Annual Report to Shareholders

Transcription

1 March 31, 2016 Annual Report to Shareholders Deutsche Alternative Asset Allocation Fund (On April 26, 2016, Deutsche Alternative Asset Allocation Fund was renamed Deutsche Real Assets Fund.) Deutsche Alternative Asset Allocation Fund 1

2 Contents 3 Letter to Shareholders 4 Portfolio Management Review 10 Performance Summary 13 Investment Portfolio 15 Statement of Assets and Liabilities 17 Statement of Operations 18 Statement of Changes in Net Assets 19 Financial Highlights 25 Notes to Financial Statements 36 Report of Independent Registered Public Accounting Firm 37 Information About Your Fund's Expenses 39 Tax Information 40 Shareholder Meeting Results 41 Advisory Agreement Board Considerations and Fee Evaluation 49 Board Members and Officers 54 Account Management Resources This report must be preceded or accompanied by a prospectus. To obtain a summary prospectus, if available, or prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the fund. Please read the prospectus carefully before you invest. Although allocation among different asset categories generally limits risk, portfolio management may favor an asset category that underperforms other assets or markets as a whole. The fund expects to invest in underlying funds that emphasize alternatives or non traditional asset categories or investment strategies, and as a result, it is subject to the risk factors of those underlying funds. Some of those risks include stock market risk, credit and interest rate risk, floating rate loan risk, volatility in commodity prices, infrastructure and high yield debt securities, market direction risk (market advances when short, market declines when long), short sales risk and the political, general economic, liquidity and currency risks of foreign investments, which may be particularly significant for emerging markets. The fund may use derivatives, including as part of its currency and interest rate strategies. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. The success of the fund s currency and interest rate strategies are dependent, in part, on the effectiveness and implementation of portfolio management s proprietary models. As part of these strategies, the fund s exposure to foreign currencies could cause lower returns or even losses because foreign currency rates may fluctuate significantly over short periods of time for a number of reasons. The risk of loss is heightened during periods of rapid rises in interest rates. In addition, the notional amount of the fund s aggregate currency and interest rate exposure resulting from these strategies may significantly exceed the net assets of the fund. Because Exchange Traded Funds (ETFs) trade on a securities exchange, their shares may trade at a premium or discount to their net asset value. ETFs also incur fees and expenses so they may not fully match the performance of the indexes they are designed to track. See the prospectus for additional risks and specific details regarding the fund's risk profile. Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries. NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY 2 Deutsche Alternative Asset Allocation Fund

3 Letter to Shareholders Dear Shareholder: Seven years into our economic recovery, you might be wondering where s the beef? The strong U.S. dollar and sluggish growth have hampered exports and manufacturing. Low oil prices are raising concerns about the energy sector. A steep sell off in the first quarter, plus a contentious U.S. election campaign and ongoing geopolitical issues, have led many to question what lies ahead. Our analysts see a case for continued, albeit modest, growth in the U.S. economy. Households have reduced debt and are seeing gains in real income thanks to improving labor markets and lower energy prices. Businesses remain reasonably well positioned financially, with an added boost to purchasing power from lower energy prices. Lastly, while the Federal Reserve Board has initiated the process of raising short term interest rates, we are confident that low and slow will continue to be the watchwords for a while. The later stages of an economic recovery tend to bring increased volatility and more challenges to achieving positive investment returns. We believe that active management careful sector allocation and security selection driven by deep research can make a difference in this environment. In the end, it is important to remember the core reason for investing: longterm goals and a desire for growth tempered by reasonable risk management. We appreciate your trust and welcome the opportunity to put our resources, experience and expertise to work in helping you meet your goals. Best regards, Brian Binder President, Deutsche Funds Please note: Deutsche Asset & Wealth Management is now two distinct businesses: Deutsche Asset Management and Deutsche Bank Wealth Management. As a result, our key service providers will be renamed Deutsche AM Service Company; Deutsche AM Distributors, Inc. and Deutsche AM Trust Company, effective May 9, Assumptions, estimates and opinions contained in this document constitute our judgment as of the date of the document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. Deutsche Alternative Asset Allocation Fund 3

