Deutsche Variable Series Ii N-CSR Certified annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM N-CSR

Investment Company Act file number: 811-05002

Deutsche Variable Series II

(Exact Name of Registrant as Specified in Charter)

345 Park Avenue

New York, NY 10154-0004

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, including Area Code: (212) 250-3220

Paul Schubert

345 Park Avenue

New York, NY 10154-0004

(Name and Address of Agent for Service)

Date of fiscal year end:	12/31
Date of reporting period:	12/31/2017

ITEM 1. REPORT TO STOCKHOLDERS

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche Alternative Asset Allocation VIP

Contents

3	Performance Summary
5	Management Summary
7	Portfolio Summary
8	Investment Portfolio
10	Statement of Assets and Liabilities
10	Statement of Operations
11	Statements of Changes in Net Assets
12	Financial Highlights
13	Notes to Financial Statements
17	Report of Independent Registered Public Accounting Firm
18	Information About Your Fund’s Expenses
19	Tax Information
19	Proxy Voting
20	Advisory Agreement Board Considerations and Fee Evaluation
23	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

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; the political, general economic, liquidity and currency risks of foreign investments, which may be particularly significant for emerging markets; 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); and short sales risk. 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. Because Exchange Traded Notes (ETNs) are senior, unsecured, unsubordinated debt securities of an issuer (typically a bank or bank holding company), ETNs are subject to the credit risk of the issuer and may lose value due to a downgrade in the issuer’s credit rating. The returns of an ETN are linked to the performance of an underlying instrument (typically an index), minus applicable fees. ETNs typically do not make periodic interest payments and principal typically is not protected. The value of an ETN may fluctuate based on factors such as time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in the underlying assets, changes in the applicable interest rates, and economic, legal, political or geographic events that affect the underlying assets. The fund bears its proportionate share of any fees and expenses borne by the ETN. Because ETNs trade on a securities exchange, their shares may trade at a premium or discount to their net asset value. 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. Please read 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.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED    NO BANK GUARANTEE    MAY LOSE VALUE    NOT A DEPOSIT

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.

The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 are 1.64% and 1.93% for Class A and Class B 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.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche Alternative Asset Allocation VIP from 2/2/09 to 12/31/17

The Morgan Stanley Capital International (MSCI) World Index captures large and mid cap representation across 23 Developed Market countries.   The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index representing domestic taxable investment-grade bonds, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities with an average maturity of one year or more.   The Blended Index is calculated using the performance of two unmanaged indices, representative of stocks (the MSCI World Index (70%)) and bonds (the Bloomberg Barclays U.S. Aggregate Bond Index (30%)). These results are summed to produce the aggregate benchmark.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Comparative Results
Deutsche Alternative Asset Allocation VIP		1-Year	3-Year	5-Year	Life of Fund*
Class A	Growth of $10,000	$10,741	$10,598	$11,072	$16,761
	Average annual total return	7.41%	1.96%	2.06%	5.97%
MSCI World Index	Growth of $10,000	$12,719	$12,538	$13,896	$30,209
	Average annual total return	27.19%	7.83%	6.80%	13.21%
Bloomberg Barclays U.S. Aggregate Bond Index	Growth of $10,000	$10,354	$10,687	$11,095	$14,198
	Average annual total return	3.54%	2.24%	2.10%	4.01%
Blended Index	Growth of $10,000	$11,645	$12,335	$15,252	$24,641
	Average annual total return	16.45%	7.24%	8.81%	10.64%

The growth of $10,000 is cumulative.

* The Fund commenced offering Class A shares on February 2, 2009. The performance shown for each index is for the time period of January 31, 2009 through December 31, 2017, which is based on the performance period of the life of the Fund.

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 3

Deutsche Alternative Asset Allocation VIP		1-Year	3-Year	5-Year	Life of Class**
Class B	Growth of $10,000	$10,701	$10,500	$10,921	$15,054
	Average annual total return	7.01%	1.64%	1.78%	4.86%
MSCI World Index	Growth of $10,000	$12,719	$12,538	$13,896	$27,217
	Average annual total return	27.19%	7.83%	6.80%	12.31%
Bloomberg Barclays U.S. Aggregate Bond Index	Growth of $10,000	$10,354	$10,687	$11,095	$13,871
	Average annual total return	3.54%	2.24%	2.10%	3.87%
Blended Index	Growth of $10,000	$11,645	$12,335	$15,252	$21,845
	Average annual total return	16.45%	7.24%	8.81%	9.53%

The growth of $10,000 is cumulative.

** The Fund commenced offering Class B shares on May 18, 2009. The performance shown for each index is for the time period of May 31, 2009 through December 31, 2017, which is based on the performance period of the life of Class B.

4 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Management Summary December 31, 2017 (Unaudited)

The Fund returned 7.41% (Class A shares, unadjusted for contract charges) during 2017, trailing the 16.45% gain of its blended benchmark. When assessing performance, it is important to keep in mind that the Fund’s objective is not to match the short-term returns of either stocks or bonds, but rather to provide investors with a way to augment longer-term portfolio diversification through investments in alternative assets. (Diversification cannot protect against loss.)

The Fund generated positive returns across multiple segments of the portfolio during the past year. Among the Fund’s various allocations, the SPDR Bloomberg Barclays Convertible Securities ETF made the largest contribution to performance. Convertible bonds benefited from the gains in global equities and the hearty demand for income-producing assets. The ETF has been a robust contributor since it was first added to the portfolio in September 2011, and we continue to see convertibles as a way to generate income with a lower degree of interest-rate risk than bonds.

Our allocation to infrastructure stocks, which we achieved through a position in Deutsche Global Infrastructure Fund and a more recently added holding in iShares Global Infrastructure ETF, was another notable contributor. The category produced healthy returns amid signs of strengthening global growth. We continue to view infrastructure stocks as an attractive way to achieve exposure to the global equity markets due to their historically steady revenues, above-average income and potential to benefit from the expanding need for infrastructure to serve the world’s growing population.

The Fund’s allocation to real estate investment trusts (REITs) also generated healthy gains. The category was boosted by the combination of investors’ continued preference for income, the improving health of the world property markets and expectations that the U.S. Federal Reserve will be able to maintain a gradual and well-communicated approach to raising interest rates.

The Fund’s allocation to commodities—which it achieved through Deutsche Enhanced Commodity Strategy Fund—posted a slight gain but was a drag on returns relative to the benchmark. While the asset class finished in positive territory thanks to a rally in oil and industrial metals in the second half of the year, it did not keep pace with the strong rally in equities. We continue to view commodities as an attractive source of longer-term diversification. (Diversification cannot protect against loss.)

On the fixed-income side, positions in emerging-markets bond funds made the largest contribution to performance. The category registered a healthy advance and comfortably outpaced investment-grade bonds thanks to the combination of stronger growth in the emerging markets and investors’ appetite for higher-yielding market segments. Allocations to floating-rate debt and inflation-linked bonds, while positive, delivered more muted returns on the year.

In determining the Fund’s allocations, our general approach was to emphasize risk- and credit-sensitive asset categories. At the same time, we sought to maintain a low degree of interest-rate risk in response to the backdrop of stronger economic growth and the potential for tighter monetary policy by the world’s central banks. In our view, these factors made the case for higher-yielding and economically sensitive market segments over those with more direct interest-rate exposure.

During the second half of the year, we took steps to augment diversification by adding to new categories such as preferred stocks and as diversifying existing allocations between active and passively managed portfolios. We also eliminated the Fund’s position in inflation-linked bonds and rotated the proceeds into areas where we saw greater potential upside.

More broadly speaking, we continued to seek well-diversified exposure to the alternative asset classes, with an emphasis on investments that we think can help the Fund achieve competitive results over a multi-year period. We believe this approach offers a continued source of diversification for those who are primarily invested in traditional asset classes.

Pankaj Bhatnagar, PhD, Managing Director

Darwei Kung, Managing Director

Portfolio Managers

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 5

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 Blended Index is calculated using the performance of two unmanaged indices, representative of stocks (the Morgan Stanley Capital International (MSCI) World Index (70%) and bonds (the Barclays U.S. Aggregate Bond Index (30%). These results are summed to produce the aggregate benchmark. Index returns do not reflect fees or expenses and it is not possible to invest directly into an index.

An exchanged-traded fund (ETF) is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.

Inflation-protected securities are types of fixed-income investments that offer a nominal return plus the inflation rate.

Convertible bonds are bonds that are issued by corporations and that can be converted to shares of the issuing company’s stock at the bondholder’s discretion.

Preferred stocks are hybrid securities that offer some of the features of both stocks and bonds.

6 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Portfolio Summary (Unaudited)

Asset Allocation* (As a % of Investment Portfolio excluding Cash Equivalents)	12/31/17		12/31/16
Real Asset		49%		50%
Deutsche Enhanced Commodity Strategy Fund		14%		17%
Deutsche Global Infrastructure Fund		12%		11%
iShares Global Infrastructure ETF		10%		—
Deutsche Global Real Estate Securities Fund		9%		0%
Deutsche Real Estate Securities Fund		4%		6%
Deutsche Global Inflation Fund		—		16%
Alternative Fixed Income		25%		38%
Deutsche Emerging Markets Fixed Income Fund		9%		18%
Deutsche Floating Rate Fund		8%		11%
VanEck Vectors JPMorgan EM Local Currency Bond ETF		4%		7%
iShares JPMorgan USD Emerging Markets Bond ETF		4%		—
WisdomTree Emerging Markets Local Debt ETF		—		2%
Alternative Equity		20%		12%
SPDR Bloomberg Barclays Convertible Securities ETF		15%		12%
iShares U.S. Preferred Stock ETF		5%		—
Absolute Return		6%		—
VelocityShares Daily Inverse VIX Short Term ETN		3%		—
PowersShares DB U.S. Dollar Index Bullish Fund		2%		—
ProShares Short VIX Short-Term Futures ETF		1%		—
		100%		100%

* During the periods indicated, asset categories and investment strategies represented in the fund’s portfolio fell into the following categories: Real Assets, Alternative Fixed Income, Alternative Equity, and Absolute Return. Real Asset investments have a tangible or physical aspect such as real estate or commodities. Alternative Fixed Income investments seek to offer exposure to categories generally not included in investors’ allocations and to foreign investments, many of which are not denominated in US dollars. Alternative Equity investments are investments primarily in convertible and preferred instruments that offer equity exposure. Absolute Return investments seek positive returns in all market environments or seek to increase the diversification or liquidity of the fund’s portfolio.

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 8.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 7

Investment Portfolio December 31, 2017

	Shares		Value ($)
Mutual Funds 53.4%
Deutsche Emerging Markets Fixed Income Fund “Institutional” (a)		1,725,894		16,551,326
Deutsche Enhanced Commodity Strategy Fund “Institutional” (a)		2,102,819		25,128,692
Deutsche Floating Rate Fund “Institutional” (a)		1,622,166		13,334,203
Deutsche Global Infrastructure Fund “Institutional” (a)		1,391,133		20,825,265
Deutsche Global Real Estate Securities Fund “Institutional” (a)		1,623,513		14,968,792
Deutsche Real Estate Securities Fund “Institutional” (a)		362,322		7,376,866
Total Mutual Funds (Cost $94,858,409)				98,185,144
Exchange-Traded Funds 39.7%
iShares Global Infrastructure ETF		385,600		17,436,832
iShares JPMorgan USD Emerging Markets Bond ETF		61,600		7,151,760
iShares U.S. Preferred Stock ETF		249,000		9,479,430
PowerShares DB U.S. Dollar Index Bullish Fund*		145,599		3,498,744
ProShares Short VIX Short-Term Futures ETF*		14,000		1,794,940

	Shares			Value ($)
SPDR Bloomberg Barclays Convertible Securities ETF		521,820			26,404,092
VanEck Vectors JPMorgan EM Local Currency Bond ETF		380,598			7,223,750
Total Exchange-Traded Funds (Cost $71,567,934)					72,989,548
Exchange-Traded Note 2.7%
VelocityShares Daily Inverse VIX Short Term ETN* (Cost $4,076,285)		37,200			5,001,168
Cash Equivalents 7.1%
Deutsche Central Cash Management Government Fund, 1.30% (a) (b) (Cost $12,941,460)		12,941,460			12,941,460
	% of Net Assets			Value ($)
Total Investment Portfolio (Cost $183,444,088)		102.9			189,117,320
Other Assets and Liabilities, Net		(2.9	)		(5,273,176	)
Net Assets		100.0			183,844,144

* Non-income producing security.

(a) Affiliated fund managed by Deutsche Investment Management Americas Inc.

(b) The rate shown is the annualized seven-day yield at period end.

EM: Emerging Markets

SPDR: Standard & Poor’s Depositary Receipt

The Fund mainly invests in Underlying Deutsche Funds and Non-affiliated ETFs. The Underlying Deutsche Funds in which the Fund invests are considered to be affiliated investments.

A summary of the Fund’s transactions with affiliated Underlying Deutsche Funds during the year ended December 31, 2017 are as follows:

Affiliate	Value ($) at 12/31/2016		Purchases Cost ($)		Sales Cost ($)		Realized Gain/ (Loss) ($)			Change in Unrealized Appreciation (Depreciation) ($)			Income Distributions ($)		Capital Gain Distributions ($)		Value ($) at 12/31/2017
Deutsche Emerging Markets Fixed Income Fund		20,632,739		11,751,962		16,939,000		(717,219	)		1,822,844			634,709		—		16,551,326
Deutsche Enhanced Commodity Strategy Fund		18,836,483		14,989,582		9,000,000		(3,662,671	)		3,965,298			97,582		—		25,128,692
Deutsche Floating Rate Fund		12,592,284		3,147,147		2,000,000		(237,374	)		(167,854	)		630,196		—		13,334,203
Deutsche Global Inflation Fund		18,478,680		4,990,000		24,122,428		594,650			59,098			—		—		—
Deutsche Global Infrastructure Fund		12,207,777		6,954,381		—		—			1,663,107			398,381		—		20,825,265
Deutsche Global Real Estate Securities Fund		422,249		14,563,718		—		—			(17,175	)		367,718		—		14,968,792

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Affiliate	Value ($) at 12/31/2016		Purchases Cost ($)		Sales Cost ($)		Realized Gain/ (Loss) ($)			Change in Unrealized Appreciation (Depreciation) ($)		Income Distributions ($)		Capital Gain Distributions ($)		Value ($) at 12/31/2017
Deutsche Real Estate Securities Fund		6,637,281		3,025,409		2,500,000		(180,103	)		394,279		357,102		197,440		7,376,866
Deutsche Central Cash Management Government Fund		18,239,998		95,047,021		100,345,559		—			—		132,263		—		12,941,460
Total		108,047,491		154,469,220		154,906,987		(4,202,717	)		7,719,597		2,617,951		197,440		111,126,604

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 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	$	98,185,144	$	—	$	—	$	98,185,144
Exchange-Traded Funds		72,989,548		—		—		72,989,548
Exchange-Traded Note		5,001,168		—		—		5,001,168
Short-Term Investment		12,941,460		—		—		12,941,460
Total	$	189,117,320	$	—	$	—	$	189,117,320

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 9

Statement of Assets and Liabilities

as of December 31, 2017
Assets
Investments in affiliated Underlying Funds, at value (cost $107,799,869)	$	111,126,604
Investments in non-affiliated Underlying Funds, at value (cost $75,644,219)		77,990,716
Cash		10,000
Receivable for investments sold		818,921
Receivable for Fund shares sold		110,402
Dividends receivable		31,818
Interest receivable		14,421
Other assets		3,892
Total assets		190,106,774
Liabilities
Payable for investments purchased		6,121,536
Payable for Fund shares redeemed		13,237
Accrued Trustees’ fees		2,170
Other accrued expenses and payables		125,687
Total liabilities		6,262,630
Net assets, at value	$	183,844,144
Net Assets Consist of
Undistributed net investment income		3,670,578
Net unrealized appreciation (depreciation) on investments		5,673,232
Accumulated net realized gain (loss)		(6,552,275	)
Paid-in capital		181,052,609
Net assets, at value	$	183,844,144
Class A
Net Asset Value, offering and redemption price per share ($26,972,476 ÷ 1,982,448 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	13.61
Class B
Net Asset Value, offering and redemption price per share ($156,871,668 ÷ 11,540,895 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	13.59

     Statement of Operations

for the year ended December 31, 2017
Investment Income
Income:
Income distributions from affiliated Underlying Funds	$	2,617,951
Dividends		1,795,674
Total income		4,413,625
Expenses:
Management fee		734,580
Administration fee		158,954
Record keeping fees (Class B)		48,193
Services to shareholders		2,968
Distribution service fee (Class B)		333,316
Custodian fee		5,796
Professional fees		72,095
Reports to shareholders		31,057
Registration fees		5
Trustees’ fees and expenses		8,728
Other		3,987
Total expenses before expense reductions		1,399,679
Expense reductions		(714,830	)
Total expenses after expense reductions		684,849
Net investment income (loss)		3,728,776
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from: Sale of affiliated Underlying Funds		(4,202,717	)
Sale of non-affiliated Underlying Funds		1,114,179
Capital gain distributions from affiliated Underlying Funds		197,440
		(2,891,098	)
Change in net unrealized appreciation (depreciation) on investments
Affiliated Underlying Funds		7,719,597
Non-affiliated Underlying Funds		2,370,556
		10,090,153
Net gain (loss)		7,199,055
Net increase (decrease) in net assets resulting from operations	$	10,927,831

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income	$	3,728,776		$	2,874,142
Net realized gain (loss)		(2,891,098	)		(1,444,719	)
Change in net unrealized appreciation (depreciation)		10,090,153			3,861,095
Net increase (decrease) in net assets resulting from operations		10,927,831			5,290,518
Distributions to shareholders from:
Net investment income:
Class A		(586,944	)		(500,963	)
Class B		(2,539,240	)		(1,722,118	)
Total distributions		(3,126,184	)		(2,223,081	)
Fund share transactions:
Class A
Proceeds from shares sold		4,259,606			4,188,144
Reinvestment of distributions		586,944			500,963
Payments for shares redeemed		(3,329,766	)		(2,114,144	)
Net increase (decrease) in net assets from Class A share transactions		1,516,784			2,574,963
Class B
Proceeds from shares sold		53,356,061			27,389,957
Reinvestment of distributions		2,539,240			1,722,118
Payments for shares redeemed		(12,561,333	)		(12,422,361	)
Net increase (decrease) in net assets from Class B share transactions		43,333,968			16,689,714
Increase (decrease) in net assets		52,652,399			22,332,114
Net assets at beginning of period		131,191,745			108,859,631
Net assets at end of period (including undistributed net investment income of $3,670,578 and $3,070,645, respectively)	$	183,844,144		$	131,191,745
Other Information
Class A
Shares outstanding at beginning of period		1,866,984			1,666,853
Shares sold		321,873			325,638
Shares issued to shareholders in reinvestment of distributions		45,046			39,415
Shares redeemed		(251,455	)		(164,922	)
Net increase (decrease) in Class A shares		115,464			200,131
Shares outstanding at end of period		1,982,448			1,866,984
Class B
Shares outstanding at beginning of period		8,257,413			6,979,222
Shares sold		4,038,118			2,113,626
Shares issued to shareholders in reinvestment of distributions		194,727			135,280
Shares redeemed		(949,363	)		(970,715	)
Net increase (decrease) in Class B shares		3,283,482			1,278,191
Shares outstanding at end of period		11,540,895			8,257,413

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 11

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	12.97		$	12.60		$	13.88		$	13.75		$	13.90
Income (loss) from investment operations:
Net investment incomea		.33			.35			.29			.36			.26
Net realized and unrealized gain (loss)		.62			.31			(1.13	)		.13			(.13	)
Total from investment operations		.95			.66			(.84	)		.49			.13
Less distributions from:
Net investment income		(.31	)		(.29	)		(.41	)		(.27	)		(.28	)
Net realized gains		—			—			(.03	)		(.09	)		—
Total distributions		(.31	)		(.29	)		(.44	)		(.36	)		(.28	)
Net asset value, end of period	$	13.61		$	12.97		$	12.60		$	13.88		$	13.75
Total Return (%)b,c		7.41			5.30			(6.29	)		3.50			.93
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		27			24			21			20			15
Ratio of expenses before expense reductions (%)d,e		.64			.56			.53			.56			.64
Ratio of expenses after expense reductions (%)d,e		.19			.27			.33			.32			.27
Ratio of net investment income (%)		2.50			2.70			2.19			2.54			1.86
Portfolio turnover rate (%)		55			51			21			28			40

	Years Ended December 31,
Class B	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	12.96		$	12.59		$	13.87		$	13.74		$	13.88
Income (loss) from investment operations:
Net investment incomea		.31			.31			.25			.31			.22
Net realized and unrealized gain (loss)		.59			.31			(1.12	)		.14			(.11	)
Total from investment operations		.90			.62			(.87	)		.45			.11
Less distributions from:
Net investment income		(.27	)		(.25	)		(.38	)		(.23	)		(.25	)
Net realized gains		—			—			(.03	)		(.09	)		—
Total distributions		(.27	)		(.25	)		(.41	)		(.32	)		(.25	)
Net asset value, end of period	$	13.59		$	12.96		$	12.59		$	13.87		$	13.74
Total Return (%)b,c		7.01			4.99			(6.54	)		3.24			.75
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		157			107			88			94			84
Ratio of expenses before expense reductions (%)d,e		.93			.85			.83			.86			.93
Ratio of expenses after expense reductions (%)d,e		.48			.57			.62			.57			.52
Ratio of net investment income (%)		2.31			2.45			1.84			2.22			1.57
Portfolio turnover rate (%)		55			51			21			28			40

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Total return would have been lower if the Advisor had not reduced some Underlying Deutsche Funds’ expenses.

^d  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.

^e  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

The accompanying notes are an integral part of the financial statements.

12 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Alternative Asset Allocation VIP (the “Fund”) is a diversified series of Deutsche Variable Series II (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 mainly 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”), non-affiliated exchange-traded funds (“Non-affiliated ETFs”), non-affiliated exchange-traded notes (“Non-affiliated ETNs”) and derivative investments. Non-affiliated ETFs, Non-affiliated ETNs and Underlying Deutsche Funds are collectively referred to as “Underlying Funds.” During the year ended December 31, 2017, the Fund primarily invested in underlying Deutsche Funds and non-affiliated ETFs. Each Underlying Deutsche Fund’s accounting policies and investment holdings are outlined in the Underlying Deutsche Funds’ financial statements and are available upon request.

Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Sales of Class B shares are subject to recordkeeping fees up to 0.15% and Rule 12b-1 fees under the 1940 Act equal to an annual rate of 0.25% of the average daily net assets of the Class B shares of the Fund. Class A shares are not subject to such fees.

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class (including the applicable Rule 12b-1 fee). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.

The Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

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 Underlying Deutsche Funds and are categorized as Level 1.

ETFs and ETNs 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 and ETNs 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. ETFs and ETNs 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.

At December 31, 2017, the Fund had approximately $3,706,000 of long-term tax basis capital loss carryforwards, which may be applied against realized net taxable capital gains indefinitely.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 13

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 certain securities sold at a loss and capital gain distributions from Underlying Funds. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	3,670,578
Capital loss carryforward	$	(3,706,000	)
Unrealized appreciation (depreciation) on investments	$	2,826,696

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $186,290,624. The net unrealized appreciation for all investments based on tax cost was $2,826,696. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $7,332,590 and aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value of $4,505,894.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	3,126,184	$	2,223,081

* 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.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend Income is recorded on the ex-dividend date. 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 Securities

During the year ended December 31, 2017, purchases and sales of affiliated Underlying Funds (excluding money market funds) aggregated $66,281,862 and $57,789,993, respectively. Purchases and sales of Non-affiliated ETFs aggregated $71,196,158 and $22,311,623, 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 subadvisors.

RREEF America L.L.C. (“RREEF”), an indirect, wholly owned subsidiary of Deutsche Bank AG, acts as an investment subadvisor to the Fund. As an investment subadvisor to the Fund, RREEF provides investment management services to the portions of the Fund’s portfolio allocated to direct investments in global real estate and global infrastructure securities. RREEF is paid by the Advisor for the services RREEF provides to the Fund. As of the date of this report, the Fund obtained its exposure to global real estate and global infrastructure securities indirectly through investments in other Underlying Deutsche Funds.

14 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

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 December 31, 2017, the Fund held approximately 20% of Deutsche Emerging Markets Fixed Income Fund. Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

On assets invested in other Deutsche Funds	.20	%
On assets invested in all other assets not considered Deutsche Funds	1.20	%

Accordingly, for the year ended December 31, 2017, the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.46% of the Fund’s average daily net assets.

In addition, the Advisor will receive management fees from managing the Underlying Deutsche Funds in which the Fund invests.

For the period from January 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive its fees and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest expense and Underlying Funds) of each class as follows:

Class A	.23	%
Class B	.53	%

In addition, the Advisor has contractually agreed to waive its fees and/or reimburse fund expenses for the period July 17, 2017 through September 30, 2018 to the extent necessary to maintain the fund’s total annual operating expenses (including indirect expenses of Underlying Funds and excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expenses) of each class as follows:

Class A	.86	%
Class B	1.15	%

For the year ended December 31, 2017, the Advisor has voluntarily agreed to waive 0.15% of its management fee.

For the year ended December 31, 2017, fees waived and/or expenses reimbursed for each class are as follows:

Class A	$	115,360
Class B		599,470
	$	714,830

The Fund indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which it is invested.

