren S. Davis, III $0 N/A
Thomas J. Flaherty $0 N/A
J. Christopher Gagnier $0 N/A
Daniel R. Taylor $0 N/A
Timothy C. Vile $0 N/A
William T. Lissenden $0 N/A
Brett Diment $0 N/A
Annette Fraser $0 N/A
Anthony Fletcher $0 N/A
Nick Hart $0 N/A
Stephen Ilott $0 N/A
Ian Winship $0 N/A
Matthew Cobon $0 N/A
DWS Growth & Income VIP Robert Wang $0 $50,001 - $100,000
Jin Chen $0 $100,001 - $500,000
Julie Abbett $0 $50,001 - $100,000
DWS Capital Growth VIP Julie M. Van Cleave $0(1) Over $1,000,000
Jack A. Zehner $0(2) $50,001 - $100,000
Thomas J. Schmid $0(3) $100,001 - $500,000
DWS Global Opportunities VIP Joseph Axtell $0(4) $100,001 - $500,000
Terrence S. Gray $0(5) $500,001 - $1,000,000
DWS International VIP Matthias Knerr $0 $500,001 - $1,000,000
DWS Health Care VIP Leefin Lai $0(6) $100,001 - $500,000
</TABLE>
(1) Although the Portfolio Manager does not have an investment in this
variable annuity portfolio, the Portfolio Manager does hold over
$1,000,000 in DWS Capital Growth Fund, the retail mutual fund that has
the same investment strategy. This investment is included in the
"Dollar Range of All DWS Fund Shares Owned."
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(2) Although the Portfolio Manager does not have an investment in this
variable annuity portfolio, the Portfolio Manager does hold $1-$10,000
in DWS Capital Growth Fund, the retail mutual fund that has the same
investment strategy. This investment is included in the "Dollar Range
of All DWS Fund Shares Owned."
(3) Although the Portfolio Manager does not have an investment in this
variable annuity portfolio, the Portfolio Manager does hold
$50,001-$100,000 in DWS Capital Growth Fund, the retail mutual fund
that has the same investment strategy. This investment is included in
the "Dollar Range of All DWS Fund Shares Owned."
(4) Although the Portfolio Manager does not have an investment in this
variable annuity portfolio, the Portfolio Manager does hold
$100,001-$500,00 in DWS Global Opportunities Fund, the retail mutual
fund that has the same investment strategy. This investment is included
in the "Dollar Range of All DWS Fund Shares Owned."
(5) Although the Portfolio Manager does not have an investment in this
variable annuity portfolio, the Portfolio Manager does hold
$10,001-$50,000 in DWS Global Opportunities Fund, the retail mutual
fund that has the same investment strategy. This investment is included
in the "Dollar Range of All DWS Fund Shares Owned."
(6) Although the Portfolio Manager does not have an investment in this
variable annuity portfolio, the Portfolio Manager does hold
$10,001-$50,000 in DWS Health Care VIP, the retail mutual fund that has
the same investment strategy. This investment is included in the
"Dollar Range of All DWS Fund Shares Owned."
Conflicts of Interest
In addition to managing the assets of the Portfolios, the portfolio managers may
have responsibility for managing other client accounts of the Advisor or its
affiliates. The tables below show, for each portfolio manager, the number and
asset size of (1) SEC registered investment companies (or series thereof) other
than the Fund, (2) pooled investment vehicles that are not registered investment
companies and (3) other accounts (e.g., accounts managed for individuals or
organizations) managed by each portfolio manager. The tables also show the
number of performance based fee accounts, as well as the total assets of the
accounts for which the advisory fee is based on the performance of the account.
This information is provided as of the Portfolios' most resent fiscal year end.
Other SEC Registered Investment Companies Managed:
<TABLE>
<CAPTION>
Number of
Investment
Number of Total Assets of Company Total Assets of
Registered Registered Accounts with Performance-
Name of Name of Portfolio Investment Investment Performance- Based Fee
Portfolio Manager Companies Companies Based Fee Accounts
--------- ------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
DWS Bond VIP Gary W. Bartlett 10 $3,328,055,597 0 $0
Warren S. Davis, III 10 $3,328,055,597 0 $0
Thomas J. Flaherty 10 $3,328,055,597 0 $0
J. Christopher Gagnier 10 $3,328,055,597 0 $0
Daniel R. Taylor 10 $3,328,055,597 0 $0
Timothy C. Vile 10 $3,328,055,597 0 $0
William T. Lissenden 10 $3,328,055,597 0 $0
Brett Dimet 6 $612,000,000 0 $0
Annette Fraser 6 $612,000,000 0 $0
Anthony Fletcher 6 $612,000,000 0 $0
Nick Hart 6 $612,000,000 0 $0
Stephen Ilott 6 $612,000,000 0 $0
Ian Winship 6 $612,000,000 0 $0
Mathew Cobon 6 $612,000,000 0 $0
53
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Number of
Investment
Number of Total Assets of Company Total Assets of
Registered Registered Accounts with Performance-
Name of Name of Portfolio Investment Investment Performance- Based Fee
Portfolio Manager Companies Companies Based Fee Accounts
--------- ------- --------- --------- --------- --------
DWS Growth Robert Wang 27 $8,747,904,497 0 $0
& Income VIP Jin Chen 13 $3,847,286,625 0 $0
Julie Abbett 14 $4,455,416,571 0 $0
DWS Capital Julie M. Van Cleave 4 $4,626,316,277 0 $0
Growth VIP Jack A. Zehner 4 $4,626,316,277 0 $0
Thomas J. Schmid 4 $4,626,316,277 0 $0
DWS Global Joseph Axtell 8 $3,207,535,682 0 $0
Opportunities Terrence S. Gray 5 $2,904,333,954 0 $0
VIP
DWS Matthias Knerr 3 $874,139,854 0 $0
International
VIP
DWS Health Leefin Lai 1 $221,952,253 0 $0
Care VIP
Other Pooled Investment Vehicles Managed:
Number of Pooled
Investment
Number of Total Assets of Company Total Assets of
Pooled Pooled Accounts with Performance-
Name of Name of Portfolio Investment Investment Performance- Based Fee
Portfolio Manager Companies Companies Based Fee Accounts
--------- ------- --------- --------- --------- --------
DWS Bond VIP Gary W. Bartlett 7 $3,547,364,818 0 $0
Warren S. Davis, III 7 $3,547,364,818 0 $0
Thomas J. Flaherty 7 $3,547,364,818 0 $0
J. Christopher Gagnier 7 $3,547,364,818 0 $0
Daniel R. Taylor 7 $3,547,364,818 0 $0
Timothy C. Vile 7 $3,547,364,818 0 $0
William T. Lissenden 7 $3,547,364,818 0 $0
Brett Diment 54 $8,305,900,000 0 $0
Annette Fraser 54 $8,305,900,000 0 $0
Anthony Fletcher 54 $8,305,900,000 0 $0
Nick Hart 54 $8,305,900,000 0 $0
Stephen Ilott 54 $8,305,900,000 0 $0
Ian Winship 54 $8,305,900,000 0 $0
Mathew Cobon 54 $8,305,900,000 0 $0
54
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Number of Pooled
Investment
Number of Total Assets of Company Total Assets of
Pooled Pooled Accounts with Performance-
Name of Name of Portfolio Investment Investment Performance- Based Fee
Portfolio Manager Companies Companies Based Fee Accounts
--------- ------- --------- --------- --------- --------
DWS Growth Robert Wang 7 $575,177,702 1 $176,972,049
& Income VIP Jin Chen 3 $51,101,715 0 $0
Julie Abbett 3 $51,101,715 0 $0
DWS Capital Julie M. Van Cleave 1 $6,182,275 0 $0
Growth VIP Jack A. Zehner 0 $0 0 $0
Thomas J. Schmid 0 $0 0 $0
DWS Global Joseph Axtell 0 $0 0 $0
Opportunities
VIP
Terrence S. Gray 1 $4,213,614 0 $0
DWS Matthias Knerr 0 $0 0 $0
International VIP
DWS Health Leefin Lai 0 $0 0 $0
Care VIP
Other Accounts Managed:
Number of Other Total Assets of
Number of Accounts with Performance-
Name of Name of Portfolio Other Total Assets of Performance- Based Fee
Portfolio Manager Accounts Other Accounts Based Fee Accounts
--------- ------- -------- -------------- --------- --------
DWS Bond VIP Gary W. Bartlett 166 $22,038,393,708 3 $143,301,706
Warren S. Davis, III 166 $22,038,393,708 3 $143,301,706
Thomas J. Flaherty 166 $22,038,393,708 3 $143,301,706
J. Christopher Gagnier 166 $22,038,393,708 3 $143,301,706
Daniel R. Taylor 166 $22,038,393,708 3 $143,301,706
Timothy C. Vile 166 $22,038,393,708 3 $143,301,706
William T. Lissenden 166 $22,038,393,708 3 $143,301,706
Brett Diment 247 $19,165,700,000 14 $4,000,000,000
Annette Fraser 247 $19,165,700,000 14 $4,000,000,000
Anthony Fletcher 247 $19,165,700,000 14 $4,000,000,000
Nick Hart 247 $19,165,700,000 14 $4,000,000,000
Stephen Ilott 247 $19,165,700,000 14 $4,000,000,000
Ian Winship 247 $19,165,700,000 14 $4,000,000,000
Mathew Cobon 247 $19,165,700,000 14 $4,000,000,000
DWS Growth & Robert Wang 40 $8,047,671,160 3 $399,358,293
Income VIP Jin Chen 6 $763,894,039 0 $0
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Julie Abbett 6 $763,894,039 0 $0
DWS Capital Julie M. Van Cleave 11 $545,714,131 0 $0
Growth VIP Jack A. Zehner 11 $545,714,131 0 $0
Thomas J. Schmid 11 $545,714,131 0 $0
DWS Global Joseph Axtell 1 $97,549,054 0 $0
Opportunities VIP Terrence S. Gray 3 $734,650,217 0 $0
DWS Matthias Knerr 3 $593,295,279 0 $0
International VIP
DWS Health Leefin Lai 0 $0 0 $0
Care VIP
</TABLE>
In addition to the accounts above, an investment professional may manage
accounts in a personal capacity that may include holdings that are similar to,
or the same as, those of the Portfolios. The Advisor has in place a Code of
Ethics that is designed to address conflicts of interest and that, among other
things, imposes restrictions on the ability of portfolio managers and other
"access persons" to invest in securities that may be recommended or traded in
the Portfolios and other client accounts.
Real, potential or apparent conflicts of interest may arise when a portfolio
manager has day-to-day portfolio management responsibilities with respect to
more than one fund or account, including the following:
o Certain investments may be appropriate for each Portfolio and also for
other clients advised by the Advisor, including other client accounts
managed by each Portfolio's management team. Investment decisions for
each Portfolio and other clients are made with a view to achieving
their respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment
and the size of their investments generally. A particular security may
be bought or sold for only one client or in different amounts and at
different times for more than one but less than all clients. Likewise,
because clients of the Advisor may have differing investment
strategies, a particular security may be bought for one or more clients
when one or more other clients are selling the security. The investment
results achieved for each Portfolio may differ from the results
achieved for other clients of the Advisor. In addition, purchases or
sales of the same security may be made for two or more clients on the
same day. In such event, such transactions will be allocated among the
clients in a manner believed by the Advisor to be most equitable to
each client, generally utilizing a pro rata allocation methodology. In
some cases, the allocation procedure could potentially have an adverse
effect or positive effect on the price or amount of the securities
purchased or sold by each Portfolio. Purchase and sale orders for each
Portfolio may be combined with those of other clients of the Advisor in
the interest of achieving the most favorable net results to each
Portfolio and the other clients.
o To the extent that a portfolio manager has responsibilities for
managing multiple client accounts, a portfolio manager will need to
divide time and attention among relevant accounts. The Advisor attempts
to minimize these conflicts by aligning its portfolio management teams
by investment strategy and by employing similar investment models
across multiple client accounts.
o In some cases, an apparent conflict may arise where the Advisor has an
incentive, such as a performance-based fee, in managing one account and
not with respect to other accounts it manages. The Advisor will not
determine allocations based on whether it receives a performance-based
fee from the client. Additionally, the
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<PAGE>
Advisor has in place supervisory oversight processes to periodically
monitor performance deviations for accounts with like strategies.
o The Advisor and its affiliates and the investment team of the
Portfolios may manage other mutual funds and separate accounts on a
long-short basis. The simultaneous management of long and short
portfolios creates potential conflicts of interest including the risk
that short sale activity could adversely affect the market value of the
long positions(and vice versa), the risk arising from sequential orders
in long and short positions, and the risks associated with receiving
opposing orders at the same time. The Advisor has adopted procedures
that it believes are reasonably designed to mitigate these potential
conflicts of interest. Included in these procedures are specific
guidelines developed to ensure fair and equitable treatment for all
clients whose accounts are managed by each Portfolio's management team.
The Advisor and the portfolio management team have established
monitoring procedures, a protocol for supervisory reviews, as well as
compliance oversight to ensure that potential conflicts of interest
relating to this type of activity are properly addressed.
The Advisor is owned by Deutsche Bank AG, a multi-national financial services
company. Therefore, the Advisor is affiliated with a variety of entities that
provide, and/or engage in commercial banking, insurance, brokerage, investment
banking, financial advisory, broker-dealer activities (including sales and
trading), hedge funds, real estate and private equity investing, in addition to
the provision of investment management services to institutional and individual
investors. Since Deutsche Bank AG, its affiliates, directors, officers and
employees (the "Firm") are engaged in businesses and have interests other than
managing asset management accounts, such other activities involve real,
potential or apparent conflicts of interest. These interests and activities
include potential advisory, transactional and financial activities and other
interests in securities and companies that may be directly or indirectly
purchased or sold by the Firm for its clients' advisory accounts. These are
considerations of which advisory clients should be aware and which may cause
conflicts that could be to the disadvantage of the Advisor's advisory clients.
The Advisor has instituted business and compliance policies, procedures and
disclosures that are designed to identify, monitor and mitigate conflicts of
interest and, as appropriate, to report them to the Portfolio's Board.
57
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58
<PAGE>
59
<PAGE>
60
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61
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62
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63
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Regulatory Matters
On September 28, 2006, the SEC and the National Association of Securities
Dealers ("NASD") announced final agreements in which Deutsche Investment
Management Americas Inc. ("DIMA"), Deutsche Asset Management, Inc. ("DAMI") and
Scudder Distributors, Inc. ("DWS-SDI") (now known as DWS Scudder Distributors,
Inc.) settled administrative proceedings regarding disclosure of brokerage
allocation practices in connection with sales of the Scudder Funds' (now known
as the DWS Scudder Funds) shares during 2001-2003. The agreements with the SEC
and NASD are reflected in orders which state, among other things, that DIMA and
DAMI failed to disclose potential conflicts of interest to the funds' Boards and
to shareholders relating to DWS-SDI's use of certain funds' brokerage
commissions to reduce revenue sharing costs to broker-dealer firms with whom it
had arrangements to market and distribute Scudder Fund shares. These directed
brokerage practices were discontinued in October 2003.
Under the terms of the settlements, in which DIMA, DAMI and DWS-SDI neither
admitted nor denied any of the regulators' findings, DIMA, DAMI and DWS-SDI
agreed to pay disgorgement, prejudgment interest and civil penalties in the
total amount of $19.3 million. The portion of the settlements distributed to the
funds was approximately $17.8 million and was paid to the funds as prescribed by
the settlement orders based upon the amount of brokerage commissions from each
fund used to satisfy revenue sharing agreements with broker-dealers who sold
fund shares.
As part of the settlements, DIMA, DAMI and DWS-SDI also agreed to implement
certain measures and undertakings relating to revenue sharing payments including
making additional disclosures in the funds' Prospectuses or Statements of
Additional Information, adopting or modifying relevant policies and procedures
and providing regular reporting to the fund Boards.
Additional information announced by DeAM regarding the terms of the expected
settlements will be made available at
www.dws-scudder.com/regulatory_settlements, which will also disclose the terms
of any final settlement agreements once they are announced.
For discussion of other regulatory matters see the Portfolios' prospectuses.
64
<PAGE>
65
<PAGE>
Codes of Ethics
The Fund, Advisor and subadvisor, as applicable, and the Fund's principal
underwriter have each adopted codes of ethics under rule 17j-1 of the 1940 Act.
Board members, officers of the Fund and employees of the Advisor and principal
underwriter are permitted to make personal securities transactions, including
transactions in securities that may be purchased or held by the Fund, subject to
requirements and restrictions set forth in the applicable Code of Ethics. The
Advisor's Code of Ethics contains provisions and requirements designed to
identify and address certain conflicts of interest between personal investment
activities and the interests of the Fund. Among other things, the Advisor's Code
of Ethics prohibits certain types of transactions absent prior approval, imposes
time periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly reporting of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the
investment advisory process. Exceptions to these and other provisions of the
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
FUND SERVICE PROVIDERS
Principal Underwriter
Pursuant to an underwriting agreement dated September 30, 2002, DWS Scudder
Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606 (the
"Distributor"), an affiliate of the Advisor, is the principal underwriter for
the Class A and Class B shares of each Portfolio.
Under the principal underwriting agreement between the Fund and the Distributor,
the Fund is responsible for the payment of all fees and expenses in connection
with the preparation and filing of any registration statement and prospectus
covering the issue and sale of shares, and the registration and qualification of
shares for sale with the SEC in the various states, including registering the
Distributor as a broker or dealer. The Fund will also pay the fees and expenses
of preparing, printing and mailing prospectuses annually to existing
shareholders and any notice, proxy statement, report, prospectus or other
communication to shareholders of the Fund, printing and mailing confirmations of
purchases of shares, any issue taxes or any initial transfer taxes, a portion of
toll-free telephone service for shareholders, wiring funds for share purchases
and redemptions (unless paid by the shareholder who initiates the transaction),
printing and postage of business reply envelopes and a portion of the computer
terminals used by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or reports
prepared for its use in connection with the offering of the shares to the public
and preparing, printing and mailing any other literature or advertising in
connection with the offering of the shares to the public. The Distributor will
pay all fees and expenses in connection with its qualification and registration
as a broker or dealer under Federal and state laws, a portion of the toll-free
telephone service and of computer terminals, and of any activity which is
primarily intended to result in the sale of shares issued by the Fund, except
with respect to Class B shares, for which a 12b-l Plan is in effect which
provides that the Fund shall bear some or all of the distribution related
expenses attributable to such shares. The Distributor has entered into
agreements with broker-dealers authorized to offer and sell VA contracts and VLI
policies on behalf of the Participating Insurance Companies under which
agreements the broker-dealers have agreed to be responsible for the fees and
expenses of any prospectus, statement of additional information and printed
information supplemental thereto of the Fund distributed in connection with
their offer of VA contracts and VLI policies.