4 Portfolio Management Review (Unaudited) Market Overview and Fund Performance All performance information below is historical and does not guarantee future results. Returns shown are for Class A shares, unadjusted for sales charges. Investment return and principal fluctuate, so your shares may be worth more or less when redeemed. Current performance may differ from performance data shown. Please visit deutschefunds.com for the most recent month end performance of all share classes. Fund performance includes reinvestment of all distributions. Unadjusted returns do not reflect sales charges and would have been lower if they had. Please refer to pages 10 through 12 for more complete performance information. During the 12 month interval ended March 31, 2016, the fund returned 6.63% and underperformed the 1.63% return of the benchmark, which is a blend of traditional assets with 70% in the MSCI World Index and 30% in the Barclays U.S. Aggregate Bond Index. The two indices returned 3.45% and 1.96%, respectively. It is important to keep in mind that the fund s objective is not to match the short term performance of either stocks or bonds, but rather to provide investors with strategies for longer term portfolio diversification through investments in alternative assets. The annual period proved to be a challenging time for the financial markets. Although the global economy continued to experience a modest expansion, market performance was pressured by periodic growth scares characterized by heightened investor concerns about the potential for a worldwide recession. In addition, investors spent much of 2015 struggling to assess the U.S. Federal Reserve Board's (the Fed) intention with regard to its interest rate policy. The markets were also rattled by the persistent decline in the prices of oil and other commodities through late 2015 and into early January Together, these developments aided the returns of government bonds but hurt the performance of higher risk market segments such as equities, commodities and high yield bonds. Fund Performance From a high level perspective, two key factors weighed on the fund s results during the reporting period. First, alternative assets lagged the returns of both investment grade bonds and developed market equities, 4 Deutsche Alternative Asset Allocation Fund

5 reflecting the outsized impact of commodity prices on the alternative space. Second, during the second quarter of 2015, we moved the fund s focus toward a real return approach designed to provide returns in excess of the long term rate of inflation. This shift reflected our belief that real return portfolios can help investors protect the purchasing power of their savings over time. However, inflation sensitive assets faced significant short term headwinds in the latter half 2015 due to mounting evidence of slowing economic growth and continued low inflation. As a result, the fund lagged its peer group in both the third and fourth calendar quarters of 2015, leading to underperformance for the full 12 months. In terms of specific drivers of performance, our allocation to commodity related investments proved to be the largest detractor from fund returns. Commodity prices fell during the first 10 months of the period due to an unfavorable combination of slackening demand Asset Allocation* (As a % of Investment Portfolio) 3/31/16 Real Asset 47% Deutsche Global Infrastructure Fund 25% Deutsche Enhanced Commodity Strategy Fund 10% Deutsche Global Real Estate Securities Fund 6% Deutsche Real Estate Securities Fund 5% Deutsche Real Estate Securities Income Fund 1% Real Return Fixed Income 47% Deutsche Global Inflation Fund 31% Deutsche Floating Rate Fund 16% Opportunistic 2% SPDR Barclays Short Term High Yield Bond Fund 2% Cash 4% 100% * Investment strategies will fall into the following categories: Real Asset, Real Return Fixed Income, Real Return Equity, Opportunistic and Cash. Real Asset investments have a tangible or physical aspect such as real estate or commodities. Real Return investments seek to provide a measure of inflation protection. Opportunistic investments seek to offer exposure to categories generally not included in investors' allocations. Portfolio holdings and characteristics are subject to change. For more complete details about the fund's investment portfolio, see page 13. A quarterly Fact Sheet is available on deutschefunds.com or upon request. Please see the Account Management Resources section on page 50 for contact information. Deutsche Alternative Asset Allocation Fund 5

6 and rising supplies, which led to negative absolute returns for Deutsche Enhanced Commodity Strategy Fund. We also lost some ground through our investments in three commodity related exchange traded funds (ETFs) that were held in the portfolio before we closed out the positions in the fourth quarter. The weakness in commodity prices also had an adverse impact on Deutsche Global Infrastructure Fund. Infrastructure stocks tend to have above average sensitivity to energy prices, a negative for performance during the past 12 months. In addition, Deutsche Global Infrastructure Fund s investments in non U.S. equities created exposure to both the weakness in the international markets and the downturn in foreign currencies relative to the U.S. dollar. We continue to believe that selectivity and active management remain essential for successfully investing in alternative asset classes. The fund s allocation to the fixed income space also detracted from its 12 month results. Deutsche Floating Rate Fund, which invests in senior loans (or loans to below investment grade companies that banks repackage and sell as securities), declined during the period. Given the heightened concerns about growth, investor risk appetites for lower rated securities waned during the second half of The market also became less forgiving of missteps on the part of loan issuers, causing the refinancing environment to become more challenging. The slide in oil prices put further pressure on energy related loans, as well as the loans for a variety of companies with ties to the energy sector. Similar concerns weighed on the performance of the fund s position in the SPDR Barclays Short Term High Yield Bond ETF. We generated a better relative return from our allocation to Deutsche Global Inflation Fund, which finished the year roughly flat. The fund offers exposure to inflation protected securities issued by governments around the world. Although the backdrop of slow global growth and supportive central bank policies provided a positive underpinning for inflation protected securities, the asset class lagged traditional fixed income at a time in which inflation remained low on the list of 6 Deutsche Alternative Asset Allocation Fund

