db Advisory Multibrands

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1 Deutsche Asset Management db Advisory Multibrands Annual Report 2016 n db Advisory Multibrands BlackRock Flexible Diversified Allocation n db Advisory Multibrands db Credit Selection n db Advisory Multibrands db Selected Managers n db Advisory Multibrands db World Selection Plus n db Advisory Multibrands Franklin Templeton Global Conservative Portfolio n db Advisory Multibrands GAM Absolute Return Strategy Fund n db Advisory Multibrands Invesco Multi Asset Risk Diversified n db Advisory Multibrands JPMorgan Emerging Markets Active Allocation n db Advisory Multibrands Pictet Multi Asset Flexible Allocation n db Advisory Multibrands PIMCO Euro Coupon Bond Fund n db Advisory Multibrands PIMCO High Income Global Credit Fund Investment Company with Variable Capital Incorporated under Luxembourg Law

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3 Contents Annual report 2016 for the period from January 1, 2016, through December 31, 2016 General information... 2 Annual report db Advisory Multibrands db Advisory Multibrands BlackRock Flexible Diversified Allocation... 6 db Advisory Multibrands db Credit Selection... 8 db Advisory Multibrands db Selected Managers db Advisory Multibrands db World Selection Plus db Advisory Multibrands Franklin Templeton Global Conservative Portfolio db Advisory Multibrands GAM Absolute Return Strategy Fund db Advisory Multibrands Invesco Multi Asset Risk Diversified db Advisory Multibrands JPMorgan Emerging Markets Active Allocation db Advisory Multibrands Pictet Multi Asset Flexible Allocation db Advisory Multibrands PIMCO Euro Coupon Bond Fund db Advisory Multibrands PIMCO High Income Global Credit Fund (formerly: db Advisory Multibrands Russell Global Strategic Fixed Income) Annual financial statements Investment portfolio and statement of income and expenses Supplementary information Remuneration Disclosure Information pursuant to Regulation (EU) 2015/ Report of the Réviseur d Entreprises agréé

4 General information The funds described in this report are sub-funds of a SICAV (Société d Investisse ment à Capital Variable) incorporated under Luxembourg law. Performance The investment return, or performance, of a mutual fund investment is measured by the change in value of the fund s shares. The net asset values per share (= redemption prices) with the addition of intervening distributions, which are, for example, reinvested free of charge within the scope of investment accounts at Deutsche Asset Management S.A., are used as the basis for calculating the value. Past performance is not a guide to future results. The corresponding benchmarks if available are also presented in the report. All financial data in this publication is as of December 31, 2016 (unless otherwise stated). Sales prospectuses Fund shares are purchased on the basis of the current sales prospectus and the key investor information document as well as the articles of incorporation and by-laws of the SICAV, in combination with the latest audited annual report and any semiannual report that is more recent than the latest annual report. Issue and redemption prices The current issue and redemption prices and all other information for shareholders may be requested at any time at the registered office of the Management Company and from the paying agents. In addition, the issue and redemption prices are published in every country of distribution through appropriate media (such as the Internet, electronic information systems, newspapers, etc.). Special notice for business investors subject to taxation in Germany: Adjustment of share profits due to European Court of Justice (ECJ) ruling in the STEKO Industriemontage GmbH case In the STEKO Industriemontage GmbH case (C-377/07), the European Court of Justice (ECJ) ruled that the provision in the German Corporate Tax Act (Körperschaftsteuergesetz (KStG)) for the transition from the corporate tax imputation system to the half-income procedure in 2001 is unlawful under European law. The prohibition on corporations to have profit reductions in connection with holdings in foreign companies made relevant for tax purposes pursuant to section 8b (3) KStG already applied in 2001 pursuant to section 34 KStG, while it only applied for profit reductions in connection with holdings in domestic companies in In the view of the European Court of Justice, this contravenes the principle of free movement of capital. The transitional provisions in the KStG applied accordingly for fund investments pursuant to the German Capital Investment Companies Act (Gesetz über Kapitalanlagegesellschaften (KAGG)) (sections 40 and 40a in conjunction with section 43 (14)). The ruling may become important, particularly for the purposes of taking profit reductions into account in the calculation of share profits (Aktiengewinn) pursuant to section 40a KAGG. The Federal Finance Court (Bundesfinanzhof) decided in a judgment dated October 28, 2009, (Ref. I R 27/08) that the STEKO case does in principle have implications for fund investments. In the German Federal Ministry of Finance letter of February 1, 2011, Application of the BFH judgment of October 28, 2009 I R 27/08 to share profits ( STEKO case ), the tax authority sets out the conditions under which in its opinion an adjustment of share profits is possible based on the STEKO case. In view of possible measures based on the STEKO case, we recommend that investors who have shares in business assets consult a tax advisor. 2

5 The following companies were renamed on March 17, 2016: Deutsche Asset & Wealth Management Investment GmbH became Deutsche Asset Management Investment GmbH Deutsche Asset & Wealth Management International GmbH became Deutsche Asset Management International GmbH Deutsche Asset & Wealth Management Investment S.A. became Deutsche Asset Management S.A. The sub-fund db Advisory Multibrands Russell Global Strategic Fixed Income was renamed db Advisory Multibrands PIMCO High Income Global Credit Fund effective November 1,