The Distributor currently offers shares of each Portfolio on a continuous basis
to the separate accounts of Participating Insurance Companies in all states in
which a Portfolio or the Fund may from time to time be registered or where
permitted by applicable law. The underwriting agreement provides that the
Distributor accepts orders for shares at net asset value without sales
commission or load being charged. The Distributor has made no commitment to
acquire shares of any Portfolio.
Each Portfolio has adopted a distribution plan under Rule 12b-1 (the "Plan")
that provides for fees payable as an expense of the Class B shares. Under the
plan, DWS Variable Series I may make quarterly payments to the distributor as
reimbursement for distribution and shareholder servicing related expenses
incurred or paid by the distributor or a participating insurance company. No
such payment shall be made with respect to
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any quarterly period in excess of an amount determined for such period at the
annual rate of .25% of the average daily net assets of Class B shares during
that quarterly period. The fee is payable by the Fund, on behalf of each
Portfolio, of up to 0.25% of the average daily net assets attributable to the
Class B shares of a Portfolio. Because 12b-1 fees are paid out of Portfolio
assets on an ongoing basis, they will, over time, increase the cost of
investment and may cost more than other types of sales charges. In connection
with its consideration of the Plan, the Board of Trustees was furnished with
drafts of the Plan and related materials, including information related to the
advantages and disadvantages of Rule 12b-1 plans currently being used in the
mutual fund industry. Legal counsel for the Fund provided additional
information, summarized the provisions of the proposed Plan and discussed the
legal and regulatory considerations in adopting such Plan.
Expenses of the Portfolios and of the Distributor in connection with the Rule
12b-1 plan for the Class B shares are set forth below:
<TABLE>
<CAPTION>
Class B Shares Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
DWS Bond VIP * $427 $2,561
DWS Growth & Income VIP $61,944 $104,192 $117,433
DWS Capital Growth VIP $49,709 $138,501 $185,189
DWS Global Opportunities VIP $45,532 $68,421 $87,390
DWS International VIP $70,912 $93,098 $108,917
DWS Health Care VIP $40,385 $52,676 $54,613
</TABLE>
* As of December 31, 2004 DWS Bond VIP did not have any outstanding Class
B shares.
The Board considered various factors in connection with its decision as to
whether to approve the Plan, including (a) the nature and causes of the
circumstances which make implementation of the Plan necessary and appropriate;
(b) the way in which the Plan would address those circumstances, including the
nature and potential amount of expenditures; (c) the nature of the anticipated
benefits; (d) the possible benefits of the Plan to any other person relative to
those of the Fund; (e) the effect of the Plan on existing owners of VA contracts
and VLI policies; (f) the merits of possible alternative plans or pricing
structures; (g) competitive conditions in the variable products industry and (h)
the relationship of the Plan to other distribution efforts of the Fund.
Based upon its review of the foregoing factors and the materials presented to
it, and in light of its fiduciary duties under relevant state law and the 1940
Act, the Board determined, in the exercise of its business judgment, that the
Fund's Plan is reasonably likely to benefit the Fund and the VA contract and VLI
policy owners in at least one of several ways. Specifically, the Board concluded
that the Participating Insurance Companies would have less incentive to educate
VA contract and VLI policy owners and sales people concerning the Fund if
expenses associated with such services were not paid for by the Fund. In
addition, the Board determined that the payment of distribution fees to insurers
should motivate them to maintain and enhance the level of services relating to
the Fund provided to VA contract and VLI policy owners, which would, of course,
benefit such VA contract and VLI policy owners. Further, the adoption of the
Plan would likely help to maintain and may lead to an increase in net assets
under management given the distribution financing alternatives available through
the multi-class structure. The Board also took into account expense structures
of other competing products and administrative compensation arrangements between
other funds, their advisors and insurance companies that currently are in use in
the variable products industry. Further, it is anticipated that Plan fees may be
used to educate potential and existing owners of VA contracts and VLI policies
concerning the Fund, the securities markets and related risks.
The Board realizes that there is no assurance that the expenditure of Fund
assets to finance distribution of Fund shares will have the anticipated results.
However, the Board believes there is a reasonable likelihood that one or more of
such benefits will result, and since the Board will be in a position to monitor
the distribution expenses of the Fund, it will be able to evaluate the benefit
of such expenditures in deciding whether to continue the Plan.
The Plan and any Rule 12b-1-related agreement that is entered into by the Fund
or the Distributor in connection with the Plan will continue in effect for a
period of more than one year only so long as continuance is specifically
approved at least annually by a vote of a majority of the Fund's Board of
Trustees, and of a majority of the Trustees who are not
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interested persons (as defined in the 1940 Act) of the Fund or a Portfolio and
who have no financial interest in the operation of the Plan ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on the
Plan, or the Rule 12b-1 related agreement, as applicable. In addition, the Plan
and any Rule 12b-1 related agreement, may be terminated as to Class B shares of
a Portfolio at any time, without penalty, by vote of a majority of the
outstanding Class B shares of that Portfolio or by vote of a majority of the
Independent Trustees. The Plan also provides that it may not be amended to
increase materially the amount that may be spent for distribution of Class B
shares of a Portfolio without the approval of Class B shareholders of that
Portfolio.
Transfer Agent
DWS Scudder Investments Service Company ("DWS-SISC" or the "Transfer Agent"),
811 Main Street, Kansas City, Missouri 64105-2005, is the transfer and dividend
paying agent for the Fund. The Transfer Agent receives an annual service fee for
each account of the Portfolio, based on the type of account. For open retail
accounts, the fee is a flat fee ranging from $20.00 to $27.50 per account, for
open wholesale money funds the fee is $32.50 per account, while for certain
retirement accounts serviced on the recordkeeping system of ADP, Inc., the fee
is a flat fee up to $3.46 per account (as of October 2006, indexed to inflation)
plus an asset based fee of up to 0.25% of average net assets. 1/12th of the
annual service charge for each account is charged and payable to the Transfer
Agent each month. A fee is charged for any account which at any time during the
month had a share balance in the Portfolio. Smaller fees are also charged for
closed accounts for which information must be retained on the Transfer Agent's
system for up to 18 months after closing for tax reporting purposes.
Certain out-of-pocket expenses incurred by the Transfer Agent, including
expenses of printing and mailing routine fund disclosure documents, costs of
record retention and transaction processing costs are reimbursed by the
Portfolio or are paid directly by the Portfolio. Certain additional
out-of-pocket expenses, including costs of computer hardware and software, third
party record-keeping and processing of proxy statements, may only be reimbursed
by the Portfolio with the prior approval of the Portfolio's Board.
Pursuant to a sub-transfer agency agreement between DWS-SISC and DST Systems,
Inc. ("DST"), DWS-SISC has delegated certain transfer agent and dividend paying
agent functions to DST. The costs and expenses of such delegation are borne by
DWS-SISC, not by the Portfolios.
Recordkeeping
Technically, the shareholders of the Portfolios of the Fund are the
Participating Insurance Companies that offer the Portfolios as investment
options for holders of certain variable annuity contracts and variable life
insurance policies. Effectively, ownership of Portfolio shares is passed through
to insurance company contract and policy holders. The holders of the shares of
the Portfolios on the records of the Fund are the Participating Insurance
Companies and no information concerning the Portfolio holdings of specific
contract and policy holders is maintained by the Fund. The insurance companies
place orders for the purchase and redemption of Portfolio shares with the Fund
reflecting the investment premiums paid, surrender and transfer requests and
other matters on a net basis; they maintain all records of the transactions and
holdings of Portfolio shares and distributions thereon for individual contract
and policy holders; and they prepare and mail to contract and policy holders
confirmations and periodic account statements reflecting such transactions and
holdings.
The Portfolios of the Fund may compensate certain insurance companies for record
keeping and other administrative services performed with regard to holdings of
Class B Portfolio shares as an expense of the Class B shares up to 0.15%.
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These fees are included within the "Other Expenses" category in the fee table
for each portfolio in the Class B Shares Prospectus (see "How Much Investors
Pay" in a Portfolio's prospectus). In addition, the Advisor may, from time to
time, pay its own resources certain insurance companies for record keeping and
other administrative services related to Class A and Class B shares of the
Portfolios held by such insurance companies on behalf of their contract and
policy holders.
Custodian
Portfolio securities of the DWS Bond VIP, DWS Growth & Income VIP, DWS Capital
Growth VIP and DWS Health Care VIP are held separately, pursuant to a custodian
agreement, by State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, as custodian.
DWS Bond VIP and DWS Health Care VIP only: SSB has entered into agreements with
foreign subcustodians approved by the Trustees pursuant to Rule 17f-5 under the
1940 Act. SSB uses Deutsche Bank AG, an affiliate of the Investment Advisor, as
subcustodian ("DB Subcustodian") in certain countries. To the extent a Portfolio
holds any securities in the countries in which SSB uses DB Subcustodian as a
subcustodian, those securities will be held by DB Subcustodian as part of a
larger omnibus account in the name of SSB (the "Omnibus Account"). For its
services, DB Subcustodian receives (1) an annual fee based on a percentage of
the average daily net assets of the Omnibus Account and (2) transaction charges
with respect to transactions that occur within the Omnibus Account.
Portfolio securities of DWS Global Opportunities VIP and DWS International VIP
are held separately, pursuant to a custodian agreement, by Brown Brothers
Harriman & Co., 40 Water Street, Boston, Massachusetts 02109, as custodian.
Independent Registered Public Accounting Firm
The Financial Highlights of the Portfolios included in the Fund's prospectuses
and the Financial Statements incorporated by reference into this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, 125 High Street, Boston,
Massachusetts 02110, independent registered public accounting firm, and given on
the authority of that firm as experts in accounting and auditing.
PricewaterhouseCoopers, LLP audits the financial statements of the Fund and
provides other audit, tax, and related services. Shareholders will receive
annual audited financial statements and semiannual unaudited financial
statements.
Legal Counsel
The law firm of Ropes & Gray LLP, One International Place, Boston, Massachusetts
02110, is counsel for the Fund and its Independent Trustees.
Fund Accounting Agent
Prior to June 1, 2006, DWS Scudder Fund Accounting Corporation ("DWS-SFAC"), Two
International Place, Boston, Massachusetts 02110-4103, a subsidiary of the
Advisor, computed net asset value for the Portfolios. DWS Bond VIP, DWS Growth &
Income VIP, DWS Capital Growth VIP and DWS Health Care VIP each paid DWS-SFAC an
annual fee equal to 0.025% of the first $150 million of average daily net
assets, 0.0075% of such assets in excess of $150 million and 0.0045% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service. DWS Global Opportunities VIP and DWS International VIP each pay
DWS-SFAC an annual fee equal to 0.065% of the first $150 million of average
daily net assets, 0.040% of such assets in excess of $150 million and 0.020% of
such assets in excess of $1 billion, plus holding and transaction charges for
this service.
Pursuant to a sub-administration and sub-accounting agreement among the Advisor,
DWS-SFAC and SSB, DWS-SFAC had delegated certain fund accounting functions to
SSB under each Portfolio's fund accounting agreement. The costs and expenses of
such delegation were borne by DWS-SFAC, not by the Portfolios.
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The table below shows the fees paid to DWS-SFAC for the last three fiscal years.
<TABLE>
<CAPTION>
Portfolio Fiscal 2006* Fiscal 2005 Fiscal 2004
--------- ------------ ----------- -----------
<S> <C> <C> <C>
DWS Bond VIP $63,430 $135,150 $119,718
DWS Growth & Income VIP $34,909 $93,605 $66,951
DWS Capital Growth VIP $69,474 $146,442 $119,838
DWS Global Opportunities VIP $107,325 $226,558 $180,569
DWS International VIP $186,914 $374,978 $372,264
DWS Health Care VIP $27,283 $63,666 $72,604
</TABLE>
* For the period from January 1, 2006 to May 31, 2006.
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PORTFOLIO TRANSACTIONS
The Advisor is generally responsible for placing the orders for the purchase and
sale of portfolio securities, including the allocation of brokerage. With
respect to those funds for which a sub-investment advisor manages the fund's
investments, references in this section to the "Advisor" should be read to mean
the Sub-Advisor, except as noted below.
The policy of the Advisor in placing orders for the purchase and sale of
securities for the Funds is to seek best execution, taking into account such
factors, among others, as price; commission (where applicable); the
broker-dealer's ability to ensure that securities will be delivered on
settlement date; the willingness of the broker-dealer to commit its capital and
purchase a thinly traded security for its own inventory; whether the
broker-dealer specializes in block orders or large program trades; the
broker-dealer's knowledge of the market and the security; the broker-dealer's
ability to maintain confidentiality; the financial condition of the
broker-dealer; and whether the broker-dealer has the infrastructure and
operational capabilities to execute and settle the trade. The Advisor seeks to
evaluate the overall reasonableness of brokerage commissions with commissions
charged on comparable transactions and compares the brokerage commissions (if
any) paid by the Funds to reported commissions paid by others. The Advisor
routinely reviews commission rates, execution and settlement services performed
and makes internal and external comparisons.
Commission rates on transactions in equity securities on U.S. securities
exchanges are subject to negotiation. Commission rates on transactions in equity
securities on foreign securities exchanges are generally fixed. Purchases and
sales of fixed-income securities and certain over-the-counter securities are
effected on a net basis, without the payment of brokerage commissions.
Transactions in fixed income and certain over-the-counter securities are
generally placed by the Advisor with the principal market makers for these
securities unless the Advisor reasonably believes more favorable results are
available elsewhere. Transactions with dealers serving as market makers reflect
the spread between the bid and asked prices. Purchases of underwritten issues
will include an underwriting fee paid to the underwriter. Money market
instruments are normally purchased in principal transactions directly from the
issuer or from an underwriter or market maker.
It is likely that the broker-dealers selected based on the considerations
described in this section will include firms that also sell shares of the Funds
to their customers. However, the Advisor does not consider sales of shares of
the Funds as a factor in the selection of broker-dealers to execute portfolio
transactions for the Funds and, accordingly, has implemented policies and
procedures reasonably designed to prevent its traders from considering sales of
shares of the Funds as a factor in the selection of broker-dealers to execute
portfolio transactions for the Funds.
The Advisor is permitted by Section 28(e) of the Securities Exchange Act of
1934, as amended ("1934 Act"), when placing portfolio transactions for a Fund,
to cause the Fund to pay brokerage commissions in excess of that which another
broker-dealer might charge for executing the same transaction in order to obtain
research and brokerage services if the Advisor determines that such commissions
are reasonable in relation to the overall services provided. The Advisor may
from time to time, in reliance on Section 28(e) of the 1934 Act, execute
portfolio transactions with broker-dealers that provide research and brokerage
services to the Advisor. Consistent with the Advisor's policy regarding best
execution, where more than one broker is believed to be capable of providing
best execution for a particular trade, the Advisor may take into consideration
the receipt of research and brokerage services in selecting the broker-dealer to
execute the trade. Although certain research and brokerage services from
broker-dealers may be useful to a Fund and to the Advisor, it is the opinion of
the Advisor that such information only supplements its own research effort since
the information must still be analyzed, weighed and reviewed by the Advisor's
staff. Research and brokerage services received from a broker-dealer may be
useful to the Advisor in providing services to clients other than the Fund
making the trade, and not all such information is used by the Advisor in
connection with such Fund. Conversely, such information provided to the Advisor
by broker-dealers through which other clients of the Advisor effect securities
transactions may be useful to the Advisor in providing services to a Fund.
Research and brokerage services provided by broker-dealers may include, but are
not limited to, information on the economy, industries, groups of securities,
individual companies, statistical information, accounting and tax law
interpretations, political developments, legal developments affecting portfolio
securities, technical market action, pricing and appraisal services, credit
analysis, risk measurement analysis, performance analysis and measurement and
analysis of corporate responsibility issues. Research and brokerage services are
typically received in the form of written reports, access to specialized
financial publications, telephone contacts and personal meetings with security
analysts, but may also be provided in the form of access to various computer
software and associated hardware, and meetings arranged with corporate and
industry representatives.
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The Advisor may also select broker-dealers and obtain from them research and
brokerage services that are used in connection with executing trades provided
that such services are consistent with interpretations under Section 28(e) of
the 1934 Act. Typically, these services take the form of computer software
and/or hardware used by the Advisor to facilitate trading activity with those
broker-dealers.
Research and brokerage services may include products obtained from third parties
if the Advisor determines that such product or service constitutes brokerage and
research as defined in Section 28(e) and interpretations thereunder. Currently,
it is the Advisor's policy that Sub-Advisors may not execute portfolio
transactions on behalf of the Funds to obtain third party research and brokerage
services. The Advisor may, in the future, change this policy. Regardless,
certain Sub-Advisors may, as matter of internal policy, limit or preclude third
party research and brokerage services.
DIMA will monitor regulatory developments and market practice in the use of
client commissions to obtain research and brokerage services and may adjust its
portfolio transactions policies in response thereto.
Investment decisions for each Fund and for other investment accounts managed by
the Advisor are made independently of each other in light of differing
conditions. However, the same investment decision may be made for two or more of
such accounts. In such cases, simultaneous transactions are inevitable. To the
extent permitted by law, the Advisor may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other accounts in
executing transactions. Purchases or sales are then averaged as to price and
commission and allocated as to amount in a manner deemed equitable to each
account. While in some cases this practice could have a detrimental effect on
the price paid or received by, or on the size of the position obtained or
disposed of for, the Fund, in other cases it is believed that the ability to
engage in volume transactions will be beneficial to the Fund.
DIMA and its affiliates and the Funds' management team manage other mutual funds
and separate accounts, some of which use short sales of securities as a part of
its investment strategy. The simultaneous management of long and short
portfolios creates potential conflicts of interest including the risk that short
sale activity could adversely affect the market value of the long positions (and
vice versa), the risk arising from sequential orders in long and short
positions, and the risks associated with receiving opposing orders at the same
time.
DIMA has adopted procedures that it believes are reasonably designed to mitigate
these potential conflicts of interest. Incorporated in the procedures are
specific guidelines developed to ensure fair and equitable treatment for all
clients. DIMA and the investment team have established monitoring procedures and
a protocol for supervisory reviews, as well as compliance oversight to ensure
that potential conflicts of interest relating to this type of activity are
properly addressed.
Deutsche Bank AG or one of its affiliates (or in the case of a Sub-Advisor, the
Sub-Advisor or one of its affiliates) may act as a broker for the Funds and
receive brokerage commissions or other transaction-related compensation from the
Funds in the purchase and sale of securities, options or futures contracts when,
in the judgment of the Advisor, and in accordance with procedures approved by
the Funds' Boards, the affiliated broker will be able to obtain a price and
execution at least as favorable as those obtained from other qualified brokers
and if, in the transaction, the affiliated broker charges the Funds a rate
consistent with that charged to comparable unaffiliated customers in similar
transactions.