7 investor concerns. Viewing this as a potential opportunity, we elected to increase our allocation to the asset class in the latter half of the period. Finally, two positions that are no longer held in the portfolio Deutsche Enhanced Emerging Markets Fixed Income Fund and Deutsche Diversified Market Neutral Fund cost us some return during the second and third calendar quarters of The fund s allocation to real estate investment trusts (REITs), which we achieve through positions in Deutsche Real Estate Securities Fund and Deutsche Real Estate Securities Income Fund, was a positive factor in its results. REITs delivered a healthy gain behind the continued strength in the global property markets and the decline in government bond yields. In addition, the asset class staged a strong rally in the final three months of the period once investors grew more confident that the Fed was more likely to maintain its lower for longer policy rather than raising rates aggressively in Outlook and Fund Positioning We continue to believe that selectivity and active management remain essential for successfully investing in alternative asset classes. At a time in which stock market valuations are elevated and long term bond yields are depressed, we believe diversifying across various alternative investments can help mitigate the potential for heightened volatility in traditional assets. Fund Restructuring Deutsche Investment Management Americas Inc ( DIMA ), the advisor of the fund, obtained shareholder approval on a proposal that will permit the fund to be restructured from a fund that invests primarily in other Deutsche Funds to a fund investing directly in securities and other investments, with a focus on a broad range of real assets using both traditional and alternative investment strategies. Upon the restructuring on April 26, 2016, the fund was renamed Deutsche Real Assets Fund. Deutsche Alternative Asset Allocation Fund 7

8 Portfolio Management Team Pankaj Bhatnagar, PhD, Managing Director Portfolio Manager of the fund. Began managing the fund in Joined Deutsche Asset Management in 2000 with seven years of industry experience; previously, served in Quantitative Strategy roles at Nomura Securities, Credit Suisse and Salomon Brothers. Portfolio Manager for the Quantitative Group: New York. Degree in Civil Engineering, Indian Institute of Technology; MBA, Kent State University; PhD in Finance, University of North Carolina at Chapel Hill. John W. Vojticek, Managing Director Portfolio Manager of the fund. Began managing the fund in Joined Deutsche Asset Management in 2004; previously worked as Principal at KG Redding and Associates, March 2004 September 2004; and previously Managing Director of Deutsche Asset Management from 1996 March Chief Investment Officer of Liquid Real Assets for Deutsche Asset Management. Investment industry experience began in BS, University of Southern California. Darwei Kung, Director Portfolio Manager of the fund. Began managing the fund in Joined Deutsche Asset Management in 2006; previously has worked as a Director, Engineering and Business Development at Calpoint LLC from Portfolio Manager: New York. BS and MS, University of Washington, Seattle; MS and MBA, Carnegie Mellon University. Effective April 26, 2016, the fund's portfolio management team is as follows: John W. Vojticek, Managing Director Portfolio Manager of the fund. Began managing the fund in Joined Deutsche Asset Management in 2004; previously worked as Principal at KG Redding and Associates, March 2004 September 2004; and previously Managing Director of Deutsche Asset Management from 1996 March Co-Head and Chief Investment Officer of Liquid Real Assets for Deutsche Asset Management. BS, University of Southern California. Francis X. Greywitt III, Managing Director Portfolio Manager of the fund. Began managing the fund in Joined Deutsche Asset Management in 2005; previously has worked as a REIT analyst with KeyBanc Capital Markets covering the office sector. Co-Head of Infrastructure Securities and Co Lead Portfolio Manager: Chicago. Investment industry experience began in BBA, St. Bonaventure University; MBA, University of Chicago. 8 Deutsche Alternative Asset Allocation Fund

9 Evan Rudy, CFA, Director Portfolio Manager of the fund. Began managing the fund in Joined Deutsche Asset Management in Previously, worked as an Analyst at the Townsend Group, a real estate consulting firm. Portfolio Analyst, Real Estate & Infrastructure Securities: Chicago. BS, Miami University. The views expressed reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The management team's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results. Current and future portfolio holdings are subject to risk. Terms to Know The Morgan Stanley Capital International (MSCI) World Index is an unmanaged, capitalization weighted measure of global stock markets including the U.S., Canada, Europe, Australia and the Far East. The index is calculated using closing local market prices and translates into U.S. dollars using the London close foreign exchange rates. The Barclays U.S. Aggregate Bond Index is an unmanaged, market value weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns do not reflect fees or expenses and it is not possible to invest directly into an index. An exchange traded fund (ETF) is a security that tracks an index or asset like an index fund, but trades like a stock on an exchange. Deutsche Alternative Asset Allocation Fund 9