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017, the Administration Fee was $158,954, of which $15,302 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017, the amounts charged to the Fund by DSC were as follows:

Services to Shareholders	Total Aggregated		Unpaid at December 31, 2017
Class A	$	131	$	33
Class B		247		61
	$	378	$	94

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 15

Distribution Service Agreement. Under the Fund’s Class B 12b-1 plan, Deutsche AM Distributors, Inc. (“DDI”) received a fee (“Distribution Service Fee”) of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2017, the Distribution Service Fee aggregated $333,316, of which $32,586 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017, the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $11,146, of which $3,672 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee.

D. Ownership of the Fund

At December 31, 2017, one participating insurance company was the owner of record of 10% or more of the total outstanding Class A shares of the Fund, owning 90%. Three participating insurance companies were the owner of record of 10% or more of the total outstanding Class B shares of the Fund, each owning 45%, 36% and 13%, respectively.

16 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and Shareholders of Deutsche Alternative Asset Allocation VIP:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche Alternative Asset Allocation VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.

Boston, Massachusetts

February 15, 2018

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 17

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In addition to the ongoing expenses which the Fund bears directly, the Fund’s shareholders indirectly bear the expense of the Underlying Funds in which the Fund invests. These expenses are not included in the Fund’s annualized expense ratios used to calculate the expense estimate in the tables. In the most recent six-month period, the Fund limited the ongoing expenses the Fund bears directly; had it not done so, expenses would have been higher. The examples in the table are based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return	Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,041.30	$	1,039.00
Expenses Paid per $1,000*	$	.77	$	2.26
Hypothetical 5% Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,024.45	$	1,022.99
Expenses Paid per $1,000*	$	.77	$	2.24

* Expenses are equal to the Fund’s annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratios**	Class A			Class B
Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP		.15	%		.44	%

** 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. These ratios do not include these indirect fees and expenses.

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

18 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Tax Information (Unaudited)

For corporate shareholders, 7% of income dividends paid during the Fund’s fiscal year ended December 31, 2017 qualified for the dividends received deduction.

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 19

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche Alternative Asset Allocation VIP’s (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) and sub-advisory agreement (the “Sub-Advisory Agreement” and together with the Agreement, the “Agreements”) between DIMA and RREEF America L.L.C. (“RREEF”), an affiliate of DIMA, in September 2017.

In terms of the process that the Board followed prior to approving the Agreements, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreements, the Board also reviewed the terms of the Fund’s Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA has managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund. DIMA and RREEF are part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s and RREEF’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreements, including the scope of advisory services provided under the Agreements. The Board noted that, under the Agreements, DIMA and RREEF provide portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. Throughout the course of the year, the Board also received information regarding DIMA’s oversight of fund sub-advisers, including RREEF. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has

20 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 1st quartile, 2nd quartile and 1st quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, sub-advisory fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were higher than the median (3rd quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that, since inception, DIMA has waived voluntarily a portion (0.15%) of the Fund’s management fee. With respect to any sub-advisory fee paid to RREEF, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted the Fund’s total (net) operating expenses and noted that the expense limitations agreed to by DIMA were expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable Deutsche U.S. registered funds (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA and RREEF.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA from advising the Deutsche Funds along with the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality. The Board did not receive profitability information with respect to the Fund, but did receive such information with respect to the funds in which the Fund invests. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. In this regard, the Board observed that while the Fund’s current investment management fee schedule does not include breakpoints, the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund, any fees received by an affiliate of DIMA for transfer agency services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 21

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreements is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreements.

22 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 23

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

24 | Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

Deutsche Variable Series II — Deutsche Alternative Asset Allocation VIP | 25

VS2AAA-2 (R-025824-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche CROCI^® U.S. VIP

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
9	Statement of Assets and Liabilities
9	Statement of Operations
10	Statements of Changes in Net Assets
11	Financial Highlights
12	Notes to Financial Statements
17	Report of Independent Registered Public Accounting Firm
18	Information About Your Fund’s Expenses
19	Tax Information
19	Proxy Voting
20	Advisory Agreement Board Considerations and Fee Evaluation
23	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

The fund will be managed using the CROCI^® Investment Process which is based on portfolio management’s belief that, over time, stocks which display more favorable financial metrics (for example, the CROCI^® Economic P/E Ratio) as generated by this process may outperform stocks which display less favorable metrics. This premise may not prove to be correct and prospective investors should evaluate this assumption prior to investing in the fund. Stocks may decline in value. The fund may lend securities to approved institutions. Please read the prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED     NO BANK GUARANTEE     MAY LOSE VALUE     NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.

The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 are 0.81% and 1.13% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche CROCI^® U.S. VIP

The Standard & Poor’s 500 Index (S&P 500) is an unmanaged, capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.   Prior to October 3, 2016, the Fund had a team that operated with a different investment strategy. Performance would have been different if the Fund’s current strategy had been in effect.

Comparative Results
Deutsche CROCI® U.S. VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$12,288	$10,942	$15,857	$15,366
	Average annual total return	22.88%	3.05%	9.66%	4.39%
S&P 500® Index	Growth of $10,000	$12,183	$13,829	$20,814	$22,603
	Average annual total return	21.83%	11.41%	15.79%	8.50%
Deutsche CROCI® U.S. VIP		1-Year	3-Year	5-Year	10-Year
Class B	Growth of $10,000	$12,245	$10,842	$15,619	$14,892
	Average annual total return	22.45%	2.73%	9.33%	4.06%
S&P 500® Index	Growth of $10,000	$12,183	$13,829	$20,814	$22,603
	Average annual total return	21.83%	11.41%	15.79%	8.50%

The growth of $10,000 is cumulative.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 3

Management Summary December 31, 2017 (Unaudited)

The Fund returned 22.88% (Class A shares, unadjusted for contract charges) in 2017, outpacing the 21.83% return for its benchmark, the S&P 500 Index. Effective May 1, 2017, the fund’s name changed from Deutsche Large Cap Value VIP to Deutsche CROCI^® U.S. VIP.

U.S. equities produced unusually positive performance in the past year, with steady gains, low volatility and a remarkable lack of any significant sell-offs. This favorable backdrop was especially supportive for the growth style, but value stocks — though experiencing healthy, double-digit returns — trailed the overall market. While the underperformance of value stocks would ordinarily be expected to act as a headwind to the Fund due to the nature of our approach, we overcame this obstacle and posted competitive results relative to the S&P 500 Index. We believe a key reason for this positive outcome is that even though value as a whole lagged, many of the stocks identified by the CROCI^® process in fact performed quite well.

We generated the widest margin of outperformance in the consumer staples sector, where the leading contributor was our overweight position in Wal-Mart Stores, Inc.* The stock registered market-beating returns despite the challenging environment for retailers, as investors gained confidence that the company could compete effectively with Amazon.com.* Kimberly-Clark Corp. and Estee Lauder Companies, Inc.* also contributed to our strong showing in the sector. Outside of consumer staples, the largest contribution came from a position in the homebuilder D.R. Horton, Inc.,* which produced returns well above the index behind rising housing prices and growing investor optimism regarding the industry outlook. Positions in the semiconductor stocks Lam Research Corp.,* KLA-Tencor Corp.,* Intel Corp.* also rallied amid an upturn in end-market demand.

Our security selection in utilities detracted from performance, due largely to the negative returns for our positions in PPL Corp. and Edison International. The financial sector was a further area of weakness for the Fund, primarily as a result of our position in U.S. Bancorp. Certain media stocks, including Discovery Communications, Inc. and Time Warner, Inc., were additional detractors of note. The retailer Target Corp.* — which suffered from a combination of weaker sales and rising costs — was our most notable individual detractor despite the stock’s recovery in the second half of the year.

Sector allocations, while a residual effect of our bottom-up stock selection process, nonetheless contributed to the Fund’s results in 2017. We gained a sizable advantage from having a zero-weighting in energy stocks, the only one of the 11 major sectors to post a negative return on the year. However, the benefit was offset to some extent by our overweight in the underperforming utilities sector. Although this aspect of our positioning was a detractor in the short term, we continue to find the sector home to a high representation of the undervalued stocks we seek. As of May 1, 2017, the fund’s strategy broadened to include companies in the financial sector.

The fundamental picture for the stock market improved considerably in 2017, highlighted by stronger economic growth and rising corporate earnings. These developments were accompanied by higher valuations, however, indicating that investors need to be selective in order to find the most compelling opportunities at the individual stock level. We think the Fund, by virtue of its emphasis on “real value,” is positioned to identify companies with the potential to outperform in a variety of market conditions. As of December 31, 2017, the Fund had a price-to-earnings ratio of 15.3 based on one-year forward earnings estimates, versus 19.0 for the S&P 500 Index. The portfolio also compared favorably to the benchmark in terms of its fundamentals, illustrated by its higher return on equity (22.11% vs. 19.2%). We believe the intrinsic value in the portfolio helps provide the Fund with a firm foundation for performance in the event that broader-market returns begin to slow from their unusually strong pace of the past year.

Di Kumble, CFA, Managing Director

John Moody, Vice President

Portfolio Managers

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.

4 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Terms to Know

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. Index returns do not reflect fees or expenses and it is not possible to invest directly into an index.

Cash Return On Capital Invested (CROCI^®), an investment process based on a proprietary valuation technique, attempts to understand the real value of a company by converting financial-statement data into a set of economic inputs that are used to calculate a valuation metric called “Economic P/E ratio,” which is comparable across markets, sectors and stocks. Economic value as calculated by the CROCI^® process via the adjustments to and normalizations of reported financial statements, conducted by CROCI’s team of company analysts. The management teams believes this process helps identify companies’ “real value.”

Contribution and detraction incorporate both a stock’s total return and its weighting in the index.

Overweight means the fund holds a higher weighting in a given sector or security than the benchmark. Underweight means the fund holds a lower weighting.

Price-to-earnings ratio (P/E) ratio (or accounting P/E ratio) compares a company’s current share price to its per-share earnings. The CROCI economic P/E ratio is a measure of valuation that incorporates all of the assets and liabilities of a company which are adjusted systematically by the CROCI team.

Return on equity is the amount of net income returned as a percentage of shareholders’ equity.

* Not held in the portfolio as of December 31, 2017

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 5

Portfolio Summary (Unaudited)

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)	12/31/17		12/31/16
Common Stocks		99%		99%
Cash Equivalents		1%		1%
		100%		100%
Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
Financials		18%		—
Consumer Discretionary		15%		15%
Industrials		15%		12%
Health Care		15%		17%
Utilities		14%		21%
Consumer Staples		10%		17%
Information Technology		8%		12%
Materials		5%		3%
Telecommunication Services		—		3%
		100%		100%

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 7.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Investment Portfolio December 31, 2017

	Shares		Value ($)
Common Stocks 99.2%
Consumer Discretionary 15.2%
Automobiles 2.2%
General Motors Co.		85,197		3,492,225
Household Durables 2.3%
Garmin Ltd.		61,385		3,656,704
Media 10.7%
CBS Corp. “B”		66,530		3,925,270
Discovery Communications, Inc. “A”* (a)		217,475		4,867,091
Time Warner, Inc.		42,809		3,915,739
Walt Disney Co.		36,702		3,945,832
				16,653,932
Consumer Staples 10.0%
Beverages 4.9%
Coca-Cola Co.		83,049		3,810,288
PepsiCo, Inc.		32,782		3,931,218
				7,741,506
Household Products 5.1%
Kimberly-Clark Corp.		32,947		3,975,385
Procter & Gamble Co.		42,893		3,941,009
				7,916,394
Financials 18.2%
Banks 10.4%
Citigroup, Inc.		52,991		3,943,061
JPMorgan Chase & Co.		38,655		4,133,766
U.S. Bancorp.		73,078		3,915,519
Wells Fargo & Co.		70,090		4,252,360
				16,244,706
Capital Markets 2.5%
Bank of New York Mellon Corp.		72,050		3,880,613
Consumer Finance 5.3%
American Express Co.		40,203		3,992,560
Capital One Financial Corp.		43,178		4,299,665
				8,292,225
Health Care 14.8%
Biotechnology 7.4%
Amgen, Inc.		22,368		3,889,796
Biogen, Inc.*		12,095		3,853,104
Gilead Sciences, Inc.		52,547		3,764,467
				11,507,367
Pharmaceuticals 7.4%
Johnson & Johnson		27,405		3,829,027
Merck & Co., Inc.		69,986		3,938,112
Pfizer, Inc.		107,061		3,877,749
				11,644,888
Industrials 15.2%
Aerospace & Defense 7.6%
Lockheed Martin Corp.		12,154		3,902,042
Raytheon Co.		20,592		3,868,207
United Technologies Corp.		32,431		4,137,223
				11,907,472

	Shares			Value ($)
Electrical Equipment 2.5%
Eaton Corp. PLC		50,077			3,956,584
Industrial Conglomerates 2.5%
Honeywell International, Inc.		25,615			3,928,316
Machinery 2.6%
Illinois Tool Works, Inc.		23,972			3,999,728
Information Technology 7.5%
Communications Equipment 2.6%
Cisco Systems, Inc.		103,860			3,977,838
IT Services 4.9%
Amdocs Ltd.		59,058			3,867,118
International Business Machines Corp.		25,088			3,849,001
					7,716,119
Materials 5.0%
Chemicals
LyondellBasell Industries NV “A”		36,486			4,025,135
Monsanto Co.		32,005			3,737,544
					7,762,679
Utilities 13.3%
Electric Utilities 8.8%
American Electric Power Co., Inc.		49,687			3,655,472
Edison International		46,908			2,966,462
NextEra Energy, Inc.		24,305			3,796,198
PPL Corp.		105,217			3,256,466
					13,674,598
Multi-Utilities 4.5%
DTE Energy Co.		33,722			3,691,210
Sempra Energy		31,780			3,397,918
					7,089,128
Total Common Stocks (Cost $142,979,705)					155,043,022
Securities Lending Collateral 3.2%
Deutsche Government & Agency Securities Portfolio “Deutsche Government Cash Institutional Shares”, 1.21% (b) (c) (Cost $4,968,641)		4,968,641			4,968,641
Cash Equivalents 0.9%
Deutsche Central Cash Management Government Fund, 1.30% (b) (Cost $1,372,351)		1,372,351			1,372,351
	% of Net Assets			Value ($)
Total Investment Portfolio (Cost $149,320,697)		103.3			161,384,014
Other Assets and Liabilities, Net		(3.3	)		(5,098,730	)
Net Assets		100.0			156,285,284

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 7

* Non-income producing security.

(a) All or a portion of these securities were on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The value of securities loaned at December 31, 2017 amounted to $4,782,718, which is 3.1% of net assets.

(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

(c) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1		Level 2		Level 3		Total
Common Stocks (d)	$	155,043,022	$	—	$	—	$	155,043,022
Short-Term Investment (d)		6,340,992		—		—		6,340,992
Total	$	161,384,014	$	—	$	—	$	161,384,014

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(d) See Investment Portfolio for additional detailed categorizations.

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Statement of Assets and Liabilities

as of December 31, 2017

Assets
Investments in non-affiliated securities, at value (cost $142,979,705) — including $4,782,718 of securities loaned	$	155,043,022
Investment in Deutsche Government & Agency Securities Portfolio (cost $4,968,641)*		4,968,641
Investment in Deutsche Central Cash Management Government Fund (cost $1,372,351)		1,372,351
Cash		10,000
Dividends receivable		318,408
Interest receivable		2,097
Other assets		3,911
Total assets		161,718,430
Liabilities
Payable upon return of securities loaned		4,968,641
Payable for Fund shares redeemed		279,976
Accrued management fee		72,501
Accrued Trustees’ fees		3,453
Other accrued expenses and payables		108,575
Total liabilities		5,433,146
Net assets, at value	$	156,285,284
Net Assets Consist of
Undistributed net investment income		3,682,681
Net unrealized appreciation (depreciation) on investments		12,063,317
Accumulated net realized gain (loss)		9,589,585
Paid-in capital		130,949,701
Net assets, at value	$	156,285,284
Net Asset Value
Class A
Net Asset Value and redemption price per share ($152,776,814 ÷ 9,181,648 shares of capital stock outstanding, no par value, unlimited shares authorized)	$	16.64
Class B
Net Asset Value offering and redemption price per share ($3,508,470 ÷ 210,410 shares of capital stock outstanding, no par value, unlimited shares authorized)	$	16.67

* Represents collateral on securities loaned.

Statement of Operations

for the year ended December 31, 2017

Investment Income
Income:
Dividends	$	5,203,037
Income distributions — Deutsche Central Cash Management Government Fund		14,005
Securities lending income, net of borrower rebates		3,580
Total income		5,220,622
Expenses:
Management fee		1,469,890
Administration fee		226,137
Services to Shareholders		4,086
Record keeping fee (Class B)		2,556
Distribution service fees (Class B)		8,870
Custodian fee		6,689
Professional fees		78,615
Reports to shareholders		32,480
Trustees’ fees and expenses		13,177
Other		15,442
Total expenses before expense reductions		1,857,942
Expense reductions		(218,494	)
Total expenses after expense reductions		1,639,448
Net investment income		3,581,174
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		32,400,819
Payments by affiliates (see Note F)		62,466
		32,463,285
Change in net unrealized appreciation (depreciation) on investments		10,347,153
Net gain (loss)		42,810,438
Net increase (decrease) in net assets resulting from operations	$	46,391,612

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 9

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income	$	3,581,174		$	4,001,244
Net realized gain (loss)		32,463,285			(20,531,633	)
Change in net unrealized appreciation (depreciation)		10,347,153			1,399,099
Net increase (decrease) in net assets resulting from operations		46,391,612			(15,131,290	)
Distributions to shareholders from:
Net investment income:
Class A		(3,625,439	)		(2,434,486	)
Class B		(42,548	)		(25,893	)
Net realized gains:
Class A		—			(12,035,759	)
Class B		—			(185,570	)
Total distributions		(3,667,987	)		(14,681,708	)
Fund share transactions:
Class A
Proceeds from shares sold		3,856,097			5,510,987
Reinvestment of distributions		3,625,439			14,470,245
Payments for shares redeemed		(124,081,648	)		(56,264,127	)
Net increase (decrease) in net assets from Class A share transactions		(116,600,112	)		(36,282,895	)
Class B
Proceeds from shares sold		97,651			525,700
Reinvestment of distributions		42,548			211,463
Payments for shares redeemed		(815,252	)		(1,258,566	)
Net increase (decrease) in net assets from Class B share transactions		(675,053	)		(521,403	)
Increase (decrease) in net assets		(74,551,540	)		(66,617,296	)
Net assets at beginning of period		230,836,824			297,454,120
Net assets at end of period (including undistributed net investment income of $3,682,681 and $3,845,993, respectively)	$	156,285,284		$	230,836,824
Other Information
Class A
Shares outstanding at beginning of period		16,529,732			19,157,658
Shares sold		255,906			405,203
Shares issued to shareholders in reinvestment of distributions		245,460			1,079,869
Shares redeemed		(7,849,450	)		(4,112,998	)
Net increase (decrease) in Class A shares		(7,348,084	)		(2,627,926	)
Shares outstanding at end of period		9,181,648			16,529,732
Class B
Shares outstanding at beginning of period		254,820			291,996
Shares sold		6,516			38,734
Shares issued to shareholders in reinvestment of distributions		2,869			15,722
Shares redeemed		(53,795	)		(91,632	)
Net increase (decrease) in Class B shares		(44,410	)		(37,176	)
Shares outstanding at end of period		210,410			254,820

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Financial Highlights

				Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	13.75		$	15.29		$	17.38		$	15.97		$	12.45
Income (loss) from investment operations:
Net investment income (loss)a		.24			.23			.11			.24			.26
Net realized and unrealized gain (loss)		2.88			(.93	)		(1.20	)		1.45			3.54
Total from investment operations		3.12			(.70	)		(1.09	)		1.69			3.80
Less distributions from:
Net investment income		(.23	)		(.14	)		(.25	)		(.28	)		(.28	)
Net realized gains on investment transactions		—			(.70	)		(.75	)		—			—
Total distributions		(.23	)		(.84	)		(1.00	)		(.28	)		(.28	)
Net asset value, end of period	$	16.64		$	13.75		$	15.29		$	17.38		$	15.97
Total Return (%)b		22.88	c		(4.39	)		(6.87	)		10.72			30.89
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		153			227			293			430			432
Ratio of expenses before expense reductions (%)d		.82			.81			.78			.78			.78
Ratio of expenses after expense reductions (%)d		.72			.74			.73			.73			.74
Ratio of net investment income (loss) (%)		1.59			1.66			.65			1.43			1.82
Portfolio turnover rate (%)		97			293			121			133			54

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  The Fund’s total return includes a reimbursement by the Adviser for commission costs incurred in connection with purchases and sales of portfolio assets due to the change in investment strategy, which otherwise would have reduced total return by 0.03%.

^d  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

				Years Ended December 31,
Class B	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	13.78		$	15.31		$	17.40		$	15.99		$	12.46
Income (loss) from investment operations:
Net investment income (loss)a		.20			.19			.06			.18			.22
Net realized and unrealized gain (loss)		2.87			(.92	)		(1.21	)		1.46			3.55
Total from investment operations		3.07			(.73	)		(1.15	)		1.64			3.77
Less distributions from:
Net investment income		(.18	)		(.10	)		(.19	)		(.23	)		(.24	)
Net realized gains on investment transactions		—			(.70	)		(.75	)		—			—
Total distributions		(.18	)		(.80	)		(.94	)		(.23	)		(.24	)
Net asset value, end of period	$	16.67		$	13.78		$	15.31		$	17.40		$	15.99
Total Return (%)b		22.45	c		(4.62	)		(7.16	)		10.36			30.54
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		4			4			4			5			5
Ratio of expenses before expense reductions (%)d		1.15			1.13			1.10			1.09			1.09
Ratio of expenses after expense reductions (%)d		1.03			1.05			1.04			1.04			1.05
Ratio of net investment income (loss) (%)		1.31			1.37			.35			1.10			1.52
Portfolio turnover rate (%)		97			293			121			133			54

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  The Fund’s total return includes a reimbursement by the Adviser for commission costs incurred in connection with purchases and sales of portfolio assets due to the change in investment strategy, which otherwise would have reduced total return by 0.03%.

^d  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 11

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche CROCI^® U.S. VIP (formerly Deutsche Large Cap Value VIP) (the “Fund”) is a diversified series of Deutsche Variable Series II (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.

Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Sales of Class B shares are subject to recordkeeping fees up to 0.15% and Rule 12b-1 fees under the 1940 Act equal to an annual rate of 0.25% of the average daily net assets of the Class B shares of the Fund. Class A shares are not subject to such fees.

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class (including the applicable Rule 12b-1 fee and recordkeeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.

The Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

Equity securities are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities are generally categorized as Level 1.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into

12 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign

currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Securities Lending. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. As of period end, any securities on loan were collateralized by cash. During the year ended December 31, 2017, the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by Deutsche Investment Management Americas Inc. As of December 31, 2017, the Fund invested the cash collateral in Deutsche Government & Agency Securities Portfolio. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017, the Fund had securities on loan, which were classified as common stock in the Investment Portfolio. The value of the related collateral exceeded the value of the securities loaned at period end. As of period end, the remaining contractual maturity of the collateral agreements were overnight and continuous.

Federal Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. Distributions from net investment income of the Fund, if any, is 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 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.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 13

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	7,031,142
Undistributed long-term capital gains	$	7,220,108
Unrealized appreciation (depreciation) on investments	$	11,084,333

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $150,299,681. The net unrealized appreciation for all investments based on tax cost was $11,084,333. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $14,811,764 aggregate gross unrealized depreciation for all investments in which was an excess of tax cost over value of $3,727,431.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	3,667,987	$	2,525,931
Distribution from long-term capital gains	$	—	$	12,155,777

* 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.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments.

B. Purchases and Sales of Securities

During the year ended December 31, 2017, purchases and sales of investment transactions (excluding short-term investments) aggregated $216,765,289 and $331,343,649, respectively.

C. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

Under the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $250 million	.650	%
Next $750 million	.625	%
Next $1.5 billion	.600	%
Next $2.5 billion	.575	%
Next $2.5 billion	.550	%
Next $2.5 billion	.525	%
Next $2.5 billion	.500	%
Over $12.5 billion	.475	%

14 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Accordingly, for the year ended December 31, 2017, the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.65% of the Fund’s average daily net assets.

For the period from January 1, 2017 through April 30, 2018, the Advisor has contractually agreed to waive all or a portion of its fee and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of each class as follows:

Class A	.72	%
Class B	1.03	%

For the year ended December 31, 2017, fees waived and/or expenses reimbursed for each class are as follows:

Class A	$	214,395
Class B		4,099
	$	218,494

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017, the Administration Fee was $226,137, of which $13,456 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017, the amounts charged to the Fund by DSC were as follows:

Services to Shareholders	Total Aggregated		Unpaid at December 31, 2017
Class A	$	393	$	98
Class B		228		56
	$	621	$	154

Distribution Service Agreement. Under the Fund’s Class B 12b-1 plan, Deutsche AM Distributors, Inc. (“DDI”) received a fee (“Distribution Service Fee”) of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2017, the Distribution Service Fee aggregated $8,870, of which $755 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017, the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $10,695, of which $3,559 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 15

Securities Lending Agent Fees. Deutsche Bank AG serves as securities lending agent for the Fund. For the year ended December 31, 2017, the Fund incurred securities lending agent fees to Deutsche Bank AG in the amount of $269.