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<PAGE>
DWS Bond VIP: The Portfolio is required to identify any securities of its
"regular brokers or dealers" (as such term is defined in the 1940 Act) that the
Portfolio has acquired during the most recent fiscal year. As of December 31,
2006, the Portfolio held the following securities of
its regular brokers or dealers:
Value of Securities Owned as
of December 31, 2006
Name of Regular Broker or Dealer or Parent (Issuer) (in thousands)
--------------------------------------------------- --------------
Wachovia Capital Trust $1,205
Merrill Lynch & Co., Inc. $988
Sumitomo Mitsui Financial Group $890
Chinatrust Commercial Bank $519
AES El Salvador Trust $472
Arch Western Finance $228
Banco Do Estado De Sao Paulo $144
DWS Growth & Income VIP: The Portfolio is required to identify any securities of
its "regular brokers or dealers" (as such term is defined in the 1940 Act) that
the Portfolio has acquired during the most recent fiscal year. As of December
31, 2006, the Portfolio held the following securities of its regular brokers or
dealers:
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Value of Securities Owned as
of December 31, 2006
Name of Regular Broker or Dealer or Parent (Issuer) (in thousands)
--------------------------------------------------- --------------
American International Group, Inc. $12,055
Bank of America Corp. $11,239
Bank of New York Co., Inc. $7,400
The Goldman Sachs Group, Inc. $2,379
Mellon Financial Corp. $2,137
Merrill Lynch & Co., Inc. $5,067
Morgan Stanley $3,281
Wachovia Corp. $7,201
UBS AG-Registered $3,302
Unibanco $2,266
DWS Capital Growth VIP: The Portfolio is required to identify any securities of
its "regular brokers or dealers" (as such term is defined in the 1940 Act) that
the Portfolio has acquired during the most recent fiscal year. As of December
31, 2006, the Portfolio held the following securities of its regular brokers or
dealers:
Value of Securities Owned as
of December 31, 2006
Name of Regular Broker or Dealer or Parent (Issuer) (in thousands)
--------------------------------------------------- --------------
Bank of America Corp. $16,412
The Goldman Sachs Group, Inc. $14,034
Lehman Brothers Holdings, Inc. $11,929
Merrill Lynch & Co., Inc. $15,721
UBS AG-Registered $10,278
DWS Global Opportunities VIP: The Portfolio is required to identify any
securities of its "regular brokers or dealers" (as such term is defined in the
1940 Act) that the Portfolio has acquired during the most recent fiscal year. As
of December 31, 2006, the Portfolio held the following securities of its regular
brokers or dealers:
Value of Securities Owned as
of December 31, 2006
Name of Regular Broker or Dealer or Parent (Issuer) (in thousands)
--------------------------------------------------- --------------
Matsui Securities Co., Ltd. $1,376
Anglo Irish Bank Corp., Plc $9,568
Hypo Real Estate Hldgs $5,942
Ashmore Group PLC $3,632
Babcock & Brown, Ltd. $4,660
Deutsche Boerse AG $1,515
Jafco Co. Ltd. $1,064
Nuveen Investments, Inc. $3,881
Partners Group AG $3,498
Piraeus Bank S.A. $8,377
Wing Hang Bank Ltd. $5,013
Yuanta Core Pacific Securities Co. $1,762
DWS International VIP: The Portfolio is required to identify any securities of
its "regular brokers or dealers" (as such term is defined in the 1940 Act) that
the Portfolio has acquired during the most recent fiscal year. As of December
31, 2006, the Portfolio held the following securities of its regular brokers or
dealers:
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Value of Securities Owned as
of December 31, 2006
Name of Regular Broker or Dealer or Parent (Issuer) (in thousands)
--------------------------------------------------- --------------
Alpha Bank AE $5,338
Anglo Irish Bank Corp. Plc. $8,287
Commerzbank AG $8,543
Erste Bank Der Oesterreichischen Sparkassen $7,735
Hypo Real Estate Hldgs $15,276
Mizuho Financial Group $9,270
National Bank of Greece $9,411
UBS AG-Registered $14,840
Unicredito Italiano SpA $14,712
Deutsche Boerse AG $7,506
KBC Groupe $11,005
Shinsei Bank Ltd. $5,900
DWS Health Care VIP: The Portfolio is required to identify any securities of its
"regular brokers or dealers" (as such term is defined in the 1940 Act) that the
Portfolio has acquired during the most recent fiscal year. As of December 31,
2006, the Portfolio does not hold any securities of its regular brokers or
dealers.
The table below shows total brokerage commissions paid by each Portfolio for the
last fiscal year, as applicable.
Portfolio Fiscal 2006
--------- -----------
DWS Bond VIP $0
DWS Growth & Income VIP $665,539
DWS Capital Growth VIP $395,143
DWS Global Opportunities VIP $353,921
DWS International VIP $2,158,975
DWS Health Care VIP $164,212
In addition, for the fiscal year ended December 31, 2006:
<TABLE>
<CAPTION>
Percentage of
Percentage of Transactions Dollar Amount of
Commissions Involving Commissions Paid
Paid to Affiliated Commissions Paid to to Brokers for
Portfolio Brokers Affiliated Brokers Research Services
--------- ------- ------------------ -----------------
<S> <C> <C> <C>
DWS Bond VIP 0% 0% $0
DWS Growth & Income VIP 0 0 $0
DWS Capital Growth VIP 0 0 $0
DWS Global Opportunities VIP 0 0 $0
DWS International VIP 0 0 $0
DWS Health Care VIP 0 0 $0
</TABLE>
Codes of Ethics. The Fund, Advisor and subadvisors, and principal underwriter
have each adopted codes of ethics under Rule 17j-1 under the 1940 Act. Board
members, officers of the Fund and employees of the Advisor or Subadvisors, and
principal underwriter are permitted to make personal securities transactions,
including transactions in securities that may be purchased or held by the
Portfolios, subject to requirements and restrictions set forth in the applicable
Code of Ethics. The Advisor's Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of the Portfolios.
Among other things, the Advisor's Code of Ethics prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, imposes holding periods
(generally 30 days) on most transactions and requires the submission of
duplicate broker confirmations and quarterly reporting of
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securities transactions. Exceptions to these and other provisions of the
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
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<PAGE>
Portfolio Turnover
Portfolio turnover rate is defined by the SEC as the ratio of the lesser of
sales or purchases to the monthly average value of securities owned during the
year, excluding all securities whose remaining maturities at the time of
acquisition were
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<PAGE>
one year or less. Higher levels of activity by a Portfolio result in higher
transaction costs and may also result in taxes on realized capital gains to be
borne by a Portfolio's shareholders. Purchases and sales are made whenever
necessary, in the Advisor's discretion, to meet a Portfolio's objective.
Portfolio turnover rates for the two most recent fiscal periods are as follows:
12/31/05 12/31/06
-------- --------
DWS Bond VIP 187% 179%
DWS Growth & Income VIP 115% 105%
DWS Capital Growth VIP 17% 16%
DWS Global Opportunities VIP 30% 28%
DWS International VIP 59% 105%
DWS Health Care VIP 43% 47%
PURCHASES AND REDEMPTIONS
The separate accounts of the Participating Insurance Companies purchase and
redeem shares of each Portfolio based on, among other things, the amount of
premium payments to be invested and surrender and transfer requests to be
effected on that day pursuant to variable annuity contracts and variable life
insurance policies, but only on days on which the Exchange is open for trading.
Such purchases and redemptions of the shares of each Portfolio are effected at
their respective net asset values per share, determined as of the close of
regular trading on the Exchange (normally 4 p.m. Eastern time) on that same day
. (See "NET ASSET VALUE.") Payment for redemptions will be made by State Street
Bank and Trust Company or Brown Brothers Harriman & Co., as applicable, on
behalf of the Fund and the applicable Portfolios within seven days thereafter.
No fee is charged the separate accounts of the Participating Insurance Companies
when they redeem Fund shares.
The Fund may, on behalf of a Portfolio, may suspend or postpone redemptions as
permitted pursuant to Section 22(e) of the Investment Company Act of 1940.
Generally, those circumstances are when: 1) the New York Stock Exchange is
closed other than customary weekend or holiday closings; 2) trading on the New
York Stock Exchange is restricted; 3) an emergency exists which makes the
disposal of securities owned by a fund or the fair determination of the value of
a fund's net assets not reasonably practicable; or 4) the SEC, by order, permits
the suspension of the right of redemption. Redemption payments by wire may also
be delayed in the event of a non-routine closure of the Federal Reserve wire
payment system.
Revenue Sharing
In light of recent regulatory developments, the investment advisor (the
"Advisor"), the Distributor and their affiliates have undertaken to furnish
certain additional information below regarding the level of payments made by
them to selected affiliated and unaffiliated brokers, dealers, participating
insurance companies or other financial intermediaries ("financial advisors") in
connection with the sale and/or distribution of Portfolio shares or the
retention and/or servicing of investors and Portfolio shares ("revenue
sharing").
The Advisor, the Distributor and/or their affiliates may pay additional
compensation, out of their own assets and not as an additional charge to the
Portfolio, to financial advisors in connection with the sale and/or distribution
of Portfolio shares or the retention and/or servicing of Portfolio investors and
Portfolio shares. Such revenue sharing payments are in addition to any
distribution or service fees payable under any Rule 12b-1 or service plan of any
portfolio, any record keeping/sub-transfer agency/networking fees payable by the
Portfolio (generally through the Distributor or an affiliate) and/or the
Distributor to certain financial advisors for performing such services and any
sales charges, commissions, non-cash compensation arrangements expressly
permitted under applicable rules of the NASD or other concessions described in
the fee table or elsewhere in the prospectus or the SAI as payable to all
financial advisors. For example, the Advisor, the Distributor and/or their
affiliates may compensate financial advisors for providing a portfolio with
"shelf space" or access to a third
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party platform or portfolio offering list, or other marketing programs
including, without limitation, inclusion of the Portfolio on preferred or
recommended sales lists, mutual fund "supermarket" platforms and other formal
sales programs; granting the Distributor access to the financial advisor's sales
force; granting the Distributor access to the financial advisor's conferences
and meetings; assistance in training and educating the financial advisor's
personnel; and, obtaining other forms of marketing support. The level of revenue
sharing payments made to financial advisors may be a fixed fee or based upon one
or more of the following factors: gross sales, current assets and/or number of
accounts of the Portfolio attributable to the financial advisor, the particular
portfolio or portfolio type or other measures as agreed to by the Advisor, the
Distributor and/or their affiliates and the financial advisors or any
combination thereof. The amount of these payments is determined at the
discretion of the Advisor, the Distributor and/or their affiliates from time to
time, may be substantial, and may be different for different financial advisors
based on, for example, the nature of the services provided by the financial
advisor.
The Advisor, the Distributor and/or their affiliates currently make revenue
sharing payments from their own assets in connection with the sale and/or
distribution of DWS Fund shares, or the retention and/or servicing of investors
and DWS Fund shares to financial advisors in amounts that generally range from
.01% up to .50% of assets of the Portfolio serviced and maintained by the
financial advisor, .05% to .40% of sales of the Portfolio attributable to the
financial advisor, a flat fee of $12,500 up to $500,000, or any combination
thereof. These amounts are subject to change at the discretion of the Advisor,
the Distributor and/or their affiliates. Receipt of, or the prospect of
receiving, this additional compensation, may influence your financial advisor's
recommendation of this Portfolio or of any particular share class of the
Portfolio. You should review your financial advisor's compensation disclosure
and/or talk to your financial advisor to obtain more information on how this
compensation may have influenced your financial advisor's recommendation of this
Portfolio.
The Advisor, the Distributor and/or their affiliates may also make such revenue
sharing payments to financial advisors under the terms discussed above in
connection with the distribution of both DWS funds and non-DWS funds by
financial advisors to retirement plans that obtain record keeping services from
ADP, Inc. on the DWS Scudder branded retirement plan platform (the "Platform")
with the level of revenue sharing payments being based upon sales of both the
DWS funds and the non-DWS funds by the financial advisor on the Platform or
current assets of both the DWS funds and the non-DWS funds serviced and
maintained by the financial advisor on the Platform.
As of the date hereof, the Portfolios have been advised that the Advisor, the
Distributor and their affiliates expect that the following firms will receive
revenue sharing payments at different points during the coming year as described
above:
Channel: Broker-Dealers and Financial Advisors
A G Edwards & Sons Inc.
AIG Advisors Group
Cadaret, Grant & Co. Inc.
Brown Brothers Harriman
Capital Analyst, Incorporated
Citicorp Investment Services
Citigroup Global Markets, Inc. (dba Smith Barney)
Commonwealth Equity Services, LLP (dba Commonwealth Financial Network)
HD Vest Investment Securities, Inc.
ING Group
LaSalle Financial Services, Inc.
Linsco/Private Ledger Corp.
McDonald Investments Inc.
Merrill Lynch, Pierce, Fenner & Smith Inc.
Morgan Stanley
Oppenheimer & Co., Inc.
Pacific Select Distributors Group
The Principal Financial Group
Prudential Investments
Raymond James & Associates
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<PAGE>
Raymond James Financial Services
RBC Dain Rauscher, Inc
Securities America, Inc.
UBS Financial Services
Wachovia Securities
Wells Fargo Investments, LLC
Channel: Fund Supermarket Platforms
ADP Clearing
Charles Schwab & Co., Inc.
E*Trade
Fidelity Investments
First Trust
National Financial
National Investor Services Corporation
Pershing LLC
USAA Investment Management
Channel: Defined Contribution Investment Only Platforms
401K Investment Services
ACS / Buck Consultants
ADP, Inc.
Alliance Benefit Group Financial Services Corp.
American Express Financial Advisors, Inc.
AMG Service Corp. / Lincoln Retirement Services Company, LLC
AST Trust Company
Benefit Administration
BISYS
Ceridian Retirement Plan Services
Charles Schwab & Co., Inc.
Charles Schwab Trust Company
City National Bank
Citistreet
C.N.A. Trust
Compusys/ERISA Group Inc.
Copeland Companies
CPI Qualified Plans Daily Access.Com Inc.
Digital Retirement Solutions
Edgewood Services
Expert Plan Inc.
Federated Securities Corp.
Fidelity Institutional Retirement Services Company
Fisserv
Franklin Templeton Defined Contribution
GoldK
Great West Life and Annuity / BenefitsCorp Equities Inc.
Hand Securities
Hartford Life Insurance Company
Hewitt Assoc. LLC
ING Aetna Trust Company
Invesmart
JPMorgan Retirement Plan Services LLC
John Hancock
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<PAGE>
Lincoln National Life
Marsh Insurance & Investment Company
Marshall & Ilsley Trust Company
Maryland Supplemental Retirement Plan
Matrix Settlement & Clearance
Mercer HR Services
Merrill Lynch, Pierce, Fenner & Smith Inc.
Met Life
MFS
Mid Atlantic Capital Corporation
Nationwide Trust Company
Nationwide Financial
Neuberger Berman
New York Life Investment Management Service Company
Nyhart/Alliance Benefit Group Indiana
PFPC, Inc.
Plan Administrators, Inc.
PNC Bank N.A.
Principal Life Insurance Company
Prudential Investments
Reliance Trust Company
Resource Trust (IMS)
Retirement Financial Services
State Street Bank and Trust Company
SunGard Investment Products Inc.
The Princeton Retirement Group, Inc.
T. Rowe Price
Union Bank of California
UMB Bank
Valic/Virsco Retirement Services Co
Vanguard Group
Wachovia Bank (First Union National Bank)
Wells Fargo
Wilmington Trust
Channel: Cash Product Platform
ADP Clearing & Outsourcing
Allegheny Investments LTD
Bank of New York (Hare & Co.)
Bear Stearns
Brown Investment Advisory & Trust Company
Brown Brothers Harriman
Cadaret Grant & Co.
Chase Manhattan Bank
Chicago Mercantile Exchange
Citibank, N.A.
D.A. Davidson & Company
DB Alex Brown/Pershing
DB Securities
Deutsche Bank Trust Company Americas
Emmett A. Larkin Company
Fiduciary Trust Co. - International
Huntleigh Securities
Lincoln Investment Planning
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<PAGE>
Linsco Private Ledger Financial Services
Mellon Bank
Nesbitt Burns Corp.
Penson Financial Services
Pershing Choice Platform
Profunds Distributors, Inc.
SAMCO Capital Markets (Fund Services, Inc.)
Saturn & Co. (Investors Bank & Trust Company)
Smith Moore & Company
Sungard Financial
Turtle & Co. (State Street)
UBS
US Bank
William Blair & Company
Channel: Third Party Insurance Platforms
Allmerica Financial Life Insurance Company
Allstate Life Insurance Company of New York
Ameritas Life Insurance Group
American General Life Insurance Company
Annuity Investors Life Insurance Company
Columbus Life Insurance Company
Companion Life Insurance Company
Connecticut General Life Insurance Company
Farmers New World Life Insurance Company
Fidelity Security Life Insurance Company
First Allmerica Financial Life Insurance Company
First Great-West Life and Annuity Insurance Company
First MetLife Investors Insurance Company
Genworth Life Insurance Company of New York
Genworth Life and Annuity Insurance Company
Great West Life and Annuity Insurance Company
Hartford Life Insurance Company
Hartford Life and Annuity Insurance Company
ICMG Registered Variable Life
John Hancock Life Insurance Company of New York
John Hancock Life Insurance Company (U.S.A.)
Kemper Investors Life Insurance Company
Lincoln Benefit Life Insurance Company
Lincoln Life & Annuity Company of New York
Lincoln National Life Insurance Company
Massachusetts Mutual Life Insurance Company
MetLife Group Minnesota Life Insurance Company
Mutual of America Life Insurance Company
National Life Insurance Company
Nationwide Financial Services Inc.
Nationwide Life and Annuity Company of America
Nationwide Life Insurance Company of America
New York Life Insurance and Annuity Corporation
Phoenix Life Insurance Company
Protective Life Insurance
Prudential Insurance Company of America
Sun Life Assurance Company of Canada (U.S.)
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Sun Life Assurance and Annuity Company of New York
Symetra Life Insurance Company
Transamerica Life Insurance Company
Union Central Life Insurance Company
United of Omaha Life Insurance Company
United Investors Life Insurance Company
Western Southern Life Assurance Company
Any additions, modifications or deletions to the financial advisors identified
above that have occurred since the date hereof are not reflected.
The Advisor, the Distributor or their affiliates may enter into additional
revenue sharing arrangements or change or discontinue existing arrangements with
financial advisors at any time without notice.
The prospect of receiving, or the receipt of additional compensation or
promotional incentives described above by financial advisors may provide such
financial advisors and/or their salespersons with an incentive to favor sales of
shares of the DWS Funds or a particular DWS Fund over sales of shares of mutual
funds (or non-mutual fund investments) with respect to which the financial
advisor does not receive additional compensation or promotional incentives, or
receives lower levels of additional compensation or promotional incentives.
Similarly, financial advisors may receive different compensation or incentives
that may influence their recommendation of any particular share class of the
Portfolio or of other portfolios. These payment arrangements, however, will not
change the price that an investor pays for Portfolio shares or the amount that a
Fund receives to invest on behalf of an investor and will not increase Fund
expenses. You may wish to take such payment arrangements into account when
considering and evaluating any recommendations relating to Portfolio shares and
you should discuss this matter with your financial advisor and review your
financial advisor's disclosures.