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8 db Advisory Multibrands BlackRock Flexible Diversified Allocation Investment objective and performance in the reporting period The objective of the investment policy of db Advisory Multibrands BlackRock Flexible Diversified Allocation is to achieve long-term growth with a low tolerance for capital loss. To this end, the sub-fund invests worldwide in equities, fixed income securities, investment funds, derivatives, cash, deposits and money market instruments. The sub-fund aims to achieve the investment objective primarily through investments in funds. The sub-fund may invest up to 75% of its net assets in instruments that invest in global equities, or up to 75% of its net assets in instruments that invest worldwide in fixed income. Up to 20% of its net assets may be invested in alternatives, including open-ended real estate investment funds, commodities, hedge funds and structured products thereof. The proportion of open-ended real estate funds and hedge funds is limited to not more than 10% of the sub-fund s net assets. In the reporting period, the investment environment was characterized partially by negative interest rates in the industrial countries as well as potentially unplanned side effects and uncertainty regarding the future course of the European Central Bank (ECB) and U.S. interest rate development. In addition to that the general key risks were expectations regarding the development of the Chinese economy and impact on the global economy as well as the consequences of the United Kingdom leaving the European Union ( Brexit ) and political outlook due to upcoming elections in Europe. Against this challenging backdrop, db Advisory Multibrands BlackRock Flexible Diversified Allocation recorded a decline of 1.6% per share (LC share class, BVI method, in euro) in the 2016 fiscal year. Investment policy in the reporting period The reporting period from January to December 2016 proved to be a difficult year for the portfolio as several of the active asset allocation decisions failed to add value from a performance standpoint. There were a few key investment themes that drove the negative performance incurred over the fiscal year. db Advisory Multibrands BlackRock Flexible Diversified Allocation Performance of share classes (in euro) Share class ISIN 1 year 3 years Since inception 1 Class LC LU % -1.3% 6.0% Class PFC LU % 1 Class LC launched on April 30, 2012 / Class PFC launched on January 19, 2016 BVI method performance, i.e., excluding the initial sales charge. Past performance is no guide to future results. As of: December 31, 2016 From an asset allocation perspective, sub-fund s management entered optimistically positioned favouring equities over fixed income as that growth in developed markets was showing signs of improvements. However, equity markets sold-off sharply whilst the price of government bonds rose in January and February 2016 as concerns over Chinese growth and uncertainty over the direction of monetary policy from the European and Japanese central banks took markets by surprise. This meant the portfolio was wrongly positioned across asset classes at the beginning of the fiscal year and the portfolio saw negative returns from exposure to European and Japanese equities and developed market government bond hedging positions in the UK, U.S. and Germany. 6

9 db Advisory Multibrands BlackRock Flexible Diversified Allocation did respond by reducing equities and rotating back into government bonds as well as adding to gold which helped partly reduce the negative impact on performance over the first quarter Though, for the remainder of most of the reporting period, the sub-fund kept the equity allocation low versus the fund s history which meant the sub-fund did not capture a large degree of the unexpectedly strong equity market performance that followed the key shock political outcomes in the UK and the U.S. Throughout most of the fiscal year the management also held a negative view towards emerging markets, primarily because of concerns about the long term growth trajectory of China s economy. As a result, the sub-fund held equity and currency positions to help protect the portfolio from this view playing out. As concerns around China faded through 2016 and rising commodity prices helped lift demand for commodity focussed emerging market assets unfortunately the portfolio sustained negative returns from the expression of this fundamentally driven asset allocation view. attractive. As a result, from a positioning perspective db Advisory Multibrands BlackRock Flexible Diversified Allocation increased the allocation to developed market equities having halved the allocation to gold and reduced the cash holding. Over the fourth quarter 2016, the sub-fund s management made a number of key position changes in the portfolio as the economic fundamentals had meaningfully improved and so a number of themes, based on the asset allocation research, have become increasingly 7

10 db Advisory Multibrands db Credit Selection Investment objective and performance in the reporting period db Advisory Multibrands db Credit Selection seeks to achieve above-average returns. To achieve this objective, the sub-fund invests in various target funds with a focusing on different fixed income classes such as investment grade credit bonds, high yield credit bonds, covered bonds and convertible bonds. The sub-fund may also invest in exchange traded funds (ETFs) that track one or more bond indices, as well as in time deposits, short-term money market funds, money market funds, money market instruments and liquid assets. Investments are primarily made in funds that are managed by Deutsche Bank and subsidiaries of the Deutsche Bank Group. db Advisory Multibrands db Credit Selection Performance of share classes (in euro) Share class ISIN 1 year 3 years Since inception 1 Class LC LU % 6.5% 7.3% Class LD LU % 6.5% 7.3% Class PFC LU % 0.2% Class PFD LU % -0.2% 1 Classes LC and LD launched on March 8, 2013 / Class PFC launched on December 1, 2014 / Class PFD launched on January 22, 2015 BVI method performance, i.e., excluding the initial sales charge. Past performance is no guide to future results. As of: December 31, 2016 In the reporting period, the investment climate was characterized by historically low interest rates in the industrial countries as well as pronounced volatility in the capital markets. This volatility was mostly due to the high level of indebtedness worldwide alongside the uncertainty regarding a possible change of direction in interest rates led by the United States. In addition, global economic growth weakened, stemming from the noticeable slowdown in the emerging markets. Furthermore, the uncertainty regarding an imminent Brexit increasingly became the focus of attention from market participants over the course of the year. Ongoing uncertainty in fixed income markets centered on fundamental and technical drivers including continued concern of European banks (especially Italian). Several political events (elections and/or referendums) affected the financial markets and the economic outlook going forward. Emerging markets were affected by the drop in oil prices at the beginning of the year, and political risks throughout the year. Against this challenging backdrop, the sub-fund achieved an appreciation of 2.5% per share (LC share class, BVI method, in euro) in the 2016 fiscal year. Investment policy in the reporting period With its investments on highyield bonds with higher interest rates compared to interest- bearing instruments from the industrial countries, db Advisory Multibrands db Credit Selection was able in a very volatile investment environment to benefit overall from the at times significant price increases in the bond markets of the emerging markets. Interest income from higher-yielding subordinated bonds as well as the appreciation of the U.S. Dollar contributed noticeably to performance. The target funds Deutsche Invest I Asian Bonds -FC-, Neuberger Berman High Yield Bond Fund -I- EUR Hedged, Deutsche Invest I Euro High Yield Corporates -FC-, NN Renta Fund Asian Debt and ishares Markit iboxx $ Corporate Bond USD were the best performing investments. These 8