D. Ownership of the Fund

At December 31, 2017, two participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 63% and 27%. Two participating insurance companies was the owner of record of 10% or more of the total outstanding Class B shares of the Fund, each owning 61% and 15%.

E. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

F. Payment by Affiliate

During the year ended December 31, 2017, the Advisor agreed to reimburse the Fund $62,466 for commission costs incurred in connection with purchases and sales of portfolio assets due to the change in investment strategy. The amount reimbursed was 0.03% of the Fund’s average net assets.

16 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and the Shareholders of Deutsche CROCI^® U.S. VIP:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche CROCI U.S VIP, formerly Deutsche Large Cap Value VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.

Boston, Massachusetts

February 15, 2018

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 17

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,097.60	$	1,095.30
Expenses Paid per $1,000*	$	3.81	$	5.44
Hypothetical 5% Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,021.58	$	1,020.01
Expenses Paid per $1,000*	$	3.67	$	5.24

* Expenses are equal to the Fund’s annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratios	Class A			Class B
Deutsche Variable Series II — Deutsche CROCI® U.S. VIP		.72	%		1.03	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

18 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Tax Information (Unaudited)

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $7,942,000 as capital gain dividends for its year ended December 31, 2017.

For corporate shareholders, 100% of the ordinary dividends (i.e., income dividends plus short-term capital gains) paid during the Fund’s fiscal year ended December 31, 2017, qualified for the dividends received deduction.

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 19

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche CROCI^® U.S. VIP’s (formerly Deutsche Large Cap Value VIP) (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA is part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA

20 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 4th quartile of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board considered that, effective October 3, 2016, the Fund changed its investment strategy and portfolio managers and noted that the Fund further changed its investment strategy, effective May 1, 2017. The Board observed that the Fund had experienced improved relative performance during the first eight months of 2017. The Board recognized the efforts by DIMA in recent years to enhance its investment platform and improve long-term performance across the Deutsche fund complex.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were equal to the median of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board also reviewed data comparing each share class’s total (net) operating expenses to the applicable Broadridge Universe Expenses. The Board noted that the expense limitations agreed to by DIMA were expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable Deutsche U.S. registered funds (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 21

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund, any fees received by an affiliate of DIMA for transfer agency services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board noted that DIMA pays a licensing fee to an affiliate related to the Fund’s use of the CROCI^® strategy. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

22 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 23

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

24 | Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

Deutsche Variable Series II — Deutsche CROCI^® U.S. VIP | 25

VS2CUS-2 (R-025833-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche Global Equity VIP

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
9	Statement of Assets and Liabilities
9	Statement of Operations
10	Statements of Changes in Net Assets
11	Financial Highlights
12	Notes to Financial Statements
16	Report of Independent Registered Public Accounting Firm
17	Information About Your Fund’s Expenses
18	Tax Information
18	Proxy Voting
19	Advisory Agreement Board Considerations and Fee Evaluation
22	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

Stocks may decline in value. Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Emerging markets tend to be more volatile and less liquid than the markets of more mature economies, and generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. The Fund may lend securities to approved institutions. Please read the prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED    NO BANK GUARANTEE    MAY LOSE VALUE    NOT A DEPOSIT

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche Global Equity VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns.

The gross expense ratio of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 is 1.03% for Class A shares and may differ from the expense ratio disclosed in the Financial Highlights table in this report.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche Global Equity VIP

The MSCI All Country World Index captures large and mid cap representation across 23 Developed Markets and 23 Emerging Markets countries.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Comparative Results
Deutsche Global Equity VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$12,404	$12,932	$15,605	$11,827
	Average annual total return	24.04%	8.95%	9.31%	1.69%
MSCI All Country World Index	Growth of $10,000	$12,397	$13,056	$16,700	$15,755
	Average annual total return	23.97%	9.30%	10.80%	4.65%

The growth of $10,000 is cumulative.

Deutsche Variable Series II — Deutsche Global Equity VIP | 3

Management Summary December 31, 2017 (Unaudited)

Global equities delivered strong performance in 2017, as gauged by the 23.97% return of the Fund’s benchmark, the MSCI AC World Index. Class A shares of the Fund returned 24.04% (unadjusted for contract charges).

The markets’ positive showing reflected the supportive backdrop of improving global growth and robust corporate earnings. Political developments were also supportive, highlighted by market-friendly outcomes of elections in Europe and the passage of a reduction of the corporate tax rate in the United States. In addition, economic growth — while accelerating — did not pick up to a large enough extent that the U.S. Federal Reserve and other major central banks were compelled to tighten monetary policy aggressively. In this environment, U.S. stocks climbed to a series of record highs with unusually low volatility, led by faster-growing and higher-risk market segments. Overseas, both developed- and emerging-market stocks registered robust gains and outpaced the United States due to the combination of better-than-expected economic data and weakness in the U.S. dollar.

The Fund’s sector allocations proved to be a significant tailwind for performance. Since we use a bottom-up process designed to identify what we think are the most compelling individual-stock growth opportunities in the world markets, the portfolio’s sector weightings can deviate widely from the index. This worked to our benefit, as we held a sizable overweight in the information technology sector — which outpaced the broader market — along with underweights in slower-growing sectors that lagged, such as utilities, telecommunications services and real estate. An underweight position in energy further aided the Fund’s return.

Stock selection made a modest contribution to results, highlighted by our investments in information technology and financials. In the former, Activision Blizzard, Inc. generated market-beating gains thanks to the release of new games, a strong presence in online gaming and the increasing popularity of eSports. Applied Materials, Inc., whose status as the leading supplier of semiconductor fabrication equipment enabled it to take advantage of the robust order cycle in the chip industry, also rallied. Tencent Holdings, Ltd. which capitalized on the rapid growth of e-commerce in China and exceeded analysts’ growth expectations, was an additional contributor of note. In financials, our position in Progressive Corp. benefited from an improving growth outlook, and the Canadian company Brookfield Asset Management, Inc. was boosted by rising earnings, continued gains in its assets under management and the expansion of its emerging-markets business.

Our stock selection was less effective in the materials sector. The Fund’s holdings, while producing a positive return in the aggregate, did not keep up with the materials stocks in the benchmark. In energy, we fell short of the index return due to positions in Noble Energy, Inc. and Schlumberger Ltd. The health care sector also proved to be a challenging area for the Fund. Shares of Celgene Corp. declined after the company lowered its long-term earnings expectations, and the pharmaceutical developer Allergan PLC* slid due to heightened generic competition for one of its key medications. A position in the U.S. media giant Time Warner, Inc.* also cost the Fund some performance due to regulatory challenges that reduced the likelihood of AT&T, Inc.* executing its planned acquisition of the company.

We continued to focus our efforts on identifying stocks positioned for sustainable, above-average growth that were trading below what we believed were their intrinsic values. As always, we remained focused on delivering outperformance through the quality of our stock picking rather than making macroeconomic calls or taking excessive risk. With the markets in general — and growth stocks in particular — having come so far in the past two years, we think intensive company research and bottom-up security selection have become even more important in generating positive investment results. Accordingly, we emphasized companies with sustainable, above-average growth that we believe can provide a firm foundation for longer-term performance.

Sebastian P. Werner, PhD, Director

Mark Schumann, CFA, Director

Portfolio Managers

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.

4 | Deutsche Variable Series II — Deutsche Global Equity VIP

Terms to Know

The MSCI All Country (AC) World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The index consists of 46 country indices comprising 23 developed and 23 emerging market country indices. Index returns do not reflect fees or expenses and it is not possible to invest directly into an index.

Index returns do not reflect fees or expenses and it is not possible to invest directly into an index.

Underweight means the Fund holds a lower weighting in a given sector or security than the benchmark. Overweight means it holds a higher weighting.

Contribution incorporates both a stock’s total return and its weighting in the Fund.

* Held and sold prior to December 31, 2017. AT&T was not held in 2017.

Deutsche Variable Series II — Deutsche Global Equity VIP | 5

Portfolio Summary (Unaudited ) 

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)	12/31/17		12/31/16
Common Stocks		98%		98%
Cash Equivalents		2%		1%
Preferred Stock		0%		1%
		100%		100%
Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
Information Technology		26%		21%
Financials		19%		13%
Health Care		19%		20%
Industrials		11%		8%
Consumer Discretionary		7%		9%
Consumer Staples		6%		12%
Materials		6%		7%
Energy		3%		6%
Telecommunication Services		2%		2%
Real Estate		1%		2%
		100%		100%
Geographical Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
United States		51%		55%
Canada		9%		7%
Switzerland		7%		7%
Germany		7%		6%
United Kingdom		7%		6%
China		6%		1%
France		3%		—
Finland		2%		2%
Ireland		2%		2%
Luxembourg		1%		2%
Sweden		1%		3%
Japan		1%		3%
Others		3%		6%
		100%		100%

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 7.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche Global Equity VIP

Investment Portfolio December 31, 2017

	Shares		Value ($)
Common Stocks 98.1%
Australia 1.0%
Australia & New Zealand Banking Group Ltd. (Cost $291,975)		13,300		297,925
Canada 9.0%
Agnico Eagle Mines Ltd.		12,100		558,778
Alimentation Couche-Tard, Inc. “B”		10,200		532,234
Brookfield Asset Management, Inc. “A”		21,400		931,589
Canada Goose Holdings, Inc.*		10,700		338,025
Toronto-Dominion Bank		6,700		392,566
(Cost $1,682,802)				2,753,192
China 5.6%
Alibaba Group Holding Ltd. (ADR)*		2,600		448,318
China Life Insurance Co., Ltd. “H”		94,000		295,293
China Literature Ltd. 144A*		14		149
New Oriental Education & Technology Group, Inc. (ADR)		1,900		178,600
Ping An Insurance (Group) Co. of China Ltd. “H”		15,500		161,514
Tencent Holdings Ltd.		12,300		639,764
(Cost $1,227,682)				1,723,638
Finland 1.9%
Sampo Oyj “A” (Cost $494,083)		10,700		588,597
France 3.1%
Air Liquide SA		1,500		189,178
VINCI SA		4,500		460,051
Vivendi SA		11,500		308,895
(Cost $952,517)				958,124
Germany 6.6%
Allianz SE (Registered)		2,800		644,520
BASF SE		2,400		264,818
Fresenius Medical Care AG & Co. KGaA		8,000		843,709
Siemens AG (Registered)		1,900		265,202
(Cost $1,338,957)				2,018,249
Ireland 1.7%
Kerry Group PLC “A” (a)		4,321		485,083
Kerry Group PLC “A” (a)		479		53,753
(Cost $326,642)				538,836
Japan 1.2%
Komatsu Ltd.		6,000		217,603
SMC Corp.		400		164,586
(Cost $341,579)				382,189
Luxembourg 1.4%
Eurofins Scientific (Cost $150,981)		700		426,435
Malaysia 0.7%
IHH Healthcare Bhd. (Cost $184,246)		141,500		204,788
Norway 0.5%
Marine Harvest ASA* (Cost $95,936)		8,400		142,129
Sweden 1.4%
Assa Abloy AB “B” (Cost $330,340)		20,100		418,168

	Shares		Value ($)
Switzerland 7.3%
Comet Holding AG (Registered)*		1,400		220,862
Lonza Group AG (Registered)*		2,100		567,932
Nestle SA (Registered)		8,015		689,594
Roche Holding AG (Genusschein)		2,300		582,176
u-blox Holding AG*		830		163,397
(Cost $1,357,520)				2,223,961
United Kingdom 6.5%
Aon PLC (b)		4,400		589,600
Compass Group PLC		24,600		531,466
Halma PLC		26,500		450,945
Spirax-Sarco Engineering PLC		5,600		425,139
(Cost $1,337,029)				1,997,150
United States 50.2%
A.O. Smith Corp.		4,400		269,632
Acadia Healthcare Co., Inc.* (c)		8,000		261,040
Activision Blizzard, Inc.		7,400		468,568
Alphabet, Inc. “A”*		580		610,972
American Express Co.		3,300		327,723
AMETEK, Inc.		7,700		558,019
Amphenol Corp. “A”		9,600		842,880
Apple, Inc.		4,450		753,073
Applied Materials, Inc.		11,000		562,320
Biogen, Inc.*		840		267,599
Bristol-Myers Squibb Co.		4,200		257,376
CBRE Group, Inc. “A”*		4,800		207,888
Celgene Corp.*		4,800		500,928
Danaher Corp.		6,400		594,048
Ecolab, Inc.		3,400		456,212
EOG Resources, Inc.		3,400		366,894
EPAM Systems, Inc.*		2,100		225,603
Evolent Health, Inc. “A”* (c)		13,400		164,820
Exxon Mobil Corp.		2,100		175,644
Facebook, Inc. “A”*		2,830		499,382
Fidelity National Information Services, Inc.		3,100		291,679
Hologic, Inc.*		5,100		218,025
Intuit, Inc.		1,600		252,448
JPMorgan Chase & Co.		6,000		641,640
LKQ Corp.*		9,400		382,298
Mastercard, Inc. “A”		5,700		862,752
Noble Energy, Inc.		5,600		163,184
Oracle Corp.		5,400		255,312
Palo Alto Networks, Inc.*		1,500		217,410
Progressive Corp.		14,500		816,640
QUALCOMM, Inc.		3,500		224,070
Schlumberger Ltd.		4,600		309,994
Scotts Miracle-Gro Co.		3,000		320,970
T-Mobile U.S., Inc.*		10,100		641,451
TJX Companies, Inc.		4,300		328,778
Union Pacific Corp.		2,400		321,840
United Technologies Corp.		1,300		165,841
Zoetis, Inc.		8,000		576,320
(Cost $10,766,115)				15,361,273
Total Common Stocks (Cost $20,878,404)				30,034,654

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Equity VIP | 7

	Shares		Value ($)
Preferred Stock 0.3%
Germany
Draegerwerk AG & Co. KGaA (Cost $78,140)		1,100		95,546
Securities Lending Collateral 1.3%
Deutsche Government & Agency Securities Portfolio “Deutsche Government Cash Institutional Shares”, 1.21% (d) (e) (Cost $395,119)		395,119		395,119

	Shares			Value ($)
Cash Equivalents 1.6%
Deutsche Central Cash Management Government Fund, 1.30% (d) (Cost $480,743)		480,743			480,743
	% of Net Assets			Value ($)
Total Investment Portfolio (Cost $21,832,406)		101.3			31,006,062
Other Assets and Liabilities, Net		(1.3	)		(397,667	)
Net Assets		100.0			30,608,395

* Non-income producing security.

(a) Securities with the same description are the same corporate entity but trade on different stock exchanges.

(b) Listed on the New York Stock Exchange.

(c) All or a portion of these securities were on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The value of securities loaned at December 31, 2017 amounted to $376,740, which is 1.2% of net assets.

(d) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

(e) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

ADR: American Depositary Receipt

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1		Level 2		Level 3		Total
Common Stocks
Australia	$	—	$	297,925	$	—	$	297,925
Canada		2,753,192		—		—		2,753,192
China		627,067		1,096,571		—		1,723,638
Finland		—		588,597		—		588,597
France		—		958,124		—		958,124
Germany		—		2,018,249		—		2,018,249
Ireland		—		538,836		—		538,836
Japan		—		382,189		—		382,189
Luxembourg		—		426,435		—		426,435
Malaysia		—		204,788		—		204,788
Norway		—		142,129		—		142,129
Sweden		—		418,168		—		418,168
Switzerland		—		2,223,961		—		2,223,961
United Kingdom		589,600		1,407,550		—		1,997,150
United States		15,361,273		—		—		15,361,273
Preferred Stocks (f)		—		95,546		—		95,546
Short-Term Investments (f)		875,862		—		—		875,862
Total	$	20,206,994	$	10,799,068	$	—	$	31,006,062

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(f) See Investment Portfolio for additional detailed categorizations.

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche Global Equity VIP

Statement of Assets and Liabilities
as of December 31, 2017
Assets
Investments in non-affiliated securities, at value (cost $20,956,544) — including $376,740 of securities loaned	$	30,130,200
Investment in Deutsche Government & Agency Securities Portfolio (cost $395,119)*		395,119
Investment in Deutsche Central Cash Management Government Fund (cost $480,743)		480,743
Foreign currency, at value (cost $145,464)		146,740
Dividends receivable		8,457
Interest receivable		789
Foreign taxes recoverable		21,289
Other assets		956
Total assets		31,184,293
Liabilities
Payable upon return of securities loaned		395,119
Payable for Fund shares redeemed		71,259
Accrued management fee		19,405
Accrued Trustees’ fees		1,054
Other accrued expenses and payables		89,061
Total liabilities		575,898
Net assets, at value	$	30,608,395
Net Assets Consist of
Undistributed net investment income		209,108
Net unrealized appreciation (depreciation) on:
Investments		9,173,656
Foreign currency		750
Accumulated net realized gain (loss)		(91,638	)
Paid-in capital		21,316,519
Net assets, at value	$	30,608,395
Class A
Net Asset Value, offering and redemption price per share ($30,608,395 ÷ 2,616,821 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	11.70
*   Represents collateral on securities loaned.

Statement of Operations
for the year ended December 31, 2017
Investment Income
Income:
Dividends (net of foreign taxes withheld of $38,865)	$	617,693
Income distributions — Deutsche Central Cash Management Government Fund		5,392
Securities lending income, net of borrower rebates		5,617
Total income		628,702
Expenses:
Management fee		283,683
Administration fee		43,644
Services to Shareholders		326
Custodian fee		22,782
Professional fees		73,321
Reports to shareholders		16,620
Trustees’ fees and expenses		4,247
Other		17,328
Total expenses before expense reductions		461,951
Expense reductions		(49,159	)
Total expenses after expense reductions		412,792
Net investment income		215,910
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		5,312,794
Foreign currency		8,849
		5,321,643
Change in net unrealized appreciation (depreciation) on:
Investments		3,909,848
Foreign currency		7,479
		3,917,327
Net gain (loss)		9,238,970
Net increase (decrease) in net assets resulting from operations	$	9,454,880

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Equity VIP | 9

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income (loss)	$	215,910		$	218,495
Net realized gain (loss)		5,321,643			1,040,800
Change in net unrealized appreciation (depreciation)		3,917,327			1,213,259
Net increase (decrease) in net assets resulting from operations		9,454,880			2,472,554
Distributions to shareholders from:
Net investment income:
Class A		(233,988	)		(336,718	)
Fund share transactions:
Class A
Proceeds from shares sold		1,174,131			1,414,193
Reinvestment of distributions		233,988			336,718
Cost of shares redeemed		(23,512,478	)		(9,403,270	)
Net increase (decrease) in net assets from Class A share transactions		(22,104,359	)		(7,652,359	)
Increase (decrease) in net assets		(12,883,467	)		(5,516,523	)
Net assets at beginning of year		43,491,862			49,008,385
Net assets at end of year (including undistributed net investment income of $209,108 and $215,993, respectively)	$	30,608,395		$	43,491,862
Other Information
Class A
Shares outstanding at beginning of period		4,587,493			5,446,357
Shares sold		110,161			152,025
Shares issued to shareholders in reinvestment of distributions		22,499			36,640
Shares redeemed		(2,103,332	)		(1,047,529	)
Net increase (decrease) in Class A shares		(1,970,672	)		(858,864	)
Shares outstanding at end of period		2,616,821			4,587,493

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche Global Equity VIP

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	9.48		$	9.00		$	9.21		$	9.27		$	7.96
Income (loss) from investment operations:
Net investment incomea		.05			.04			.05			.06			.14
Net realized and unrealized gain (loss)		2.22			.51			(.21	)		.04			1.37
Total from investment operations		2.27			.55			(.16	)		.10			1.51
Less distributions from:
Net investment income		(.05	)		(.07	)		(.05	)		(.16	)		(.20	)
Net asset value, end of period	$	11.70		$	9.48		$	9.00		$	9.21		$	9.27
Total Return (%)		24.04	b		6.11	b,c		(1.75	)b		1.14			19.31	b
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		31			43			49			68			73
Ratio of expenses before expense reductions (%)d		1.06			1.03			1.00			.95			1.06
Ratio of expenses after expense reductions (%)d		.95			.95			.91			.95			.99
Ratio of net investment income (%)		.49			.49			.58			.59			1.69
Portfolio turnover rate (%)		19			46			79			78			139

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reimbursed.

^c  Includes a reimbursement by the Advisor for a realized loss on a trade executed incorrectly, which otherwise would have reduced total return by 0.31%.

^d  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

Deutsche Variable Series II — Deutsche Global Equity VIP | 11

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Global Equity VIP (the “Fund”) is a diversified series of Deutsche Variable Series II (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’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates,

prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

Equity securities are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities are generally categorized as Level 1. For certain international equity securities, in order to adjust for events which may occur between the close of the foreign exchanges and the close of the New York Stock Exchange, a fair valuation model may be used. This fair valuation model takes into account comparisons to the valuation of American Depository Receipts (ADRs), futures contracts and certain indices and these securities are categorized as Level 2.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Securities Lending. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. As of period end, any securities on loan were collateralized by cash. During the year ended December 31, 2017, the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by Deutsche Investment Management Americas Inc. As of December 31, 2017, the

12 | Deutsche Variable Series II — Deutsche Global Equity VIP

Fund invested the cash collateral in Deutsche Government & Agency Securities Portfolio. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017, the Fund had securities on loan, which were classified as common stocks in the Investment Portfolio. The value of the related collateral exceeded the value of the securities loaned at period end. As of period end, the remaining contractual maturity of the collateral agreements were overnight and continuous.

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Taxes. The Fund’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.

Additionally, the Fund may be subject to taxes imposed by the governments of countries in which it invests and are generally based on income and/or capital gains earned or repatriated, a portion of which may be recoverable. Based upon the current interpretation of the tax rules and regulations, estimated tax liabilities and recoveries on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized gain/loss on investments. Tax liabilities realized as a result of security sales are reflected as a component of net realized gain/loss on investments.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. 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 foreign denominated investments, expiration of capital loss carryforward and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

Deutsche Variable Series II — Deutsche Global Equity VIP | 13

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	209,108
Unrealized appreciation (depreciation) on investments	$	9,082,018

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $21,924,044. The net unrealized appreciation for all investments based on tax cost was $9,082,018. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $9,650,964 and aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value of $568,946.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	233,988	$	336,718

* 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.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments.

B. Purchases and Sales of Securities

During the year ended December 31, 2017, purchases and sales of investment transactions (excluding short-term investments) aggregated $8,256,563 and $30,064,274, respectively.

C. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $1.5 billion	.650	%
Next $1.75 billion	.635	%
Next $1.75 billion	.620	%
Over $5 billion	.605	%

Accordingly, for the year ended December 31, 2017, the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.65% of the Fund’s average daily net assets.

For the period from January 1, 2017 through September 30, 2017, the Advisor had contractually agreed to waive its fee and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of Class A shares at 0.95%.

14 | Deutsche Variable Series II — Deutsche Global Equity VIP

Effective October 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive its fee and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of Class A shares at 0.93%.

For the year ended December 31, 2017, fees waived and/or expenses reimbursed were $49,159.

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017, the Administration Fee was $43,644, of which $2,605 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017, the amounts charged to the Fund by DSC aggregated $81, of which $20 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017, the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $9,727, of which $4,022 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

Securities Lending Fees. Deutsche Bank AG serves as lending agent for the Fund. For the year ended December 31, 2017, the Fund incurred lending agent fees to Deutsche Bank AG in the amount of $423.

D. Ownership of the Fund

At December 31, 2017, one participating insurance company was owner of record of 10% or more of the total outstanding Class A shares of the Fund, owning 99%.

E. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

Deutsche Variable Series II — Deutsche Global Equity VIP | 15

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and the Shareholders of Deutsche Global Equity VIP

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche Global Equity VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II ) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year. Boston, Massachusetts
February 15, 2018

16 | Deutsche Variable Series II — Deutsche Global Equity VIP

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return		Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,087.40
Expenses Paid per $1,000*	$	4.95
Hypothetical 5% Fund Return		Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,020.47
Expenses Paid per $1,000*	$	4.79

* Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratio	Class A
Deutsche Variable Series II — Deutsche Global Equity VIP		.94	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

Deutsche Variable Series II — Deutsche Global Equity VIP | 17

Tax Information (Unaudited)

For corporate shareholders, 100% of the ordinary dividends (i.e., income dividends plus short-term capital gains) paid during the Fund’s fiscal year ended December 31, 2017, qualified for the dividends received deduction.