DIVIDENDS, CAPITAL GAINS AND TAXES
Set forth below is a discussion of certain US federal income tax consequences
relating to the ownership of shares in the Portfolios by life insurance
companies for the purpose of funding variable life insurance policies. This
discussion does not purport to be complete or to deal with all aspects of
federal income taxation. It deals only with the status of the Portfolios as
regulated investment companies ("RICs") under subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and the application of the
diversification rules of Section 817(h) of the Code. This discussion is based
upon the present provisions of the Code, the regulations promulgated thereunder,
and judicial and administrative ruling authorities, all of which are subject to
change, which change may be retroactive.
The discussion below is generally based on the assumption that the shares of
each Portfolio will be respected as owned by insurance company separate
accounts. If this is not the case, the person or persons determined to own the
Portfolios' shares will be currently taxed on the Portfolios' distributions, and
on the proceeds of any redemption of the Portfolios' shares, under the Code
rules.
For information concerning the federal tax consequences to a holder of a
variable contract, refer to the prospectus for the particular contract. Because
insurance companies (and certain other investors) will be the only shareholders
of a Portfolio, no attempt is made here to particularly describe the tax aspects
of an investment in such a Portfolio.
Each Portfolio of the Fund has elected to be treated as a RIC under subchapter M
of the Code. In order to qualify for the special tax treatment accorded RICs and
their shareholders, each Portfolio must, among other things,
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<PAGE>
(a) derive at least 90% of its gross income for each taxable year from (i)
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities and foreign
currencies, or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stock, securities, or currencies; and (ii) net income derived from
interests in "qualified publicly traded partnerships" (as defined below);
(b) distribute to its shareholders with respect to each taxable year at least
90% of the sum of its taxable net investment income, as the term is defined in
the Code without regard to the deduction for dividends paid -- generally taxable
ordinary income and the excess, if any, of net short-term capital gains over net
long-term capital losses and net tax-exempt interest income for such year. To
the extent each Portfolio qualifies for treatment as a RIC, it will not be
subject to federal income tax on income paid to its shareholders in the form of
dividends or capital gain distributions. Such qualification does not involve
governmental supervision or management of investment practices or policy. In
general, for purposes of the 90% gross income requirement described in paragraph
(a) above, income derived from a partnership will be treated as qualifying
income only to the extent such income is attributable to items of income of the
partnership which would be qualifying income if realized by the RIC. However,
100% of the net income derived from an interest in a "qualified publicly traded
partnership" (defined as a partnership (i) interests in which are traded on
established securities market or readily tradable on a secondary market or the
substantial equivalent thereof and (ii) that derives less than 90% of its income
from the qualifying income described in paragraph (a)(i) above) will be treated
as qualifying income. In addition, although in general the passive loss rules of
the Code do not apply to RICs, such rules do apply to a partnership. Finally,
for purposes of paragraph (c) above, the term "outstanding voting securities of
such issuer" will include the equity securities of a qualified publicly traded
partnership; and
(c) diversify its holdings so that, at the end of each quarter of its taxable
year, (i) at least 50% of the market value of the Portfolio's assets consists of
cash and cash items, US government securities, securities of other RICs, and
other securities limited in respect of any one issuer to a value not greater
than 5% of the value of the Portfolio's total assets and not more than 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested (x) in the securities (other than
those of the US Government or other RICs) of any one issuer or of two or more
issuers which the fund controls and which are engaged in the same, similar, or
related trades or businesses; or (y) in the securities of one or more qualified
publicly traded partnerships (as defined below).
If a Portfolio were to fail to qualify for treatment as a RIC for any taxable
year, (1) it would be taxed as an ordinary corporation on its taxable income for
that year without being able to deduct the distributions it makes to its
shareholders, and (2) each insurance company separate account invested in the
Portfolio would fail to satisfy the diversification requirements of Section
817(h) of the Code, described below, with the result that the contracts
supported by that account would no longer be eligible for tax deferral. All
distributions from earnings and profits, including any distributions of net
tax-exempt income and net long-term capital gains, would be taxable to
shareholders as ordinary income. In addition, the Portfolio could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying for treatment as a RIC.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Portfolio level. The excise tax is generally inapplicable to any RIC whose sole
shareholders are either tax-exempt pension trusts or separate accounts of life
insurance companies funding variable contracts.
A Portfolio's investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a discount may)
require the Portfolio to accrue and distribute income not yet received. In order
to generate sufficient cash to make the requisite distributions, the Portfolio
may be required to sell securities in its portfolio that it otherwise would have
continued to hold.
Each Portfolio also intends to comply with the separate diversification
requirements imposed by Section 817(h) of the Code and the regulations
thereunder on certain insurance company separate accounts. These requirements,
which are in addition to the diversification requirements imposed on the
Portfolios by the 1940 Act and Subchapter M of the Code, place certain
limitations on assets of each insurance company separate account used to fund
variable contracts. Because Section 817(h) and those regulations treat the
assets of a Portfolio as assets of the related separate account, these
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<PAGE>
regulations are imposed on the assets of a Portfolio. Specifically, the
regulations provide that, after a one year start-up period or, except as
permitted by the "safe harbor" described below, as of the end of each calendar
quarter or within 30 days thereafter no more than 55% of the total assets of the
Portfolio may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments, and no more than 90% by
any four investments. For this purpose, all securities of the same issuer are
considered a single investment, and each US Government agency and
instrumentality is considered a separate issuer. Section 817(h) provides, as a
safe harbor, that a separate account will be treated as being adequately
diversified if the diversification requirements under Subchapter M are satisfied
and no more than 55% of the value of the account's total assets is attributable
to cash and cash items (including receivables), US Government securities and
securities of other regulated investment companies. Failure by a Portfolio to
satisfy the Section 817(h) requirements would generally cause the variable
contracts to lose their favorable tax status and require a contract holder to
include in ordinary income any income accrued under the contracts for the
current and all prior taxable years. Under certain circumstances described in
the applicable Treasury regulations, inadvertent failure to satisfy the
applicable diversification requirements may be corrected, but such a correction
would require a payment to the Internal Revenue Service ("IRS") based on the tax
contract holders would have incurred if they were treated as receiving the
income on the contract for the period during which the diversification
requirements were not satisfied. Any such failure may also result in adverse tax
consequences for the insurance company issuing the contracts.
The IRS has indicated that a degree of investor control over the investment
options underlying variable contracts may interfere with the tax-deferred
treatment described above. The Treasury Department has issued rulings addressing
the circumstances in which a variable contract owner's control of the
investments of the separate account may cause the contract owner, rather than
the insurance company, to be treated as the owner of the assets held by the
separate account, and is likely to issue additional rulings in the future. If
the contract owner is considered the owner of the securities underlying the
separate account, income and gains produced by those securities would be
included currently in the contract owner's gross income. A contract holder's
control of the investments of the separate accounts in this case is similar to,
but different in certain respects from, those described by the IRS in rulings.
The Portfolios are not materially narrower in focus than the investment
strategies described in more recent IRS rulings in which strategies, such as
large company stocks, international stocks, small company stocks, mortgage-based
securities, telecommunications stocks and financial services stocks, were held
not to constitute sufficient control over individual investment decisions so as
to cause ownership of such investments to be attributable to contract owners.
The Regulations proposed by the Treasury Department in the summer of 2004
relating to ss. 817(h) and current published IRS guidance do not directly speak
to the strategies such as those reflected in the Portfolio, described above.
However, the IRS and the Treasury Department may in the future provide further
guidance as to what it deems to constitute an impermissible level of "investor
control" over a separate account's investments in funds such as the Portfolios,
and such guidance could affect the treatment of the Portfolios described herein,
including retroactively.
In the event that additional rules or regulations are adopted, there can be no
assurance that a Portfolio will be able to operate as currently described, or
that such Portfolio will not have to change its investment objective or
investment policies. A Portfolio's investment objective and investment policies
may be modified as necessary to prevent any such prospective rules and
regulations from causing variable contract owners to be considered the owners of
the shares of the Portfolio.
Under Treasury Regulations, if a shareholder recognizes a loss on a disposition
of a Fund's shares of $2 million or more for an individual shareholder or $10
million or more for a corporate shareholder (including, for example, an
insurance company holding separate account), the shareholder must file with the
IRS a disclosure statement on Form 8886. Direct shareholders of portfolio
securities are in many cases excepted from this reporting, requirement, but
under current guidance, shareholders of a regulated investment company are not
excepted. This filing requirement applies even though, as a practical matter,
any such loss would not, for example, reduce the taxable income of an insurance
company. Future guidance may extend the current exception from this reporting
requirement to shareholders of most or all regulated investment companies.
Investment by a Portfolio in "passive foreign investment companies" ("PFICs")
could subject the Portfolio to US federal income tax (including interest
charges) on distributions received from the company or on proceeds received from
the disposition of shares in the company, which tax cannot be eliminated by
making distributions to Portfolio shareholders. However, a Portfolio also may
make an election to mark the gains (and to a limited extent the losses) in such
holdings
87
<PAGE>
"to the market" as though it had sold and repurchased its holdings in those
PFICs on the last day of the Portfolio's taxable year. Such gains and losses are
treated as ordinary income and loss. A Portfolio may also elect to treat a PFIC
as a "qualified electing fund" ("QEF election"), in which case the Portfolio
will be required to include its share of the company's income and net capital
gains annually, regardless of whether it receives any distribution from the
company. The QEF and mark-to-market elections may accelerate the recognition of
income (without the receipt of cash) and increase the amount required to be
distributed for the Portfolio to avoid taxation. Making either of these
elections therefore may require a Portfolio to liquidate other investments
(including when it is not advantageous to do so) to meet its distribution
requirement, which also may accelerate the recognition of gain and affect a
Portfolio's total return.
All Portfolios
Each Portfolio intends to follow the practice of distributing substantially all
of its investment company taxable income which includes any excess of net
realized short-term capital gains over net realized long-term capital losses. A
Portfolio may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, a Portfolio may retain all or part of such gain for reinvestment, after
paying the related federal taxes for which shareholders may then be able to
claim a credit against
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<PAGE>
their federal tax liability. If a Portfolio does not distribute the amount of
capital gain and/or ordinary income required to be distributed by an excise tax
provision of the Code, that Portfolio may be subject to that excise tax.
Each Portfolio intends to distribute investment company taxable income and any
net realized capital gains in April each year. Additional distributions may be
made if necessary.
All distributions will be made in shares of a Portfolio. Both dividends and
capital gain distributions will be reinvested in additional shares of such a
Portfolio unless an election is made on behalf of a separate account to receive
dividends and capital gain distributions in cash.
Shareholders of the Portfolios may be subject to state and local taxes on
distributions received from such Portfolios and on redemptions of their shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution.
The Fund is organized as a Massachusetts business trust, and neither the Fund
nor the Portfolios are liable for any income or franchise tax in the
Commonwealth of Massachusetts providing each Portfolio continues to qualify as a
regulated investment company under Subchapter M of the Code.
NET ASSET VALUE
The net asset value of each Portfolio is computed as of the close of regular
trading on the New York Stock Exchange (the "Exchange") on each day the Exchange
is open for regular trading (the "Value Time"). The Exchange is scheduled to be
closed on the following holidays: New Year's Day, Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding Friday or subsequent Monday
when one of these holidays falls on a Saturday or Sunday, respectively. Net
asset value per share is determined separately for each class of shares by
dividing the net asset value of such class, which is the value of the total
assets of each Portfolio attributable to the shares of that class, less all
liabilities attributable to that class, by the total number of shares of that
class outstanding. The per share net asset value may be lower for certain
classes of each Portfolio because of higher expenses borne by these classes.
An equity security is valued at its most recent sale price on the security's
primary exchange or OTC market as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange or
OTC market as of the Value Time. If it is not possible to determine the
Calculated Mean, the security is valued at the most recent bid quotation on such
exchange or OTC market as of the Value Time. In the case of certain foreign
exchanges or OTC markets, the closing price reported by the exchange or OTC
market (which may sometimes be referred to as the "official close" or the
"official closing price" or other similar term) will be considered the most
recent sale price.
Debt securities are valued as follows. Money market instruments purchased with
an original or remaining maturity of 60 days or less, maturing at par, are
valued at amortized cost. Other money market instruments are valued based on
information obtained from an approved pricing agent or, if such information is
not readily available, by using matrix pricing techniques (formula driven
calculations based primarily on current market yields). Bank loans are valued at
prices supplied by an approved pricing agent (which are intended to reflect the
mean between the bid and asked prices), if available, and otherwise at the mean
of the most recent bid and asked quotations or evaluated prices, as applicable,
based on quotations or evaluated prices obtained from one or more
broker-dealers. Privately placed debt securities, other than Rule 144A debt
securities, initially are valued at cost and thereafter based on all relevant
factors including type of security, size of holding and restrictions on
disposition. Municipal debt securities are valued at prices supplied by an
approved pricing agent (which are intended to reflect the mean between the bid
and asked prices), if available, and otherwise at the mean of the most recent
bid and asked quotations or evaluated prices obtained from a broker-dealer.
Other debt securities are valued at prices supplied by an approved pricing
agent, if available, and otherwise at the most recent bid quotation or evaluated
price, as applicable, obtained from one or more broker-dealers. If it is not
possible to value a particular debt security pursuant to the above methods, the
security is valued on the basis of factors including (but not limited to)
maturity, coupon, creditworthiness, currency denomination, and the movement of
the market in which the security is normally traded.
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<PAGE>
An exchange-traded option contract on securities, currencies and other financial
instruments is valued at its most recent sale price on such exchange. Lacking
any sales, the option contract is valued at the Calculated Mean. If it is not
possible to determine the Calculated Mean, the option contract is valued at the
most recent bid quotation in the case of a purchased option contract or the most
recent asked quotation in the case of a written option contract, in each case as
of the Value Time. An option contract on securities, currencies and other
financial instruments traded in the OTC market is valued at the evaluated price
provided by the broker-dealer with which it was traded. Futures contracts (and
options thereon) are valued at the most recent settlement price, if available,
on the exchange on which they are traded most extensively. With the exception of
stock index futures contracts which trade on the Chicago Mercantile Exchange,
closing settlement times are prior to the close of trading on the New York Stock
Exchange. For stock index futures contracts which trade on the Chicago
Mercantile Exchange, closing settlement prices are normally available at
approximately 4:20 Eastern time. If no settlement price is available, the last
trade price on such exchange will be used.
If market quotations for a portfolio asset are not readily available or the
value of a portfolio asset as determined in accordance with Board approved
procedures does not represent the fair market value of the portfolio asset, the
value of the portfolio asset is taken to be an amount which, in the opinion of
the Fund's Pricing Committee (or, in some cases, the Board's Valuation
Committee), represents fair market value. The value of other portfolio holdings
owned by the Fund is determined in a manner which is intended to fairly reflect
the fair market value of the asset on the valuation date, based on valuation
procedures adopted by the Fund's Board and overseen primarily by the Fund's
Pricing Committee.
TRUSTEES AND OFFICERS
The following table presents certain information regarding the Board Members 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 Board Member that is not an "interested persons" (as defined in the 1940
Act) of the Fund or the Advisor (each, an "Independent Board Member"), is c/o
Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904. 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 Portfolios do 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 DWS fund complex.
Independent Board Members
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Name, Year of Birth,
Position with the Fund Number of Funds
and Length of Time Business Experience and in DWS Fund
Served Directorships During the Past 5 Years Complex Overseen
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dawn-Marie Driscoll (1946) President, Driscoll Associates (consulting firm); Executive Fellow, 83
Chairperson since 2004 Center for Business Ethics, Bentley College; formerly, Partner, Palmer &
Board Member since Dodge (1988-1990); Vice President of Corporate Affairs and General
1987 Counsel, Filene's (1978-1988). Directorships: Advisory Board, Center for
Business Ethics, Bentley College; Trustee, Southwest Florida Community
Foundation (charitable organization); Former Directorships: Investment
Company Institute (audit, executive, nominating committees) and
Independent Directors Council (governance, executive committees)
------------------------------------------------------------------------------------------------------------------------
Henry P. Becton, Jr. President, WGBH Educational Foundation. Directorships: Association of 81
(1943) Public Television Stations; Becton Dickinson and Company(1) (medical
Board Member since technology company); Belo Corporation(1) (media company); Boston Museum
1990 of Science; Public Radio International. Former Directorships: American
Public Television; Concord Academy; New England Aquarium; Mass.
Corporation for Educational Telecommunications; Committee for Economic
Development; Public Broadcasting Service
------------------------------------------------------------------------------------------------------------------------
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<PAGE>
------------------------------------------------------------------------------------------------------------------------
Name, Year of Birth,
Position with the Fund Number of Funds
and Length of Time Business Experience and in DWS Fund
Served Directorships During the Past 5 Years Complex Overseen
------------------------------------------------------------------------------------------------------------------------
Keith R. Fox (1954) Managing General Partner, Exeter Capital Partners (a series of private 83
Board Member since equity funds). Directorships: Progressive Holding Corporation (kitchen
1996 goods importer and distributor); Natural History, Inc. (magazine
publisher); Box Top Media Inc. (advertising). Former Directorships: The
Kennel Shop (retailer)
------------------------------------------------------------------------------------------------------------------------
Kenneth C. Froewiss Clinical Professor of Finance, NYU Stern School of Business 83
(1945) (1997-present); Member, Finance Committee, Association for Asian Studies
Board Member since (2002-present); Director, Mitsui Sumitomo Insurance Group (US)
2005 (2004-present); prior thereto, Managing Director, J.P. Morgan
(investment banking firm) (until 1996)
------------------------------------------------------------------------------------------------------------------------
Martin J. Gruber Nomura Professor of Finance, Leonard N. Stern School of Business, New 83
(1937) York University (since September 1965); Director, Japan Equity Fund,
Board Member since Inc. (since January 1992), Thai Capital Fund, Inc. (since January 2000),
2006 Singapore Fund, Inc. (since January 2000), National Bureau of Economic
Research (since January 2006). Formerly, Trustee, TIAA (pension funds)
(January 1996-January 2000); Trustee, CREF and CREF Mutual Funds
(January 2000-March 2005); Chairman, CREF and CREF Mutual Funds
(February 2004-March 2005); and Director, S.G. Cowen Mutual Funds
(January 1985-January 2001)
------------------------------------------------------------------------------------------------------------------------
Richard J. Herring Jacob Safra Professor of International Banking and Professor, Finance 83
(1946) Department, The Wharton School, University of Pennsylvania (since July
Board Member since 1972); Co-Director, Wharton Financial Institutions Center (since July
2006 2000). Formerly, Vice Dean and Director, Wharton Undergraduate Division
(July 1995-June 2000); Director, Lauder Institute of International
Management Studies (July 2000-June 2006)
------------------------------------------------------------------------------------------------------------------------
Graham E. Jones Senior Vice President, BGK Realty, Inc. (commercial real estate) (since 83
(1933) 1995). Formerly, Trustee of various investment companies managed by Sun
Board Member since Capital Advisors, Inc. (1998-2005), Morgan Stanley Asset Management
2006 (1985-2001) and Weiss, Peck and Greer (1985-2005)
------------------------------------------------------------------------------------------------------------------------
Rebecca W. Rimel President and Chief Executive Officer, The Pew Charitable Trusts 83
(1951) (charitable foundation) (1994 to present); Trustee, Thomas Jefferson
Board Member since Foundation (charitable organization) (1994 to present); Trustee,
2006 Executive Committee, Philadelphia Chamber of Commerce (2001 to present);
Director, Viasys Health Care(1) (since January 2007). Formerly,
Executive Vice President, The Glenmede Trust Company (investment trust
and wealth management) (1983 to 2004); Board Member, Investor Education
(charitable organization) (2004-2005)
------------------------------------------------------------------------------------------------------------------------
Philip Saunders, Jr. Principal, Philip Saunders Associates (economic and financial 83
(1935) consulting) (since November 1988). Formerly, Director, Financial
Board Member since Industry Consulting, Wolf & Company (consulting) (1987-1988); President,
2006 John Hancock Home Mortgage Corporation (1984-1986); Senior Vice
President of Treasury and Financial Services, John Hancock Mutual Life
Insurance Company, Inc. (1982-1986)
------------------------------------------------------------------------------------------------------------------------
William N. Searcy, Jr. Private investor since October 2003; Trustee of 8 open-end mutual funds 83
(1946) managed by Sun Capital Advisers, Inc. (since October 1998). Formerly,
Board Member since Pension & Savings Trust Officer, Sprint Corporation(1)
2006 (telecommunications) (November 1989-September 2003)
------------------------------------------------------------------------------------------------------------------------
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<PAGE>
------------------------------------------------------------------------------------------------------------------------
Name, Year of Birth,
Position with the Fund Number of Funds
and Length of Time Business Experience and in DWS Fund
Served Directorships During the Past 5 Years Complex Overseen
------------------------------------------------------------------------------------------------------------------------
Jean Gleason Stromberg Retired. Formerly, Consultant (1997-2001); Director, US Government 83
(1943) Accountability Office (1996-1997); Partner, Fulbright & Jaworski, L.L.P.