11 funds benefited from a further narrowing of their yield spreads and from an appreciation of the U.S. Dollar. On the other side, the worst performing investments were Deutsche Invest I Convertibles -FC-, Deutsche Invest I Short Duration Credit -FC- and DWS Short Duration Emerging Markets FX. The last two funds had a lower duration. Therefore their performance lagged in comparison to funds with a higher duration. These funds were an alternative to money market funds or cash. The target fund Nordea 1 US Total Return Bond Fund -BI- was entirely sold. The fund underperformed its benchmark. The target fund Deutsche Invest I Euro Bonds (Premium) -FC- was sold completely as the sub-fund s management saw no further potential for declining yields in European core markets. The management reduced the exposure in sovereigns by selling the funds db x-trackers II iboxx Sovereigns Eurozone 7-10 and db x-trackers II - iboxx Sovereigns Eurozone Yield Plus at profit. Several investments were added to the portfolio. The target funds Deutsche Invest I Asian Bonds -FC-, Deutsche Extra Bond Total Return and db x-trackers II Emerging Markets Liquid Eurobond were added to the portfolio. These funds offered attractive yields in comparison to developed corporate bond funds. In order to diversify the portfolio the sub-fund invested in two inflalinked ETF s (db x-trackers II iboxx Euro Inflation-Linked, db x-trackers II IBOXX GLOBAL INFLATION-LINKED) as well as the SPDR Thomsen Reuters Global Convertible Bond ETF to participate in rising equity markets. However, the U.S. Dollar exposure was partially hedged versus Euro. 9

12 db Advisory Multibrands db Selected Managers Investment objective and performance in the reporting period db Advisory Multibrands db Selected Managers seeks to generate sustained capital appreciation. To this end, the sub-fund may invest worldwide in units and shares of equity, bond, balanced, commodity and money-market funds. Preference in this respect is given to balanced funds, whose fund managers can respond more flexibly and independently to changing market conditions and at the same time make broadly diversified investments across a range of sectors, regions and asset classes. The investment environment in the reporting period was characterized by historically low interest rates in the industrial countries as well as by pronounced fluctuations in the capital markets. This was mainly attributable not only to high debt levels worldwide but also to uncertainty over a potential interest rate turnaround in the United States. In addition, global economic growth weakened despite a stabilizing trend in the emerging markets. Uncertainty about an imminent Brexit and upcoming elections was increasingly becoming the focus of attention of the market players as the year progressed. Against this challenging backdrop, db Advisory Multibrands db Selected Managers recorded a decline of 0.9% per share (LC share class, BVI method, in euro) in the 2016 fiscal year. Investment policy in the reporting period db Advisory Multibrands db Selected Managers was as a multi-manager-sub-fund particularly broadly diversified because it had invested in the widest possible variety of target funds, and consequently in different asset classes and regions. In addition, the management ensured that correlation among the target funds was kept to a minimum. The best performing target fund investments were Capital Group Emerging Markets Total Opportunities, Deutsche Concept Kaldemorgen IC and Flossbach von Storch Multi Asset db Advisory Multibrands db Selected Managers Performance of share classes (in euro) Share class ISIN 1 year 3 years Since inception 1 Class LC LU % 4.4% 5.7% Class FC LU % 3.8% Class FD LU % 3.8% Class LD LU % 4.4% 5.7% Class PFC LU % -0.6% Class PFD LU % -2.0% 1 Classes LC and LD launched on December 13, 2013 / Classes FC and FD launched on June 16, 2014 / Class PFC launched on December 1, 2014 (first share price calculation on December 2, 2014) / Class PFD launched on January 22, 2015 BVI method performance, i.e., excluding the initial sales charge. Past performance is no guide to future results. As of: December 31, 2016 Defensive. The Capital Group Emerging Markets Total Opportunities benefited from the positive performance of Emerging Markets bonds and Emerging Markets equities in the fiscal year. The fund Flossbach von Storch Multi Asset Defensive benefited from its strength on balance by limiting losses in downward phases. Among the worst performing target funds were Standard Life Investments Global SICAV Global Absolute Return Strategies Fund and Deutsche Invest I Convertibles. The bets in the JPMorgan Investment Funds and the Standard Life Investments 10