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

18 | Deutsche Variable Series II — Deutsche Global Equity VIP

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche Global Equity VIP’s (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA is part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board

Deutsche Variable Series II — Deutsche Global Equity VIP | 19

believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 2nd quartile, 3rd quartile and 4th quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were equal to the median of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board noted that the expense limitation agreed to by DIMA was expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable Deutsche U.S. registered funds (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund and any fees received by an affiliate of DIMA for transfer agency services provided to the Fund. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

20 | Deutsche Variable Series II — Deutsche Global Equity VIP

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

Deutsche Variable Series II — Deutsche Global Equity VIP | 21

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

22 | Deutsche Variable Series II — Deutsche Global Equity VIP

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

Deutsche Variable Series II — Deutsche Global Equity VIP | 23

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

24 | Deutsche Variable Series II — Deutsche Global Equity VIP

VS2GE-2 (R-025828-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche Global Income Builder VIP

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
19	Statement of Assets and Liabilities
19	Statement of Operations
20	Statements of Changes in Net Assets
21	Financial Highlights
22	Notes to Financial Statements
31	Report of Independent Registered Public Accounting Firm
32	Information About Your Fund’s Expenses
33	Tax Information
33	Proxy Voting
34	Advisory Agreement Board Considerations and Fee Evaluation
37	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

Although allocation among different asset categories generally limits risk, fund management may favor an asset category that underperforms other assets or markets as a whole. Stocks may decline in value. Smaller company stocks tend to be more volatile than medium-sized or large company stocks. Dividends are not guaranteed. If the dividend-paying stocks held by the Fund reduce or stop paying dividends, the Fund’s ability to generate income may be adversely affected. Preferred stocks, a type of dividend-paying stock, present certain additional risks. Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Emerging markets tend to be more volatile and less liquid than the markets of more mature economies, and generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. Bond investments are subject to interest-rate, credit, liquidity and market risks to varying degrees. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. 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. The Fund may lend securities to approved institutions. Any fund that focuses in a particular segment of the market or region of the world will generally be more volatile than a fund that invests more broadly. See the prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED     NO BANK GUARANTEE     MAY LOSE VALUE     NOT A DEPOSIT

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns.

The gross expense ratio of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 is 0.66% for Class A shares and may differ from the expense ratio disclosed in the Financial Highlights table in this report.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche Global Income Builder VIP

The S&P^® Target Risk Moderate Index is designed to measure the performance of S&P’s proprietary moderate target risk allocation model. The S&P^® Target Risk Moderate Index seeks to provide significant exposure to fixed income, while also allocating a smaller portion of exposure to equities in order to seek current income, some capital preservation, and an opportunity for moderate to low capital appreciation.   The Blended Index consists of an equally weighted blend (50%/50%) of the MSCI World High Dividend Yield Index and Bloomberg Barclays U.S. Universal Index.   MSCI World High Dividend Yield Index includes securities that offer a meaningfully higher-than-average dividend yield relative to the MSCI World Index and pass dividend sustainability and persistence screens. The index offers broad market coverage, and is free-float market capitalization-weighted to ensure that its performance can be replicated in institutional and retail portfolios. The index is calculated using closing local market prices and translates into US dollars using the London close foreign exchange rates.   Bloomberg Barclays U.S. Universal Index represents the union of the U.S. Aggregate Index, the U.S. High-Yield Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index and the non-ERISA portion of the CMBS Index.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Comparative Results
Deutsche Global Income Builder VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$11,654	$12,268	$14,856	$16,506
	Average annual total return	16.54%	7.05%	8.24%	5.14%
S&P® Target Risk Moderate Index	Growth of $10,000	$11,178	$11,698	$13,502	$15,220
	Average annual total return	11.78%	5.37%	6.19%	4.29%
Blended Index	Growth of $10,000	$11,093	$11,689	$13,362	$15,441
	Average annual total return	10.93%	5.34%	5.97%	4.44%

The growth of $10,000 is cumulative.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 3

Management Summary December 31, 2017 (Unaudited)

The Fund returned 16.54% during the 12 months ended December 31, 2017 (Class A shares, unadjusted for contract charges), outperforming the 11.78% return of S&P® Target Risk Moderate Index. Its other benchmark — the Blended Index — gained 10.93%.

Our preference for equities over bonds was a key factor in the Fund’s outperformance. We held an average weighting of 65% of assets in stocks through the past 12 months, with a peak of 77% in November. This aspect of our positioning added meaningful value versus the 50-50 benchmark given that stocks outperformed bonds. The rationale for the overweight in equities was our view that the asset class offered a better risk/reward profile than bonds at a time of accelerating growth, tighter monetary policy and robust investor risk appetites.

Within the equity portfolio, relative performance was helped by positive individual security selection. We added the most value in energy, telecommunications services and industrials, whereas our stock picks in consumer sectors detracted. However, we lost some ground against the benchmark from our emphasis on relatively conservative, dividend-paying stocks at a time in which the growth style outpaced the broader market by a wide margin. At year end, the Fund had a globally diversified equity portfolio with overweights in Japan, the emerging markets and higher-quality U.S. large caps. (Diversification does not protect against a loss.) Late in the year, we boosted the Fund’s weighting in higher-dividend stocks both to maintain an attractive level of income and to capitalize on the relative weakness in dividend payers versus faster-growing companies. This move created more of a value tilt in the portfolio, a contrast to the growth-oriented posture it held for much of 2017.

In the bond portfolio, we maintained a focus on the credit-oriented segments of the market, including the emerging markets, high-yield bonds and the higher-yielding portions of the investment-grade space. We believed these categories offered a potential return advantage due to both the greater contribution from yield and their ability to benefit from strengthening economic growth, and that indeed proved to be the case in the past 12 months. While we continued to emphasize higher-yielding asset classes throughout the year, we moved to a more defensive approach later in the period given the meaningful decline in yield spreads since the beginning of 2016.

The Fund used derivatives in the annual period. We used equity futures and total return swaps to implement tactical decisions on equity sector overweight and underweights. These positions generated positive absolute results in the rising market. We used futures and options on the CBOE Volatility Index to manage the risk of stock-market volatility, and this strategy had a positive effect on returns. We also used credit derivatives to take tactical positions in the fixed income portfolio, and we used interest rate swaps, swaptions, and futures to help manage the Fund’s interest rate exposure. These positions contributed positively. In addition, the Fund used currency forward contracts to hedge the non-dollar exposures of its non-U.S. positions, which was a small detractor. Overall, the use of derivatives was a modest contributor.

We believe the Fund’s outperformance helps illustrate the value of our active strategy. Rather than simply taking a static 60/40 approach that seeks to match the weightings of the benchmarks, we actively adjust the Fund’s broader allocations and use an opportunistic approach that strives to capitalize on values as they emerge. We believe this multifaceted strategy can help the Fund achieve its goals of positive relative performance and above-average income by taking advantage of opportunities across the full spectrum of the global financial markets.

John D. Ryan, Managing Director

Darwei Kung, Managing Director

Di Kumble, CFA, Managing Director

Kevin Bliss, Director

Portfolio Managers

4 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Prior to October 25, 2017, the portfolio management team was as follows:

Di Kumble, CFA, Managing Director

Gary Russell, CFA, Managing Director

John D. Ryan, Managing Director

Darwei Kung, Managing Director

Portfolio Managers

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 S&P^® Target Risk Moderate Index is designed to measure the performance of S&P’s proprietary moderate target risk allocation model. The S&P Target Risk Moderate Index seeks to provide significant exposure to fixed income, while also allocating a smaller portion of exposure to equities in order to seek current income, some capital preservation and an opportunity for moderate-to-low capital appreciation.

The Blended Index consists of an equally weighted blend (50%/50%) of the MSCI World High Dividend Yield Index and Barclays U.S. Universal Index.

The MSCI World High Dividend Yield Index includes securities that offer a meaningfully higher-than-average dividend yield relative to the MSCI World Index and pass dividend sustainability and persistence screens. The index offers broad market coverage, and is free-float market capitalization-weighted to ensure that its performance can be replicated in institutional and retail portfolios. The index is calculated using closing local market prices and translates into US dollars using the London close foreign exchange rates.

The Bloomberg Barclays U.S. Universal Index represents the union of the U.S. Aggregate Index, the U.S. High-Yield Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index and the non-ERISA portion of the CMBS Index.

Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Contribution and detraction incorporate both an investment’s total return and its weighting in the Fund.

Overweight means the Fund holds a higher weighting in a given sector or security than the benchmark. Underweight means the Fund holds a lower weighting.

Yield spread refers to differences between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument.

Derivatives are contracts whose values can be based on a variety of instruments, including indices, currencies or securities. They can be utilized for a variety of reasons, including for hedging purposes, for risk management; for non-hedging purposes to seek to enhance potential gains, or as a substitute for direct investment in a particular asset class or to keep cash on hand to meet shareholder redemptions. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility.

Futures contracts are contractual agreements to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. The CBOE Volatility Index (VIX Index) is a measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Options are financial derivatives that offer the right to buy or sell a security or financial asset at an agreed-upon price and during a certain period of time or on a specific date. A swap is a derivative in which two counterparties exchange cash flows of one party’s financial instrument for those of the other party’s financial instrument for a set period of time. A swaption is an option contract on a swap. Currency forward contracts are agreements between two parties to exchange two designated currencies at a specific time in the future.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 5

Portfolio Summary (Unaudited)

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)	��	12/31/17		12/31/16
Equity			62%		58%
Common Stocks			56%		58%
Preferred Stocks			6%		0%
Fixed Income			37%		41%
Government & Agency Obligations			6%		13%
Convertible Bonds			0%		0%
Corporate Bonds			13%		14%
Exchange-Traded Funds			10%		10%
Collateralized Mortgage Obligations			1%		1%
Commercial Mortgage-Backed Securities			1%		1%
Asset-Backed			1%		1%
Municipal Bonds and Notes			0%		0%
Mortgage-Backed Securities Pass-Throughs			1%		1%
Short-Term U.S. Treasury Obligations			4%		0%
Cash Equivalents			1%		1%
			100%		100%
Sector Diversification (As a % of Equities, Corporate Bonds, Preferred Securities and Convertible Bonds)		12/31/17		12/31/16
Financials			17%		20%
Information Technology			14%		13%
Consumer Discretionary			14%		12%
Energy			11%		13%
Industrials			10%		10%
Telecommunication Services			7%		6%
Real Estate			7%		3%
Health Care			6%		8%
Consumer Staples			6%		7%
Materials			4%		5%
Utilities			4%		3%
			100%		100%

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 7.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Investment Portfolio December 31, 2017

	Shares		Value ($)
Common Stocks 55.1%
Consumer Discretionary 7.4%
Auto Components 0.3%
Bridgestone Corp.		5,005		232,628
Nokian Renkaat Oyj		4,100		186,202
				418,830
Automobiles 1.4%
Daimler AG (Registered)		3,013		256,722
Ford Motor Co.		30,036		375,150
General Motors Co.		7,044		288,733
Honda Motor Co., Ltd.		7,450		255,272
Nissan Motor Co., Ltd.		36,185		360,771
Subaru Corp.		5,800		184,457
Toyota Motor Corp.		4,500		287,840
				2,008,945
Hotels, Restaurants & Leisure 1.3%
Carnival Corp.		3,620		240,259
Darden Restaurants, Inc.		2,464		236,593
Las Vegas Sands Corp.		3,860		268,232
McDonald’s Corp.		1,733		298,284
Sands China Ltd.		35,200		181,643
Starbucks Corp.		3,655		209,907
TUI AG		11,892		247,524
Yum! Brands, Inc.		2,190		178,726
				1,861,168
Household Durables 1.3%
Barratt Developments PLC		38,156		334,121
Berkeley Group Holdings PLC		4,978		282,175
Garmin Ltd.		4,539		270,388
Leggett & Platt, Inc.		4,092		195,311
Persimmon PLC		8,252		305,283
Sekisui House Ltd.		12,954		233,996
Taylor Wimpey PLC		120,281		335,544
				1,956,818
Internet & Direct Marketing Retail 0.4%
Amazon.com, Inc.*		200		233,894
Ctrip.com International Ltd. (ADR)*		3,700		163,170
JD.com, Inc. (ADR)*		4,200		173,964
				571,028
Media 1.5%
Comcast Corp. “A”		6,275		251,314
Eutelsat Communications SA		8,591		198,923
Interpublic Group of Companies, Inc.		9,195		185,371
Omnicom Group, Inc.		2,609		190,013
Pearson PLC		29,510		293,406
ProSiebenSat.1 Media SE		10,190		351,725
Shaw Communications, Inc. “B”		13,387		305,547
Time Warner, Inc.		1,844		168,671
Walt Disney Co.		1,600		172,016
				2,116,986
Multiline Retail 0.5%
Kohl’s Corp.		4,575		248,102
Marks & Spencer Group PLC		48,847		207,687

	Shares		Value ($)
Target Corp.		3,946		257,477
				713,266
Specialty Retail 0.4%
Hennes & Mauritz AB “B”		8,944		184,352
Home Depot, Inc.		1,454		275,577
Lowe’s Companies, Inc.		1,972		183,278
				643,207
Textiles, Apparel & Luxury Goods 0.3%
Tapestry, Inc.		5,189		229,509
VF Corp.		3,510		259,740
				489,249
Consumer Staples 4.1%
Beverages 0.8%
Ambev SA (ADR)		58,202		375,985
Coca-Cola Co.		9,698		444,944
PepsiCo, Inc.		2,644		317,069
				1,137,998
Food & Staples Retailing 0.8%
CVS Health Corp.		2,711		196,547
Lawson, Inc.		3,000		199,512
Sysco Corp.		4,011		243,588
Wal-Mart Stores, Inc.		3,201		316,099
Wesfarmers Ltd.		6,849		237,113
				1,192,859
Food Products 0.9%
General Mills, Inc.		3,789		224,650
Kellogg Co.		3,055		207,679
Kraft Heinz Co.		2,443		189,968
Nestle SA (Registered)		5,133		441,632
The Hershey Co.		2,049		232,582
				1,296,511
Household Products 0.6%
Colgate-Palmolive Co.		3,045		229,745
Kimberly-Clark Corp.		1,686		203,433
Procter & Gamble Co.		5,484		503,870
				937,048
Tobacco 1.0%
Altria Group, Inc.		5,475		390,970
British American Tobacco PLC		1,018		68,982
British American Tobacco PLC (ADR)		1,864		124,869
Imperial Brands PLC		4,772		203,979
Japan Tobacco, Inc.		6,477		208,445
Philip Morris International, Inc.		4,334		457,887
				1,455,132
Energy 4.8%
Energy Equipment & Services 0.1%
Schlumberger Ltd.		2,488		167,666
Oil, Gas & Consumable Fuels 4.7%
BP PLC		59,802		422,508
Chevron Corp.		3,662		458,446
Enagas SA		6,138		176,071
Enbridge, Inc.		5,395		210,993
Eni SpA		9,759		161,814

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 7

	Shares		Value ($)
Exxon Mobil Corp.		9,040		756,106
Gazprom PJSC (ADR)		93,610		412,820
JXTG Holdings, Inc.		35,685		230,220
Kinder Morgan, Inc.		9,231		166,804
LUKOIL PJSC (ADR)		9,296		535,914
Neste Oyj		2,660		170,336
Occidental Petroleum Corp.		3,666		270,038
ONEOK, Inc.		3,475		185,739
Pembina Pipeline Corp.		7,040		254,885
Phillips 66		2,753		278,466
Royal Dutch Shell PLC “A”		13,348		448,073
Royal Dutch Shell PLC “B”		11,028		374,420
Snam SpA		31,724		155,338
Statoil ASA		9,431		201,947
Suncor Energy, Inc.		4,626		169,841
TOTAL SA		4,978		274,981
TransCanada Corp.		4,710		229,242
Valero Energy Corp.		3,565		327,659
				6,872,661
Financials 7.9%
Banks 4.9%
Australia & New Zealand Banking Group Ltd.		10,142		227,185
Banco Bradesco SA (ADR)		16,348		167,404
Bank of Montreal		3,152		252,235
Bank of Nova Scotia		4,036		260,462
BB&T Corp.		4,217		209,669
Canadian Imperial Bank of Commerce		2,775		270,524
Commonwealth Bank of Australia		3,499		219,174
Danske Bank AS		5,876		229,024
Hang Seng Bank Ltd.		7,100		176,282
HSBC Holdings PLC		38,380		397,642
Intesa Sanpaolo SpA		47,758		159,189
Itau Unibanco Holding SA (ADR) (Preferred)		23,662		307,606
Japan Post Bank Co., Ltd.		15,900		206,702
JPMorgan Chase & Co.		3,400		363,596
KBC Group NV		2,377		203,211
Mizuho Financial Group, Inc.		118,673		215,284
National Australia Bank Ltd.		9,057		208,832
Nordea Bank AB		17,384		210,583
People’s United Financial, Inc.		12,896		241,155
PNC Financial Services Group, Inc.		1,450		209,220
Royal Bank of Canada		3,234		264,097
Sberbank of Russia PJSC (ADR)		21,686		369,313
Skandinaviska Enskilda Banken AB “A”		18,731		219,988
Sumitomo Mitsui Financial Group, Inc.		5,000		215,982
SunTrust Banks, Inc.		2,471		159,602
Swedbank AB “A”		9,281		224,068
Toronto-Dominion Bank		4,734		277,374
U.S. Bancorp.		4,373		234,305
Wells Fargo & Co.		4,668		283,208
Westpac Banking Corp.		8,851		216,048
				7,198,964
Capital Markets 0.3%
CME Group, Inc.		1,917		279,978
UBS Group AG (Registered)*		9,137		168,358
				448,336

	Shares		Value ($)
Insurance 2.5%
Ageas		5,239		256,187
Allianz SE (Registered)		1,179		271,389
Baloise Holding AG (Registered)		1,095		170,457
Japan Post Holdings Co., Ltd.		17,500		200,670
Legal & General Group PLC		68,412		252,576
MetLife, Inc.		3,353		169,528
Muenchener Rueckversicherungs-Gesellschaft AG (Registered)		1,141		247,663
Poste Italiane SpA 144A		25,538		192,368
Power Financial Corp.		5,950		163,495
Prudential Financial, Inc.		1,340		154,073
Sampo Oyj “A”		4,491		247,046
Swiss Life Holding AG (Registered)*		692		245,179
Swiss Re AG		3,705		347,306
The Travelers Companies, Inc.		1,849		250,798
UnipolSai Assicurazioni SpA		70,321		164,205
Zurich Insurance Group AG		997		303,535
				3,636,475
Thrifts & Mortgage Finance 0.2%
New York Community Bancorp., Inc.		16,896		219,986
Health Care 4.4%
Biotechnology 0.8%
AbbVie, Inc.		5,370		519,333
Amgen, Inc.		1,629		283,283
Gilead Sciences, Inc.		5,211		373,316
				1,175,932
Health Care Equipment & Supplies 0.1%
Medtronic PLC		2,704		218,348
Health Care Providers & Services 0.1%
UnitedHealth Group, Inc.		700		154,322
Pharmaceuticals 3.4%
Astellas Pharma, Inc.		17,200		219,225
AstraZeneca PLC		3,780		261,530
Bristol-Myers Squibb Co.		4,024		246,591
Daiichi Sankyo Co., Ltd.		9,600		250,282
Eli Lilly & Co.		2,754		232,603
GlaxoSmithKline PLC		26,716		476,278
Johnson & Johnson		5,504		769,019
Merck & Co., Inc.		6,511		366,374
Mitsubishi Tanabe Pharma Corp.		9,700		200,070
Novartis AG (Registered)		4,568		385,739
Otsuka Holdings Co., Ltd.		4,900		215,101
Pfizer, Inc.		16,243		588,321
Roche Holding AG (Genusschein)		1,160		293,619
Sanofi		2,245		193,491
Takeda Pharmaceutical Co., Ltd.		4,400		249,990
				4,948,233
Industrials 6.5%
Aerospace & Defense 1.0%
BAE Systems PLC		26,571		205,821
Boeing Co.		908		267,779
Harris Corp.		1,245		176,354
Lockheed Martin Corp.		856		274,819
Raytheon Co.		1,353		254,161
United Technologies Corp.		1,844		235,239
				1,414,173

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

	Shares		Value ($)
Air Freight & Logistics 0.3%
Royal Mail PLC		31,817		194,563
United Parcel Service, Inc. “B”		2,074		247,117
				441,680
Building Products 0.1%
Johnson Controls International PLC		5,340		203,507
Commercial Services & Supplies 0.4%
Republic Services, Inc.		3,946		266,789
Waste Management, Inc.		3,418		294,974
				561,763
Construction & Engineering 0.5%
Kajima Corp.		21,000		202,144
Obayashi Corp.		21,200		256,772
Taisei Corp.		5,200		258,884
				717,800
Electrical Equipment 0.5%
ABB Ltd. (Registered)		9,637		258,456
Eaton Corp. PLC		2,948		232,922
Emerson Electric Co.		3,883		270,606
				761,984
Industrial Conglomerates 0.6%
3M Co.		1,514		356,350
General Electric Co.		14,596		254,700
Honeywell International, Inc.		2,012		308,561
				919,611
Machinery 1.2%
Caterpillar, Inc.		2,036		320,833
Cummins, Inc.		1,390		245,530
Deere & Co.		1,530		239,460
Illinois Tool Works, Inc.		1,550		258,618
Ingersoll-Rand PLC		2,470		220,299
Kone Oyj “B”		4,809		258,603
Stanley Black & Decker, Inc.		968		164,260
				1,707,603
Marine 0.2%
Kuehne + Nagel International AG (Registered)		1,330		235,555
Professional Services 0.5%
Adecco Group AG (Registered)		3,181		243,158
Nielsen Holdings PLC		6,511		237,000
SGS SA (Registered)		94		245,341
				725,499
Road & Rail 0.2%
Union Pacific Corp.		2,029		272,089
Trading Companies & Distributors 1.0%
Fastenal Co.		4,803		262,676
ITOCHU Corp.		12,139		226,708
Marubeni Corp.		35,049		253,828
Mitsubishi Corp.		8,400		232,402
Mitsui & Co., Ltd.		15,251		247,920
Sumitomo Corp.		15,966		271,485
				1,495,019
Information Technology 10.0%
Communications Equipment 0.4%
Cisco Systems, Inc.		7,562		289,625

	Shares		Value ($)
Motorola Solutions, Inc.		2,148		194,050
Nokia Oyj		34,482		161,498
				645,173
Electronic Equipment, Instruments & Components 0.5%
Corning, Inc.		5,383		172,202
FLIR Systems, Inc.		3,545		165,268
Kyocera Corp.		2,300		150,541
TE Connectivity Ltd.		1,682		159,857
				647,868
Internet Software & Services 2.1%
Alibaba Group Holding Ltd. (ADR)*		2,039		351,585
Alphabet, Inc. “A”*		200		210,680
Alphabet, Inc. “C”*		335		350,544
Baidu, Inc. (ADR)*		1,236		289,484
Facebook, Inc. “A”*		2,598		458,443
Mixi, Inc.		3,400		152,782
NetEase, Inc. (ADR)		1,552		535,549
Tencent Holdings Ltd. (ADR) (a)		10,493		544,796
Yahoo Japan Corp.		51,600		236,179
				3,130,042
IT Services 2.0%
Accenture PLC “A”		1,920		293,933
Automatic Data Processing, Inc.		2,305		270,123
Broadridge Financial Solutions, Inc.		3,043		275,635
DXC Technology Co.		1,701		161,425
Fidelity National Information Services, Inc.		2,626		247,080
Fiserv, Inc.*		1,250		163,913
International Business Machines Corp.		2,825		433,411
Mastercard, Inc. “A”		1,930		292,125
Paychex, Inc.		3,801		258,772
Visa, Inc. “A”		2,753		313,897
Western Union Co.		11,379		216,315
				2,926,629
Semiconductors & Semiconductor Equipment 1.8%
Analog Devices, Inc.		2,410		214,562
Disco Corp.		1,100		244,463
Intel Corp.		9,334		430,857
KLA-Tencor Corp.		2,178		228,842
Maxim Integrated Products, Inc.		4,828		252,408
Microchip Technology, Inc.		1,896		166,621
QUALCOMM, Inc.		4,181		267,668
Texas Instruments, Inc.		2,796		292,014
Tokyo Electron Ltd.		1,600		288,092
Xilinx, Inc.		3,397		229,026
				2,614,553
Software 1.5%
CA, Inc.		6,883		229,066
Dell Technologies, Inc. “V”*		2,065		167,843
Intuit, Inc.		1,676		264,439
Microsoft Corp.		14,014		1,198,758
Oracle Corp.		6,029		285,051
				2,145,157
Technology Hardware, Storage & Peripherals 1.7%
Apple, Inc.		7,790		1,318,302
Canon, Inc.		6,474		241,527
FUJIFILM Holdings Corp.		4,100		167,569

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 9

	Shares		Value ($)
HP, Inc.		7,776		163,374
Samsung Electronics Co., Ltd. (GDR)		226		270,748
Seagate Technology PLC		3,900		163,176
Xerox Corp.		5,338		155,603
				2,480,299
Materials 1.6%
Chemicals 0.9%
Air Products & Chemicals, Inc.		1,544		253,339
DowDuPont, Inc.		6,004		427,605
GEO Specialty Chemicals, Inc.* (b)		19,324		6,524
Givaudan SA (Registered)		107		247,378
LyondellBasell Industries NV “A”		2,544		280,654
Praxair, Inc.		1,304		201,703
				1,417,203
Containers & Packaging 0.2%
International Paper Co.		4,234		245,318
Metals & Mining 0.3%
MMC Norilsk Nickel PJSC (ADR)		21,913		414,375
Paper & Forest Products 0.2%
UPM-Kymmene Oyj		8,215		255,704
Real Estate 2.8%
Equity Real Estate Investment Trusts (REITs)
AvalonBay Communities, Inc.		1,111		198,214
Brixmor Property Group, Inc.		10,900		203,394
Crown Castle International Corp.		2,299		255,212
HCP, Inc.		6,254		163,104
Iron Mountain, Inc.		7,907		298,331
Japan Retail Fund Investment Corp.		101		185,258
Kimco Realty Corp.		10,900		197,835
National Retail Properties, Inc.		5,594		241,269
Prologis, Inc.		3,915		252,557
Public Storage		1,081		225,929
Realty Income Corp.		5,057		288,350
RioCan Real Estate Investment Trust		10,979		212,767
Simon Property Group, Inc.		1,000		171,740
Stockland		45,744		160,099
Ventas, Inc.		3,475		208,535
VEREIT, Inc.		54,591		425,264
Vicinity Centres		100,022		212,468
Welltower, Inc.		4,324		275,741
				4,176,067
Telecommunication Services 3.7%
Diversified Telecommunication Services 2.8%
AT&T, Inc.		21,730		844,862
BCE, Inc.		5,269		253,096
BT Group PLC		62,537		229,365
Deutsche Telekom AG (Registered)		12,163		216,529
Nippon Telegraph & Telephone Corp.		3,100		145,948
Proximus SA		4,927		161,813
Singapore Telecommunications Ltd.		85,445		228,707
Swisscom AG (Registered)		524		278,928
Telefonica Deutschland Holding AG		36,320		182,957
Telefonica SA		15,726		153,691