Board Member since (law firm) (1978-1996). Directorships: The William and Flora Hewlett
1999 Foundation; Service Source, Inc. Former Directorships: Mutual Fund
Directors Forum (2002-2004), American Bar Retirement Association
(funding vehicle for retirement plans) (1987-1990 and 1994-1996)
------------------------------------------------------------------------------------------------------------------------
Carl W. Vogt Retired Senior Partner, Fulbright & Jaworski, L.L.P. (law firm); 81
(1936) formerly, President (interim) of Williams College (1999-2000); formerly,
Board Member since President of certain funds in the Deutsche Asset Management family of
2002 funds (formerly, Flag Investors family of funds) (registered investment
companies) (1999-2000). Directorships: Yellow Corporation (trucking);
American Science & Engineering (x-ray detection equipment). Former
Directorships: ISI Family of Funds (registered investment companies, 4
funds overseen); National Railroad Passenger Corporation (Amtrak) Waste
Management, Inc. (solid waste disposal); formerly, Chairman and Member,
National Transportation Safety Board
------------------------------------------------------------------------------------------------------------------------
Interested Board Member
------------------------------------------------------------------------------------------------------------------------
Name, Year of Birth,
Position with the Fund Number of Funds
and Length of Time Business Experience and in DWS Fund
Served Directorships During the Past 5 Years Complex Overseen
------------------------------------------------------------------------------------------------------------------------
Axel Schwarzer(2) Managing Director(4), Deutsche Asset Management; Head of Deutsche Asset 82
(1958) Management Americas; CEO of DWS Scudder; formerly board member of DWS
Board Member since Investments, Germany (1999-2005); formerly, Head of Sales and Product
2006 Management for the Retail and Private Banking Division of Deutsche Bank
in Germany (1997-1999); formerly, various strategic and operational
positions for Deutsche Bank Germany Retail and Private Banking Division
in the field of investment funds, tax driven instruments and asset
management for corporates (1989-1996)
------------------------------------------------------------------------------------------------------------------------
Officers(3)
Name, Year of Birth, Business Experience and
Position with the Fund
and Length of Time Served Directorships During the Past 5 Years
------------------------------------------------------------------------------------------------------------------------
Michael G. Clark(5) Managing Director(4), Deutsche Asset Management (2006-present); President of DWS family
(1965) of funds; formerly, Director of Fund Board Relations (2004-2006) and Director of Product
President, 2006-present Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice President
Operations, Merrill Lynch Asset Management (1999-2000)
------------------------------------------------------------------------------------------------------------------------
John Millette(6) (1962) Director(4), Deutsche Asset Management
Vice President and
Secretary, 1999-present
------------------------------------------------------------------------------------------------------------------------
92
<PAGE>
Name, Year of Birth, Business Experience and
Position with the Fund
and Length of Time Served Directorships During the Past 5 Years
------------------------------------------------------------------------------------------------------------------------
Paul H. Schubert(5) Managing Director(4), Deutsche Asset Management (since July 2004); formerly, Executive
(1963) Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004);
Chief Financial Officer, Vice President and Director of Mutual Fund Finance at UBS Global Asset Management
2004-present (1994-1998)
Treasurer, 2005-present
------------------------------------------------------------------------------------------------------------------------
Patricia DeFilippis(5) Vice President, Deutsche Asset Management (since June 2005); Counsel, New York Life
(1963) Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003)
Assistant Secretary,
2005-present
------------------------------------------------------------------------------------------------------------------------
Elisa D. Metzger(5) Director(4), Deutsche Asset Management (since September 2005); Counsel, Morrison and
(1962) Foerster LLP (1999-2005)
Assistant Secretary,
2005-present
------------------------------------------------------------------------------------------------------------------------
Caroline Pearson(6) Managing Director(4), Deutsche Asset Management
(1962)
Assistant Secretary,
1997-present
------------------------------------------------------------------------------------------------------------------------
Paul Antosca(6) Director(4), Deutsche Asset Management (since 2006); Vice President, The Manufacturers
(1957) Life Insurance Company (U.S.A.) (1990-2006)
Assistant Treasurer,
2007-present
------------------------------------------------------------------------------------------------------------------------
Kathleen Sullivan Director(4), Deutsche Asset Management
D'Eramo(6)
(1957)
Assistant Treasurer,
2003-present
------------------------------------------------------------------------------------------------------------------------
Jason Vazquez(5) (1972) Vice President, Deutsche Asset Management (since 2006); formerly, AML Operations Manager
Anti-Money Laundering for Bear Stearns (2004-2006), Supervising Compliance Principal and Operations Manager for
Compliance Officer, AXA Financial (1999-2004)
2007-present
------------------------------------------------------------------------------------------------------------------------
Robert Kloby(5) (1962) Managing Director(4), Deutsche Asset Management (2004-present); formerly, Chief
Chief Compliance Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President, The
Officer, 2006-present Prudential Insurance Company of America (1988-2000); E.F. Hutton and Company (1984-1988)
------------------------------------------------------------------------------------------------------------------------
J. Christopher Jackson(5) Director(4), Deutsche Asset Management (2006 - present); formerly, Director, Senior Vice
(1951) President, General Counsel, and Assistant Secretary, Hansberger Global Investors, Inc.
Chief Legal Officer, (1996-2006); Director, National Society of Compliance Professionals (2002-2005)(2006-2009)
2006 - present
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A publicly held company with securities registered pursuant to Section
12 of the Securities Exchange Act of 1934.
(2) The mailing address of Axel Schwarzer is c/o Deutsche Investment
Management Americas Inc., 345 Park Avenue, New York, New York 10154.
Mr. Schwarzer is an interested Board Member by virtue of his positions
with Deutsche Asset Management.
(3) As a result of their respective positions held with the Advisor, these
individuals are considered "interested persons" of the Advisor within
the meaning of the 1940 Act. Interested persons receive no compensation
from the Portfolios.
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(4) Executive title, not a board directorship.
(5) Address: 345 Park Avenue, New York, New York 10154.
(6) Address: Two International Place, Boston, Massachusetts 02110.
Each Officer also holds similar positions for other investment companies for
which DIMA or an affiliate serves as the advisor.
Officer's Role with Principal Underwriter: DWS Scudder Distributors, Inc.
Paul H. Schubert: Vice President
Caroline Pearson: Secretary
Information Concerning Committees and Meetings of Board Members
The Board of the Fund met ten (10) times during the calendar year ended December
31, 2006 and each Board Member attended at least 80% of the meetings of the
Board and meetings of the committees of the Board on which such Board Member
served.
Board Committees. Ms. Driscoll has served as Chairperson of the Board of the
Portfolios since June 2004.
The Board has established the following standing committees: Audit Committee,
Nominating/Corporate Governance Committee, Valuation Committee, Equity Oversight
Committee, Fixed Income Oversight Committee, Marketing/Distribution/Shareholder
Service Committee, Legal/Regulatory/Compliance Committee and Expense/Operations
Committee.
The Audit Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and financial
reporting practices of the applicable Fund. It also makes recommendations
regarding the selection of an independent registered public accounting firm for
a Fund, reviews the independence of such firm, reviews the scope of audit and
internal controls, considers and reports to the Board on matters relating to a
Fund's accounting and financial reporting practices, and performs such other
tasks as the full Board deems necessary or appropriate. The Audit Committee
receives annual representations from the independent registered public
accounting firm as to its independence. The members of the Audit Committee are
Keith R. Fox (Chair and Audit Committee Financial Expert), Kenneth C. Froewiss,
Richard J. Herring, Graham E. Jones, Philip Saunders, Jr., William N. Searcy,
Jr. and Jean Gleason Stromberg. The Audit Committee held eight (8) meetings
during the calendar year 2006.
The Nominating/Corporate Governance Committee (i) recommends to the Board
candidates to serve as Board Members and (ii) oversees and, as appropriate,
makes recommendations to the Board regarding other fund governance-related
matters, including but not limited to Board compensation practices, retirement
policies, self-evaluations of effectiveness, review of possible conflicts of
interest and independence issues involving Board Members, allocations of
assignments and functions of committees of the Board, and share ownership
policies. The members of the Nominating/Corporate Governance Committee are Henry
P. Becton, Jr. (Chair), Graham E. Jones, Rebecca W. Rimel and Jean Gleason
Stromberg. The Nominating/Corporate Governance Committee (previously known as
the Committee on Independent Directors) held three (3) meetings during the
calendar year 2006.
The Valuation Committee oversees Fund valuation matters, reviews valuation
procedures adopted by the Board, determines the fair value of the Fund's
securities as needed in accordance with the valuation procedures when actual
market values are unavailable and performs such other tasks as the full Board
deems necessary or appropriate. The members of the Valuation Committee are Keith
R. Fox, Kenneth C. Froewiss, Martin J. Gruber, Richard J. Herring and Philip
Saunders, Jr. (Chair). The Valuation Committee held six (6) meetings during the
calendar year 2006.
The Board has established two Investment Oversight Committees, one focusing on
Funds primarily investing in equity securities (the "Equity Oversight
Committee") and one focusing on Funds primarily investing in fixed income
securities (the "Fixed Income Oversight Committee"). These Committees meet
regularly with Fund portfolio managers and other
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investment personnel to review the relevant Funds' investment strategies and
investment performance. The members of the Equity Oversight Committee are Henry
P. Becton, Jr., Martin J. Gruber (Chair), Richard J. Herring, Rebecca W. Rimel,
Philip Saunders, Jr. and Carl W. Vogt. The members of the Fixed Income Oversight
Committee are Dawn-Marie Driscoll, Keith R. Fox, Kenneth C. Froewiss, Graham E.
Jones, William N. Searcy, Jr. (Chair) and Jean Gleason Stromberg. Each
Investment Oversight Committee held six (6) meetings during the calendar year
2006.
The Marketing/Distribution/Shareholder Service Committee oversees (i) the
quality, costs and types of shareholder services provided to the Portfolios and
their shareholders, and (ii) the distribution-related services provided to the
Portfolios and their shareholders. The members of the
Marketing/Distribution/Shareholder Service Committee are Martin J. Gruber,
Richard J. Herring (Chair), Rebecca W. Rimel, Jean Gleason Stromberg and Carl W.
Vogt. The Marketing/Distribution/Shareholder Service Committee held six (6)
meetings during the calendar year 2006.
The Legal/Regulatory/Compliance Committee oversees (i) the significant legal
affairs of the Portfolios, including the handling of pending or threatened
litigation or regulatory action involving the Portfolios, (ii) general
compliance matters relating to the Portfolios and (iii) proxy voting. The
members of the Legal/Regulatory/Compliance Committee are Henry P. Becton, Jr.,
Dawn-Marie Driscoll, Rebecca W. Rimel, William N. Searcy, Jr., Jean Gleason
Stromberg and Carl W. Vogt (Chair). The Legal/Regulatory/Compliance Committee
held six (6) meetings during the calendar year 2006.
The Expense/Operations Committee (i) monitors the Fund's total operating expense
levels, (ii) oversees the provision of administrative services to the Fund,
including the Fund's custody, fund accounting and insurance arrangements, and
(iii) reviews the Fund's investment advisers' brokerage practices, including the
implementation of related policies. The members of the Expense/Operations
Committee are Henry P. Becton, Jr., Dawn-Marie Driscoll, Keith R. Fox, Kenneth
C. Froewiss, Graham E. Jones (Chair), Philip Saunders, Jr. and William N.
Searcy, Jr. This committee held seven (7) meetings during the calendar year
2006.
Ad Hoc Committees. In addition to the standing committees described above, from
time to time the Board also forms ad hoc committees to consider specific issues.
In 2006, various ad hoc committees of the Board held an additional seven (7)
meetings.
Remuneration. Each Independent Board Member receives compensation from the Fund
for his or her services, which includes an annual retainer and an attendance fee
for each meeting attended. No additional compensation is paid to any Independent
Board Member for travel time to meetings, attendance at directors' educational
seminars or conferences, service on industry or association committees,
participation as speakers at directors' conferences or service on special fund
industry director task forces or subcommittees. Independent Board Members do not
receive any employee benefits such as pension or retirement benefits or health
insurance from the Fund or any fund in the DWS fund complex.
Members of the Board who are officers, directors, employees or stockholders of
Deutsche Asset Management or its affiliates receive no direct compensation from
a Fund, although they are compensated as employees of Deutsche Asset Management,
or its affiliates, and as a result may be deemed to participate in fees paid by
the Portfolios. The following tables show compensation from the Fund and
aggregate compensation from all of the funds in the DWS fund complex received by
each Board Member during the calendar year 2006. Mr. Schwarzer became a member
of the Board on May 5, 2006, is an interested person of the Portfolios and
received no compensation from the Portfolios or any fund in the DWS fund complex
during the relevant periods.
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<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate Aggregate
Compensation Compensation Compensation Compensation
from DWS Bond from DWS Growth from DWS Capital from DWS Global
Name of Board Member VIP & Income VIP Growth VIP Opportunities VIP
-------------------- --- ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C>
Henry P. Becton, Jr.(3)(5) $709 $1,135 $3,664 $1,092
Dawn-Marie Driscoll(2)(3)(4)(5) $938 $1,504 $4,853 $1,444
Keith R. Fox(3)(4)(5) $724 $1,160 $3,744 $1,115
Kenneth C. Froewiss(3)(4)(5) $748 $1,197 $3,860 $1,151
Martin J. Gruber(3)(5) $281 $436 $1,402 $439
Richard J. Herring(3)(4)(5) $270 $419 $1,349 $421
Graham E. Jones(3)(4)(5) $312 $483 $1,554 $487
Rebecca W. Rimel(3)(5) $274 $425 $1,367 $428
Philip Saunders, Jr.(3)(4)(5) $312 $483 $1,554 $487
William N. Searcy, Jr.(3)(4)(5) $312 $483 $1,554 $487
Jean Gleason Stromberg(3)(4)(5) $745 $1,194 $3,852 $1,149
Carl W. Vogt(3)(5) $709 $1,135 $3,664 $1,092
Aggregate Aggregate
Compensation Compensation Total Compensation
from DWS from DWS from Portfolios and
Name of Board Member International VIP Health Care VIP DWS Fund Complex(1)
-------------------- ----------------- --------------- -------------------
Henry P. Becton, Jr.(3)(5) $2,058 $437 $189,000
Dawn-Marie Driscoll(2)(3)(4)(5) $2,722 $579 $251,000
Keith R. Fox(3)(4)(5) $2,102 $447 $195,000
Kenneth C. Froewiss(3)(4)(5) $2,171 $460 $234,988
Martin J. Gruber(3)(5) $832 $167 $188,000
Richard J. Herring(3)(4)(5) $796 $160 $184,000
Graham E. Jones(3)(4)(5) $922 $185 $206,000
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<PAGE>
Aggregate Aggregate
Compensation Compensation Total Compensation
from DWS from DWS from Portfolios and
Name of Board Member International VIP Health Care VIP DWS Fund Complex(1)
-------------------- ----------------- --------------- -------------------
Rebecca W. Rimel(3)(5) $811 $162 $185,000
Philip Saunders, Jr.(3)(4)(5) $922 $185 $207,000
William N. Searcy, Jr.(3)(4)(5) $922 $185 $206,000
Jean Gleason Stromberg(3)(4)(5) $2,165 $459 $202,000
Carl W. Vogt(3)(5) $2,058 $437 $189,000
</TABLE>
(1) The DWS Fund Complex is composed of 155 funds.
(2) Includes $50,000 in annual retainer fees in Ms. Driscoll's role as
Chairperson of the Board.
(3) For each Board Member, except Mr. Becton, Mr. Froewiss and Mr. Vogt,
total compensation includes compensation for service on the boards of
34 trusts/corporations comprised of 87 funds/portfolios. For Messrs.
Becton and Vogt total compensation includes compensation for service on
the boards of 32 trusts/corporations comprised of 85 funds/portfolios.
For Mr. Froewiss total compensation includes compensation for services
on the boards of 37 trusts/corporations comprised of 90
funds/portfolios.
(4) Aggregate compensation includes amounts paid to the Board Members for
special meetings of ad hoc committees of the board in connection with
the possible consolidation of the various DWS Fund boards and funds,
meetings for considering fund expense simplification initiatives, and
consideration of issues specific to the Portfolios' direct shareholders
(i.e., those shareholders who did not purchase shares through financial
intermediaries). Such amounts totaled $16,000 for Ms. Driscoll, $1,000
for Mr. Fox, $17,000 for Mr. Froewiss, $1,000 for Dr. Herring, $16,000
for Mr. Jones, $17,000 for Dr. Saunders, $16,000 for Mr. Searcy and
$16,000 for Ms. Stromberg. These meeting fees were borne by the
applicable DWS Funds.