13 Global fund did not work in the reporting period. Especially the sharp sector rotation in the equity market from growth to value had a negative impact on the performance of the sub-fund. The target funds M&G Dynamic Allocation, BlackRock Global Funds - Global Allocation Fund and ETHNA-Aktiv were entirely sold. The ETHNA-Aktiv fund was sold due to bad performance. The performance of BlackRock Global Funds Global Allocation Fund was mainly driven by the development of the U.S. dollar. db Advisory Multibrands db Selected Managers took profit here. The M&G Dynamic Allocation fund had a relatively high equity allocation. Therefore the sub-fund s management switched from the aggressive target fund investment into the more defensive Flossbach von Storch - Multi Asset Defensive as a newly added investment to the portfolio. This target fund had a lower equity allocation and a proportion of the fund was invested in Gold. Amundi FUNDS Absolute Volatility Euro Equities was added to the sub-fund to reduce the volatility in the portfolio and to improve the risk/return profile of db Advisory Multibrands db Selected Managers. This target fund investment was a risk buffer. It performed very well in downward phases when the volatility rose. 11

14 db Advisory Multibrands db World Selection Plus Investment objective and performance in the reporting period The objective of the investment policy of db Advisory Multibrands db World Selection Plus is to achieve a positive investment result in the medium to long term while taking the opportunities and risks of the international bond and equity markets into account. To this end, the sub-fund may invest worldwide in units and shares of equity, bond, commodity and money market funds, as well as in exchange traded funds (ETFs), exchange traded commodities (ETCs) and certificates. The investment policy is implemented through investments in various themes and using different strategies. At least 30% of the net assets of the sub-fund are invested in equity funds and equities, and in instruments and derivatives linked to equities. The core investment comprises dividend and value equity funds and stocks, as well as instruments and derivatives linked to equities expected to return aboveaverage dividend yields. In addition, other themes and strategies can be allocated to the sub-fund s portfolio, such as investments in commodities, convertible bonds, corporate bonds, government bonds (emerging and developed markets) and precious metals. The investment environment in the reporting period was characterized by historically low interest rates in the industrial countries as well as by pronounced fluctuations in the capital markets. This was mainly attributable not only to high debt levels worldwide but also to uncertainty over a potential interest rate turnaround in the United States. In addition, global economic growth weakened despite a stabilizing trend in the emerging markets. Uncertainty about an imminent Brexit and upcoming elections was increasingly becoming the focus of attention of the market players as the year progressed. Against this challenging backdrop, the sub-fund achieved an appreciation of 1.4% per share (LC share class, BVI method, in euro) in the 2016 fiscal year. Investment policy in the reporting period Financial markets have delivered db Advisory Multibrands db World Selection Plus Performance of share classes (in euro) Share class ISIN 1 year 3 years Since inception 1 Class LC LU % 12.3% 20.4% Class LD LU % 12.2% 13.4% Class PFC LU % 2.9% Class PFD LU % -0.8% 1 Class LC launched on April 30, 2012 / Class LD launched on December 13, 2013 / Class PFC launched on December 1, 2014 / Class PFD launched on January 22, 2015 BVI method performance, i.e., excluding the initial sales charge. Past performance is no guide to future results. As of: December 31, 2016 an overall strong performance but the fundamentals were mixed during the reporting period. An investment that contributed positively to the performance of the sub-fund was ComStage ComStage NYSE Arca Gold BUGS reflecting short-term price movements in the price of gold by firms in the NYSE Arca Gold BUGS (HUI) index. The equity target funds ishares Dow Jones Asia Pacific Select Dividend 30 UCITS ETF, PowerShares S&P 500 High Dividend Low Volatility UCITS ETF and Robeco US Select Opportunities Equities also made a positive contribution to the investment result. The equity positioning was a consequence of the sub-fund s picking using different strate- 12

15 gies and the asset allocation in the portfolio. On the bond site the target funds Neuberger Berman High Yield Bond Fund focussing on total return (income plus capital appreciation) from the high yield fixed income market as well as Deutsche Invest I Euro High Yield Corporates -FC- were the best performing funds. These positions benefited from the risk on movements and the market search for yield. However, the investment result was hampered by some of the weaker portfolio positions. The target funds Invesco Global Structured Equity Fund -C-, Deutsche Invest I Top Euroland -FC- and DWS Zukunftsressourcen were completely sold due to weak performance. The fund Nordea 1 - US Total Return Bond Fund -BI- was entirely sold. The fund underperformed its benchmark. The target fund Deutsche Invest I Euro Bonds (Premium) -FC- was sold completely as the management saw no further potential for declining yields in European core markets. db Advisory Multibrands db World Selection Plus reduced the exposure in sovereigns by selling the fund db x-trackers II iboxx Sovereigns Eurozone Yield Plus Ucits ETF -1C- at profit. Commerzbank Commodity ex-agriculture EW Index TR UCITS ETF -I- benefited from the rising of commodity prices. To diversify the core dividend portfolio the management added ishares EURO Dividend UCITS ETF EUR, ishares Dow Jones U.S. Select Dividend UCITS ETF (DE) and ishares Dow Jones Asia Pacific Select Dividend 30 UCITS ETF (DE) to the portfolio. On the bond site the sub-fund newly invested in the target funds Neuberger Berman High Yield Bond Fund -I- and db x-trackers II iboxx USD Liquid Asia Ex-Japan Corporate Bond UCITS ETF (DR) -1D-. The sub-fund s management added on the other side some thematic target funds to the portfolio like DWS Water Sustainability Fund -FC- and RobecoSAM Sustainable Agribusiness Equities -I-. The newly added ComStage 13