10 Performance Summary March 31, 2016 (Unaudited) Class A 1 Year 5 Year Average Annual Total Returns as of 3/31/16 Life of Fund * Unadjusted for Sales Charge 6.63% 0.03% 1.14% Adjusted for the Maximum Sales Charge (max 5.75% load) 12.00% 1.15% 0.45% MSCI World Index 3.45% 6.51% 2.74% Barclays U.S. Aggregate Bond Index 1.96% 3.78% 4.86% S&P 500 Index 1.78% 11.58% 6.38% Blended Index 1.63% 5.95% 3.75% Class C 1 Year 5 Year Average Annual Total Returns as of 3/31/16 Life of Fund * Unadjusted for Sales Charge 7.37% 0.73% 0.34% Adjusted for the Maximum Sales Charge (max 1.00% CDSC) 7.37% 0.73% 0.34% MSCI World Index 3.45% 6.51% 2.74% Barclays U.S. Aggregate Bond Index 1.96% 3.78% 4.86% S&P 500 Index 1.78% 11.58% 6.38% Blended Index 1.63% 5.95% 3.75% Class R 1 Year 5 Year Average Annual Total Returns as of 3/31/16 Life of Fund * No Sales Charges 6.77% 0.14% 0.11% MSCI World Index 3.45% 6.51% 2.74% Barclays U.S. Aggregate Bond Index 1.96% 3.78% 4.86% S&P 500 Index 1.78% 11.58% 6.38% Blended Index 1.63% 5.95% 3.75% Class R6 Average Annual Total Returns as of 3/31/16 1 Year Life of Class ** No Sales Charges 6.25% 5.21% MSCI World Index 3.45% 2.12% Barclays U.S. Aggregate Bond Index 1.96% 2.76% S&P 500 Index 1.78% 1.86% Blended Index 1.63% 0.45% 10 Deutsche Alternative Asset Allocation Fund

11 Class S 1 Year 5 Year Average Annual Total Returns as of 3/31/16 Life of Fund * No Sales Charges 6.44% 0.23% 1.33% MSCI World Index 3.45% 6.51% 2.74% Barclays U.S. Aggregate Bond Index 1.96% 3.78% 4.86% S&P 500 Index 1.78% 11.58% 6.38% Blended Index 1.63% 5.95% 3.75% Institutional Class 1 Year 5 Year Average Annual Total Returns as of 3/31/16 Life of Fund * No Sales Charges 6.25% 0.36% 1.40% MSCI World Index 3.45% 6.51% 2.74% Barclays U.S. Aggregate Bond Index 1.96% 3.78% 4.86% S&P 500 Index 1.78% 11.58% 6.38% Blended Index 1.63% 5.95% 3.75% Performance in the Average Annual Total Returns table above and the Growth of an Assumed $10,000 Investment line graph that follows is historical and does not guarantee future results. Investment return and principal fluctuate, so your shares may be worth more or less when redeemed. Current performance may differ from performance data shown. Please visit deutschefunds.com for the Fund's most recent month end performance. Fund performance includes reinvestment of all distributions. Unadjusted returns do not reflect sales charges and would have been lower if they had. The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated August 1, 2015 are 1.79%, 2.53%, 2.19%, 1.64%, 1.61% and 1.51% for Class A, Class C, Class R, Class R6, Class S and Institutional Class shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. These expense ratios include net expenses of the underlying funds in which the Fund invests. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index. Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemptions of fund shares. Returns shown for Class R shares for the period prior to its inception on June 1, 2011 are derived from the historical performance of Class A shares of the Deutsche Alternative Asset Allocation Fund during such periods and have been adjusted to reflect the higher total annual operating expenses. Any difference in expenses will affect performance. Deutsche Alternative Asset Allocation Fund 11

12 Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) Deutsche Alternative Asset Allocation Fund Class A MSCI World Index Barclays U.S. Aggregate Bond Index S&P 500 Index Blended Index $20,000 $15,000 $10,000 $17,094 $15,083 $13,763 $12,639 $10,400 $5,000 $0 7/07 * '08 '09 '10 '11 '12 '13 '14 '15 '16 Yearly periods ended March 31 The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 5.75%. This results in a net initial investment of $9,425. The growth of $10,000 is cumulative. Performance of other share classes will vary based on the sales charges and the fee structure of those classes. * The Fund commenced operations on July 31, The performance shown for each index is for the time period of July 31, 2007 through March 31, 2016, which is based on the performance period of the life of the Fund. ** Class R6 shares commenced operations on November 28, The performance shown for each index is for the time period from November 30, 2014 through March 31, 2016, which is based on the performance period of the life of Class R6. The Morgan Stanley Capital International (MSCI) World Index is an unmanaged, capitalization weighted measure of global stock markets including the U.S., Canada, Europe, Australia and the Far East. The index is calculated using closing local market prices and translates into U.S. dollars using the London close foreign exchange rates. The Barclays U.S. Aggregate Bond Index is an unmanaged index that covers the U.S. investment grade fixed rate bond market, including government and credit securities, agency mortgage securities, asset backed securities and commercial mortgage backed securities. The Standard & Poor's 500 (S&P 500) Index 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. The Blended Index consists of 70% in the MSCI World Index and 30% in the Barclays U.S. Aggregate Bond Index. Institutional Class A Class C Class R Class R6 Class S Class Net Asset Value 3/31/16 $ 8.56 $ 8.53 $ 8.62 $ 8.50 $ 8.50 $ /31/15 $ 9.36 $ 9.33 $ 9.42 $ 9.29 $ 9.29 $ 9.29 Distribution Information as of 3/31/16 Income Dividends, Twelve Months $.18 $.11 $.16 $.21 $.19 $ Deutsche Alternative Asset Allocation Fund