(5) During calendar year 2006, the total number of funds overseen by each
Board Member was 87 funds, except for Mr. Becton and Mr. Vogt, who
oversaw 85 funds, and Mr. Froewiss, who oversaw 90 funds.
Board Member Ownership in the Portfolios(1)
The following table shows the dollar range of equity securities beneficially
owned by each Board Member in the Portfolios and DWS Fund Complex as of December
31, 2006.
<TABLE>
<CAPTION>
Aggregate Dollar Range of
Dollar Range of Ownership in all Funds Overseen by
Beneficial Ownership Board Member
Board Member in DWS Variable Series I in the DWS Fund Complex(2)
------------ ------------------------ --------------------------
Independent Board Member:
-------------------------
<S> <C> <C>
Henry P. Becton, Jr. None Over $100,000
Dawn-Marie Driscoll None Over $100,000
Keith R. Fox None Over $100,000
Kenneth C. Froewiss None Over $100,000
Martin J. Gruber None Over $100,000
Richard J. Herring None Over $100,000
Graham E. Jones None Over $100,000
Rebecca W. Rimel None Over $100,000
Philip Saunders, Jr. None Over $100,000
William N. Searcy, Jr. None Over $100,000
Jean Gleason Stromberg None Over $100,000
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Aggregate Dollar Range of
Dollar Range of Ownership in all Funds Overseen by
Beneficial Ownership Board Member
Board Member in DWS Variable Series I in the DWS Fund Complex(2)
------------ ------------------------ --------------------------
Carl W. Vogt None Over $100,000
Interested Board Member:
------------------------
Axel Schwarzer None Over $100,000
</TABLE>
(1) The amount shown includes share equivalents of funds which the Board
Member is deemed to be invested pursuant to the Portfolio's deferred
compensation plan. The inclusion therein of any shares deemed
beneficially owned does not constitute an admission of beneficial
ownership of the shares.
(2) Securities beneficially owned as defined under the 1934 Act include
direct and/or indirect ownership of securities where the Board Member's
economic interest is tied to the securities, employment ownership and
securities when the Board Member can exert voting power and when the
Board Member has authority to sell the securities. The dollar ranges
are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, over
$100,000.
Ownership in Securities of the Advisor and Related Companies
As reported to the Fund, the information in the following table reflects
ownership by the Independent Board Members and their immediate family members of
certain securities as of December 31, 2006. An immediate family member can be a
spouse, children residing in the same household including step and adoptive
children and any dependents. The securities represent ownership in the Advisor
or principal underwriter of the Fund and any persons (other than a registered
investment company) directly or indirectly controlling, controlled by, or under
common control with the Advisor or principal underwriter of the Fund (including
Deutsche Bank AG).
<TABLE>
<CAPTION>
Owner and Value of Securities on an Percent of Class on an
Independent Relationship to Title of Aggregate Aggregate
Board Member Board Member Company Class Basis Basis
------------ ------------ ------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Henry P. Becton, Jr. None
Dawn-Marie Driscoll None
Keith R. Fox None
Kenneth C. Froewiss None
Martin J. Gruber None
Richard J. Herring None
Graham E. Jones None
Rebecca W. Rimel None
Philip Saunders, Jr. None
William N. Searcy, Jr. None
Jean Gleason Stromberg None
Carl W. Vogt None
</TABLE>
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Securities Beneficially Owned
As of April 5, 2007, the Board Members and officers of the Fund owned, as a
group, less than 1% of the outstanding shares of the Portfolio.
To the best of each Portfolio's knowledge, as of April 5, 2007, no person owned
of record or beneficially 5% or more of any class of the Portfolio's outstanding
shares, except as noted below.
DWS Bond VIP
------------
<TABLE>
<CAPTION>
Name and Address of Investor
Ownership Shares % of Total Shares
--------- ------ -----------------
<S> <C> <C>
MUTUAL OF AMERICA 13,649,433.96 44.30% of Class A
NEW YORK NY 10022-6815
MUTUAL OF AMERICA SEP ACCT 2 6,293,584.09 20.43% of Class A
SAINT LOUIS MO 63122
KEMPER INVESTORS LIFE 2,270,758.44 7.37% of Class A
ELGIN IL 60124-7836
LINCOLN BENEFIT LIFE ANNUTIY-270 2,042,811.99 6.63% of Class A
ATTN ACCTNG FINANCIAL CONTROL TEAM
VERNON HILLS IL 60061-1826
CHARTER NAT LIFE INS CO-HORIZON 1,639,070.89 5.32% of Class A
ATTN ACCTNG FINANCIAL CONTROL TEAM
VERNON HILLS IL 60061-1826
THE MANUFACTURES LIFE INS CO (USA) 147,743.00 52.34% of Class B
BOSTON MA 02116-3787
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Name and Address of Investor
Ownership Shares % of Total Shares
--------- ------ -----------------
METLIFE INSURANCE CO OF CT 117,756.87 41.71% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06199-0027
METLIFE LIFE & ANNUITY CO OF CT 16,800.69 5.95% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06103-3432
DWS Growth & Income VIP
-----------------------
Name and Address of Investor Ownership Shares % of Total Shares
-------------------------------------- ------ -----------------
ZURICH DESTINATIONS FARMERS SVSII 6,577,377.21 27.08% of Class A
C/O KILICO
ATTN INVESTMENT ACCOUNTING LL-2W
GREENVILLE SC 29602-9097
ALLMERICA LIFE SVSII 6,420,102.78 26.44% of Class A
TOPEKA KS 66636-0001
CHARTER NAT LIFE INS CO-HORIZON 2,707,513.63 11.15% of Class A
ATTN ACCTNG FINANCIAL CONTROL TEAM
VERNON HILLS IL 60061-1826
STATE STREET BANK & TR CUST FBO 2,376,294.88 9.79% of Class A
SVSII SCUD GROWTH STRAT PORT
ATTN MARYLOU MCPHEE
NORTH QUINCY MA 02171-2119
STATE STREET BANK & TR CUST FBO 1,701,788.85 7.01% of Class A
SVSII SCUD GRWTH & INC STRAT PORT
ATTN MARYLOU MCPHEE
NORTH QUINCY MA 02171-2119
THE MANUFACTURES LIFE INS CO (USA) 2,856,060.17 62.44% of Class B
BOSTON MA 02116-3787
METLIFE INSURANCE CO OF CT 750,575.17 16.41%of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06199-0027
METLIFE LIFE & ANNUITY CO OF CT 587,977.69 12.85%of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06103-3432
UNITED OF OMAHA 341,289.89 7.46% of Class B
ATTN PRODUCT ACCOUTING & REPORTING
11TH FLOOR
MUTUAL OF OMAHA PLAZA
OMAHA NE 68175-0001
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DWS Capital Growth VIP
----------------------
Name and Address of Investor Ownership Shares % of Total Shares
-------------------------------------- ------ -----------------
ZURICH DESTINATIONS FARMERS SVSII 16,762,087.46 28.36% of Class A
C/O KILICO
ATTN INVESTMENT ACCOUNTING LL-2W
GREENVILLE SC 29602-9097
ALLMERICA LIFE SVSII 6,965,572.32 11.79% of Class A
TOPEKA KS 66636-0001
CHARTER NAT LIFE INS CO-HORIZON 3,796,093.63 6.42% of Class A
ATTN ACCTNG FINANCIAL CONTROL TEAM
VERNON HILLS IL 60061-1826
MUTUAL OF AMERICA SEP ACCT 2 15,045,015.22 25.46% of Class A
SAINT LOUIS MO 63122
KEMPER INVESTORS LIFE 5,697,962.27 9.64% of Class A
ELGIN IL 60124-7836
MUTUAL OF AMERICA 5,615,328.35 9.50% of Class A
NEW YORK NY 10022-6815
THE MANUFACTURES LIFE INS CO (USA) 4,524,900.89 81.44% of Class B
BOSTON MA 02116-3787
METLIFE INSURANCE CO OF CT 448,280.74 8.07% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06199-0027
METLIFE LIFE & ANNUITY CO OF CT 529,775.25 9.53% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06103-3432
DWS Global Opportunities VIP
----------------------------
Name and Address of Investor Ownership Shares % of Total Shares
-------------------------------------- ------ -----------------
THE MANUFACTURES LIFE INS CO (USA) 1,317,885.21 65.59% of Class B
BOSTON MA 02116-3787
UNITED OF OMAHA 284,311.05 14.15% of Class B
ATTN PRODUCT ACCOUTING & REPORTING
OMAHA NE 68175-0001
METLIFE INSURANCE CO OF CT 188,349.14 9.37% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06199-0027
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METLIFE LIFE & ANNUITY CO OF CT 202,300.25 10.07% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06103-3432
DWS International VIP
---------------------
Name and Address of Investor Ownership Shares % of Total Shares
-------------------------------------- ------ -----------------
ZURICH DESTINATIONS FARMERS SVSII 10,399,120.15 20.48% of Class A
C/O KILICO
ATTN INVESTMENT ACCOUNTING LL-2W
GREENVILLE SC 29602-9097
ALLMERICA LIFE SVSII 3,063,160.15 6.03% of Class A
TOPEKA KS 66636-0001
CHARTER NAT LIFE INS CO-HORIZON 3,398,582.28 6.69% of Class A
ATTN ACCTNG FINANCIAL CONTROL TEAM
VERNON HILLS IL 60061-1826
MUTUAL OF AMERICA SEP ACCT 2 12,564,029.08 24.74% of Class A
SAINT LOUIS MO 63122
UNION CENTRAL ESP INTERNATIONAL 3,836,472.99 7.55% of Class A
CINCINNATI OH 45201-0179
METLIFE INV USA SEP ACCT A 2,593,762.85 5.11% of Class A
BOSTON MA 02116-3706
MUTUAL OF AMERICA 3,097,713.21 6.10% of Class A
NEW YORK NY 10022-6815
THE MANUFACTURES LIFE INS CO (USA) 2,805,883.17 76.98% of Class B
BOSTON MA 02116-3787
METLIFE INSURANCE CO OF CT 399,072.07 10.95% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06199-0027
METLIFE LIFE & ANNUITY CO OF CT 379,702.54 10.42% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06103-3432
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DWS Health Care VIP
-------------------
Name and Address of Investor Ownership Shares % of Total Shares
-------------------------------------- ------ -----------------
ZURICH DESTINATIONS FARMERS SVSII ,415,633.85 77.09% of Class A
C/O KILICO
ATTN INVESTMENT ACCOUNTING LL-2W
GREENVILLE SC 29602-9097
ALLMERICA LIFE SVSII ,362,739.57 19.40% of Class A
TOPEKA KS 66636-0001
THE MANUFACTURES LIFE INS CO (USA) ,057,382.75 73.32% of Class B
BOSTON MA 02116-3787
METLIFE INSURANCE CO OF CT 228,195.71 15.82% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06199-0027
METLIFE LIFE & ANNUITY CO OF CT 153,304.45 10.63% of Class B
ATTN SHAREHOLDER ACCOUNTING DEPT
HARTFORD CT 06103-3432
</TABLE>
Agreement to Indemnify Independent Trustees for Certain Expenses
In connection with litigation or regulatory action related to possible improper
market timing or other improper trading activity or possible improper marketing
and sales activity in the Portfolios, each Portfolio's investment advisor has
agreed, subject to applicable law and regulation, to indemnify and hold harmless
the applicable Funds against any and all loss, damage, liability and expense,
arising from market timing or marketing and sales matters alleged in any
enforcement actions brought by governmental authorities involving or potentially
affecting the Portfolios or the investment advisor ("Enforcement Actions") or
that are the basis for private actions brought by shareholders of the Portfolios
against the Portfolios, their directors and officers, the Portfolios' investment
advisor and/or certain other parties ("Private Litigation"), or any proceedings
or actions that may be threatened or commenced in the future by any person
(including governmental authorities), arising from or similar to the matters
alleged in the Enforcement Actions or Private Litigation. In recognition of its
undertaking to indemnify the applicable Portfolios and in light of the
rebuttable presumption generally afforded to independent directors/trustees of
investment companies that they have not engaged in disabling conduct, each
Portfolio's investment advisor has also agreed, subject to applicable law and
regulation, to indemnify the applicable Portfolios' Independent Trustees against
certain liabilities the Independent Trustees may incur from the matters alleged
in any Enforcement Actions or Private Litigation or arising from or similar to
the matters alleged in the Enforcement Actions or Private Litigation, and
advance expenses that may be incurred by the Independent Trustees in connection
with any Enforcement Actions or Private Litigation. The applicable investment
advisor is not, however, required to provide indemnification and advancement of
expenses: (1) with respect to any proceeding or action with respect to which the
applicable Portfolio's Board determines that the Independent Trustee ultimately
would not be entitled to indemnification or (2) for any liability of the
Independent Trustee to the Portfolios or their shareholders to which the
Independent Trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the Independent Trustee's
duties as a director or trustee of the Portfolios as determined in a final
adjudication in such action or proceeding. The estimated amount of any expenses
that may be advanced to the Independent Trustees or indemnity that may be
payable under the indemnity agreements is currently unknown. These agreements by
each Portfolio's investment advisor will survive the termination of the
investment management agreements between the applicable investment advisor and
the Portfolios.
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SHAREHOLDER COMMUNICATIONS
Owners of policies and contracts issued by Participating Insurance Companies for
which shares of one or more Portfolios are the investment vehicle will receive
from the Participating Insurance Companies unaudited semi-annual financial
statements and audited year-end financial statements certified by the
Portfolios' independent public accountants. Each report will show the
investments owned by a Portfolio and the market values thereof as determined by
the Trustees and will provide other information about a Portfolio and its
operations.
Participating Insurance Companies with inquiries regarding the Fund or its
Portfolios may call the Fund's underwriter, DWS Scudder Distributors, Inc., at
(800) 778-1482 or write DWS Scudder Distributors, Inc., 222 South Riverside
Plaza, Chicago, IL 60606-5808.
FUND ORGANIZATION
General
DWS Variable Series I is a Massachusetts business trust organized under the laws
of Massachusetts and is governed by an Amended and Restated Declaration of Trust
that was approved by shareholders in the second quarter of 2006, as may be
further amended from time to time (the "Declaration of Trust"). All shares
issued and outstanding are fully paid and non-assessable, transferable, have no
pre-emptive or conversion rights (except as may be determined by the Board of
Trustees) and are redeemable as described in the SAI and a Portfolio's
prospectus. Each share has equal rights with each other share of the same class
of the Portfolio as to voting, dividends, exchanges, conversion features and
liquidation. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held.
A Portfolio generally is not required to hold meetings of its shareholders.
Under the Declaration of Trust, however, shareholder meetings will be held in
connection with the following matters to the extent and as provided in the
Declaration of Trust and as required by applicable law: (a) the election or
removal of trustees if a meeting is called for such purpose; (b) the termination
of the Fund or a Portfolio; (c) an amendment of the Declaration of Trust; and
(d) such additional matters as may be required by law or as the Trustees may
determine to be necessary or desirable. Shareholders also vote upon changes in
fundamental policies or restrictions.
The Declaration of Trust provides that shareholder meeting quorum requirements
shall be established in the Fund's By-laws. The By-laws currently in effect
provide that the presence in person or by proxy of the holders of thirty percent
of the shares entitled to vote at a meeting (or of an individual series or class
if required to vote separately) shall constitute a quorum for the transaction of
business at meetings of shareholders of the Fund.
On any matter submitted to a vote of shareholders, all shares of the Fund
entitled to vote shall, except as otherwise provided in the Fund's By-Laws, be
voted in the aggregate as a single class without regard to series or classes of
shares, except (a) when required by applicable law or when the Trustees shall
have determined that the matter affects one or more series or classes of shares
materially differently, shares shall be voted by individual series or class; and
(b) when the Trustees have determined that the matter affects only the interests
of one or more series or classes, only shareholders of such series or classes
shall be entitled to vote thereon.
The Declaration of Trust provides that the Board of Trustees may, in its
discretion, establish minimum investment amounts for shareholder accounts,
impose fees on accounts that do not exceed a minimum investment amount and
involuntarily redeem shares in any such account in payment of such fees. The
Board of Trustees, in its sole discretion, also may cause the Fund to redeem all
of the shares of the Fund or one or more series or classes held by any
shareholder for any reason, to the extent permissible by the 1940 Act, including
(a) if the shareholder owns shares having an aggregate net asset value of less
than a specified minimum amount, (b) if a particular shareholder's ownership of
shares would disqualify a series from being a regulated investment company, (c)
upon a shareholder's failure to provide sufficient identification to permit the
Fund to verify the shareholder's identity, (d) upon a shareholder's failure to
pay for shares or meet or maintain the qualifications for ownership of a
particular class or series of shares, (e) if the Board of Trustees determines
(or pursuant to policies established by the Board it is determined) that share
ownership by a particular shareholder is not in the best interests of remaining
shareholders, (f) when a Portfolio is requested or compelled to do so by
governmental authority or applicable law and (g) upon a shareholder's failure to
comply with a
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request for information with respect to the direct or indirect ownership of
shares of the Fund. The Declaration of Trust also authorizes the Board of
Trustees to terminate a Portfolio or any class without shareholder approval, and
the Fund may suspend the right of shareholders to require the Fund to redeem
shares to the extent permissible under the 1940 Act.
Upon the termination of the Fund or any series, after paying or adequately
providing for the payment of all liabilities which may include the establishment
of a liquidating trust or similar vehicle, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining Fund property or property
of the series, in cash or in kind or partly each, to the shareholders of the
Fund or the series involved, ratably according to the number of shares of the
Fund or such series held by the several shareholders of the Fund or such series
on the date of termination, except to the extent otherwise required or permitted
by the preferences and special or relative rights and privileges of any classes
of shares of a series involved, provided that any distribution to the
shareholders of a particular class of shares shall be made to such shareholders
pro rata in proportion to the number of shares of such class held by each of
them. The composition of any such distribution (e.g., cash, securities or other
assets) shall be determined by the Fund in its sole discretion, and may be
different among shareholders (including differences among shareholders in the
same series or class).
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of a
Portfolio. The Declaration of Trust, however, disclaims shareholder liability
for acts or obligations of the Portfolio and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Portfolio or the Portfolio's trustees. Moreover, the Declaration
of Trust provides for indemnification out of Portfolio property for all losses
and expenses of any shareholder held personally liable for the obligations of
the Portfolio and the Portfolio may be covered by insurance which the Trustees
consider adequate to cover foreseeable tort claims. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered by the Advisor remote and not material, since it is limited to
circumstances in which a disclaimer is inoperative and the Portfolio itself is
unable to meet its obligations.