16 db Advisory Multibrands Franklin Templeton Global Conservative Portfolio Investment objective and performance in the reporting period The objective of the investment policy of db Advisory Multibrands Franklin Templeton Global Conservative Portfolio is to generate sustained capital appreciation in the medium term with low volatility. In order to achieve this, the sub-fund invests in various funds and exchange-traded funds (ETFs), which in turn invest in global debt securities and equities as well as in money market instruments. Investment is primarily in funds managed by Franklin Templeton Investments and subsidiaries of the Franklin Templeton Group. No more than 40% of the sub-fund s net assets may be invested in funds or exchange traded funds that invest in equities or equityrelated securities. Derivatives may also be used for hedging purposes and for efficient portfolio management. In the reporting period, the investment environment was characterised by historically low interest rates, continued fluctuations in the capital markets and significant political developments. In addition, the world economy stabilised though it remains in a period of modest growth overall, commodity prices rebounded and investors focus turned towards reflation. Against this challenging backdrop, db Advisory Multibrands Franklin Templeton Global Conservative Portfolio recorded a decline of 0.9% per share (LC share class, BVI method, in euro) in the 2016 fiscal year. Investment policy in the reporting period In the past fiscal year, portfolio management activities for db Advisory Multibrands Franklin Templeton Global Conservative Portfolio remained guided by active strategy decisions. Some of the main themes that dominated the financial landscape included U.S. monetary policy, the impact of China and emerging markets more generally on global economic growth, and the rise of populist political forces. In addition, the subfund s management focused its attention on portfolio risk management. The sub-fund performed negatively because of its cautious db Advisory Multibrands Franklin Templeton Global Conservative Portfolio Performance of share classes (in euro) Share class ISIN 1 year 3 years Since inception 1 Class LC LU % 6.0% 10.4% Class LD LU % 6.1% 10.4% Class PFC LU % -4.9% Class PFD LU % -4.9% 1 Classes LC and LD launched on April 30, 2012 / Classes PFC and PFD launched on May 11, 2015 BVI method performance, i.e., excluding the initial sales charge. Past performance is no guide to future results. As of: December 31, 2016 stance particularly in the last part of the fiscal year. Although the management augmented the allocation to equity markets (adjusted for its contribution to total portfolio risk), target funds and ETFs picking for U.S. equity were not able to keep pace with market and detracted relative performance. On the fixed income side, exposure to developed government bonds detracted from annual results when risky asset classes jumped after positive surprises from global economic growth data. The portfolio s allocation between its three main asset classes - cash, equity and fixed income was changed when- 14

17 ever needed according to the management s market views and risk-adjusted expectations. In equities, ETF s and financial derivatives helped to dynamically shift equity exposure to achieve specific risk contribution targets. Overall equity exposure was trimmed in April 2016 after a strong recovery in prices and ahead of a period of political uncertainty. The portfolio s geographical allocation shifted modestly with additional exposure to North America being added, whilst positions in Europe and Japan were reduced. Emerging Asia exposure was switched to broad emerging-market stocks. The portfolio held a combination of Franklin Templeton Investments funds and ETFs, with the additional use of put and call options to manage risk from a broader portfolio perspective. The portfolio s overall fixed income exposure was increased in April 2016 when equity exposure was reduced, before being cut again later in the reporting period. Sector and currency allocation was very dynamic, with changes in exposure to Australian-dollar bonds reflecting these trends. Holdings of developed sovereign bonds made up the bulk of portfolio composition during the fiscal year, but were significantly extended during the middle of the year, as interestrate risk (duration) was increased. An increased preference for U.S. Treasury bonds, including inflation-linked securities, was partially balanced by a growing exposure to emergingmarket bonds. The portfolio s weight in emerging-markets debt remained at a level below ten percent and was reduced slightly later in the reporting period. In corporate bonds, the portfolio strategy had two strands: The portfolio s allocation to high-yield debt was reduced slightly, but remained diversified by countries and sectors and exposure to investmentgrade bonds was reduced later in the reporting period due to less appealing risk-return trade-off, in the opinion of the sub-fund s management. In currency terms, the portfolio s exposure to the euro was predominant, with the balance allocated to the U.S. Dollar and a range of emerging markets currencies. In 2016, the three financial products that made the largest contribution to the portfolio s overall return, in absolute terms, were diversified across sectors. Ranked by the size of their contribution, they were: UBS Factor MSCI USA Quality ETF, Franklin High Yield Fund and db x-trackers Australia SSA Bonds ETF. The three financial products that were the most significant detractors from performance were Franklin Global Aggregate Bond Fund, db x-trackers MSCI Europe ETF and Franklin Japan Fund. More generally, fixed income assets made strong contributions overall, with the corporate and high-yield bond sectors generating the strongest gains. This trend was boosted by increased interest from investors in their search for higher yields. The area of the portfolio that made the most notable detraction from absolute performance was broadly diversified global bond funds. A number of portfolio positions were initiated mainly in April 2016 based on the portfolio strategy described above e.g. ishares Edge S&P 500 Minimum Volatility ETF, UBS Factor MSCI USA Quality ETF, db x-trackers Global Sovereign ETF, db x-trackers iboxx $ Treasuries ETF, ishares $ TIPS ETF or Templeton Emerging Markets Smaller Companies Fund. On the other side a number of positions were sold in 2016 e.g. db x-trackers MSCI Europe ETF, Franklin Mutual Beacon Fund, ishares Euro Government Bond 1-3 ETF, db x-trackers iboxx $ Treasuries 1-3 ETF, Franklin Strategic Income Fund, Franklin U.S. Opportunities Fund, 15