	Shares		Value ($)
Telenor ASA		13,305		285,224
Telia Co. AB		52,151		232,527
TELUS Corp.		6,688		253,367
Verizon Communications, Inc.		13,133		695,130
				4,162,144
Wireless Telecommunication Services 0.9%
NTT DoCoMo, Inc.		28,369		670,319
Tele2 AB “B”		14,364		176,585
Vodafone Group PLC		146,963		467,233
				1,314,137
Utilities 1.9%
Electric Utilities 1.3%
American Electric Power Co., Inc.		2,084		153,320
Duke Energy Corp.		2,621		220,452
Endesa SA		11,551		247,862
Entergy Corp.		1,950		158,710
Exelon Corp.		4,029		158,783
FirstEnergy Corp.		4,999		153,069
NextEra Energy, Inc.		986		154,003
PPL Corp.		5,688		176,044
Southern Co.		4,385		210,875
SSE PLC		11,751		209,593
				1,842,711
Multi-Utilities 0.6%
CenterPoint Energy, Inc.		5,490		155,696
Consolidated Edison, Inc.		1,765		149,937
Dominion Energy, Inc.		1,899		153,933
National Grid PLC		13,729		162,250
Public Service Enterprise Group, Inc.		3,199		164,749
WEC Energy Group, Inc.		2,406		159,831
				946,396
Total Common Stocks (Cost $66,046,600)				80,660,027
Preferred Stocks 5.7%
Financials 2.3%
Bank of America Corp. Series Y, 6.5%		15,000		405,300
BB&T Corp. 5.625%		10,000		270,000
Capital One Financial Corp. Series G, 5.2%		10,000		250,300
Citigroup, Inc. Series S, 6.3%		15,000		403,950
Fifth Third Bancorp. Series I, 6.625%		10,000		285,000
JPMorgan Chase & Co. Series AA, 6.1%		15,000		404,550
KeyCorp Series E, 6.125%		10,000		289,200
Morgan Stanley Series K, 5.85%		10,000		271,000
The Goldman Sachs Group, Inc. Series J, 5.5%		17,000		450,670
Wells Fargo & Co. Series Y, 5.625%		15,000		389,100
				3,419,070
Industrials 0.5%
General Electric Co. 4.7%		30,000		748,800
Real Estate 1.5%
AGNC Investment Corp. Series C, 7.0% (REIT)		14,427		371,063

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

	Shares		Value ($)
AGNC Investment Corp. Series B, 7.75% (REIT)		18,000		465,120
Kimco Realty Corp. Series L, 5.125% (REIT)		15,000		371,100
Prologis, Inc. Series Q, 8.54% (REIT)		164		12,462
Simon Property Group, Inc. Series J, 8.375% (REIT)		8,000		572,080
VEREIT, Inc. Series F, 6.7% (REIT)		15,000		383,550
				2,175,375
Telecommunication Services 0.6%
Verizon Communications, Inc. 5.9%		30,000		791,400
Utilities 0.8%
Dominion Energy, Inc. Series A, 5.25%		30,000		767,100
Southern Co. 5.25%		15,000		381,750
				1,148,850
Total Preferred Stocks (Cost $8,377,556)				8,283,495
Right 0.0%
Consumer Staples
Safeway Casa Ley, Expiration Date 1/30/2018* (b) (Cost $7,611)		7,499		7,611
Warrant 0.0%
Materials
Hercules Trust II, Expiration Date 3/31/2029* (b) (Cost $30,283)		170		4,595
	Principal Amount ($)(c)		Value ($)
Corporate Bonds 12.9%
Consumer Discretionary 2.8%
1011778 B.C. Unlimited Liability Co., 144A, 5.0%, 10/15/2025		200,000		201,500
Altice Financing SA, 144A, 7.5%, 5/15/2026		400,000		426,000
American Axle & Manufacturing, Inc., 144A, 6.25%, 4/1/2025 (a)		350,000		368,375
Asbury Automotive Group, Inc., 6.0%, 12/15/2024		300,000		312,360
Cablevision Systems Corp., 5.875%, 9/15/2022		300,000		295,500
CCO Holdings LLC, 144A, 5.875%, 5/1/2027		500,000		515,000
Charter Communications Operating LLC, 3.75%, 2/15/2028		160,000		153,313
CSC Holdings LLC:
144A, 5.5%, 4/15/2027		400,000		408,000
144A, 10.125%, 1/15/2023		200,000		225,250
Expedia, Inc., 3.8%, 2/15/2028		180,000		173,935
General Motors Co., 6.6%, 4/1/2036		30,000		36,552
Nordstrom, Inc.:
4.0%, 3/15/2027		65,000		64,756
5.0%, 1/15/2044		100,000		96,407
SFR Group SA, 144A, 7.375%, 5/1/2026		300,000		307,875

	Principal Amount ($)(c)		Value ($)
Toll Brothers Finance Corp., 4.875%, 11/15/2025		200,000		209,000
Virgin Media Secured Finance PLC, 144A, 5.25%, 1/15/2026		350,000		353,500
				4,147,323
Consumer Staples 0.5%
B&G Foods, Inc., 5.25%, 4/1/2025		100,000		101,715
BAT Capital Corp., 144A, 4.54%, 8/15/2047		75,000		78,968
FAGE International SA, 144A, 5.625%, 8/15/2026		300,000		289,500
Kraft Heinz Foods Co., 4.375%, 6/1/2046		210,000		208,016
Molson Coors Brewing Co., 4.2%, 7/15/2046		40,000		40,761
				718,960
Energy 3.4%
Canadian Natural Resources Ltd., 4.95%, 6/1/2047		60,000		67,148
Cheniere Corpus Christi Holdings LLC, 5.875%, 3/31/2025		200,000		216,750
Chesapeake Energy Corp., 144A, 8.0%, 1/15/2025		65,000		65,650
Continental Resources, Inc., 5.0%, 9/15/2022		400,000		406,000
Crestwood Midstream Partners LP, 6.25%, 4/1/2023		700,000		727,440
Enbridge, Inc., 5.5%, 7/15/2077		200,000		198,750
Energy Transfer Equity LP, 5.5%, 6/1/2027		100,000		102,000
Energy Transfer LP:
4.5%, 11/1/2023		40,000		41,358
5.95%, 10/1/2043		30,000		31,897
EnLink Midstream Partners LP, 5.45%, 6/1/2047		90,000		95,102
Halliburton Co., 4.85%, 11/15/2035		35,000		39,264
Hess Corp., 5.8%, 4/1/2047		75,000		83,459
Hilcorp Energy I LP, 144A, 5.75%, 10/1/2025		200,000		204,500
Kinder Morgan Energy Partners LP, 4.7%, 11/1/2042		110,000		106,489
MEG Energy Corp., 144A, 6.5%, 1/15/2025 (a)		200,000		197,500
Noble Energy, Inc., 3.85%, 1/15/2028		185,000		185,566
Noble Holding International Ltd., 5.75%, 3/16/2018		10,000		10,025
Oasis Petroleum, Inc., 6.875%, 3/15/2022		100,000		102,625
Plains All American Pipeline LP:
2.85%, 1/31/2023		55,000		52,628
4.3%, 1/31/2043		95,000		83,897
Range Resources Corp., 5.0%, 8/15/2022		200,000		199,000
Southwestern Energy Co., 7.75%, 10/1/2027		100,000		106,750
State Oil Co. of the Azerbaijan Republic, REG S, 4.75%, 3/13/2023		700,000		708,772
Sunoco Logistics Partners Operations LP, 5.3%, 4/1/2044		20,000		19,738
Sunoco LP, 6.375%, 4/1/2023		100,000		105,375

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 11

	Principal Amount ($)(c)		Value ($)
Targa Resources Partners LP, 5.375%, 2/1/2027		200,000		205,250
Weatherford International Ltd., 9.875%, 2/15/2024		200,000		212,500
WPX Energy, Inc.:
5.25%, 9/15/2024		200,000		199,310
6.0%, 1/15/2022		200,000		209,000
				4,983,743
Financials 2.0%
BPCE SA, 144A, 4.875%, 4/1/2026		700,000		749,711
Everest Reinsurance Holdings, Inc., 4.868%, 6/1/2044		50,000		53,203
FS Investment Corp., 4.75%, 5/15/2022		70,000		72,064
HSBC Holdings PLC, 4.375%, 11/23/2026		200,000		208,804
KKR Group Finance Co. III LLC, 144A, 5.125%, 6/1/2044		30,000		33,255
Legg Mason, Inc., 5.625%, 1/15/2044		50,000		55,744
Nationwide Financial Services, Inc., 144A, 5.3%, 11/18/2044		40,000		47,451
Royal Bank of Scotland Group PLC, 7.5%, 8/10/2020		800,000		846,000
Swiss Re Treasury U.S. Corp., 144A, 4.25%, 12/6/2042		30,000		31,195
TC Ziraat Bankasi AS:
144A, 5.125%, 5/3/2022		200,000		198,290
144A, 5.125%, 9/29/2023		350,000		340,854
Voya Financial, Inc., 4.8%, 6/15/2046		45,000		50,126
Westpac Banking Corp., 5.0%, 9/21/2027		300,000		299,233
				2,985,930
Health Care 0.4%
Allergan Funding SCS, 4.75%, 3/15/2045		9,000		9,581
Celgene Corp., 5.0%, 8/15/2045		30,000		34,038
Express Scripts Holding Co., 4.8%, 7/15/2046		50,000		53,189
HCA, Inc., 4.5%, 2/15/2027		350,000		351,750
Mylan NV, 5.25%, 6/15/2046		55,000		60,264
				508,822
Industrials 0.6%
Bombardier, Inc., 144A, 6.0%, 10/15/2022		300,000		294,750
Park Aerospace Holdings Ltd., 144A, 5.25%, 8/15/2022		175,000		173,906
United Rentals North America, Inc., 5.875%, 9/15/2026		350,000		374,500
				843,156
Information Technology 0.3%
Dell International LLC, 144A, 8.1%, 7/15/2036		30,000		37,884
DXC Technology Co., 4.75%, 4/15/2027		210,000		223,316
Netflix, Inc., 4.375%, 11/15/2026		100,000		97,750
Pitney Bowes, Inc., 3.625%, 9/15/2020		45,000		44,550

	Principal Amount ($)(c)		Value ($)
Seagate HDD Cayman, 144A, 4.25%, 3/1/2022		90,000		91,098
				494,598
Materials 1.2%
AK Steel Corp., 7.0%, 3/15/2027 (a)		200,000		203,500
Ardagh Packaging Finance PLC, 144A, 7.25%, 5/15/2024		200,000		217,750
CF Industries, Inc., 144A, 4.5%, 12/1/2026		20,000		20,848
Constellium NV, 144A, 6.625%, 3/1/2025		250,000		263,438
Evraz Group SA, 144A, 5.375%, 3/20/2023		300,000		312,000
Glencore Funding LLC, 144A, 4.625%, 4/29/2024		20,000		21,116
United States Steel Corp., 6.875%, 8/15/2025		200,000		208,760
Vedanta Resources PLC, 144A, 7.125%, 5/31/2023		400,000		430,520
				1,677,932
Real Estate 0.5%
CBL & Associates LP:
(REIT), 5.25%, 12/1/2023		45,000		42,496
(REIT), 5.95%, 12/15/2026 (a)		110,000		102,330
Government Properties Income Trust, (REIT), 4.0%, 7/15/2022		150,000		150,907
Hospitality Properties Trust, (REIT), 3.95%, 1/15/2028		100,000		97,007
Omega Healthcare Investors, Inc.:
(REIT), 4.75%, 1/15/2028		110,000		109,039
(REIT), 4.95%, 4/1/2024		60,000		62,681
Select Income REIT:
(REIT), 4.15%, 2/1/2022		60,000		60,673
(REIT), 4.25%, 5/15/2024		45,000		44,633
VEREIT Operating Partnership LP, (REIT), 3.95%, 8/15/2027		125,000		123,572
				793,338
Telecommunication Services 1.0%
AT&T, Inc.:
4.5%, 5/15/2035		105,000		104,377
5.15%, 2/14/2050		115,000		116,434
CenturyLink, Inc., Series Y, 7.5%, 4/1/2024 (a)		300,000		299,250
Intelsat Jackson Holdings SA, 7.25%, 10/15/2020		600,000		564,000
Sprint Corp., 7.625%, 2/15/2025 (a)		300,000		314,250
Verizon Communications, Inc., 4.272%, 1/15/2036		60,000		59,688
				1,457,999
Utilities 0.2%
AmeriGas Partners LP, 5.75%, 5/20/2027		200,000		202,000
Electricite de France SA, 144A, 4.75%, 10/13/2035		95,000		104,903
Southern Power Co., Series F, 4.95%, 12/15/2046		29,000		31,810
				338,713
Total Corporate Bonds (Cost $18,930,128)				18,950,514

The accompanying notes are an integral part of the financial statements.

12 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

	Principal Amount ($)(c)		Value ($)
Asset-Backed 0.6%
Miscellaneous
Dell Equipment Finance Trust, “D”, Series 2017-1, 144A, 3.44%, 4/24/2023		280,000		278,228
Domino’s Pizza Master Issuer LLC, “A23”, Series 2017-1A, 144A, 4.118%, 7/25/2047		339,150		346,503
Hilton Grand Vacations Trust, “B”, Series 2014-AA, 144A, 2.07%, 11/25/2026		159,414		156,796
Wendys Funding LLC, “A2I”, Series 2018-1A, 144A, 3.573%, 3/15/2048 (d)		160,000		159,950
Total Asset-Backed (Cost $938,513)				941,477
Mortgage-Backed Securities Pass-Throughs 1.1%
Federal Home Loan Mortgage Corp.:
3.5%, 5/1/2046		1,494,014		1,540,469
6.0%, 3/1/2038		4,067		4,557
Federal National Mortgage Association:
4.5%, 9/1/2035		7,299		7,771
6.0%, 1/1/2024		12,655		14,137
Total Mortgage-Backed Securities Pass-Throughs (Cost $1,567,526)				1,566,934
Commercial Mortgage-Backed Securities 0.9%
CHT Mortgage Trust, “D”, Series 2017-CSMO, 144A, 1-month USD-LIBOR + 2.250%, 3.63%**, 11/15/2036		300,000		300,561
CSAIL Commercial Mortgage Trust, “A4”, Series 2015-C4, 3.808%, 11/15/2048		300,000		313,630
FHLMC Multifamily Structured Pass-Through Certificates, “X1”, Series K043, Interest Only, 0.546%**, 12/25/2024		4,955,820		163,213
GMAC Commercial Mortgage Securities, Inc., “G”, Series 2004-C1, 144A, 5.455%, 3/10/2038		490,430		458,945
JPMBB Commercial Mortgage Securities Trust, “A3”, Series 2014-C19, 3.669%, 4/15/2047		125,000		129,410
Total Commercial Mortgage-Backed Securities (Cost $1,399,434)				1,365,759
Collateralized Mortgage Obligations 1.5%
Federal Home Loan Mortgage Corp.:
“HI”, Series 3979, Interest Only, 3.0%, 12/15/2026		261,886		20,397
“IK”, Series 4048, Interest Only, 3.0%, 5/15/2027		383,207		35,350

	Principal Amount ($)(c)		Value ($)
“H”, Series 4865, 4.0%, 8/15/2044		883,343		920,974
“LI”, Series 3720, Interest Only, 4.5%, 9/15/2025		524,967		55,224
“PI”, Series 3843, Interest Only, 4.5%, 5/15/2038		227,512		16,545
“C31”, Series 303, Interest Only, 4.5%, 12/15/2042		1,231,140		246,835
“H”, Series 2278, 6.5%, 1/15/2031		120		123
Federal National Mortgage Association:
“WO”, Series 2013-27, Principal Only, Zero Coupon, 12/25/2042		220,000		142,445
“4”, Series 406, Interest Only, 4.0%, 9/25/2040		107,895		21,279
“I”, Series 2003-84, Interest Only, 6.0%, 9/25/2033		119,600		20,180
Government National Mortgage Association:
“QI”, Series 2011-112, Interest Only, 4.0%, 5/16/2026		191,917		17,681
“PI”, Series 2015-40, Interest Only, 4.0%, 4/20/2044		267,923		30,956
“BI”, Series 2010-30, Interest Only, 4.5%, 7/20/2039		38,023		4,044
“PI”, Series 2014-108, Interest Only, 4.5%, 12/20/2039		70,221		12,170
“IP”, Series 2014-11, Interest Only, 4.5%, 1/20/2043		186,245		23,571
“IQ”, Series 2011-18, Interest Only, 5.5%, 1/16/2039		78,731		7,299
“IV”, Series 2009-69, Interest Only, 5.5%, 8/20/2039		204,480		34,615
“IN”, Series 2009-69, Interest Only, 5.5%, 8/20/2039		209,327		38,278
“IJ”, Series 2009-75, Interest Only, 6.0%, 8/16/2039		147,414		25,774
RESIMAC, “A2”, Series 2017-2, 1-month Bank Bill Swap Rate + 1.200%, 2.89%**, 1/15/2049		AUD 600,000		469,112
Total Collateralized Mortgage Obligations (Cost $1,850,875)				2,142,852
Government & Agency Obligations 5.7%
Other Government Related (e) 0.1%
Sberbank of Russia, 144A, 5.125%, 10/29/2022		200,000		206,420
Sovereign Bonds 4.9%
Export Credit Bank of Turkey, 144A, 5.375%, 10/24/2023		350,000		353,692

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 13

	Principal Amount ($)(c)		Value ($)
Government of Indonesia, Series FR56, 8.375%, 9/15/2026		IDR 21,340,000,000		1,777,127
Mexican Udibonos Inflation-Linked Bond, Series S, 2.0%, 6/9/2022		MXN 8,924,378		426,927
Republic of Angola, 144A, 9.5%, 11/12/2025		650,000		748,593
Republic of Argentina, Series NY, Step-up Coupon, 2.5% to 3/31/2019, 3.75% to 3/31/2029, 5.25% to 12/31/2038		1,500,000		1,102,725
Republic of Hungary, Series 19/A, 6.5%, 6/24/2019		HUF 16,900,000		71,468
Republic of Namibia, 144A, 5.25%, 10/29/2025		550,000		560,395
Republic of Nigeria, 144A, 6.5%, 11/28/2027		200,000		208,405
Republic of Senegal, 144A, 6.25%, 7/30/2024		800,000		863,454
Republic of Zambia, 144A, 5.375%, 9/20/2022		500,000		487,780
United Mexican States, Series M, 5.75%, 3/5/2026		MXN 13,525,200		608,048
				7,208,614
U.S. Treasury Obligation 0.7%
U.S. Treasury Note, 0.75%, 4/30/2018		1,000,000		997,813
Total Government & Agency Obligations (Cost $8,053,727)				8,412,847
Municipal Bonds and Notes 0.1%
Kentucky, Asset/Liability Commission, General Fund Revenue, 3.165%, 4/1/2018 (Cost $64,810)		64,810		65,043
Convertible Bond 0.2%
Materials
GEO Specialty Chemicals, Inc., 3-month USD-LIBOR + 14.0%, 15.709% PIK, 10/18/2025 (b) (Cost $247,405)		248,767		314,566

	Principal Amount ($)			Value ($)
Short-Term U.S. Treasury Obligations 4.3%
U.S. Treasury Bills:
1.18%***, 8/16/2018 (f)		3,338,000			3,304,891
1.381%***, 10/11/2018 (f) (g)		3,056,000			3,016,142
Total Short-Term U.S. Treasury Obligations (Cost $6,336,061)					6,321,033
	Shares			Value ($)
Exchange-Traded Funds 9.8%
SPDR Bloomberg Barclays High Yield Bond ETF (a)		115,000			4,222,800
VanEck Vectors JPMorgan EM Local Currency Bond ETF		270,000			5,124,600
Vanguard REIT ETF		60,500			5,020,290
Total Exchange-Traded Funds (Cost $14,182,078)					14,367,690
Securities Lending Collateral 2.2%
Deutsche Government & Agency Securities Portfolio “Deutsche Government Cash Institutional Shares”, 1.21% (h) (i) (Cost $3,253,298)		3,253,298			3,253,298
Cash Equivalents 1.1%
Deutsche Central Cash Management Government Fund, 1.30% (h) (Cost $1,616,434)		1,616,434			1,616,434
	% of Net Assets			Value ($)
Total Investment Portfolio (Cost $132,902,339)		101.2			148,274,175
Other Assets and Liabilities, Net		(1.2	)		(1,754,932	)
Net Assets		100.0			146,519,243

* Non-income producing security.

** Variable or floating rate security. These securities are shown at their current rate as of December 31, 2017. For securities based on a published reference rate and spread, the reference rate and spread are indicated within the description above. Certain variable rate securities are not based on a published reference rate and spread but adjust periodically based on current market conditions, prepayment of underlying positions and/or other variables.

*** Annualized yield at time of purchase; not a coupon rate.

(a) All or a portion of these securities were on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The value of securities loaned at December 31, 2017 amounted to $3,154,529, which is 2.2% of net assets.

(b) Investment was valued using significant unobservable inputs.

(c) Principal amount stated in U.S. dollars unless otherwise noted.

(d) When-issued security.

(e) Government-backed debt issued by financial companies or government sponsored enterprises.

The accompanying notes are an integral part of the financial statements.

14 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

(f) At December 31, 2017, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures and centrally cleared swap contracts.

(g) At December 31, 2017, this security has been pledged, in whole or in part, as collateral for open over-the-counter derivatives.

(h) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

(i) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

ADR: American Depositary Receipt

ASX: Australian Securities Exchange

CBOE: Chicago Board Options Exchange

EM: Emerging Markets

GDR: Global Depositary Receipt

Interest Only: Interest Only (IO) bonds represent the “interest only” portion of payments on a pool of underlying mortgages or mortgage-backed securities. IO securities are subject to prepayment risk of the pool of underlying mortgages.

PIK: Denotes that all or a portion of the income is paid in-kind in the form of additional principal.

PJSC: Public Joint Stock Company

Principal Only: Principal Only (PO) bonds represent the “principal only” portion of payments on a pool of underlying mortgages or mortgage-backed securities.

REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.

REIT: Real Estate Investment Trust

SPDR: Standard & Poor’s Depositary Receipt

At December 31, 2017, open futures contracts purchased were as follows:

Futures	Currency		Expiration Date		Contracts		Notional Amount ($)		Notional Value ($)		Unrealized Appreciation (Depreciation) ($)
10 Year U.S. Treasury Note		USD		3/20/2018		39		4,870,639		4,837,828		(32,811	)
Mini MSCI Emerging Market Index		USD		3/16/2018		169		9,489,440		9,833,265		343,825
Nikkei 225 Index		JPY		3/8/2018		405		8,106,290		8,177,280		70,990
U.S. Treasury Long Bond		USD		3/20/2018		5		766,416		765,000		(1,416	)
Ultra 10 Year U.S. Treasury Note		USD		3/20/2018		73		9,793,557		9,750,062		(43,495	)
Ultra Long U.S. Treasury Bond		USD		3/20/2018		11		1,832,985		1,844,219		11,234
Total net unrealized appreciation												348,327

At December 31, 2017, open futures contracts sold were as follows:

Futures	Currency		Expiration Date		Contracts		Notional Amount ($)		Notional Value ($)		Unrealized Appreciation (Depreciation) ($)
2 Year U.S. Treasury Note		USD		3/29/2018		31		6,651,381		6,637,390		13,991
3 Month Euro Euribor Interest Rate		EUR		12/17/2018		7		2,105,288		2,104,776		512
3 Month Euro Swiss Franc (Euroswiss) Interest Rate		CHF		12/17/2018		8		2,064,537		2,064,549		(12	)
3 Month Euroyen		JPY		12/17/2018		10		2,216,868		2,216,996		(128	)
3 Month Sterling (Short Sterling) Interest Rate		GBP		12/19/2018		13		2,174,449		2,176,881		(2,432	)
5 Year U.S. Treasury Note		USD		3/29/2018		68		7,941,447		7,899,156		42,291
90 Day Eurodollar		USD		12/17/2018		9		2,202,840		2,201,738		1,102
ASX 90 Day Bank Accepted Bills		AUD		12/13/2018		11		8,541,660		8,540,007		1,653
CBOE SPX Volatility Index		USD		1/17/2018		90		1,264,355		1,032,750		231,605
Federal Republic of Germany Euro-Bund		EUR		3/8/2018		12		2,345,303		2,327,900		17,403
Total net unrealized appreciation												305,985

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 15

At December 31, 2017, open credit default swap contracts sold were as follows:

Centrally Cleared Swaps

Underlying Reference Obligation

Fixed Cash Flows Received/ Frequency

Expiration Date

Notional Amount (j)

Currency

Value ($)

Upfront Payments Paid ($)

Unrealized Appreciation ($)

Markit CDX North America High Yield Index

5.0%/ Quarterly

6/20/2017 6/20/2022

5,375,700

USD

480,544

335,694

144,850

(j) The maximum potential amount of future undiscounted payments that the Fund could be required to make under a credit default swap contract would be the notional amount of the contract. These potential amounts would be partially offset by any recovery values of the referenced debt obligation or net amounts received from the settlement of buy protection credit default swap contracts entered into by the Fund for the same referenced debt obligation, if any.