Shareholder and Trustee Liability
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for obligations of a
portfolio thereof. The Declaration of Trust, however, disclaims shareholder
liability for acts or obligations of each Portfolio and requires that notice of
such disclaimer be given in each agreement, obligation, or instrument entered
into or executed by a Portfolio or the Fund's Trustees. Moreover, the
Declaration of Trust provides for indemnification out of Portfolio property for
all losses and expenses of any shareholder held personally liable for the
obligations of a Portfolio and each Portfolio will be covered by insurance which
the Trustees consider adequate to cover foreseeable tort claims. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
considered by the Advisor remote and not material, since it is limited to
circumstances in which a disclaimer is inoperative and such Portfolio itself is
unable to meet its obligations. It is possible that a Portfolio might become
liable for a misstatement regarding another Portfolio. The Trustees of the Fund
have considered this and approved the use of a combined Statement of Additional
Information for the Portfolios.
The Declaration of Trust provides that obligations of the Fund are not binding
upon the Trustees individually but only upon the property of the Fund, that the
Trustees and officers will not be liable for errors of judgment or mistakes of
fact or law, and that the Fund, will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation in which they
may be involved because of their offices with the Fund, except if it is
determined in the manner provided in the Declaration of Trust that they have not
acted in good faith in the reasonable belief that their actions were in the best
interests of the Fund. However, nothing in the Declaration of Trust protects or
indemnifies a Trustee or officer against any liability to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, of reckless disregard of duties involved in the conduct of his or
her office.
Shares entitle their holders to one vote per share; however, separate votes will
be taken by each Portfolio on matters affecting an individual Portfolio.
Additionally, approval of the investment advisory agreement covering a Portfolio
is a matter to be determined separately by each Portfolio. Approval by the
shareholders of one Portfolio is effective as to that Portfolio. Shares have
noncumulative voting rights, which means that holders of more than 50% of the
shares voting for the election of Trustees can elect all Trustees and, in such
event, the holders of the
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remaining shares voting for the election of Trustees will not be able to elect
any person or persons as Trustees. Shares have no preemptive or subscription
rights, and are transferable.
Shareholders have certain rights, as set forth in the Declaration of Trust of
the Fund, including the right to call a meeting of shareholders for the purpose
of voting on the removal of one or more Trustees. Such removal can be effected
upon the action of two-thirds of the outstanding shares of beneficial interest
of the Fund.
PROXY VOTING GUIDELINES
The Fund has delegated proxy voting responsibilities to its investment advisor,
subject to the Board's general oversight. The Fund has delegated proxy voting to
the Advisor with the direction that proxies should be voted consistent with the
Fund's best economic interests. The Advisor has adopted its own Proxy Voting
Policies and Procedures ("Policies"), and Proxy Voting Guidelines ("Guidelines")
for this purpose. The Policies address, among other things, conflicts of
interest that may arise between the interests of the Fund, and the interests of
the Advisor and its affiliates, including the Fund's principal underwriter. The
Guidelines set forth the Advisor's general position on various proposals, such
as:
o Shareholder Rights -- The Advisor generally votes against proposals
that restrict shareholder rights.
o Corporate Governance -- The Advisor generally votes for confidential
and cumulative voting and against supermajority voting requirements for
charter and bylaw amendments. The Advisor generally votes for proposals
to restrict a chief executive officer from serving on more than three
outside boards of directors. The Advisor generally votes against
proposals that require a company to appoint a Chairman who is an
independent director.
o Anti-Takeover Matters -- The Advisor generally votes for proposals that
require shareholder ratification of poison pills or that request boards
to redeem poison pills, and votes against the adoption of poison pills
if they are submitted for shareholder ratification. The Advisor
generally votes for fair price proposals.
o Compensation Matters -- The Advisor generally votes for executive cash
compensation proposals, unless they are unreasonably excessive. The
Advisor generally votes against stock option plans that do not meet the
Advisor's criteria.
o Routine Matters -- The Advisor generally votes for the ratification of
auditors, procedural matters related to the annual meeting and changes
in company name, and against bundled proposals and adjournment.
The general provisions described above do not apply to investment companies. The
Advisor generally votes proxies solicited by investment companies in accordance
with the recommendations of an independent third party, except for proxies
solicited by or with respect to investment companies for which the Advisor or an
affiliate serves as investment advisor or principal underwriter ("affiliated
investment companies"). The Advisor votes affiliated investment company proxies
in the same proportion as the vote of the investment company's other
shareholders (sometimes called "mirror" or "echo" voting). Master fund proxies
solicited from feeder funds are voted in accordance with applicable requirements
of the Investment Company Act of 1940.
Although the Guidelines set forth the Advisor's general voting positions on
various proposals, the Advisor may, consistent with the Fund's best interests,
determine under some circumstances to vote contrary to those positions.
The Guidelines on a particular issue may or may not reflect the view of
individual members of the Board or of a majority of the Board. In addition, the
Guidelines may reflect a voting position that differs from the actual practices
of the public companies within the Deutsche Bank organization or of the
investment companies for which the Advisor or an affiliate serves as investment
advisor or sponsor.
The Advisor may consider the views of a portfolio company's management in
deciding how to vote a proxy or in establishing general voting positions for the
Guidelines, but management's views are not determinative.
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As mentioned above, the Policies describe the way in which the Advisor resolves
conflicts of interest. To resolve conflicts, the advisor, under normal
circumstances, votes proxies in accordance with its Guidelines. If the Advisor
departs from the Guidelines with respect to a particular proxy or if the
Guidelines do not specifically address a certain proxy proposal, a proxy voting
committee established by the advisor will vote the proxy. Before voting any such
proxy, however, the Advisor's conflicts review committee will conduct an
investigation to determine whether any potential conflicts of interest exist in
connection with the particular proxy proposal. If the conflicts review committee
determines that the Advisor has a material conflict of interest, or certain
individuals on the proxy voting committee should be recused from participating
in a particular proxy vote, it will inform the proxy voting committee. If
notified that the Advisor has a material conflict, or fewer than three voting
members are eligible to participate in the proxy vote, typically the Advisor
will engage an independent third party to vote the proxy or follow the proxy
voting recommendations of an independent third party.
Under certain circumstances, the Advisor may not be able to vote proxies or the
Advisor may find that the expected economic costs from voting outweigh the
benefits associated with voting. For example, the Advisor may not vote proxies
on certain foreign securities due to local restrictions or customs. The Advisor
generally does not vote proxies on securities subject to share blocking
restrictions.
You may obtain information about how a fund voted proxies related to its
portfolio securities during the 12-month period ended June 30 by visiting the
Securities and Exchange Commission's Web site at www.sec.gov or by visiting our
Web site at: www.dws-scudder.com (click on "proxy voting" at the bottom of the
page).
ADDITIONAL INFORMATION
The CUSIP number of DWS Bond VIP Class A shares is 23338G 109.
The CUSIP number of DWS Bond VIP Class B shares is 23338G 208.
The CUSIP number of DWS Growth & Income VIP Class A shares is 23338G 703.
The CUSIP number of DWS Growth & Income VIP Class B shares is 23338G 802.
The CUSIP number of DWS Capital Growth VIP Class A shares is 23338G 307.
The CUSIP number of DWS Capital Growth VIP Class B shares is 23338G 406.
The CUSIP number of DWS Global Opportunities VIP Class A shares is 23338G 505.
The CUSIP number of DWS Global Opportunities VIP Class B shares is 23338G 604.
The CUSIP number of DWS International VIP Class A shares is 23338G 869.
The CUSIP number of DWS International VIP Class B shares is 23338G 851.
The CUSIP number of DWS Health Care VIP Class A shares is 23338G 885.
The CUSIP number of DWS Health Care VIP Class B shares is 23338G 877.
Each Portfolio has a December 31 fiscal year end.
The name "DWS Variable Series I" is the designation of the Trustees for the time
being under an amended and restated Declaration of Trust dated October 24, 1997,
as amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees,
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officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund. Upon the initial purchase of shares, the
shareholder agrees to be bound by the Fund's Declaration of Trust, as amended
from time to time. The Declaration of Trust is on file at the Massachusetts
Secretary of State's Office in Boston, Massachusetts.
Each Portfolio, through its combined Prospectuses and combined Statement of
Additional Information, offers only its own share classes, yet it is possible
that one Portfolio might become liable for a misstatement regarding the other
Portfolio. The Trustees have considered this, and have approved the use of the
Prospectus and Statement of Additional Information.
The Fund's prospectuses and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement, and its amendments, for further information with
respect to the Fund and the securities offered hereby. The Registration
Statement and its amendments are available for inspection by the public at the
SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements of DWS Variable Series I are comprised of the
following:
DWS Bond VIP
DWS Growth & Income VIP
DWS Capital Growth VIP
DWS Global Opportunities VIP
DWS International VIP
DWS Health Care VIP
The financial statements, including the investment portfolios of DWS Variable
Series I, together with the Report of Independent Registered Public Accounting
Firm, Financial Highlights and notes to financial statements are incorporated by
reference and attached hereto, in the Annual Report to the Shareholders of the
Fund dated December 31, 2006, and are hereby deemed to be part of this Statement
of Additional Information.
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APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of ratings which represent opinions as to the
quality of the securities. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.
MOODY'S INVESTORS SERVICE, INC. -- CORPORATE BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the highest quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper -medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safe-guarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B are considered speculative and generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are highly speculative.
Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, typically are in
default and can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Moody's appends numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the issue ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
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MOODY'S INVESTORS SERVICE, INC. -- SHORT-TERM RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to honor
short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations
generally have an original maturity not exceeding thirteen months, unless
explicitly noted. Issuers rated Prime-1 or P-1 (or supporting institutions) have
a superior ability for repayment of short-term debt obligations. Prime-1 or P-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 or P-2 (or supporting institutions) have a strong ability
for repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD & POOR'S RATINGS SERVICES -- CORPORATE BOND RATINGS
INVESTMENT GRADE
AAA: Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB: Debt rated BBB has an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C has significant speculative characteristics
with respect to capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
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B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC: Debt rated CCC has a current vulnerability to default, and is dependent
upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC: Debt rated CC has a current high vulnerability to default, and is dependent
upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal.
The rating CC is also applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating.
C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
R: Debt rated `R' is under regulatory supervision owing to its financial
condition. During the pendency of the regulatory supervision, the regulators may
have the power to favor one class of obligations over others or pay some
obligations and not others.
N.R.: Bonds may lack a S&P's rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P's does not rate a particular type of obligation as a matter of policy.
STANDARD & POOR'S RATINGS SERVICES -- SHORT-TERM RATINGS
S&P's commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
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A-3: Issues carrying this designation have adequate capacity for timely payment.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the issuer to meet its financial commitments.
FITCH INVESTORS SERVICE, INC. -- BOND RATINGS
INVESTMENT GRADE
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable events.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
SPECULATIVE GRADE
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business or financial alternatives may be available which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD and D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) or Minus (-): The ratings from AA to CC may be appended by the addition
of a plus or minus sign to denote the relative status within the rating
category.
NR: Indicates that Fitch Rating does not publicly rate the specific issue.
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FITCH INVESTORS SERVICE, INC. -- SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest capacity for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect a capacity
for timely payment only slightly less than issues rated F-1+.
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
capacity for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the capacity for timely payment is adequate; however, near-term
adverse changes could cause these securities to be rated below investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Denotes actual or imminent payment default.
<PAGE>
DWS VARIABLE SERIES I
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits
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<S> <C> <C>
(a) (1) Amended and Restated Declaration of Trust dated June 27, 2006 is filed
herein.
(2) Establishment and Designation of Series of Shares of Beneficial Interest,
without Par Value.
(Previously filed as Exhibit 1(c) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(3) Establishment and Designation of Series of Beneficial Interest, without
Par Value dated February 9, 1996.
(Previously filed as Exhibit 1(e)(1) to Post-Effective Amendment No. 22 to
this Registration Statement.)
(4) Amended Establishment and Designation of Series of Shares of Beneficial
Interest, without Par Value dated April 15, 1988.
(Previously filed as Exhibit 1(f) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(5) Redesignation of Series.
(Previously filed as Exhibit 1(g) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(6) Abolition of Series.
(Previously filed as Exhibit 1(h) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(7) Amended Establishment and Designation of Series of Shares of Beneficial
Interest, without Par Value, with respect to the Growth and Income
Portfolio dated February 11, 1994.
(Previously filed as Exhibit 1(i) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(8) Amended and Restated Establishment and Designation of Series of Shares of
Beneficial Interest, without Par Value, dated February 22, 2001.
(Previously filed as Exhibit (a)(10) to Post-Effective Amendment No. 31 to
the Registration Statement.)
(9) Establishment and Designation of Classes of Shares of Beneficial Interest,
$.01 Par Value, on behalf of Health Sciences Portfolio, dated January 9,
2002 is incorporated by reference to Post-Effective Amendment No. 35 to
the Registration Statement filed on April 30, 2003.
(b) (1) By-Laws of the Registrant, dated June 27, 2006, are filed herein.
(c) Inapplicable.
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(d) (1) Amended and Restated Investment Management Agreement, dated June 1, 2006,
between the Registrant on behalf of DWS Bond VIP, DWS Capital Growth VIP,
DWS Global Opportunities VIP, DWS Growth & Income VIP, DWS Health Care VIP
and DWS International VIP, and Deutsche Investment Management Americas
Inc. is filed herein.
(2) Sub-Advisory Agreement, dated December 2, 2005, between Deutsche
Investment Management Americas Inc. and Aberdeen Asset Management Inc. on
behalf of DWS Bond VIP is filed herein.
(3) Investment Sub-Sub-Advisory Agreement, dated December 2, 2005, between
Aberdeen Asset Management Inc. and Aberdeen Asset Management Investment
Services Limited on behalf of DWS Bond VIP is filed herein.
(e) (1) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc., is incorporated by reference to Post-Effective Amendment
No. 33 to the Registration Statement as filed on April 30, 2002.
(2) Underwriting Agreement between the Registrant and Scudder Distributors,
Inc. dated September 30, 2002 is incorporated by reference to
Post-Effective Amendment No. 35 to the Registration Statement filed on
April 30, 2003.
(3) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and Participating Insurance Companies.
(Previously filed as Exhibit 6(b) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(4) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and Carillon Investments, Inc. dated February 18, 1992.
(Previously filed as Exhibit 6(c) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(5) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and Aetna Life Insurance and Annuity Company dated
April 27, 1992.
(Previously filed as Exhibit 6(d) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(6) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and PNMR Securities, Inc. dated December 1, 1992.
(Previously filed as Exhibit 6(e) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(f) Inapplicable.
(g) (1) Custodian Contract between the Registrant and State Street Bank and Trust
Company.
(Previously filed as Exhibit 8(a) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(2) Amendment to Custodian Contract between the Registrant and State Street
Bank and Trust Company. (Previously filed as Exhibit (g)(2) to
Post-Effective Amendment No. 30 to the Registration Statement.)
3
<PAGE>
(3) Custodian Agreement between the Registrant and Brown Brothers Harriman &
Co. dated April 29, 1996.
(Previously filed as Exhibit 8(a)(2) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(4) Fee schedule for Exhibit (g)(2).
(Previously filed as Exhibit 8(b)(1) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(5) Revised Fee Schedule for Exhibit (g)(2) is incorporated by reference to
Post-Effective Amendment No. 30 to the Registration Statement.
(h) (1) Amendment to Participation Agreement between the Registrant and Charter
National Life Insurance Company dated June 30, 1991.
(Previously filed as Exhibit 9(c)(4) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(2) Participation Agreement between the Registrant and The Union Central Life
Insurance Company dated February 18, 1992.
(Previously filed as Exhibit 9(c)(5) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(3) Participation Agreement between the Registrant and AEtna Life Insurance
and Annuity Company dated April 27, 1992.
(Previously filed as Exhibit 9(c)(6) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(4) Participation Agreement between the Registrant and Safeco Life Insurance
Companies dated December 31, 1992.
(Previously filed as Exhibit 9(c)(7) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(5) First Amendment to the Fund Participation Agreement between AEtna Life
Insurance and Annuity Company and the Fund dated February 19, 1993.
(Previously filed as Exhibit 9(c)(10) to Post-Effective Amendment No. 23
to the Registration Statement.)
(6) Second Amendment to the Fund Participation Agreement between AEtna Life
Insurance and Annuity Company and the Fund dated August 13, 1993.
(Previously filed as Exhibit 9(c)(11) to Post-Effective Amendment No. 23
to the Registration Statement.)
(7) First Amendment to the Participation Agreement between Mutual of America
Life Insurance Company, The American Life Insurance Company of New York
and the Fund dated August 13, 1993.
(Previously filed as Exhibit 9(c)(12) to Post-Effective Amendment No. 23
to the Registration Statement.)
(8) First Amendment to the Participation Agreement between The Union Central
Life Insurance Company and the Fund dated September 30, 1993.
(Previously filed as Exhibit 9(c)(13) to Post-Effective Amendment No. 23
to the Registration Statement.)
4
<PAGE>
(9) Participation Agreement between the Registrant and American Life Assurance
Corporation dated May 3, 1993.
(Previously filed as Exhibit 9(c)(14) to Post-Effective Amendment No. 16
to this Registration Statement.)
(10) Participation Agreement between the Registrant and AUSA Life Insurance
Company, Inc. dated October 21, 1993.
(Previously filed as Exhibit 9(c)(15) to Post-Effective Amendment No. 16
to this Registration Statement.)
(11) Participation Agreement between the Registrant and Banner Life Insurance
Company dated January 18, 1995.
(Previously filed as Exhibit 9(c)(17) to Post-Effective Amendment No. 16
to this Registration Statement.)
(12) Participation Agreement between the Registrant and Fortis Benefits
Insurance Company dated June 1, 1994.
(Previously filed as Exhibit 9(c)(18) to Post-Effective Amendment No. 16
to this Registration Statement.)
(13) Participation Agreement between the Registrant and Lincoln Benefit Life
Company dated December 30, 1993.
(Previously filed as Exhibit 9(c)(19) to Post-Effective Amendment No. 16
to this Registration Statement.)
(14) Participation Agreement between the Registrant and Charter National Life
Insurance Company dated September 3, 1993.
(Previously filed as Exhibit 9(c)(20)to Post-Effective Amendment No. 16 to
this Registration Statement.)
(15) Participation Agreement between the Registrant and Mutual of America Life
Insurance Company dated December 30, 1988.
(Previously filed as Exhibit 9(c)(21) to Post-Effective Amendment No. 16
to this Registration Statement.)
(16) First Amendment to Participation Agreement between the Registrant and
Mutual of America Life Insurance Company dated August 13, 1993.
(Previously filed as Exhibit 9(c)(22) to Post-Effective Amendment No. 16
to this Registration Statement.)
(17) Participation Agreement between the Registrant and Mutual of America Life
Insurance Company dated December 30, 1988.
(Previously filed as Exhibit 9(c)(23) to Post-Effective Amendment No. 16
to this Registration Statement.)
(18) First Amendment to Participation Agreement between the Registrant and
Mutual of America Life Insurance Company dated August 13, 1993.
(Previously filed as Exhibit 9(c)(24) to Post-Effective Amendment No. 16
to this Registration Statement.)