18 16 Franklin Asian Smaller Companies Fund or db x-trackers Australia SSA Bonds ETF. Each position initiated or closed was related to a specific portfolio management decision to increase diversification, tilt asset allocation, or select a more appropriate financial instrument or asset mix. Derivatives were an important component of portfolio strategy in the fiscal year 2016, particularly in managing equity and currency exposures. Put and call option contracts were initiated and closed several times to efficiently manage exposure and overall portfolio risk. Currency forward contracts were used to hedge exposure to currencies such as the U.S. Dollar, the Australian Dollar and the Japanese Yen. However, these hedges were a drag on performance during a reporting period of euro weakness.

19 db Advisory Multibrands GAM Absolute Return Strategy Fund Investment objective and performance in the reporting period The objective of the investment policy of db Advisory Multibrands GAM Absolute Return Strategy Fund is to pursue a medium-long term capital appreciation with a low volatility risk profile, seeking globally the best investment ideas that according to the sub-fund management lead to positive returns throughout the economic cycle and markets conjuncture. To this end, the sub-fund invests in various funds that invest globally in equities and liquid alternative strategies. db Advisory Multibrands GAM Absolute Return Strategy Fund may also invest in bond funds, balanced funds, ETFs, money market funds and cash. The sub-fund invests primarily in funds managed by the fund manager and GAM group affiliated parties. The whole amount of the sub-fund s net assets may be invested in funds with absolute/total return strategy or Funds/ETFs which follow bond, multi-asset class and/or balanced strategy. Up to 30% of the sub-fund s net assets may be invested in equity funds. Up to 50% of the sub-fund s net assets may be invested in money market funds and cash has been characterized from the beginning by significant market volatility and exogenous events that heavily influenced its behaviour. January and February marked the period of most intense correction, while the subsequent recovery was uneven and affected by frequent market rotations. Some events took the stage in the course of the year: among those, monetary policies from the main Central Banks, Brexit, U.S. presidential election and the Italian referendum. Market reactions to these events were in most cases not that consistent with the outcome. At the end of the fiscal year, Trump s victory paved the way to a general reflationary repositioning, favouring value cyclicals and selling off treasuries. The thesis, to be challenged, is that with the introduction of relevant fiscal policies, it will be possible to stimulate consumption and investments. Against this challenging backdrop, the sub-fund recorded a decline of 0.6% per share (LC share class, BVI method, in euro) in the 2016 fiscal year. db Advisory Multibrands - GAM Absolute Return Strategy Fund Performance of share classes (in euro) Share class ISIN 1 year Since inception 1 Class LC LU % -4.9% Class LD LU % -4.9% Class PFC LU % 1 Classes LC and LD launched on February 27, 2015 / Class PFC launched on January 19, 2016 BVI method performance, i.e., excluding the initial sales charge. Past performance is no guide to future results. As of: December 31, 2016 Investment policy in the reporting period The reporting period from January to December 2016 proved to be challenging for the portfolio, negatively impacted at the beginning of the fiscal year by the sharp correction in equity markets. After a 4.6% drawdown in the first 5 weeks of 2016, the portfolio has nicely recovered ending the fiscal year with a negative 0.6% performance. From an asset allocation perspective, sub-fund s management started the fiscal year with a conservative approach, 17.5% equity exposure and 17% cash. The positive contribution of absolute return bond strategies and the material cash exposure could dampen but not prevent the shortfall caused by equity sell-off. Since then db Advisory Multibrands 17

20 GAM Absolute Return Strategy Fund increased over the course of the fiscal year the exposure to equity investments and absolute return strategies and reduced the cash to 0.5% of net assets in September. Equity exposure in particular, has been slightly risen in February, March and April (up to 19%) and then reduced to 15% of net assets before the Brexit referendum. By the end of the summer the exposure was back at 19% and by year end it was at 21% of net assets. During the reporting period there have been several changes also in the geographic and sector allocation. In March 2016 the Julius Baer Multistock Health Innovation Fund -B- has been sold to buy the Julius Baer Multistock - Energy Fund -B-, to benefit from raising commodity prices. In April Julius Baer Multistock - Europe Focus Fund -B- has been switched into value strategies (Julius Baer Multistock - Euroland Value Stock Fund -B- and Julius Baer Multistock - German Value Stock Fund -B-) to benefit from style rotation and emerging equity exposure has been increased buying the Julius Baer Multistock - Eastern Europe Focus Fund -B-. During the summer, the equity exposure has been increased mainly through the Julius Baer Multistock Global Equity Income Fund -B- EUR (Global Value) and Julius Baer Multistock Asia Focus Fund B-. In October the Julius Baer Multistock Europe Small & Mid Cap Stock Fund B- has been sold to increase the emerging equity exposure (Julius Baer Multistock Emerging Equity Fund -B-). In the same month the multi asset fund Julius Baer Multicooperation - Asset Allocation Fund Defender -Bhas been completely sold due to its merger in another GAM fund, not investible by db Advisory Multibrands GAM Absolute Return Strategy Fund. In December, after the Trump election, the sub-fund sold the entire position of the Julius Baer Multistock China Evolution Fund -B-, taking profit of the good performance. In the liquid alternative strategies, all the absolute and total return bond funds contributed positively in 2016 whereas the Julius Baer Multistock Europe Focus Fund -B- was the biggest detractor throughout the fiscal year. Despite being a market neutral strategy, the sub-fund suffered the sector and quality rotation and for this reason has been gradually reduced. 18