13 Investment Portfolio as of March 31, 2016 Shares Value ($) Mutual Funds 94.0% Deutsche Enhanced Commodity Strategy Fund Institutional (a) 2,028,761 23,513,336 Deutsche Floating Rate Fund Institutional (a) 4,279,047 35,516,088 Deutsche Global Inflation Fund Institutional (a) 7,199,056 71,630,603 Deutsche Global Infrastructure Fund Institutional (a) 4,228,455 57,210,989 Deutsche Global Real Estate Securities Fund Institutional (a) 1,472,011 13,410,020 Deutsche Real Estate Securities Fund Institutional (a) 560,646 12,541,658 Deutsche Real Estate Securities Income Fund Institutional (a) 218,719 2,106,262 Total Mutual Funds (Cost $194,173,058) 215,928,956 Exchange Traded Fund 2.0% SPDR Barclays Short Term High Yield Bond Fund (Cost $5,185,946) 177,579 4,585,090 Cash Equivalents 3.8% Central Cash Management Fund, 0.37% (a) (b) (Cost $8,716,121) 8,716,121 8,716,121 % of Net Assets Value ($) Total Investment Portfolio (Cost $208,075,125) ,230,167 Other Assets and Liabilities, Net ,867 Net Assets ,616,034 The cost for federal income tax purposes was $218,413,833. At March 31, 2016, net unrealized appreciation for all securities based on tax cost was $10,816,334. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $28,908,502 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $18,092,168. (a) Affiliated fund managed by Deutsche Investment Management Americas Inc. (b) The rate shown is the annualized seven day yield at period end. SPDR: Standard & Poor's Depositary Receipt The accompanying notes are an integral part of the financial statements. Deutsche Alternative Asset Allocation Fund 13

14 Fair Value Measurements Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. The following is a summary of the inputs used as of March 31, 2016 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements. Assets Level 1 Level 2 Level 3 Total Mutual Funds $215,928,956 $ $ $215,928,956 Exchange Traded Funds 4,585,090 4,585,090 Short Term Investment 8,716,121 8,716,121 Total $229,230,167 $ $ $229,230,167 There have been no transfers between fair value measurement levels during the year ended March 31, The accompanying notes are an integral part of the financial statements. 14 Deutsche Alternative Asset Allocation Fund

15 Statement of Assets and Liabilities as of March 31, 2016 Assets Investments: Investments in affiliated Underlying Funds, at value (cost $202,889,179) $ 224,645,077 Investments in non affiliated Underlying Funds, at value (cost $5,185,946) 4,585,090 Total investments in securities, at value (cost $208,075,125) 229,230,167 Cash 1,253,758 Receivable for Fund investments sold 241,122 Receivable for Fund shares sold 190,633 Interest receivable 1,184 Other assets 28,506 Total assets 230,945,370 Liabilities Payable for Fund shares redeemed 898,373 Accrued management fee 12,298 Accrued Trustees' fees 3,805 Other accrued expenses and payables 414,860 Total liabilities 1,329,336 Net assets, at value $ 229,616,034 Net Assets Consist of Undistributed net investment income 2,462,042 Net unrealized appreciation (depreciation) on investments 21,155,042 Accumulated net realized gain (loss) (118,588,555) Paid in capital 324,587,505 Net assets, at value $ 229,616,034 The accompanying notes are an integral part of the financial statements. Deutsche Alternative Asset Allocation Fund 15