At December 31, 2017, open interest rate swap contracts were as follows:

Centrally Cleared Swaps
Cash Flows Paid by the Fund/Frequency	Cash Flows Received by the Fund/ Frequency	Effective/ Expiration Date	Notional Amount		Currency	Value ($)			Upfront Payments Paid/ (Received) ($)			Unrealized Appreciation/ (Depreciation) ($)
Floating — 3-Month LIBOR/Quarterly	Fixed — 2.25%/ Semi-Annually	12/20/2017 12/20/2022		11,800,000	USD		774			258,887			(258,113	)
Fixed — 2.5%/Semi-Annually	Floating — 3-Month LIBOR/Quarterly	12/20/2017 12/20/2027		12,600,000	USD		(95,225	)		(494,876	)		399,651
Fixed — 1.75%/Semi-Annually	Floating — 3-Month LIBOR/Quarterly	12/20/2017 12/20/2018		1,900,000	USD		2,243			(3,933	)		6,176
Fixed — 2.75%/Semi-Annually	Floating — 3-Month LIBOR/Quarterly	12/20/2017 12/20/2047		3,000,000	USD		(119,832	)		(78,275	)		(41,557	)
Fixed — 2.75%/Semi-Annually	Floating — 3-Month LIBOR/Quarterly	12/20/2017 12/20/2037		200,000	USD		(6,256	)		(14,426	)		8,170
Total net unrealized appreciation													114,327

LIBOR: London Interbank Offered Rate; 3-Month LIBOR rate at September 30, 2017 is 1.694%.

At December 31, 2017, open total return swap contracts were as follows:

Bilateral Swaps — Long
Pay/Receive Return of the Reference Index	Fixed Cash Flows Paid	Frequency	Counterparty/ Expiration Date	Notional Amount ($)	Value ($)		Upfront Payments Paid ($)		Unrealized Appreciation ($)
MSCI World Net Total Return USD Index	1.339%	At Expiration	Goldman Sachs & Co. 3/14/2018	7,201,805		457,662		—		457,662
MSCI World Net Total Return USD Index	1.259%	At Expiration	Citigroup, Inc. 3/14/2018	7,301,985		459,405		—		459,405
Total unrealized appreciation										917,067

As of December 31, 2017, the Fund had the following open forward foreign currency contracts:

Contracts to Deliver		In Exchange For		Settlement Date	Unrealized Appreciation ($)		Counterparty
USD	699,276	EUR	600,000	1/10/2018		20,934	Credit Agricole
USD	2,896,512	EUR	2,430,000	1/10/2018		20,337	State Street Bank & Trust Co.
MXN	12,800,000	USD	664,083	1/24/2018		15,579	HSBC Holdings PLC
USD	2,831,128	CAD	3,600,000	1/29/2018		34,042	Canadian Imperial Bank of Commerce
USD	4,614,618	EUR	3,860,000	2/28/2018		31,750	Credit Agricole
Total unrealized appreciation						122,642

Contracts to Deliver		In Exchange For		Settlement Date	Unrealized Depreciation ($)		Counterparty
EUR	600,000	USD	703,690	1/10/2018		(16,520)	Credit Agricole
EUR	2,430,000	USD	2,865,993	1/10/2018		(50,856)	State Street Bank & Trust Co.
CAD	3,600,000	USD	2,802,653	1/29/2018		(62,516)	Citigroup, Inc.
AUD	600,000	USD	462,750	2/6/2018		(5,410)	National Australia Bank Ltd.

The accompanying notes are an integral part of the financial statements.

16 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Contracts to Deliver		In Exchange For		Settlement Date	Unrealized Depreciation ($)		Counterparty
GBP	2,250,000	USD	2,987,269	2/28/2018		(55,973)	JPMorgan Chase Securities, Inc.
EUR	3,860,000	USD	4,565,828	2/28/2018		(80,541)	Credit Agricole
AUD	2,910,000	USD	2,202,058	3/1/2018		(68,279)	Citigroup, Inc.
EUR	2,750,000	USD	3,304,542	4/3/2018		(13,359)	Barclays Bank PLC
Total unrealized depreciation						(353,454)

Currency Abbreviations

AUD Australian Dollar

CAD Canadian Dollar

CHF Swiss Franc

EUR Euro

GBP British Pound

HUF Hungarian Forint

IDR Indonesian Rupiah

JPY Japanese Yen

MXN Mexican Peso

USD United States Dollar

For information on the Fund’s policy and additional disclosures regarding futures contracts, credit default swap contracts, interest rate swap contracts, total return swap contracts and forward foreign currency contracts, please refer to the Derivatives section of Note B in the accompanying Notes to Financial Statements.

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1		Level 2		Level 3		Total
Common Stocks (k)
Consumer Discretionary	$	5,859,226	$	4,920,271	$	—	$	10,779,497
Consumer Staples		4,659,885		1,359,663		—		6,019,548
Energy		4,424,619		2,615,708		—		7,040,327
Financials		5,107,628		6,396,133		—		11,503,761
Health Care		3,751,510		2,745,325		—		6,496,835
Industrials		5,864,643		3,591,640		—		9,456,283
Information Technology		12,947,070		1,642,651		—		14,589,721
Materials		1,822,994		503,082		6,524		2,332,600
Real Estate		3,618,242		557,825		—		4,176,067
Telecommunication Services		2,046,455		3,429,826		—		5,476,281
Utilities		2,169,402		619,705		—		2,789,107
Preferred Stocks (k)		8,283,495		—		—		8,283,495
Right		—		—		7,611		7,611
Warrant		—		—		4,595		4,595
Fixed Income Investments (k)
Corporate Bonds		—		18,950,514		—		18,950,514
Asset-Backed		—		941,477		—		941,477
Mortgage-Backed Securities Pass-Throughs		—		1,566,934		—		1,566,934
Commercial Mortgage-Backed Securities		—		1,365,759		—		1,365,759
Collateralized Mortgage Obligations		—		2,142,852		—		2,142,852
Government & Agency Obligations		—		8,412,847		—		8,412,847
Municipal Bonds and Notes		—		65,043		—		65,043
Convertible Bond		—		—		314,566		314,566
Short-Term U.S. Treasury Obligations		—		6,321,033		—		6,321,033
Exchange-Traded Funds		14,367,690		—		—		14,367,690
Short-Term Investments (k)		4,869,732		—		—		4,869,732
Derivatives (l)
Futures Contracts		734,606		—		—		734,606
Credit Default Swap Contracts		—		144,850		—		144,850
Interest Rate Swap Contracts		—		413,997		—		413,997
Total Return Swap Contracts		—		917,067		—		917,067
Forward Foreign Currency Contracts		—		122,642		—		122,642
Total	$	80,527,197	$	69,746,844	$	333,296	$	150,607,337

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 17

Liabilities	Level 1			Level 2			Level 3		Total
Derivatives (l)
Futures Contracts	$	(80,294	)	$	—		$	—	$	(80,294	)
Interest Rate Swap Contracts		—			(299,670	)		—		(299,670	)
Forward Foreign Currency Contracts		—			(353,454	)		—		(353,454	)
Total	$	(80,294	)	$	(653,124	)	$	—	$	(733,418	)

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(k) See Investment Portfolio for additional detailed categorizations.

(l) Derivatives include unrealized appreciation (depreciation) on open futures contracts, credit default swap contracts, interest rate swap contracts, total return swap contracts and forward foreign currency exchange contracts.

The accompanying notes are an integral part of the financial statements.

18 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Statement of Assets and Liabilities

as of December 31, 2017
Assets
Investments in non-affiliated securities, at value (cost $128,032,607) — including $3,154,529 of securities loaned	$	143,404,443
Investment in Deutsche Government & Agency Securities Portfolio (cost $3,253,298)*		3,253,298
Investments in Deutsche Central Cash Management Government Fund (cost $1,616,434)		1,616,434
Cash		146,198
Foreign currency, at value (cost $373,775)		369,831
Cash held as collateral for bilateral swap contracts		290,000
Receivable for Fund shares sold		1,472
Dividends receivable		232,231
Interest receivable		453,873
Receivable for variation margin on futures contracts		9,933
Unrealized appreciation on bilateral swap contracts		917,067
Unrealized appreciation on forward foreign currency exchange contracts		122,642
Foreign taxes recoverable		94,383
Other assets		3,305
Total assets		150,915,110
Liabilities
Payable upon return of securities loaned		3,253,298
Payable for investments purchased — when-issued security		160,000
Payable upon return of deposit for bilateral swap contracts		290,000
Payable for Fund shares redeemed		97,746
Payable for variation margin on centrally cleared swaps		18,407
Unrealized depreciation on forward foreign currency exchange contracts		353,454
Accrued management fee		45,845
Accrued Trustees’ fees		2,798
Other accrued expenses and payables		174,319
Total liabilities		4,395,867
Net assets, at value	$	146,519,243
Net Assets Consist of
Undistributed net investment income		4,363,984
Net unrealized appreciation (depreciation) on:
Investments		15,371,836
Swap contracts		1,176,244
Futures		654,312
Foreign currency		(1,130	)
Forward foreign currency contracts		(230,812	)
Accumulated net realized gain (loss)		11,838,154
Paid-in capital		113,346,655
Net assets, at value	$	146,519,243
Class A
Net Asset Value, offering and redemption price per share ($146,519,243 ÷ 5,517,134 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	26.56

* Represents collateral on securities loaned.

     Statement of Operations

for the year ended December 31, 2017
Investment Income
Income:
Dividends (net of foreign taxes withheld of $181,510)	$	4,250,725
Interest (net of foreign taxes withheld of $11,747)		1,864,014
Income distributions — Deutsche Central Cash Management Government Fund		35,123
Securities lending income, net of borrower rebates		71,713
Total income		6,221,575
Expenses:
Management fee		662,352
Administration fee		179,014
Services to shareholders		823
Custodian fee		55,014
Professional fees		99,398
Reports to shareholders		32,255
Trustees’ fees and expenses		11,142
Pricing Service fee		67,051
Other		15,103
Total expenses		1,122,152
Net investment income		5,099,423
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		15,344,722
Swap contracts		1,303,473
Futures		2,313,924
Written options		89,550
Forward foreign currency contracts		(126,399	)
Foreign currency		13,180
		18,938,450
Change in net unrealized appreciation (depreciation) on:
Investments		4,190,563
Swap contracts		(269,564	)
Futures		869,583
Forward foreign currency contracts		(1,421,320	)
Foreign currency		8,320
		3,377,582
Net gain (loss)		22,316,032
Net increase (decrease) in net assets resulting from operations	$	27,415,455

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 19

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income	$	5,099,423		$	5,058,747
Net realized gain (loss)		18,938,450			(200,045	)
Change in net unrealized appreciation (depreciation)		3,377,582			7,339,499
Net increase (decrease) in net assets resulting from operations		27,415,455			12,198,201
Distributions to shareholders from:
Net investment income:
Class A		(5,628,068	)		(7,851,269	)
Fund share transactions:
Class A
Proceeds from shares sold		3,259,753			3,626,943
Shares issued to shareholders in reinvestment of distributions		5,628,068			7,851,269
Payments for shares redeemed		(69,176,010	)		(32,401,979	)
Net increase (decrease) in net assets from Class A share transactions		(60,288,189	)		(20,923,767	)
Increase (decrease) in net assets		(38,500,802	)		(16,576,835	)
Net assets at beginning of period		185,020,045			201,596,880
Net assets at end of period (including undistributed net investment income of $4,363,984 and $4,038,796, respectively)	$	146,519,243		$	185,020,045
Other Information
Class A
Shares outstanding at beginning of period		7,873,905			8,792,358
Shares sold		130,993			157,470
Shares issued to shareholders in reinvestment of distributions		233,530			348,017
Shares redeemed		(2,721,294	)		(1,423,940	)
Net increase (decrease) in Class A shares		(2,356,771	)		(918,453	)
Shares outstanding at end of period		5,517,134			7,873,905

The accompanying notes are an integral part of the financial statements.

20 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	23.50		$	22.93		$	24.62		$	27.30		$	23.90
Income (loss) from investment operations:
Net investment incomea		.71			.61			.68			.72			.78
Net realized and unrealized gain (loss)		3.10			.91			(.97	)		.25			3.14
Total from investment operations		3.81			1.52			(.29	)		.97			3.92
Less distributions from:
Net investment income		(.75	)		(.95	)		(.76	)		(.85	)		(.52	)
Net realized gains		—			—			(.64	)		(2.80	)		—
Total distributions		(.75	)		(.95	)		(1.40	)		(3.65	)		(.52	)
Net asset value, end of period	$	26.56		$	23.50		$	22.93		$	24.62		$	27.30
Total Return (%)		16.54			6.81			(1.44	)b		3.83			16.63
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		147			185			202			247			269
Ratio of expenses before expense reductions (%)c		.63			.62			.60			.62			.60
Ratio of expenses after expense reductions (%)c		.63			.62			.58			.62			.60
Ratio of net investment income (loss) (%)		2.85			2.66			2.85			2.83			3.07
Portfolio turnover rate (%)		122			135			92			88			182

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 21

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Global Income Builder VIP (the “Fund”) is a diversified series of Deutsche Variable Series II (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’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

Equity securities and Exchange-Traded Funds (“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. Equity securities or 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. Equity securities and ETFs are generally categorized as Level 1. For certain international equity securities, in order to adjust for events which may occur between the close of the foreign exchanges and the close of the New York Stock Exchange, a fair valuation model may be used. This fair valuation model takes into account comparisons to the valuation of American Depository Receipts (ADRs), exchange-traded funds, futures contracts and certain indices and these securities are categorized as Level 2.

Debt securities are valued at prices supplied by independent pricing services approved by the Fund’s Board. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, prepayment speeds and other data, as well as broker quotes. If the pricing services are unable to provide valuations, debt securities are valued at the average of the most recent reliable bid quotations or evaluated prices, as applicable, obtained from broker-dealers. These securities are generally categorized as Level 2.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1.

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2.

Swap contracts are valued daily based upon prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer. Swap contracts are generally categorized as Level 2.

Exchange-traded options are valued at the last sale price or, in the absence of a sale, the mean between the closing bid and asked prices or at the most recent asked price (bid for purchased options) if no bid or asked price are available. Exchange-traded options are categorized as Level 1. Over-the-counter written or purchased options are valued at prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer with which the option was traded. Over-the-counter written or purchased options are generally categorized as Level 2.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any

22 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Securities Lending. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. As of period end, any securities on loan were collateralized by cash. During the year ended December 31, 2017, the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by Deutsche Investment Management Americas Inc. As of December 31, 2017, the Fund invested the cash collateral in Deutsche Government & Agency Securities Portfolio. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017, the Fund had securities on loan, which were classified as common stocks, corporate bonds and exchange-traded funds in the Investment Portfolio. The value of the related collateral exceeded the value of the securities loaned at period end.

Remaining Contractual Maturity of the Agreements as of December 31, 2017
	Overnight and Continuous		<30 days		Between 30 & 90 days		>90 days		Total
Securities Lending Transactions
Common Stocks	$	561,215	$	—	$	—	$	—	$	561,215
Corporate Bonds		1,435,833		—		—		—		1,435,833
Exchange-Traded Fund		1,256,250		—		—		—		1,256,250
Total Borrowings	$	3,253,298	$	—	$	—	$	—	$	3,253,298
Gross amount of recognized liabilities for securities lending transactions:									$	3,253,298

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 23

When-Issued/Delayed Delivery Securities. The Fund may purchase or sell securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the transaction is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. At the time the Fund enters into a purchase transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment. Additionally, the Fund may be required to post securities and/or cash collateral in accordance with the terms of the commitment.

Certain risks may arise upon entering into when-issued or delayed delivery transactions from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.

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.

Additionally, the Fund may be subject to taxes imposed by the governments of countries in which it invests and are generally based on income and/or capital gains earned or repatriated, a portion of which may be recoverable based upon the current interpretation of the tax rules and regulations. Estimated tax liabilities and recoveries on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized gain/loss on investments. Tax liabilities realized as a result of security sales are reflected as a component of net realized gain/loss on investments.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. 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 foreign denominated investments, forward currency contracts, futures contracts, swap contracts and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	9,638,614
Undistributed Long-Term Capital Gains	$	8,282,808
Unrealized appreciation (depreciation) on investments	$	15,203,530

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $133,213,485. The net unrealized appreciation for all investments based on tax cost was $15,203,530. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $17,066,142 and aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value of $1,862,612.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	5,628,068	$	7,851,269

* 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.

24 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes, with the exception of securities in default of principal.

B. Derivative Instruments

Swaps. A swap is a contract between two parties to exchange future cash flows at periodic intervals based on the notional amount of the swap. A bilateral swap is a transaction between the fund and a counterparty where cash flows are exchanged between the two parties. A centrally cleared swap is a transaction executed between the fund and a counterparty, then cleared by a clearing member through a central clearinghouse. The central clearinghouse serves as the counterparty, with whom the fund exchanges cash flows.

The value of a swap is adjusted daily, and the change in value, if any, is recorded as unrealized appreciation or depreciation in the Statement of Assets and Liabilities. Gains or losses are realized when the swap expires or is closed. Certain risks may arise when entering into swap transactions including counterparty default; liquidity; or unfavorable changes in interest rates or the value of the underlying reference security, commodity or index. In connection with bilateral swaps, securities and/or cash may be identified as collateral in accordance with the terms of the swap agreement to provide assets of value and recourse in the event of default. The maximum counterparty credit risk is the net present value of the cash flows to be received from or paid to the counterparty over the term of the swap, to the extent that this amount is beneficial to the Fund, in addition to any related collateral posted to the counterparty by the Fund. This risk may be partially reduced by a master netting arrangement between the Fund and the counterparty. Upon entering into a centrally cleared swap, the Fund is required to deposit with a financial intermediary cash or securities (“initial margin”) in an amount equal to a certain percentage of the notional amount of the swap. Subsequent payments (“variation margin”) are made or received by the Fund dependent upon the daily fluctuations in the value of the swap. In a cleared swap transaction, counterparty risk is minimized as the central clearinghouse acts as the counterparty.

An upfront payment, if any, made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment, if any, received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations.

Interest Rate Swaps. Interest rate swaps are agreements in which the Fund agrees to pay to the counterparty a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment, or the Fund agrees to receive from the counterparty a fixed rate payment in exchange for the counterparty agreeing to receive from the Fund a variable rate payment. The payment obligations are based on the notional amount of the swap. For the year ended December 31, 2017, the Fund entered into interest rate swap agreements to gain exposure to different parts of the yield curve while managing overall duration.

A summary of the open interest rate swap contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in interest rate swap contracts had a total notional amount generally indicative of a range from $27,000,000 to $31,640,000.

Credit Default Swaps. Credit default swaps are agreements between a buyer and a seller of protection against predefined credit events for the reference entity. The Fund may enter into credit default swaps to gain exposure to an underlying issuer’s credit quality characteristics without directly investing in that issuer or to hedge against the risk of a credit event on debt securities. As a seller of a credit default swap, the Fund is required to pay the par (or other agreed-upon) value of the referenced entity to the counterparty with the occurrence of a credit event by a third party, such as a U.S. or foreign corporate issuer, on the reference entity, which would likely result in a loss to the Fund. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the swap provided that no credit event has occurred. If no

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 25

credit event occurs, the Fund keeps the stream of payments with no payment obligations. The Fund may also buy credit default swaps, in which case the Fund functions as the counterparty referenced above. This involves the risk that the swap may expire worthless. It also involves counterparty risk that the seller may fail to satisfy its payment obligations to the Fund with the occurrence of a credit event. When the Fund sells a credit default swap, it will cover its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the reference entities for all outstanding credit default swaps sold by the Fund. For the year ended December 31, 2017, the Fund entered into credit default swap agreements to gain exposure to the underlying issuer’s credit quality characteristics and to hedge the risk of default or other specified credit events on portfolio assets.

Under the terms of a credit default swap, the Fund receives or makes periodic payments based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss in the Statement of Operations. Payments received or made as a result of a credit event or termination of the swap are recognized, net of a proportional amount of the upfront payment, as realized gains or losses in the Statement of Operations.

A summary of the open credit default swap contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment on the credit default swap contracts sold had a total notional value of generally indicative of a range from approximately $376,000 to $7,700,000.

Total Return Swap Contracts. Total return swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. One counterparty pays out the total return of the reference security or index underlying the total return swap, and in return receives a fixed or variable rate. As a receiver, the Fund would receive payments based on any positive total return and would owe payments in the event of a negative total return. As the payer, the Fund would owe payments on any net positive total return, and would receive payments in the event of a negative total return. For the year ended December 31, 2017, the Fund entered into total return swap transactions as a means of gaining exposure to a particular asset class without investing directly in such asset class.

A summary of the open total return swap contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in total return swap contracts had a total notional amount generally indicative of a range from $0 to approximately $18,005,000.

Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). For the year ended December 31, 2017, the Fund entered into interest rate futures to gain exposure to different parts of the yield curve while managing overall duration. The Fund also entered into interest rate futures contracts for non-hedging purposes to seek to enhance potential gains. In addition, the Fund entered into equity index futures as a means of gaining exposure to the equity asset class without investing directly into such asset class and to manage the risk of stock market volatility.

Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary cash or securities (“initial margin”) in an amount equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments (“variation margin”) are made or received by the Fund dependent upon the daily fluctuations in the value and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are exchange-traded, counterparty risk is minimized as the exchange’s clearinghouse acts as the counterparty, and guarantees the futures against default.

Certain risks may arise upon entering into futures contracts, including the risk that an illiquid market will limit the Fund’s ability to close out a futures contract prior to the settlement date and the risk that the futures contract is not well correlated with the security, index or currency to which it relates. Risk of loss may exceed amounts disclosed in the Statement of Assets and Liabilities.

A summary of the open futures contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in futures contracts purchased had a total notional value generally indicative of a range from approximately $28,712,000 to $57,111,000, and the investment in futures contracts sold had a total notional value generally indicative of a range from approximately $5,939,000 to $45,430,000.

Options. An option contract is a contract in which the writer (seller) of the option grants the buyer of the option, upon payment of a premium, the right to purchase from (call option), or sell to (put option), the writer a

26 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

designated instrument at a specified price within a specified period of time. The Fund may write or purchase interest rate swaption agreements which are options to enter into a pre-defined swap agreement. The interest rate swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer upon exercise. Certain options, including options on indices and interest rate options, will require cash settlement by the Fund if exercised. For the year ended December 31, 2017, the Fund entered into options contracts in order to manage the risk of stock market volatility. In addition, the Fund entered into options on interest rate swaps in order to hedge against potential adverse interest rate movements of portfolio assets.

If the Fund writes a covered call option, the Fund foregoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price. If the Fund writes a put option it accepts the risk of a decline in the value of the underlying security below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. For exchange traded contracts, the counterparty risk is minimized as the exchange’s clearinghouse acts as the counterparty, and guarantees the futures against default. The Fund’s maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund’s ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities or currencies hedged.

There were no open written or purchased option contracts as of December 31, 2017. For the year ended December 31, 2017, the investment in written option contracts had a total value generally indicative of a range from $0 to $346,000 and purchased option contracts with total values ranging from $0 to $206,000.

Forward Foreign Currency Contracts. A forward foreign currency contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. For the year ended December 31, 2017, the Fund entered into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings, to facilitate transactions in foreign currency denominated securities and for non-hedging purposes to seek to enhance potential gains.

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. On the settlement date of the forward currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.

A summary of the open forward currency contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in forward currency contracts short vs. U.S. dollars had a total contract value generally indicative of a range from approximately $20,559,000 to $74,338,000, and the investment in forward currency contracts long vs. U.S. dollars had a total contract value generally indicative of a range from approximately $11,042,000 to $60,988,000.

The following tables summarize the value of the Fund’s derivative instruments held as of December 31, 2017 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:

Asset Derivatives	Forward Contracts		Swap Contracts		Futures Contracts		Total
Equity Contracts (a)(b)	$	—	$	917,067	$	646,420	$	1,563,487
Interest Rate Contracts (a)		—		413,997		88,186		502,183
Credit Contracts (a)		—		144,850		—		144,850
Foreign Exchange Contracts (b)		122,642		—		—		122,642
	$	122,642	$	1,475,914	$	734,606	$	2,333,162

Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:

(a) Includes cumulative appreciation of futures and centrally cleared swap contracts as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.

(b) Unrealized appreciation on forward foreign currency contracts and bilateral swap contracts

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 27

Liability Derivatives	Forward Contracts			Swap Contracts			Futures Contracts			Total
Interest Rate Contracts (c)	$	—		$	(299,670	)	$	(80,294	)	$	(379,964	)
Foreign Exchange Contracts (d)		(353,454	)		—			—			(353,454	)
	$	(353,454	)	$	(299,670	)	$	(80,294	)	$	(733,418	)

Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:

(c) Includes cumulative depreciation of futures and centrally cleared swap contracts as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.