21 db Advisory Multibrands Invesco Multi Asset Risk Diversified Investment objective and performance in the reporting period The objective of the investment policy of db Advisory Multibrands Invesco Multi Asset Risk Diversified is to achieve long-term capital appreciation. To this end, the sub-fund invests in various, actively managed funds and exchange traded funds. The investment focus is on different asset classes, such as fixed income, equities and commodities. The sub-fund may also invest in money market funds, money market instruments and liquid assets. Investments are primarily made in European and US-funds for which Invesco and its subsidiaries act as managers. Derivatives may also be used for hedging and for efficient portfolio management. In the reporting period, the investment environment was characterized partially by negative interest rates in the industrial countries as well as potentially unplanned side effects and uncertainty regarding the future course of the European Central Bank (ECB) and U.S. interest rate development. In addition to that the general key risks were expectations regarding the development of the Chinese economy and impact on the global economy as well as the consequences of the United Kingdom leaving the European Union ( Brexit ) and political outlook due to upcoming elections in Europe. Against this challenging backdrop, db Advisory Multibrands Invesco Multi Asset Risk Diversified appreciated by 2.5% per share (LC share class, BVI method, in euro) in the 2016 fiscal year. Investment policy in the reporting period The main reason for db Advisory Multibrands Invesco Multi Asset Risk Diversified having closed positively in the fiscal year 2016 was its successful USD exposure. The underweight in developed markets sovereign bonds has been a negative contributor to performance for the first half of the year, but this reversed in the second half. In the context of last year s geopolitical and economic uncertainty, the asset allocation was still quite cautious. The sub-fund s management started the fiscal year with an underweight positioning in equities, which was reduced db Advisory Multibrands Invesco Multi Asset Risk Diversified Performance of share classes (in euro) Share class ISIN 1 year 3 Years Since inception 1 Class LC LU % 12.9% 17.5% Class PFC LU % 1 Class LC launched on March 8, 2013 / Class PFC launched on January 19, 2016 BVI method performance, i.e., excluding the initial sales charge. Past performance is no guide to future results. As of: December 31, 2016 close to neutrality over the year. Despite the sub-fund s overweight in some equity markets, such as Europe and the US, the positioning has been detrimental when equities rebounded strongly. Also, as the sector preference generally was for sectors with visible growth, interesting valuations and relative stable business models, there were periods during the fiscal year when the best performing sectors were the most defensive and expensive ones, or a powerful rotation into cyclical sectors with little visibility on earnings growth: these situations tended not to support sub-fund s performance. Furthermore, the portfolio s underweight in Government bonds has also been a performance detractor, especially in the first half of the year when rates kept decreasing. That 19

22 reversed from October 2016 on, as the yields of German bonds, in particular, increased sharply. Overall, the positioning in bonds tended to prefer corporate securities. In 2016, both on the equities and the fixed income side, the preference in geographic terms went to Europe and the US, whilst the sub-fund was underweight Emerging Markets. The sector positioning was a consequence of the sub-fund s picking and the geographic asset allocation in the portfolio. Over the year, major overweights were in financials and consumer cyclicals, while the most significant underweight was in Government bonds. The reasons for overweights in corporate bonds, both High Yield and Investment Grade, over Government bond were better sources of income, especially during a period of declining government yields. Additionally, their spread offered some protection at times of increasing yields, if those increases were benign, i.e. at least partly related to improvements in economic conditions. The best performing investments, in Euro terms, were the PowerShares S&P 500 High Dividend Low Volatility ETF which seeks investment results that generally correspond to the price and yield of the S&P 500 Low Volatility High Dividend Index as well as the PowerShares Global Buyback Achievers ETF which replicates the NASDAQ Global Buyback Achievers Net Total Return Index. The Index was designed to track the performance of US and International securities issued by corporations that have effected a net reduction in shares outstanding of 5% or more. The Invesco Global Smaller Companies Fund which intends to invest mainly in shares of smaller companies quoted on the world s stock markets was also one of the best performing investments. Depending on the sub-fund selection process mostly driven by how appropriately the target funds fit with the asset allocation and the strategic view for the portfolio, the most relevant new positions were the PowerShares S&P 500 High Dividend Low Volatility ETF (see above) as well as the Invesco US High Yield Bond Fund focussing on Non-Investment Grade debt securities issued by US issuers. Another tactical allocation was in Petercam High Yield Short Term fund which is mainly invested in bonds denominated in euro therefore also securities with a rating below BBB-. A newly added investment during the reporting period was the Invesco Global Smaller Companies Fund based on investments mainly in shares of smaller companies, which are quoted on the world s stock markets. The most relevant sales of entire positions during 2016 were the sales of the Invesco Global Total Return, Invesco Global Equity Income and Invesco Global Small Cap Equity funds. Also the positions in the ishares Core S&P 500 and ishares S&P 500 Minimum Volatility ETF were discontinued during the year. The sub-fund manager used derivatives both for exposure or hedging purposes (e. g. S&P 500 futures, Euro Stoxx 50 futures, EUR/USD futures). The US dollar investments of db Advisory Multibrands Invesco Multi Asset Risk Diversified have been a positive contributor to return in