16 Statement of Assets and Liabilities as of March 31, 2016 (continued) Net Asset Value Class A Net Asset Value and redemption price per share ($79,255,718 9,256,326 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) $ 8.56 Maximum offering price per share ( of $8.56) $ 9.08 Class C Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($61,109,866 7,160,158 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) $ 8.53 Class R Net Asset Value, offering and redemption price per share ($2,947, ,120 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) $ 8.62 Class R6 Net Asset Value, offering and redemption price per share ($1,139, ,048 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) $ 8.50 Class S Net Asset Value, offering and redemption price per share ($54,646,365 6,432,608 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) $ 8.50 Institutional Class Net Asset Value, offering and redemption price per share ($30,516,652 3,589,025 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) $ 8.50 The accompanying notes are an integral part of the financial statements. 16 Deutsche Alternative Asset Allocation Fund

17 Statement of Operations for the year ended March 31, 2016 Investment Income Dividends $ 1,159,886 Income distributions from affiliated Underlying Funds 7,085,936 Total income 8,245,822 Expenses: Management fee 773,454 Administration fee 386,728 Services to shareholders 639,312 Distribution and service fees 1,117,555 Custodian fee 11,590 Professional fees 105,301 Reports to shareholders 31,169 Registration fees 90,706 Trustees' fees and expenses 17,452 Other 19,058 Total expenses before expense reductions 3,192,325 Expense reductions (813,106) Total expenses after expense reductions 2,379,219 Net investment income 5,866,603 Realized and Unrealized Gain (Loss) Net realized gain (loss) from: Sale of affiliated Underlying Funds (22,315,379) Sale of non affiliated Underlying Funds (11,654,212) Capital gain distributions from affiliated Underlying Funds 2,488,372 (31,481,219) Change in net unrealized appreciation (depreciation) on investments (11,200,746) Net gain (loss) (42,681,965) Net increase (decrease) in net assets resulting from operations $ (36,815,362) The accompanying notes are an integral part of the financial statements. Deutsche Alternative Asset Allocation Fund 17

18 Statement of Changes in Net Assets Years Ended March 31, Increase (Decrease) in Net Assets Operations: Net investment income $ 5,866,603 $ 11,618,185 Net realized gain (loss) (31,481,219) 8,591,821 Change in net unrealized appreciation (depreciation) (11,200,746) (15,586,412) Net increase (decrease) in net assets resulting from operations (36,815,362) 4,623,594 Distributions to shareholders from: Net investment income: Class A (2,138,650) (4,921,209) Class C (1,005,806) (2,315,811) Class R (51,619) (68,731) Class R6 (19,793) (253)* Class S (1,955,080) (5,072,474) Institutional Class (1,532,609) (3,728,777) Total distributions (6,703,557) (16,107,255) Fund share transactions: Proceeds from shares sold 65,412, ,734,373 Reinvestment of distributions 6,322,472 15,059,715 Payments for shares redeemed (328,498,554) (196,953,232) Net increase (decrease) in net assets from Fund share transactions (256,763,869) (43,159,144) Increase (decrease) in net assets (300,282,788) (54,642,805) Net assets at beginning of year 529,898, ,541,627 Net assets at end of period (including undistributed net investment income of $2,462,042 and $2,981,819, respectively) $ 229,616,034 $ 529,898,822 * For the period from November 28, 2014 (commencement of operations of Class R6) to March 31, The accompanying notes are an integral part of the financial statements. 18 Deutsche Alternative Asset Allocation Fund

19 Financial Highlights Class A Years Ended March 31, Selected Per Share Data Net asset value, beginning of period $ 9.36 $ 9.56 $ 9.53 $ 9.13 $ 9.67 Income (loss) from investment operations: Net investment income a Net realized and unrealized gain (loss) (.76) (.11) (.56) Total from investment operations (.62) (.18) Less distributions from: Net investment income (.18) (.28) (.13) (.20) (.36) Net asset value, end of year $ 8.56 $ 9.36 $ 9.56 $ 9.53 $ 9.13 Total Return (%) b,c,d (6.63) (1.77) Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) e Ratio of expenses after expense reductions (%) e Ratio of net investment income (%) Portfolio turnover rate (%) a b c d e Based on average shares outstanding during the period. Total return does not reflect the effect of any sales charges. Total return would have been lower had certain expenses not been reduced. Total return would have been lower if the Advisor had not reduced some Underlying Deutsche Funds' expenses. The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. Deutsche Alternative Asset Allocation Fund 19

20 Class C Years Ended March 31, Selected Per Share Data Net asset value, beginning of period $ 9.33 $ 9.53 $ 9.48 $ 9.09 $ 9.61 Income (loss) from investment operations: Net investment income (loss) a Net realized and unrealized loss (.76) (.12) (.56) Total from investment operations (.69) (.25) Less distributions from: Net investment income (.11) (.20) (.04) (.13) (.27) Net asset value, end of year $ 8.53 $ 9.33 $ 9.53 $ 9.48 $ 9.09 Total Return (%) b,c,d (7.37) (.01) (2.53) Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) e Ratio of expenses after expense reductions (%) e Ratio of net investment income (%) Portfolio turnover rate (%) a b c d e Based on average shares outstanding during the period. Total return does not reflect the effect of any sales charges. Total return would have been lower had certain expenses not been reduced. Total return would have been lower if the Advisor had not reduced some Underlying Deutsche Funds' expenses. The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. 20 Deutsche Alternative Asset Allocation Fund