(d) Unrealized depreciation on forward foreign currency contracts

Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the year ended December 31, 2017 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:

Realized Gain (Loss)	Purchased Options			Written Options			Forward Contracts			Swap Contracts		Futures Contracts		Total
Equity Contracts (e)	$	(98,354	)	$	(123,200	)	$	—		$	—	$	2,170,721	$	1,949,167
Interest Rate Contracts (e)		—			212,750			—			745,242		143,203		1,101,195
Credit Contracts (e)		—			—			—			558,231		—		558,231
Foreign Exchange Contracts (f)		—			—			(126,399	)		—		—		(126,399	)
	$	(98,354	)	$	89,550		$	(126,399	)	$	1,303,473	$	2,313,924	$	3,482,194

Each of the above derivatives is located in the following Statement of Operations accounts:

(e) Net realized gain (loss) from investments (includes purchased options), written options, swap contracts and futures, respectively

(f) Net realized gain (loss) from forward foreign currency contracts

Change in Net Unrealized Appreciation (Depreciation)	Forward Contracts			Swap Contracts			Futures Contracts		Total
Equity Contracts (g)	$	—		$	917,067		$	701,962	$	1,619,029
Interest Rate Contracts (g)		—			(1,085,115	)		167,621		(917,494	)
Credit Contracts (g)		—			(101,516	)		—		(101,516	)
Foreign Exchange Contracts (h)		(1,421,320	)		—			—		(1,421,320	)
	$	(1,421,320	)	$	(269,564	)	$	869,583	$	(821,301	)

Each of the above derivatives is located in the following Statement of Operations accounts:

(g) Change in net unrealized appreciation (depreciation) on swap contracts and futures, respectively

(h) Change in net unrealized appreciation (depreciation) on forward foreign currency contracts

As of December 31, 2017, the Fund has transactions subject to enforceable master netting agreements which govern the terms of certain transactions, and reduce the counterparty risk associated with such transactions. Master netting agreements allow a Fund to close out and net total exposure to a counterparty in the event of a deterioration in the credit quality or contractual default with respect to all of the transactions with a counterparty. As defined by the master netting agreement, the Fund may have collateral agreements with certain counterparties to mitigate risk. For financial reporting purposes the Statement of Assets and Liabilities generally shows derivatives assets and liabilities on a gross basis, which reflects the full risks and exposures prior to netting. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by a counterparty, including any collateral exposure, is included in the following tables:

Counterparty	Gross Amounts of Assets Presented in the Statement of Assets and Liabilities		Financial Instruments and Derivatives Available for Offset			Cash Collateral Received (i)			Net Amount of Derivative Assets
Canadian Imperial Bank of Commerce	$	34,042	$	—		$	—		$	34,042
Citigroup, Inc.		459,405		(130,795	)		—			328,610
Credit Agricole		52,684		(52,684	)		—			—
Goldman Sachs & Co.		457,662		—			(290,000	)		167,662
HSBC Holdings PLC		15,579		—			—			15,579
State Street Bank & Trust Co.		20,337		(20,337	)		—			—
	$	1,039,709	$	(203,816	)	$	(290,000	)	$	545,893

28 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Counterparty	Gross Amounts of Liabilities Presented in the Statement of Assets and Liabilities		Financial Instruments and Derivatives Available for Offset			Non-Cash Collateral Pledged (i)			Net Amount of Derivative Liabilities
Barclays Bank PLC	$	13,359	$	—		$	—		$	13,359
Citigroup, Inc.		130,795		(130,795	)		—			—
Credit Agricole		97,061		(52,684	)		—			44,377
JPMorgan Chase Securities, Inc.		55,973		—			(45,400	)		10,573
National Australia Bank Ltd.		5,410		—			—			5,410
State Street Bank & Trust Co.		50,856		(20,337	)		—			30,519
	$	353,454	$	(203,816	)	$	(45,400	)	$	104,238

(i) The actual collateral received and/or pledged may be more than the amounts shown.

C. Purchases and Sales of Securities

During the year ended December 31, 2017, purchases and sales of investment transactions (excluding short-term investments and U.S. Treasury obligations) aggregated $177,815,611 and $225,761,653, respectively. Purchases and sales of U.S. Treasury obligations aggregated $28,865,086 and $42,437,313, respectively.

D. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund or delegates such responsibility to the Fund’s subadvisor.

Effective March 1, 2017, Deutsche Alternative Asset Management (Global) Limited (DAAM Global), also an indirect, wholly owned subsidiary of Deutsche Bank AG, serves as subadvisor for the Fund and, as such, provides portfolio manager services to the Fund. Pursuant to a sub-advisory agreement between DIMA and DAAM Global, DIMA, not the Fund, compensates DAAM Global for the services it provides to the Fund.

Under the Investment Management Agreement, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $250 million	.370	%
Next $750 million	.345	%
Over $1 billion	.310	%

Accordingly, for the year ended December 31, 2017, the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waiver/reimbursements) of 0.37% of the Fund’s average daily net assets.

For the period from January 1, 2017 through September 30, 2017, the Advisor had contractually agreed to waive its fees and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of Class A shares at 0.73%.

Effective October 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive its fees and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of Class A shares at 0.69%.

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017, the Administration Fee was $179,014, of which $12,391 is unpaid.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 29

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017, the amounts charged to the Fund by DSC aggregated $428, of which $106 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017, the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $12,948, of which $4,819 unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

Securities Lending Agent Fees. Deutsche Bank AG serves as securities lending agent for the Fund. For the year ended December 31, 2017, the Fund incurred securities lending agent fees to Deutsche Bank AG in the amount of $5,398.

E. Ownership of the Fund

At December 31, 2017, one participating insurance company was owner of record of 10% or more of the total outstanding shares of the Fund, owning 71%.

F. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

30 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and the Shareholders of Deutsche Global Income Builder VIP

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche Global Income Builder VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II ) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.
Boston, Massachusetts
February 15, 2018

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 31

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return	Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,084.50
Expenses Paid per $1,000*	$	3.31
Hypothetical 5% Fund Return	Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,022.03
Expenses Paid per $1,000*	$	3.21

* Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratio	Class A
Deutsche Variable Series II — Deutsche Global Income Builder VIP		.63	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

32 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Tax Information (Unaudited)

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $9,111,000 as capital gain dividends for its year ended December 31, 2017.

For corporate shareholders, 18% of the ordinary dividends (i.e., income dividends plus short-term capital gains) paid during the Fund’s fiscal year ended December 31, 2017 qualified for the dividends received deduction.

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 33

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche Global Income Builder VIP’s (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017. DIMA has also entered into a sub-advisory agreement with Deutsche Alternative Asset Management (Global) Limited (“DAAM Global”), an affiliate of DIMA, that has an initial term through September 30, 2018.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA and DAAM Global are part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s and DAAM Global’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that DIMA and DAAM Global provide portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. Throughout the course of the year, the Board also received information regarding DIMA’s oversight of fund sub-advisers, including DAAM Global. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an

34 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 2nd quartile, 2nd quartile and 1st quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has outperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were lower than the median (1st quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that DIMA pays a sub-advisory fee to DAAM Global out of its fee. The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board noted that the expense limitation agreed to by DIMA was expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to a comparable Deutsche U.S. registered fund (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Fund. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA and DAAM Global.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund and any fees received by an affiliate of DIMA for transfer agency services provided to the Fund. The Board also considered benefits to DIMA related to brokerage and soft-dollar

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 35

allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

36 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 37

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

38 | Deutsche Variable Series II — Deutsche Global Income Builder VIP

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

Deutsche Variable Series II — Deutsche Global Income Builder VIP | 39

VS2GIB-2 (R-025825-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche Government & Agency Securities VIP

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
12	Statement of Assets and Liabilities
12	Statement of Operations
13	Statements of Changes in Net Assets
14	Financial Highlights
15	Notes to Financial Statements
23	Report of Independent Registered Public Accounting Firm
24	Information About Your Fund’s Expenses
25	Tax Information
25	Proxy Voting
26	Advisory Agreement Board Considerations and Fee Evaluation
29	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. Bond investments are subject to interest-rate, credit, liquidity and market risks to varying degrees. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. The “full faith and credit” guarantee of the US government applies to the timely repayment of interest, and does not eliminate market risk. Because of the rising US government debt burden, it is possible that the US government may not be able to meet its financial obligations or that securities issued by the US government may experience credit downgrades. The Fund may lend securities to approved institutions. See the prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED     NO BANK GUARANTEE     MAY LOSE VALUE     NOT A DEPOSIT

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.

The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 are 0.86% and 1.21% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche Government & Agency Securities VIP

The Bloomberg Barclays GNMA Index is an unmanaged, market-value-weighted measure of all fixed-rate securities backed by mortgage pools of the Government National Mortgage Association.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Comparative Results
Deutsche Government & Agency Securities VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$10,167	$10,282	$10,497	$14,038
	Average annual total return	1.67%	0.93%	0.97%	3.45%
Bloomberg Barclays GNMA Index	Growth of $10,000	$10,186	$10,489	$10,879	$14,579
	Average annual total return	1.86%	1.60%	1.70%	3.84%
Deutsche Government & Agency Securities VIP		1-Year	3-Year	5-Year	10-Year
Class B	Growth of $10,000	$10,131	$10,173	$10,330	$13,576
	Average annual total return	1.31%	0.57%	0.65%	3.10%
Bloomberg Barclays GNMA Index	Growth of $10,000	$10,186	$10,489	$10,879	$14,579
	Average annual total return	1.86%	1.60%	1.70%	3.84%

The growth of $10,000 is cumulative.

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 3

Management Summary   December 31, 2017 (Unaudited)

During the 12-month period ended December 31, 2017, the Fund provided a total return of 1.67% (Class A shares, unadjusted for contract charges) compared with the 1.86% return of its benchmark, the Bloomberg Barclays GNMA Index.

Entering 2017, investor sentiment was supported by optimism over the prospects for higher growth with Republicans holding the White House and both houses of Congress. Economically sensitive, credit-oriented segments of the bond market outperformed more interest rate-sensitive, higher-quality issues for much of the year. In October 2017, the U.S. Federal Reserve (the Fed) begin the gradual tapering of its mortgage-backed security and Treasury holdings. The plan to reduce the Fed’s balance sheet had been extensively foreshadowed, so the actual launch of tapering had a muted impact on longer-term bond yields. As 2017 drew to a close, against a backdrop of strengthened employment conditions and robust corporate profits, the passage of a tax reform bill that included a significant reduction in corporate tax rates led to stepped up expectations for Fed rate hikes. In December, the Fed implemented its third quarter-point rate hike of the year by increasing the upper band of its benchmark short-term lending rate from 1.25% to 1.50%.

For the 12 months ended December 31, 2017, the U.S. Treasury yield curve flattened as short term yields rose and longer-term rates declined. To illustrate, the two-year Treasury yield went from 1.20% to 1.91%, the five-year from 1.93% to 2.23%, the 10-year from 2.45% to 2.43%, the 20-year from 2.79% to 2.60% and the 30-year from 3.05% to 2.75%.

2017 was a difficult year for the GNMA sector, as faster prepayment and heavy supply undermined sentiment. We reduced GNMA exposure throughout the year in exchange for conventional mortgage-backed securities and other high-quality, out-of-benchmark sectors such as U.S. Treasuries, which proved beneficial to performance.

The Fund also maintained a position in collateralized mortgage obligations with favorable prepayment characteristics, which helped drive incremental yield for the Fund. The Fund tactically shifted its positioning along the yield curve throughout the period, while maintaining a strategic bias toward a flattening yield curve that favored longer maturities. High-coupon GNMAs lagged over the 12 months, and we reduced the Fund’s overweight to the sector while maintaining exposure to bonds that we believe could have upside potential if interest rate levels rise. Derivatives, which were used for tactical positioning with respect to non-U.S. dollar exposures, had a positive effect on performance when coupled with corresponding currency hedges. Derivatives were also used for hedging U.S. interest rate exposure with minimal impact on performance.

We expect a continued flattening of the yield curve given that the Fed is hinting at three or four hikes in the coming year. The positive sentiment is expected to carry forward into the new year, possibly suppressing demand for GNMA securities as investors seek higher yields in a steadily improving economy. However, with spreads having narrowed across asset classes, the relative value equation is pointing back in favor of the high-quality segments of the U.S. fixed income market. The backdrop is further complicated by the Fed’s tapering and ultimately vanishing reinvestment into the mortgage-backed securities market. We therefore believe maintaining off-index exposures to liquid instruments such as sovereign bonds, agency CMOs and ABS securities could help mitigate volatility in the coming year.

Gregory M. Staples, CFA, Managing Director

Scott Agi, CFA, Director

Portfolio Managers

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.

4 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Terms to Know

The yield curve is a graphical representation of how yields on bonds of different maturities compare. Normally, yield curves slant up, as bonds with longer maturities typically offer higher yields than short-term bonds.

The Bloomberg Barclays GNMA Index is an unmanaged, market-value-weighted measure of all fixed rate securities backed by mortgage pools of the Government National Mortgage Association. Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Mortgage-backed securities (MBS) are bonds that are secured by mortgage debt. Collateralized mortgage obligations (CMOs) are mortgage-backed securities with separate pools for different classes of bondholders. Asset-backed securities (ABS) are bonds backed by receivables from consumer debt such as credit cards, home equity loans and auto loans.

Coupon is the interest rate, expressed as an annual percentage of face value, which a bond issuer promises to pay until maturity.

Overweight means the fund holds a higher weighting in a given sector or security than the benchmark. Underweight means the fund holds a lower weighting.

Derivatives are contracts whose values can be based on a variety of instruments including indices, currencies or securities. They can be utilized for a variety of reasons including for hedging purposes; for risk management; for non-hedging purposes to seek to enhance potential gains; or as a substitute for direct investment in a particular asset class or to keep cash on hand to meet shareholder redemptions. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility.

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 5

Portfolio Summary (Unaudited)

Asset Allocation (As a % of Net Assets)	12/31/17		12/31/16
Mortgage-Backed Securities Pass-Throughs		80%		94%
Collateralized Mortgage Obligations		22%		16%
Government & Agency Obligations		16%		7%
Asset-Backed		5%		—
Commercial Mortgage-Backed Securities		3%		1%
Corporate Bonds		1%		2%
Cash Equivalents and Other Assets and Liabilities, net		–27%		–20%
	100%		100%
Coupons*	12/31/17		12/31/16
Less than 3.5%		35%		27%
3.5%–4.49%		42%		35%
4.5%–5.49%		15%		20%
5.5%–6.49%		5%		17%
6.5%–7.49%		3%		1%
7.5% and Greater		0%		0%
	100%		100%
Interest Rate Sensitivity	12/31/17		12/31/16
Effective Maturity		9.9 years		9.9 years
Effective Duration		4.0 years		4.2 years

* Excludes Cash Equivalents and U.S. Treasury Bills.

Effective maturity is the weighted average of the maturity date of bonds held by the Fund taking into consideration any available maturity shortening features.

Effective duration is an approximate measure of the Fund’s sensitivity to interest rate changes taking into consideration any maturity shortening features.

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 6.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Investment Portfolio December 31, 2017

	Principal Amount ($)(a)		Value ($)
Mortgage-Backed Securities Pass-Throughs 79.9%
Federal Home Loan Mortgage Corp.:
3.0%, with various maturities from 9/1/2047 until 1/1/2048 (b)		3,175,532		3,176,080
3.5%, 1/1/2048 (b)		1,500,000		1,540,391
Federal National Mortgage Association:
3.0%, 10/1/2047		989,643		990,147
3.5%, with various maturities from 3/1/2045 until 1/1/2048 (b)		4,883,906		5,023,618
Government National Mortgage Association:
3.0%, 1/1/2048 (b)		2,900,000		2,926,281
3.5%, with various maturities from 4/15/2042 until 1/1/2048 (b)		8,952,364		9,285,020
4.0%, with various maturities from 9/20/2040 until 8/15/2047 (b)		3,317,415		3,500,974
4.5%, with various maturities from 6/20/2033 until 6/20/2047		3,345,367		3,562,313
4.55%, 1/15/2041		154,256		163,348
4.625%, 5/15/2041		99,772		105,623
5.0%, with various maturities from 12/15/2032 until 8/15/2040		885,521		961,290
5.5%, with various maturities from 1/15/2034 until 6/15/2042		1,421,926		1,580,577
6.0%, with various maturities from 5/20/2034 until 12/20/2038		401,050		451,867
6.5%, with various maturities from 9/15/2036 until 2/15/2039		326,796		369,347
7.0%, with various maturities from 2/20/2027 until 11/15/2038		97,847		100,187
7.5%, 10/20/2031		3,416		3,859
Total Mortgage-Backed Securities Pass-Throughs (Cost $34,006,374)				33,740,922
Asset-Backed 4.9%
Automobile Receivables 0.4%
AmeriCredit Automobile Receivables Trust, “A3”, Series 2017-1, 1.87%, 8/18/2021		170,000		169,455
Credit Card Receivables 0.7%
Chase Issuance Trust, “A”, Series 2017-A2, 1-month USD-LIBOR + 0.400%, 1.877%*, 3/15/2024		300,000		301,729

	Principal Amount ($)(a)		Value ($)
Miscellaneous 3.8%
Atrium XIII, “A1”, Series 13A, 144A, 3-month USD-LIBOR + 1.180%, 2.621%*, 11/21/2030		310,000		310,181
Carbone CLO Ltd., “A1”, Series 2017-1A, 144A, 3-month USD-LIBOR + 1.140%, 2.809%*, 1/20/2031		380,000		380,148
Domino’s Pizza Master Issuer LLC, “A23”, Series 2017-1A, 144A, 4.118%, 7/25/2047		448,875		458,606
Goldentree Loan Management U.S. CLO Ltd., “A”, Series 2017-2A, 144A, 3-month USD-LIBOR + 1.150%, 2.724%*, 11/28/2030		450,000		451,356
				1,600,291
Total Asset-Backed (Cost $2,058,869)				2,071,475
Collateralized Mortgage Obligations 22.1%
Federal Home Loan Mortgage Corp.:
“OA”, Series 3179, Principal Only, Zero Coupon, 7/15/2036		80,585		71,416
“22”, Series 243, Interest Only, 2.589%*, 6/15/2021		16,070		198
“YI”, Series 3936, Interest Only, 3.0%, 6/15/2025		18,087		340
“AI”, Series 4016, Interest Only, 3.0%, 9/15/2025		413,351		17,262
“WI”, Series 3939, Interest Only, 3.0%, 10/15/2025		124,962		4,373
“EI”, Series 3953, Interest Only, 3.0%, 11/15/2025		194,824		6,575
“IO”, Series 3974, Interest Only, 3.0%, 12/15/2025		78,663		4,445
“DI”, Series 4010, Interest Only, 3.0%, 2/15/2027		68,655		5,211
“IK”, Series 4048, Interest Only, 3.0%, 5/15/2027		766,414		70,701
“CZ”, Series 4113, 3.0%, 9/15/2042		314,642		294,297
“PL”, Series 4627, 3.0%, 10/15/2046		500,000		486,898
“IK”, Series 3754, Interest Only, 3.5%, 6/15/2025		321,530		16,727
“PI”, Series 3940, Interest Only, 4.0%, 2/15/2041		289,976		42,897
“C1”, Series 329, Interest Only, 4.0%, 12/15/2041		855,852		161,532
“UA”, Series 4298, 4.0%, 2/15/2054		76,882		76,246
“C32”, Series 303, Interest Only, 4.5%, 12/15/2042		876,617		172,100
“C28”, Series 303, Interest Only, 4.5%, 1/15/2043		1,044,120		226,636
“MI”, Series 3871, Interest Only, 6.0%, 4/15/2040		42,658		3,356
“IJ”, Series 4472, Interest Only, 6.0%, 11/15/2043		356,720		81,864
“A”, Series 172, Interest Only, 6.5%, 1/1/2024		7,619		1,043

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 7

	Principal Amount ($)(a)		Value ($)
“C22”, Series 324, Interest Only, 6.5%, 4/15/2039		492,382		125,211
Federal National Mortgage Association:
“DI”, Series 2011-136, Interest Only, 3.0%, 1/25/2026		67,676		3,588
“IB”, Series 2013-35, Interest Only, 3.0%, 4/25/2033		526,350		74,144
“Z”, Series 2013-44, 3.0%, 5/25/2043		96,441		90,444
“HI”, Series 2010-123, Interest Only, 3.5%, 3/25/2024		23,966		188
“KI”, Series 2011-72, Interest Only, 3.5%, 3/25/2025		55,450		230
“IO”, Series 2012-146, Interest Only, 3.5%, 1/25/2043		1,116,661		212,914
“4”, Series 406, Interest Only, 4.0%, 9/25/2040		215,791		42,558
“25”, Series 351, Interest Only, 4.5%, 5/25/2019		15,922		282
“21”, Series 334, Interest Only, 5.0%, 3/25/2018		10		0
“20”, Series 334, Interest Only, 5.0%, 3/25/2018		28		0
“23”, Series 339, Interest Only, 5.0%, 6/25/2018		1,027		3
“26”, Series 381, Interest Only, 5.0%, 12/25/2020		9,550		394
“IO”, Series 2016-26, Interest Only, 5.0%, 5/25/2046		951,380		186,591
“30”, Series 381, Interest Only, 5.5%, 11/25/2019		41,359		1,470
“PI”, Series 2009-14, Interest Only, 5.5%, 3/25/2024		1,291,661		77,282
“UI”, Series 2010-126, Interest Only, 5.5%, 10/25/2040		379,043		75,407
“IO”, Series 2014-70, Interest Only, 5.5%, 10/25/2044		502,789		109,674
“BI”, Series 2015-97, Interest Only, 5.5%, 1/25/2046		422,543		92,878
“WI”, Series 2011-59, Interest Only, 6.0%, 5/25/2040		67,171		3,246
“101”, Series 383, Interest Only, 6.5%, 9/25/2022		314,297		29,701
“YT”, Series 2013-35, 6.5%, 9/25/2032		543,786		622,616
Government National Mortgage Association:
“WF”, Series 2015-80, 1-month USD-LIBOR + 0.250%, 1.741%* , 1/16/2044		1,711,468		1,713,585
“PB”, Series 2012-90, 2.5%, 7/20/2042		515,988		460,443
“ZB”, Series 2016-161, 3.0%, 11/20/2046		842,107		800,582
“JI”, Series 2013-10, Interest Only, 3.5%, 1/20/2043		512,861		102,935
“ID”, Series 2013-70, Interest Only, 3.5%, 5/20/2043		244,486		44,922
“BI”, Series 2014-22, Interest Only, 4.0%, 2/20/2029		430,319		40,847
“IP”, Series 2015-50, Interest Only, 4.0%, 9/20/2040		916,440		72,343
“PI”, Series 2015-40, Interest Only, 4.0%, 4/20/2044		267,923		30,957
“LI”, Series 2009-104, Interest Only, 4.5%, 12/16/2018		13,339		121

	Principal Amount ($)(a)		Value ($)
“NI”, Series 2010-44, Interest Only, 4.5%, 10/20/2037		10,295		9
“CI”, Series 2010-87, Interest Only, 4.5%, 11/20/2038		1,251,588		65,659
“PI”, Series 2014-108, Interest Only, 4.5%, 12/20/2039		217,067		37,619
“MI”, Series 2010-169, Interest Only, 4.5%, 8/20/2040		266,082		31,356
“IP”, Series 2014-115, Interest Only, 4.5%, 2/20/2044		148,002		27,302
“GZ”, Series 2005-24, 5.0%, 3/20/2035		632,896		727,207
“MZ”, Series 2009-98, 5.0%, 10/16/2039		1,277,578		1,518,363
“AI”, Series 2008-46, Interest Only, 5.5%, 5/16/2023		15,389		331
“GI”, Series 2003-19, Interest Only, 5.5%, 3/16/2033		337,891		65,412
“IB”, Series 2010-130, Interest Only, 5.5%, 2/20/2038		82,459		14,722
“IA”, Series 2012-64, Interest Only, 5.5%, 5/16/2042		202,447		49,085
“DI”, Series 2009-10, Interest Only, 6.0%, 4/16/2038		127,495		19,509
“IP”, Series 2009-118, Interest Only, 6.5%, 12/16/2039		34,557		8,903
“IC”, Series 1997-4, Interest Only, 7.5%, 3/16/2027		281,457		2,085
Total Collateralized Mortgage Obligations (Cost $8,875,907)				9,327,235
Commercial Mortgage-Backed Securities 2.7%
CHT Mortgage Trust, “A”, Series 2017-CSMO,144A, 1-month USD-LIBOR + 0.880%, 2.31%*, 11/15/2036		400,000		400,623
Fannie Mae Grantor Trust, “A”, Series 2017-T1, 2.898%, 6/25/2027		499,893		496,577
FHLMC Multifamily Structured Pass-Through Securities, “X1”, Series K055, Interest Only, 1.368%*, 3/25/2026		2,483,267		229,097
Total Commercial Mortgage-Backed Securities (Cost $1,128,914)				1,126,297
Corporate Bond 1.2%
Financials
Bank of Montreal, 144A, 2.5%, 1/11/2022 (Cost $498,554)		500,000		499,305
Government & Agency Obligations 11.6%
Sovereign Bonds 2.2%
French Republic Government Bond OAT, 144A, REG S, 1.75%, 5/25/2066		EUR  370,262		420,571
Kingdom of Sweden, Series 1053, 3.5%, 3/30/2039		SEK  3,090,000		516,874
				937,445

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

	Principal Amount ($)(a)		Value ($)
U.S. Government Sponsored Agency 5.9%
Federal Home Loan Bank, 1.875%, 11/29/2021		2,500,000		2,479,115
U.S. Treasury Obligations 3.5%
U.S. Treasury Inflation-Indexed Bond, 0.875%, 2/15/2047		370,012		384,497
U.S. Treasury Note, 2.25%, 11/15/2027		1,100,000		1,084,488
				1,468,985
Total Government & Agency Obligations (Cost $4,823,676)				4,885,545
Short-Term U.S. Treasury Obligations 4.4%
U.S. Treasury Bills:
1.18% **, 8/16/2018 (c)		880,000		871,271
1.378% **, 10/11/2018 (c) (d)		1,000,000		986,958
Total Short-Term U.S. Treasury Obligations (Cost $1,862,624)				1,858,229

	Shares			Value ($)
Cash Equivalents 0.0%
Deutsche Central Cash Management Government Fund, 1.30% (e) (Cost $10,252)		10,252			10,252
	% of Net Assets			Value ($)
Total Investment Portfolio (Cost $53,265,170)		126.8			53,519,260
Other Assets and Liabilities, Net		(26.8	)		(11,297,006	)
Net Assets		100.0			42,222,254

* Variable or floating rate security. These securities are shown at their current rate as of December 31, 2017. For securities based on a published reference rate and spread, the reference rate and spread are indicated within the description above. Certain variable rate securities are not based on a published reference rate and spread but adjust periodically based on current market conditions, prepayment of underlying positions and/or other variables.