23 db Advisory Multibrands JPMorgan Emerging Markets Active Allocation Investment objective and performance in the reporting period The objective of the investment policy of db Advisory Multibrands JPMorgan Emerging Markets Active Allocation is to achieve long-term capital appreciation. To this end, the sub-fund s assets are invested in various investment funds and exchange-traded funds that invest in equities and debt instruments from emerging market countries, as well as in short-term bond funds, money market funds, money market instruments and liquid assets. The sub-fund invests primarily in funds that are managed by JPMorgan and associated companies of the JPMorgan Chase & Co. group. A minimum of 20% of the sub-fund s net assets are invested in each equity funds for emerging market countries and bond funds for emerging market countries. Derivative instruments may be used for hedging purposes and for efficient portfolio management. Emerging markets posted positive returns in 2016 and outperformed developed markets after three consecutive years of developed market dominance. This positive return, however, masks the fact that 2016 was a difficult year to navigate. In the reporting period, the investment climate was characterized by historically low interest rates in the industrial countries as well as pronounced volatility in the capital markets. This volatility was mostly due to the high level of indebtedness worldwide alongside the uncertainty regarding a possible change of direction in interest rates led by the United States. In addition, global economic growth weakened, stemming from the noticeable slowdown in the emerging markets. Furthermore, the uncertainty regarding an imminent Brexit increasingly became the focus of attention from market participants over the course of the year. Ongoing uncertainty in fixed income markets centered on fundamental and technical drivers including continued concern of European banks. Several political events (elections and/ or referendums) affected the financial markets and the economic outlook going forward. Against this challenging backdrop db Advisory Multibrands JPMorgan Emerging Markets Active Allocation achieved an db Advisory Multibrands JPMorgan Emerging Markets Active Allocation Performance of share classes (in euro) Share class ISIN 1 year 3 years Since inception 1 Class LC LU % 14.3% 3.3% Class PFC LU % -4.8% 1 Class LC launched on March 8, 2013 / Class PFC launched on May 11, 2015 BVI method performance, i.e., excluding the initial sales charge. Past performance is no guide to future results. As of: December 31, 2016 appreciation of 10.3% per share (LC share class, BVI method, in euro) in the 2016 fiscal year. Investment policy in the reporting period All factors above in the global economic environment including politics, currency and commodities considered key risks relevant for the sub-fund in the reporting period. Of note though were U.S. Dollar strength and the potential for emerging markets unfriendly policies from the new U.S. administration. The U.S. Dollar has proven to be the primary contributor to disappointing emerging markets earnings over the past, so any reversal of that trend in the reporting period was a welcome development in the eyes in emerging markets investors. Another risk to emerging markets to 21

24 consider was the potential for a U.S.-led wave of protectionism and unproductive economic confrontation with China. The Trump administration s announcement that NAFTA should be reviewed, and perhaps renegotiated, was a sign that negotiation was the new president s preferred approach, rather than blanket repeal, which the market may have feared. On foreign policy, the suggestion that U.S. policy towards China may be changing in meaningful way was also a risk, with consequences that were difficult to predict. The asset class started the year with a China-led market collapse in January, followed by a recovery rally off valuation lows in February through to the end of April. Post a small correction, emerging markets then rallied to a peak in September. However, the emerging markets outperformance of developed markets reversed post the U.S. presidential elections. Emerging market equities have shown impressive resilience in recent months, despite concerning statements from the new U.S. administration regarding trade, immigration and U.S. relations with China. The sub-fund s management stressed the importance of an unconstrained but selective approach to investing in emerging markets, and believed differentiation was very important. For successful allocation and stock-picking approaches the sub-fund used the opportunity to deliver outperformance by identifying and taking advantage of these differences. The sub-fund ended the fiscal year with double digit absolute returns. Strong relative performance, in March and April 2016, as the U.S. Dollar weakened and China released better economic data, boosted returns, however, the weak equity performance post U.S. presidential election hurt returns, given that the sub-fund was overweight equities versus fixed income. db Advisory Multibrands JPMorgan Emerging Markets Active Allocation debated investment themes, country positioning and the broad direction and degree of the equity and debt positioning. However, the primary driver of returns were security selection. That was because combining equity and debt significantly expands the opportunity set and diversity of investable securities. The sub-fund reduced the overweight in equities as economic/earning fundamentals had deteriorated, emerging markets FX risks increased, yet equity valuations remained the same, while bond spreads had widened. That said, the exposure of the account remained overweight emerging markets equities relative to debt. Into March 2016, the sub fund s management decided to remove the equity overweight, taking neutral equity versus debt, as it remained concerned about the earnings recovery trajectory and the bounce in emerging markets equities had meant that the valuation call between equity and debt was more nuanced. A neutral stance between equity and debt remained throughout the summer months as the portfolio focussed on development on the earnings front in equities, to broaden out from its initial concentration in commodity related sectors. At the start of October 2016 the management decided to increase equities and reduce debt. This was driven by the view that emerging markets bonds had provided solid returns year to date. The surprise presidential election of Donald Trump in early November led to an immediate sell-off in emerging markets stocks and currencies, as many investors feared that the president-elect might follow through on campaign threats to dismantle trade agreements, build a wall on the U.S.-Mexico border and levy significant tariffs on imports from China. This unexpected turn of events forced the sub-fund to modify the view somewhat. The management still saw improvements in the underlying growth 22