21 Class R Years Ended March 31, Period Ended 3/31/12 a Selected Per Share Data Net asset value, beginning of year $ 9.42 $ 9.62 $ 9.59 $ 9.17 $ 9.65 Income (loss) from investment operations: Net investment income (loss) b Net realized and unrealized loss (.77) (.12) (.54) Total from investment operations (.64) (.18) Less distributions from: Net investment income (.16) (.26) (.10) (.17) (.30) Net asset value, end of year $ 8.62 $ 9.42 $ 9.62 $ 9.59 $ 9.17 Total Return (%) c,d (6.77) (1.77) ** Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) e * Ratio of expenses after expense reductions (%) e * Ratio of net investment income (%) * Portfolio turnover rate (%) f a For the period from June 1, 2011 (commencement of operations) to March 31, b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have been lower if the Advisor had not reduced some Underlying Deutsche Funds' expenses. e The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. f Represents the Fund's portfolio turnover rate for the year ended March 31, * Annualized ** Not annualized Deutsche Alternative Asset Allocation Fund 21

22 Class R6 Year Ended 3/31/16 Period Ended 3/31/15 a Selected Per Share Data Net asset value, beginning of period $ 9.29 $ 9.60 Income (loss) from investment operations: Net investment income (loss) b Net realized and unrealized loss (.83) (.19) Total from investment operations (.58) (.07) Less distributions from: Net investment income (.21) (.24) Net asset value, end of year $ 8.50 $ 9.29 Total Return (%) c,d (6.25) (.71) ** Ratios to Average Net Assets and Supplemental Data Net assets, end of year ($ millions) 1.01 Ratio of expenses before expense reductions (%) e * Ratio of expenses after expense reductions (%) e * Ratio of net investment income (loss) (%) * Portfolio turnover rate (%) f a For the period from November 28, 2014 (commencement of operations) to March 31, b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have been lower if the Advisor had not reduced some Underlying Deutsche Funds' expenses. e The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. f Represents the Fund's portfolio turnover rate for the year ended March 31, * Annualized ** Not annualized 22 Deutsche Alternative Asset Allocation Fund

23 Class S Years Ended March 31, Selected Per Share Data Net asset value, beginning of period $ 9.29 $ 9.49 $ 9.47 $ 9.07 $ 9.61 Income (loss) from investment operations: Net investment income (loss) a Net realized and unrealized loss (.75) (.13) (.56) Total from investment operations (.60) (.16) Less distributions from: Net investment income (.19) (.29) (.14) (.22) (.38) Net asset value, end of year $ 8.50 $ 9.29 $ 9.49 $ 9.47 $ 9.07 Total Return (%) b,c (6.44) (1.49) Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) d Ratio of expenses after expense reductions (%) d Ratio of net investment income (loss) (%) Portfolio turnover rate (%) a b c d Based on average shares outstanding during the period. Total return would have been lower had certain expenses not been reduced. Total return would have been lower if the Advisor had not reduced some Underlying Deutsche Funds' expenses. The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. Deutsche Alternative Asset Allocation Fund 23

24 Institutional Class Years Ended March 31, Selected Per Share Data Net asset value, beginning of period $ 9.29 $ 9.49 $ 9.47 $ 9.07 $ 9.61 Income (loss) from investment operations: Net investment income (loss) a Net realized and unrealized loss (.74) (.12) (.57) Total from investment operations (.58) (.16) Less distributions from: Net investment income (.21) (.31) (.17) (.22) (.38) Net asset value, end of year $ 8.50 $ 9.29 $ 9.49 $ 9.47 $ 9.07 Total Return (%) b,c (6.25) (1.50) Ratios to Average Net Assets and Supplemental Data Net assets, end of period ($ millions) Ratio of expenses before expense reductions (%) d Ratio of expenses after expense reductions (%) d Ratio of net investment income (loss) (%) Portfolio turnover rate (%) a b c d Based on average shares outstanding during the period. Total return would have been lower had certain expenses not been reduced. Total return would have been lower if the Advisor had not reduced some Underlying Deutsche Funds' expenses. The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. 24 Deutsche Alternative Asset Allocation Fund