(19) Participation Agreement between the Registrant and Mutual of America Life
Insurance Company dated December 30, 1993.
(Previously filed as Exhibit 9(c)(25) to Post-Effective Amendment No. 16
to this Registration Statement.)
5
<PAGE>
(20) Participation Agreement between the Registrant and Paragon Life Insurance
Company dated April 30, 1993.
(Previously filed as Exhibit 9(c)(26) to Post-Effective Amendment No. 16
to this Registration Statement.)
(21) Participation Agreement between the Registrant and Provident Mutual Life
Insurance Company of Philadelphia dated July 21, 1993.
(Previously filed as Exhibit 9(c)(27) to Post-Effective Amendment No. 16
to this Registration Statement.)
(22) Participation Agreement between the Registrant and United of Omaha Life
Insurance Company dated May 15, 1994.
(Previously filed as Exhibit 9(c)(28) to Post-Effective Amendment No. 16
to this Registration Statement.)
(23) First Amendment to the Participation Agreement between the Registrant and
United of Omaha Life Insurance Company dated January 23, 1995.
(Previously filed as Exhibit 9(c)(29) to Post-Effective Amendment No. 16
to this Registration Statement.)
(24) Participation Agreement between the Registrant and USAA Life Insurance
Company dated February 3, 1995.
(Previously filed as Exhibit 9(c)(30) to Post-Effective Amendment No. 16
to this Registration Statement.)
(25) Amendment to the Participation Agreement, the Reimbursement Agreement and
the Participating Contract and Policy Agreement dated February 3, 1995.
(Previously filed as Exhibit 9(c)(31) to Post-Effective Amendment No. 16
to this Registration Statement.)
(26) Letter of Indemnity to the Scudder Funds dated October 13, 2004 is
incorporated by reference to Post-Effective Amendment No. 40 to the
Registration Statement.
(27) Letter of Indemnity to the Scudder Funds dated October 13, 2004 is
incorporated by reference to Post-Effective Amendment No. 40 to the
Registration Statement.
(28) Letter of Indemnity to the Independent Trustees dated October 13, 2004 is
incorporated by reference to Post-Effective Amendment No. 40 to the
Registration Statement.
(29) Agency Agreement, dated May 1, 2001, between the Registrant and Scudder
Investments Service Company is filed herein.
(30) Amendment No. 1, dated June 11, 2002, to the Agency Agreement, dated May
1, 2001, is filed herein.
(31) Administrative Services Agreement, dated June 1, 2006 among DWS Variable
Series I, on behalf DWS Bond VIP, DWS Capital Growth VIP, DWS Global
Opportunities VIP, DWS Growth & Income VIP, DWS Health Care VIP and DWS
International VIP, and Deutsche Investment Management Americas Inc. is
filed herein.
6
<PAGE>
(32) Form of Mutual Fund Rule 22c-2 Information Sharing Agreement between the
Registrant and DWS Scudder Distributors, Inc. is filed herein.
(33) Agency Agreement Fee Schedule, dated October 1, 2006, is filed herein.
(i) Opinion and Consent of Counsel is incorporated by reference to
Post-Effective Amendment No. 34 to the Registration Statement.
(j) Consent of Independent Registered Public Accounting Firm is filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m) Master Distribution Plan for Class B shares pursuant to Rule 12b-1 dated
February 9, 1996.
(Previously filed as Exhibit 15(a) to Post-Effective Amendment No. 23 to
the Registration Statement.)
(n) Form of DWS Funds Amended and Restated Multi-Distribution System Plan,
pursuant to Rule 18f-3 is filed herein.
(p) (1) Code of Ethics for Deutsche Asset Management -- U.S., effective January 1,
2007, is filed herein.
(2) Code of Ethics for the Aberdeen Group, effective August 1, 2005 is
incorporated by reference to Post-Effective Amendment No. 40 to the
Registration Statement.
(3) Consolidated Code of Ethics - All Funds is incorporated by reference to
Post-Effective Amendment No. 41 to the Registration Statement filed on
April 28, 2006.
</TABLE>
(q) Power of Attorney is filed herein.
Item 24. Persons Controlled by or under Common Control with Registrant
-------- -------------------------------------------------------------
Inapplicable.
Item 25. Indemnification
-------- ---------------
A policy of insurance covering the Advisor, its subsidiaries
including DWS Scudder Distributors, Inc., and all of the
registered investment companies advised by the Advisor insures
the Registrant's Trustees and officers and others against
liability arising by reason of an alleged breach of duty
caused by any negligent act, error or accidental omission in
the scope of their duties.
Article IV, Sections 4.1 - 4.3 of Registrant's Declaration of
Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Fund Property or
the acts, obligations or affairs of the Fund. No Trustee,
officer, employee or agent of the Fund shall be subject to any
personal liability whatsoever to any Person, other than to the
Fund or its Shareholders, in connection with Fund Property or
the affairs of the Fund, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such Person; and all
such Persons shall look solely to the Fund Property for
satisfaction of claims of any nature arising in
7
<PAGE>
connection with the affairs of the Fund. If any Shareholder,
Trustee, officer, employee, or agent, as such, of the Fund, is
made a party to any suit or proceeding to enforce any such
liability of the Fund, he shall not, on account thereof, be
held to any personal liability. The Fund shall indemnify and
hold each Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The rights accruing to a Shareholder under this
Section 4.l shall not exclude any other right to which such
Shareholder may be lawfully entitled, nor shall anything
herein contained restrict the right of the Fund to indemnify
or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, etc. No Trustee,
officer, employee or agent of the Fund shall be liable to the
Fund, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3 Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee
or officer of the Fund shall be indemnified
by the Fund to the fullest extent permitted
by law against all liability and against all
expenses reasonably incurred or paid by him
in connection with any claim, action, suit
or proceeding in which he becomes involved
as a party or otherwise by virtue of his
being or having been a Trustee or officer
and against amounts paid or incurred by him
in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims,
actions, suits or proceedings (civil,
criminal, or other, including appeals),
actual or threatened; and the words
"liability" and "expenses" shall include,
without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Fund or the
Shareholders by reason of willful
misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in
the conduct of his office;
(ii) with respect to any matter as to which he
shall have been finally adjudicated not to
have acted in good faith in the reasonable
belief that his action was in the best
interest of the Fund;
(iii) in the event of a settlement or other
disposition not involving a final
adjudication (as provided in paragraph
(b)(i) or (b)(ii)) (whether by compromise
payment, pursuant to a consent decree or
otherwise) resulting in a payment by a
Trustee or officer, unless there has been a
determination that such Trustee or officer
did not engage in willful misfeasance, bad
faith, gross negligence or reckless
disregard of the duties involved in the
conduct of his office:
(A) by the court or other body
approving the settlement or other
disposition; or
(B) a reasonable determination, based
upon a review of readily available
facts (as opposed to a full
trial-type inquiry) by (x) a vote
of a majority of the Disinterested
Trustees acting on the matter
(provided that a majority of the
8
<PAGE>
Disinterested Trustees then in
office act on the matter); or (y)
written opinion of legal counsel
chosen by a majority of the
Trustees and determined by them in
their reasonable judgment to be
independent.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Fund,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall inure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Fund other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit, or proceeding of the
character described in paragraph (a) of this Section
4.3 shall be advanced by the Fund prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient, to repay such amount
if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3,
provided that either:
(i) such undertaking is secured by a surety bond
or some other appropriate security provided
by the recipient, or the Fund shall be
insured against losses arising out of any
such advances; or
(ii) a majority of the Disinterested Trustees
acting on the matter (provided that a
majority of the Disinterested Trustees act
on the matter) or an independent legal
counsel in a written opinion shall
determine, based upon a review of readily
available facts (as opposed to a full
trial-type inquiry), that there is reason to
believe that the recipient ultimately will
be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person"
by any rule, regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
On April 5, 2002, Zurich Scudder Investments, Inc.
("Scudder"), the investment adviser, now known as Deutsche
Investment Management Americas Inc., was acquired by Deutsche
Bank AG, not including certain U.K. Operations (the
"Transaction"). In connection with the Trustees' evaluation of
the Transaction, Deutsche Bank agreed to indemnify, defend and
hold harmless Registrant and the trustees who were not
"interested persons" of Scudder, Deutsche Bank or Registrant
(the "Independent Trustees") for and against any liability and
claims and expenses based upon or arising from, whether in
whole or in part, or directly or indirectly, any untrue
statement or alleged untrue statement of a material fact made
to the Independent Trustees by Deutsche Bank in connection
with the Independent Trustees' consideration of the
Transaction, or any omission or alleged omission of a material
fact necessary in order to make statements made, in light of
the circumstances under which they were made, not misleading.
Deutsche Investment Management Americas, Inc. (hereafter,
"DIMA"), the investment advisor, has agreed, subject to
applicable law and regulation, to indemnify and hold harmless
the Registrant against any loss, damage, liability and
expense, including, without limitation, the advancement and
payment, as incurred, of reasonable fees and expenses of
counsel (including counsel to the Registrant and counsel to
the Independent Trustees) and consultants, whether retained by
the Registrant or the Independent Trustees, and other
customary costs and expenses incurred by the Registrant in
connection with any litigation or regulatory action related to
possible improper market timing or other improper trading
activity or possible improper marketing and sales activity in
the Registrant ("Private Litigation and Enforcement Actions").
In the event that this indemnification is unavailable to the
Registrant for any reason, then DIMA has agreed to contribute
to the amount paid or payable by the Registrant as a result of
any loss, damage, liability or expense in such proportion as
is appropriate to reflect the relative fault of DIMA and the
Registrant with respect to the matters which resulted in such
loss,
9
<PAGE>
damage, liability or expense, as well as any other relevant
equitable considerations; provided, that if no final
determination is made in such action or proceeding as to the
relative fault of DIMA and the Registrant, then DIMA shall pay
the entire amount of such loss, damage, liability or expense.
In recognition of its undertaking to indemnify the Registrant,
and in light of the rebuttable presumption generally afforded
to non-interested board members of an investment company that
they have not engaged in disabling conduct, DIMA has also
agreed, subject to applicable law and regulation, to indemnify
and hold harmless each of the Independent Trustees against any
and all loss, damage, liability and expense, including without
limitation the advancement and payment as incurred of
reasonable fees and expenses of counsel and consultants, and
other customary costs and expenses incurred by the Independent
Trustees, arising from the matters alleged in any Private
Litigation and Enforcement Actions or matters arising from or
similar in subject matter to the matters alleged in the
Private Litigation and Enforcement Actions (collectively,
"Covered Matters"), including without limitation:
1. all reasonable legal and other expenses incurred
by the Independent Trustees in connection with the
Private Litigation and Enforcement Actions, and any
actions that may be threatened or commenced in the
future by any person (including any governmental
authority), arising from or similar to the matters
alleged in the Private Litigation and Enforcement
Actions, including without limitation expenses
related to the defense of, service as a witness in,
or monitoring of such proceedings or actions;
2. all liabilities and reasonable legal and other
expenses incurred by any Independent Trustee in
connection with any judgment resulting from, or
settlement of, any such proceeding, action or matter;
3. any loss or reasonable legal and other expenses
incurred by any Independent Trustee as a result of
the denial of, or dispute about, any insurance claim
under, or actual or purported rescission or
termination of, any policy of insurance arranged by
DIMA (or by a representative of DIMA acting as such,
acting as a representative of the Registrant or of
the Independent Trustees or acting otherwise) for the
benefit of the Independent Trustee, to the extent
that such denial, dispute or rescission is based in
whole or in part upon any alleged misrepresentation
made in the application for such policy or any other
alleged improper conduct on the part of DIMA, any of
its corporate affiliates, or any of their directors,
officers or employees;
4. any loss or reasonable legal and other expenses
incurred by any Independent Trustee, whether or not
such loss or expense is incurred with respect to a
Covered Matter, which is otherwise covered under the
terms of any specified policy of insurance, but for
which the Independent Trustee is unable to obtain
advancement of expenses or indemnification under that
policy of insurance, due to the exhaustion of policy
limits which is due in whole or in part to DIMA or
any affiliate thereof having received advancement of
expenses or indemnification under that policy for or
with respect to any Covered Matter; provided, that
the total amount that DIMA will be obligated to pay
under this provision for all loss or expense shall
not exceed the amount that DIMA and any of its
affiliates actually receive under that policy of
insurance for or with respect to any and all Covered
Matters; and
5. all liabilities and reasonable legal and other
expenses incurred by any Independent Trustee in
connection with any proceeding or action to enforce
his or her rights under the agreement, unless DIMA
prevails on the merits of any such dispute in a
final, nonappealable court order.
DIMA is not required to pay costs or expenses or provide
indemnification to or for any individual Independent Trustee
(i) with respect to any particular proceeding or action as to
which the Board of the Registrant has determined that such
Independent Trustee ultimately would not be entitled to
indemnification with respect thereto, or (ii) for any
liability of the Independent Trustee to the Registrant or its
shareholders to which such Independent Trustee would otherwise
be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the Independent Trustee's
duties as a Trustee of the Registrant as determined in a final
adjudication in such proceeding or action. In addition, to the
extent that DIMA has paid costs or expenses under the
agreement to any individual Independent Trustee with respect
to a particular proceeding or action, and there is a final
adjudication in such proceeding or action of the Independent
Trustee's liability to the Registrant or its shareholders
10
<PAGE>
by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the Independent Trustee's duties as a
Trustee of the Registrant, such Independent Trustee has
undertaken to repay such costs or expenses to DIMA.
Item 26. Business and Other Connections of Investment Advisor
-------- ----------------------------------------------------
During the last two fiscal years, no director or officer of
Deutsche Investment Management Americas Inc., the investment
advisor, has engaged in any other business, profession,
vocation or employment of a substantial nature other than that
of the business of investment management and, through
affiliates, investment banking.
Item 27. Principal Underwriters
-------- ----------------------
(a)
DWS Scudder Distributors, Inc. acts as principal underwriter
of the Registrant's shares and acts as principal underwriter
for registered open-end management investment companies other
funds managed by Deutsche Investment Management Americas Inc.
(b)
Information on the officers and directors of DWS Scudder
Distributors, Inc., principal underwriter for the Registrant,
is set forth below. The principal business address is 222
South Riverside Plaza, Chicago, Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
DWS Scudder Distributors, Inc.
Name and Principal Positions and Offices with Positions and
Business Address DWS Scudder Distributors, Inc. Offices with Registrant
---------------- ------------------------------ -----------------------
<S> <C> <C>
Philipp Hensler Director, Chairman of the Board and CEO None
345 Park Avenue
New York, NY 10154
Michael Colon Director and Chief Operating Officer None
345 Park Avenue
New York, NY 10154
Thomas Winnick Director and President None
345 Park Avenue
New York, NY 10154
Cliff Goldstein Chief Financial Officer and Treasurer None
60 Wall Street
New York, NY 10005
Robert Froehlich Vice President None
222 South Riverside Plaza
Chicago, IL 60606
Paul Schubert Vice President Chief Financial Officer
345 Park Avenue and Treasurer
New York, NY 10154
11
<PAGE>
(1) (2) (3)
DWS Scudder Distributors, Inc.
Name and Principal Positions and Offices with Positions and
Business Address DWS Scudder Distributors, Inc. Offices with Registrant
---------------- ------------------------------ -----------------------
Mark Perrelli Vice President None
222 South Riverside Plaza
Chicago, IL 60606
Donna White Chief Compliance Officer None
345 Park Avenue
New York, NY 10154
Jason Vazquez Vice President and AML Compliance AML Compliance Officer
345 Park Avenue Officer
New York, NY 10154
Caroline Pearson Secretary Assistant Secretary
Two International Place
Boston, MA 02110
Philip J. Collora Assistant Secretary None
222 South Riverside Plaza
Chicago, IL 60606
Anjie LaRocca Assistant Secretary None
345 Park Avenue
New York, NY 10154
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records
-------- --------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by the Advisor, Two
International Place, Boston, MA 02110-4103. Records relating
to the duties of the Registrant's custodian are maintained by
State Street Bank and Trust Company, Heritage Drive, North
Quincy, Massachusetts. Records relating to the duties of the
Registrant's transfer agent are maintained by DWS Scudder
Investments Service Company, 210 West 10th Street, Kansas
City, Missouri 64105, or DST Systems, Inc., the sub-transfer
agent at 127 West 10th Street, Kansas City, Missouri 64105.
Item 29. Management Services
-------- -------------------
Inapplicable.
Item 30. Undertakings
-------- ------------
Inapplicable.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York and the State of New York on
the 23rd day of April 2007.
DWS VARIABLE SERIES I
By: /s/Michael G. Clark
____________________________
Michael G. Clark
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Michael G. Clark
-------------------------------------
Michael G. Clark President April 23, 2007
/s/Paul H. Schubert
-------------------------------------
Paul H. Schubert Chief Financial Officer and Treasurer April 23, 2007
/s/Henry P. Becton, Jr.
-------------------------------------
Henry P. Becton, Jr.* Trustee April 23, 2007
/s/Dawn-Marie Driscoll
-------------------------------------
Dawn-Marie Driscoll* Chairperson and Trustee April 23, 2007
/s/Keith R. Fox
-------------------------------------
Keith R. Fox* Trustee April 23, 2007
/s/Kenneth C. Froewiss
-------------------------------------
Kenneth C. Froewiss* Trustee April 23, 2007
/s/Martin J. Gruber
-------------------------------------
Martin J. Gruber* Trustee April 23, 2007
/s/Richard J. Herring
-------------------------------------
Richard J. Herring* Trustee April 23, 2007
/s/Graham E. Jones
-------------------------------------
Graham E. Jones* Trustee April 23, 2007
/s/Rebecca W. Rimel
-------------------------------------
Rebecca W. Rimel* Trustee April 23, 2007
/s/Philip Saunders, Jr.
-------------------------------------
Philip Saunders, Jr.* Trustee April 23, 2007
/s/William N. Searcy, Jr.
-------------------------------------
William N. Searcy, Jr.* Trustee April 23, 2007
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/Jean Gleason Stromberg
-------------------------------------
Jean Gleason Stromberg* Trustee April 23, 2007
/s/Carl W. Vogt
-------------------------------------
Carl W. Vogt* Trustee April 23, 2007
/s/Axel Schwarzer
-------------------------------------
Axel Schwarzer* Trustee April 23, 2007
</TABLE>
*By: /s/Caroline Pearson
------------------------------
Caroline Pearson**
Assistant Secretary
** Attorney-in-fact pursuant to the power of attorney as filed herein.
2
<PAGE>
File No. 2-96461
File No. 811-4257
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 42
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 46
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
DWS VARIABLE SERIES I
13
<PAGE>
DWS VARIABLE SERIES I
EXHIBIT INDEX
-------------
(a)(1)
(b)(1)
(d)(1)
(d)(2)
(d)(3)
(h)(29)
(h)(30)
(h)(31)
(h)(32)
(h)(33)
(j)
(n)
(p)(1)
(q)
14
</TEXT>
</DOCUMENT>