25 Notes to Financial Statements A. Organization and Significant Accounting Policies Deutsche Alternative Asset Allocation Fund (the Fund ) is a diversified series of Deutsche Market Trust (the Trust ), which is registered under the Investment Company Act of 1940, as amended (the 1940 Act ), as an open end management investment company organized as a Massachusetts business trust. The Fund invests in other affiliated Deutsche funds (i.e., mutual funds, exchange traded funds and other pooled investment vehicles managed by Deutsche Investment Management Americas Inc. or one of its affiliates, together the Underlying Deutsche Funds ) and non affiliated exchange traded funds ( Non affiliated ETFs ). Non affiliated ETFs and Underlying Deutsche Funds are collectively referred to as Underlying Funds. Each Underlying Deutsche Fund's accounting policies and investment holdings are outlined in the Underlying Deutsche Funds' financial statements and are available upon request. The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are subject to an initial sales charge. Class C shares are not subject to an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class R and Class R6 shares are not subject to an initial or contingent deferred sales charge and are only available to participants in certain retirement plans. Class S shares are not subject to initial or contingent deferred sales charges and are only available to a limited group of investors. Institutional Class shares are not subject to initial or contingent deferred sales charges and are generally available only to qualified institutions. Investment income, realized and unrealized gains and losses, and certain fund level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as services to shareholders, distribution and service fees and certain other class specific expenses. Differences in class level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class specific arrangements. The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could Deutsche Alternative Asset Allocation Fund 25

26 differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements. Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Investments in mutual funds are valued at the net asset value per share of each class of the mutual fund and are categorized as Level 1. ETFs are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over the counter market on which they trade. ETFs for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. ETF securities are generally categorized as Level 1. Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio. Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders. Under the Regulated Investment Company Modernization Act of 2010, net capital losses incurred post enactment may be carried forward indefinitely, and their character is retained as short term and/or long term. Previously, net capital losses were carried forward for eight years and treated as short term losses. As a transition rule, the Act requires that post enactment net capital losses be used before pre enactment net capital losses. At March 31, 2016, the Fund had a net tax basis capital loss carryforward of approximately $108,250,000, including $36,529,000 of pre enactment losses, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until March 31, 2017 ($1,048,000) and March 31, 2018 ($35,481,000), the respective expiration dates, whichever occurs first; and approximately $71,721,000 of post enactment losses, which may be applied against realized net taxable 26 Deutsche Alternative Asset Allocation Fund

27 capital gains indefinitely, including short term losses ($14,560,000) and long term losses ($57,161,000). The Fund has reviewed the tax positions for the open tax years as of March 31, 2016 and has determined that no provision for income tax and/or uncertain tax provisions is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service. Distribution of Income and Gains. Distributions from net investment income of the Fund, if any, are declared and distributed to shareholders annually. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. The Fund may also make additional distributions for tax purposes if necessary. The timing and characterization of certain income and capital gain distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to investments in certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. At March 31, 2016, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows: Undistributed ordinary income * $ 2,462,042 Capital loss carryforwards $ (108,250,000) Net unrealized appreciation (depreciation) on investments $ 10,816,334 In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows: Years Ended March 31, Distributions from ordinary income* $ 6,703,557 $ 16,107,255 * For tax purposes, short term capital gain distributions are considered ordinary income distributions. Expenses. Expenses of the Trust arising in connection with a specific fund are allocated to that fund. Other Trust expenses which cannot be directly attributed to a fund are apportioned among the funds in the Trust based upon the relative net assets or other appropriate measures. Deutsche Alternative Asset Allocation Fund 27

28 Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote. Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Distributions of income and capital gains from the Underlying Funds are recorded on the ex dividend date. Realized gains and losses from investment transactions are recorded on an identified cost basis. B. Purchases and Sales of Underlying Funds During the year ended March 31, 2016, purchases and sales of affiliated Underlying Funds (excluding short term investments and money market funds) aggregated $123,041,654 and $312,573,595, respectively. Purchases and sales of non affiliated ETFs (excluding short term investments and money market funds) aggregated $70,685,858 and $141,656,007, respectively. C. Related Parties Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ( DIMA or the Advisor ), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments in Underlying Funds to be purchased, sold or entered into by the Fund or delegates such responsibility to the Fund's sub advisor. The Fund does not invest in the Underlying Deutsche Funds for the purpose of exercising management or control; however, investments within the set limits may represent 5% or more of an Underlying Deutsche Fund's outstanding shares. At March 31, 2016, the Fund held greater than 5% of the following Underlying Deutsche Funds' outstanding shares: approximately 46% of Deutsche Global Inflation Fund and 13% of Deutsche Real Estate Securities Income Fund. The management fee payable under the Investment Management Agreement is equivalent to the annual rate (exclusive of any applicable waivers/reimbursements) of 0.20% of the Fund's average daily net assets, computed and accrued daily and payable monthly. In addition, the 28 Deutsche Alternative Asset Allocation Fund