** Annualized yield at time of purchase; not a coupon rate.

(a) Principal amount stated in U.S. dollars unless otherwise noted.

(b) When-issued, delayed delivery or forward commitment securities included.

(c) At December 31, 2017, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.

(d) At December 31, 2017, this security has been pledged, in whole or in part, to cover initial margin requirements for open centrally cleared swap contracts.

(e) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

CLO: Collateralized Loan Obligation

Interest Only: Interest Only (IO) bonds represent the “interest only” portion of payments on a pool of underlying mortgages or mortgage-backed securities. IO securities are subject to prepayment risk of the pool of underlying mortgages.

LIBOR: London Interbank Offered Rate

Principal Only: Principal Only (PO) bonds represent the “principal only” portion of payments on a pool of underlying mortgages or mortgage-backed securities.

REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.

Included in the portfolio are investments in mortgage or asset-backed securities which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal Home Loan Mortgage Corp., Federal National Mortgage Association and Government National Mortgage Association issues which have similar coupon rates have been aggregated for presentation purposes in this investment portfolio.

At December 31, 2017, open futures contracts purchased were as follows:

Futures	Currency		Expiration Date		Contracts		Notional Amount ($)	Notional Value ($)		Unrealized Appreciation (Depreciation) ($)
10 Year U.S. Treasury Note		USD		3/20/2018		3	374,507		372,141		(2,366	)
Ultra 10 Year U.S. Treasury Note		USD		3/20/2018		16	2,133,472		2,137,000		3,528
Total net unrealized appreciation											1,162

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 9

At December 31, 2017, open futures contracts sold were as follows:

Futures	Currency	Expiration Date	Contracts	Notional Amount ($)	Notional Value ($)	Unrealized Appreciation ($)
Euro-OAT French Government Bond	EUR	3/8/2018	9	1,695,265	1,675,734	19,531
Federal Republic of Germany Euro-Bund	EUR	3/8/2018	8	1,563,919	1,551,933	11,986
U.S. Treasury Long Bond	USD	3/20/2018	5	766,357	765,000	1,357
Total unrealized appreciation						32,874

At December 31, 2017, open interest rate swap contracts were as follows:

Centrally Cleared Swaps
Cash Flows Paid by the Fund/Frequency	Cash Flows Received by the Fund/Frequency	Effective/ Expiration Date	Notional Amount		Currency		Upfront Payments Paid ($)		Value ($)			Unrealized Appreciation/ (Depreciation) ($)
Fixed — 0.228% Annually	Floating — 3-Month STIBOR Quarterly	7/18/2017 7/18/2021		16,600,000		SEK		—		(7,002	)		(7,002	)
Fixed — 2.239% Semi-Annually	Floating — 3-Month LIBOR Quarterly	3/21/2018 3/21/2023		1,700,000		USD		—		3,065			3,065
Fixed — 2.589% Semi-Annually	Floating — 3-Month LIBOR Quarterly	3/21/2018 3/21/2038		400,000		USD		—		(3,142	)		(3,142	)
Fixed — 1.698% Semi-Annually	Floating — 3-Month LIBOR Quarterly	12/20/2017 12/20/2019		5,700,000		USD		—		40,066			40,066
Fixed — 2.34% Semi-Annually	Floating — 3-Month LIBOR Quarterly	12/20/2017 12/20/2027		1,300,000		USD		1,682		5,920			4,238
Fixed — 2.45% Semi-Annually	Floating — 3-Month LIBOR Quarterly	12/20/2017 12/20/2032		1,100,000		USD		—		4,658			4,658
Fixed — 2.522% Semi-Annually	Floating — 3-Month LIBOR Quarterly	12/20/2017 12/20/2037		700,000		USD		—		420			420
Total net unrealized appreciation													42,303

LIBOR: London Interbank Offered Rate; 3-Month LIBOR rate at December 31, 2017 is 1.694%. STIBOR: Stockholm Interbank Offered Rate 3-Month; STIBOR rate at December 31, 2017 is -0.47%.

At December 31, 2017, open total return swap contracts were as follows:

Bilateral Swaps

Pay/Receive Return of the Reference Index

Fixed Cash Flows Received/ Frequency

Counterparty/ Expiration Date

Notional Amount

Currency

Upfront Payments Paid ($)

Value ($)

Unrealized Appreciation ($)

Long Positions

Markit IOS INDEX FN30.400.10

4.0%/Monthly

Goldman Sachs & Co. 1/12/2041

401,623

USD

—

480

480

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

As of December 31, 2017, the Fund had the following open forward foreign currency contracts:

Contracts to Deliver		In Exchange For			Settlement Date		Unrealized Appreciation ($)			Counterparty
USD	1,036,536		EUR	879,000		1/4/2018		18,383			Citigroup, Inc.
SEK	4,185,000		USD	518,452		1/18/2018		7,696			Danske Bank AS
USD	929,103		EUR	796,031		1/24/2018		27,459			JPMorgan Chase Securities, Inc.
CAD	526,422		NZD	600,000		1/30/2018		6,057			Canadian Imperial Bank of Commerce
Total unrealized appreciation								59,595
Contracts to Deliver		In Exchange For			Settlement Date		Unrealized Depreciation ($)			Counterparty
EUR	879,000		USD	1,038,007		1/4/2018		(16,912	)		Citigroup, Inc.
EUR	348,000		USD	412,509		1/24/2018		(5,670	)		HSBC Holdings PLC
EUR	789,719		USD	935,688		1/24/2018		(13,290	)		JPMorgan Chase Securities, Inc.
Total unrealized depreciation								(35,872	)

Currency Abbreviations

CAD Canadian Dollar

EUR Euro

NZD New Zealand Dollar

SEK Swedish Krona

USD United States Dollar

For information on the Fund’s policy and additional disclosures regarding futures contracts, interest rate swap contracts, total return swap contracts and forward foreign currency contracts, please refer to the Derivatives section of Note A in the accompanying Notes to Financial Statements.

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1			Level 2			Level 3		Total
Fixed Income Investments (f)
Mortgage-Backed Securities Pass-Throughs	$	—		$	33,740,922		$	—	$	33,740,922
Asset-Backed		—			2,071,475			—		2,071,475
Collateralized Mortgage Obligations		—			9,327,235			—		9,327,235
Commercial Mortgage-Backed Securities		—			1,126,297			—		1,126,297
Corporate Bond		—			499,305			—		499,305
Government & Agency Obligations		—			4,885,545			—		4,885,545
Short-Term U.S. Treasury Obligations		—			1,858,229			—		1,858,229
Short-Term Investments		10,252			—			—		10,252
Derivatives (g)
Futures Contracts		36,402			—			—		36,402
Interest Rate Swap Contracts		—			52,447			—		52,447
Total Return Swap Contracts		—			480			—		480
Forward Foreign Currency Contracts		—			59,595			—		59,595
Total	$	46,654		$	53,621,530		$	—	$	53,668,184
Liabilities	Level 1			Level 2			Level 3		Total
Derivatives (g)
Futures Contracts	$	(2,366	)	$	—		$	—	$	(2,366	)
Interest Rate Swap Contracts		—			(10,144	)		—		(10,144	)
Forward Foreign Currency Contracts		—			(35,872	)		—		(35,872	)
Total	$	(2,366	)	$	(46,016	)	$	—	$	(48,382	)

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(f) See Investment Portfolio for additional detailed categorizations.

(g) Derivatives include unrealized appreciation (depreciation) on open futures contracts, interest rate swap contracts, total return swap contracts and forward foreign currency contracts.

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 11

Statement of Assets and Liabilities

as of December 31, 2017
Assets
Investments in non-affiliated securities, at value (cost $53,254,918)	$	53,509,008
Investment in Deutsche Central Cash Management Government Fund (cost $10,252)		10,252
Cash		1,887,920
Foreign currency, at value (cost $23,582)		23,641
Receivable for investments sold — forward commitments		5,204,018
Receivable for Fund shares sold		9,251
Interest receivable		253,428
Receivable for variation margin on futures contracts		20,008
Unrealized appreciation on bilateral swap contracts		480
Unrealized appreciation on forward foreign currency exchange contracts		59,595
Other assets		1,106
Total assets		60,978,707
Liabilities
Payable for investments purchased — forward commitments		17,516,123
Line of credit loan payable		1,050,000
Payable for Fund shares redeemed		6,478
Payable for variation margin on centrally cleared swaps		24,267
Unrealized depreciation on forward foreign currency exchange contracts		35,872
Accrued management fee		7,196
Accrued Trustees’ fees		1,569
Other accrued expenses and payables		114,948
Total liabilities		18,756,453
Net assets, at value	$	42,222,254
Net Assets Consist of
Undistributed net investment income		1,051,322
Unrealized appreciation (depreciation) on:
Investments		254,090
Swap contracts		42,783
Futures		34,036
Foreign currency		231
Forward foreign currency contracts		23,723
Accumulated net realized gain (loss)		(65,240	)
Paid-in capital		40,881,309
Net assets, at value	$	42,222,254
Class A
Net Asset Value, offering and redemption price per share ($40,373,381 ÷ 3,619,812 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	11.15
Class B
Net Asset Value, offering and redemption price per share ($1,848,873 ÷ 165,975 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	11.14

     Statement of Operations

for the year ended December 31, 2017
Investment Income
Income:
Interest	$	1,256,209
Income distributions — Deutsche Central Cash Management Government Fund		36,267
Securities lending income, net of borrower rebates		78
Total income		1,292,554
Expenses:
Management fee		220,390
Administration fee		48,976
Services to shareholders		801
Record keeping fees (Class B)		2,047
Distribution service fees (Class B)		5,337
Custodian fee		24,284
Professional fees		83,328
Reports to shareholders		20,469
Trustees’ fees and expenses		4,712
Interest expense		510
Other		20,335
Total expenses before expense reductions		431,189
Expense reductions		(126,723	)
Total expenses after expense reductions		304,466
Net investment income		988,088
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		1,268,050
Swap contracts		(116,392	)
Futures		(316,318	)
Forward foreign currency contracts		17,199
Foreign currency		(1,221	)
Payments by affiliates (see Note G)		480
		851,798
Change in net unrealized appreciation (depreciation) on:
Investments		(1,172,326	)
Swap contracts		148,395
Futures		25,841
Forward foreign currency contracts		18,968
Foreign currency		101
		(979,021	)
Net gain (loss)		(127,223	)
Net increase (decrease) in net assets resulting from operations	$	860,865

The accompanying notes are an integral part of the financial statements.

12 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income	$	988,088		$	1,359,001
Net realized gain (loss)		851,798			(370,572	)
Change in net unrealized appreciation (depreciation)		(979,021	)		(170,481	)
Net increase (decrease) in net assets resulting from operations		860,865			817,948
Distributions to shareholders from:
Net investment income:
Class A		(1,241,081	)		(1,846,498	)
Class B		(46,826	)		(72,152	)
Total distributions		(1,287,907	)		(1,918,650	)
Fund share transactions:
Class A
Proceeds from shares sold		3,259,096			2,898,041
Reinvestment of distributions		1,241,081			1,846,498
Payments for shares redeemed		(15,457,312	)		(18,364,955	)
Net increase (decrease) in net assets from Class A share transactions		(10,957,135	)		(13,620,416	)
Class B
Proceeds from shares sold		67,053			226,087
Reinvestment of distributions		46,826			72,152
Payments for shares redeemed		(642,815	)		(503,123	)
Net increase (decrease) in net assets from Class B share transactions		(528,936	)		(204,884	)
Increase (decrease) in net assets		(11,913,113	)		(14,926,002	)
Net assets at beginning of period		54,135,367			69,061,369
Net assets at end of period (including undistributed net investment income of $1,051,322 and $1,284,868, respectively)	$	42,222,254		$	54,135,367
Other Information
Class A
Shares outstanding at beginning of period		4,598,638			5,786,470
Shares sold		291,446			253,037
Shares issued to shareholders in reinvestment of distributions		112,315			163,697
Shares redeemed		(1,382,587	)		(1,604,566	)
Net increase (decrease) in Class A shares		(978,826	)		(1,187,832	)
Shares outstanding at end of period		3,619,812			4,598,638
Class B
Shares outstanding at beginning of period		213,112			231,100
Shares sold		6,013			19,740
Shares issued to shareholders in reinvestment of distributions		4,234			6,391
Shares redeemed		(57,384	)		(44,119	)
Net increase (decrease) in Class B shares		(47,137	)		(17,988	)
Shares outstanding at end of period		165,975			213,112

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 13

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	11.25		$	11.48		$	11.80		$	11.47		$	12.69
Income (loss) from investment operations:
Net investment incomea		.23			.25			.27			.29			.24
Net realized and unrealized gain (loss)		(.04	)		(.13	)		(.26	)		.31			(.59	)
Total from investment operations		.19			.12			.01			.60			(.35	)
Less distributions from:
Net investment income		(.29	)		(.35	)		(.33	)		(.27	)		(.37	)
Net realized gains		—			—			—			—			(.50	)
Total distributions		(.29	)		(.35	)		(.33	)		(.27	)		(.87	)
Net asset value, end of period	$	11.15		$	11.25		$	11.48		$	11.80		$	11.47
Total Return (%)b		1.67			1.06			.06			5.29			(3.04	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		40			52			66			87			96
Ratio of expenses before expense reductions (%)c		.87			.86			.74			.72			.71
Ratio of expenses after expense reductions (%)c		.61			.58			.68			.70			.67
Ratio of net investment income (%)		2.03			2.22			2.33			2.49			2.05
Portfolio turnover rate (%)		588			521			376			393			794

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

	Years Ended December 31,
Class B	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	11.24		$	11.46		$	11.79		$	11.46		$	12.67
Income (loss) from investment operations:
Net investment incomea		.19			.21			.23			.25			.20
Net realized and unrealized gain (loss)		(.04	)		(.12	)		(.27	)		.31			(.59	)
Total from investment operations		.15			.09			(.04	)		.56			(.39	)
Less distributions from:
Net investment income		(.25	)		(.31	)		(.29	)		(.23	)		(.32	)
Net realized gains		—			—			—			—			(.50	)
Total distributions		(.25	)		(.31	)		(.29	)		(.23	)		(.82	)
Net asset value, end of period	$	11.14		$	11.24		$	11.46		$	11.79		$	11.46
Total Return (%)b		1.31			.79			(.36	)		4.95			(3.25	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		2			2			3			3			4
Ratio of expenses before expense reductions (%)c		1.21			1.21			1.09			1.06			1.06
Ratio of expenses after expense reductions (%)c		.95			.93			1.03			1.03			.99
Ratio of net investment income (%)		1.69			1.88			1.99			2.16			1.71
Portfolio turnover rate (%)		588			521			376			393			794

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

The accompanying notes are an integral part of the financial statements.

14 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Government & Agency Securities VIP (the “Fund”) is a diversified series of Deutsche Variable Series II (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.

Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Sales of Class B shares are subject to recordkeeping fees up to 0.15% and Rule 12b-1 fees under the 1940 Act equal to an annual rate of 0.25% of the average daily net assets of the Class B shares of the Fund. Class A shares are not subject to such fees.

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class (including the applicable Rule 12b-1 fee and recordkeeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.

The Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

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.

Debt securities are valued at prices supplied by independent pricing services approved by the Fund’s Board. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, prepayment speeds and other data, as well as broker quotes. If the pricing services are unable to provide valuations, debt securities are valued at the average of the most recent reliable bid quotations or evaluated prices, as applicable, obtained from broker-dealers. These securities are generally categorized as Level 2.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1.

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2.

Swap contracts are valued daily based upon prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer. Swap contracts are generally categorized as Level 2.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 15

the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Securities Lending. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. During the year ended December 31, 2017, the Fund invested the cash collateral into a joint trading account in affiliated money market funds, including Deutsche Government & Agency Securities Portfolio, managed by Deutsche Investment Management Americas Inc. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017, the Fund had no securities on loan.

Forward Commitments. The Fund may purchase or sell securities on a when-issued, delayed delivery or forward commitment basis with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the transaction is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The Fund may sell the forward commitment security before the settlement date or enter into a new commitment to extend the delivery date into the future. The value of the security may vary with market fluctuations. At the time the Fund enters into a purchase transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment. Additionally, the Fund or the counterparty may be required to post securities and/or cash collateral in accordance with the terms of the commitment.

Certain risks may arise upon entering into when-issued, delayed delivery or forward commitment transactions from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic or other factors. Such transactions may also have the effect of leverage on the Fund and may cause the Fund to be more volatile. Additionally, losses may arise due to changes in the value of the underlying securities.

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.

16 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

At December 31, 2017, the Fund had net tax basis capital loss carryforwards of approximately $29,000 of short-term losses, which may be applied against realized net taxable capital gains indefinitely.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. 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 futures contracts, investments in swap contracts, forward currency contracts and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	1,070,799
Capital loss carryforward	$	(29,000	)
Unrealized appreciation (depreciation) on investments	$	299,145

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $53,267,143. The net unrealized appreciation for all investments based on tax cost was $299,145. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $973,045 and aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value of $673,900.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	1,287,907	$	1,918,650

* 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.

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. Realized gains and losses from investment transactions are recorded on an identified cost basis. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes for the Fund.

B. Derivative Instruments

Swaps. A swap is a contract between two parties to exchange future cash flows at periodic intervals based on the notional amount of the swap. A bilateral swap is a transaction between the Fund and a counterparty where cash flows are exchanged between the two parties. A centrally cleared swap is a transaction executed between the Fund and a counterparty, then cleared by a clearing member through a central clearinghouse. The central clearinghouse serves as the counterparty, with whom the Fund exchanges cash flows.

The value of a swap is adjusted daily, and the change in value, if any, is recorded as unrealized appreciation or depreciation in the Statement of Assets and Liabilities. Gains or losses are realized when the swap expires or is closed. Certain risks may arise when entering into swap transactions including counterparty default; liquidity; or unfavorable changes in interest rates or the value of the underlying reference security, commodity or index. In

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 17

connection with bilateral swaps, securities and/or cash may be identified as collateral in accordance with the terms of the swap agreement to provide assets of value and recourse in the event of default. The maximum counterparty credit risk is the net present value of the cash flows to be received from or paid to the counterparty over the term of the swap, to the extent that this amount is beneficial to the Fund, in addition to any related collateral posted to the counterparty by the Fund. This risk may be partially reduced by a master netting arrangement between the Fund and the counterparty. Upon entering into a centrally cleared swap, the Fund is required to deposit with a financial intermediary cash or securities (“initial margin”) in an amount equal to a certain percentage of the notional amount of the swap. Subsequent payments (“variation margin”) are made or received by the Fund dependent upon the daily fluctuations in the value of the swap. In a cleared swap transaction, counterparty risk is minimized as the central clearinghouse acts as the counterparty.

An upfront payment, if any, made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment, if any, received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations.

Total Return Swap Contracts. Total return swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. One counterparty pays out the total return of the reference security or index underlying the total return swap, and in return receives a fixed or variable rate. As a receiver, the Fund would receive payments based on any positive total return and would owe payments in the event of a negative total return. As the payer, the Fund would owe payments on any net positive total return, and would receive payments in the event of a negative total return. For the year ended December 31, 2017, the Fund entered into total return swap transactions as a means of gaining exposure to a particular asset class without investing directly in such asset class.

A summary of the open total return swap contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in total return swap contracts had a total notional amount generally indicative of a range from $402,000 to $963,000.

Interest Rate Swaps. Interest rate swaps are agreements in which the Fund agrees to pay to the counterparty a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment, or the Fund agrees to receive from the counterparty a fixed rate payment in exchange for the counterparty agreeing to receive from the Fund a variable rate payment. The payment obligations are based on the notional amount of the swap. For the year ended December 31, 2017, the Fund entered into interest rate swap agreements to gain exposure to different parts of the yield curve while managing overall duration and for non-hedging purposes to seek to enhance potential gains.

A summary of the open interest rate swap contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in interest rate swap contracts had a total USD equivalent notional amount generally indicative of a range from $2,396,000 to $13,364,000.

Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). For the year ended December 31, 2017, the Fund entered into interest rate futures to gain exposure to different parts of the yield curve while managing overall duration and for non-hedging purposes to seek to enhance potential gains.

Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary cash or securities (“initial margin”) in an amount equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments (“variation margin”) are made or received by the Fund dependent upon the daily fluctuations in the value and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are exchange-traded, counterparty risk is minimized as the exchange’s clearinghouse acts as the counterparty, and guarantees the futures against default.

Certain risks may arise upon entering into futures contracts, including the risk that an illiquid market will limit the Fund’s ability to close out a futures contract prior to the settlement date and the risk that the futures contract is not well correlated with the security, index or currency to which it relates. Risk of loss may exceed amounts disclosed in the Statement of Assets and Liabilities.

A summary of the open futures contracts as of December 31, 2017, is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in futures contracts purchased had a total notional value generally indicative of a range from approximately $1,632,000 to

18 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

$7,595,000 and the investment in futures contracts sold had a total notional value generally indicative of a range from approximately $3,993,000 to $11,623,000.

Forward Foreign Currency Contracts. A forward foreign currency contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. For the year ended December 31, 2017, the Fund entered into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings and for non-hedging purposes to seek to enhance potential gains.

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. On the settlement date of the forward currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts. Additionally,

when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.

A summary of the open forward currency contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in forward currency contracts short vs. U.S. dollars had a total contract value generally indicative of a range from approximately $1,646,000 to $6,789,000 and the investment in forward currency contracts long vs. U.S. dollars had a total contract value generally indicative of a range from approximately $962,000 to $2,884,000. The investment in forward currency contracts long vs. other foreign currencies sold had a total contract value generally indicative of a range from $0 to approximately $4,050,000.

The following tables summarize the value of the Fund’s derivative instruments held as of December 31, 2017 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:

Asset Derivatives	Forward Contracts		Swap Contracts		Futures Contracts		Total
Interest Rate Contracts (a) (b)	$	—	$	52,927	$	36,402	$	89,329
Foreign Exchange Contracts (c)		59,595		—		—		59,595
	$	59,595	$	52,927	$	36,402	$	148,924

Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:

(a) Includes cumulative appreciation of swap contracts and futures as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.

(b) Unrealized appreciation on bilateral swap contracts

(c) Unrealized appreciation on forward foreign currency contracts

Liability Derivatives	Forward Contracts			Swap Contracts			Futures Contracts			Total
Interest Rate Contracts (d)	$	—		$	(10,144	)	$	(2,366	)	$	(12,510	)
Foreign Exchange Contracts (e)		(35,872	)		—			—			(35,872	)
	$	(35,872	)	$	(10,144	)	$	(2,366	)	$	(48,382	)

Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:

(d) Includes cumulative depreciation of swap contracts and futures as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.

(e) Unrealized depreciation on forward foreign currency contracts

Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the year ended December 31, 2017 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:

Realized Gain (Loss)	Forward Contracts		Swap Contracts			Futures Contracts			Total
Interest Rate Contracts (f)	$	—	$	(116,392	)	$	(316,318	)	$	(432,710	)
Foreign Exchange Contracts (g)		17,199		—			—			17,199
	$	17,199	$	(116,392	)	$	(316,318	)	$	(415,511	)

Each of the above derivatives is located in the following Statement of Operations accounts:

(f) Net realized gain (loss) on swap contracts and futures, respectively

(g) Net realized gain (loss) from forward foreign currency contracts

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 19

Change in Net Unrealized Appreciation (Depreciation)	Forward Contracts		Swap Contracts		Futures Contracts		Total
Interest Rate Contracts (h)	$	—	$	148,395	$	25,841	$	174,236
Foreign Exchange Contracts (i)		18,968		—		—		18,968
	$	18,968	$	148,395	$	25,841	$	193,204

Each of the above derivatives is located in the following Statement of Operations accounts:

(h) Change in net unrealized appreciation (depreciation) from swap contracts and futures, respectively

(i) Change in net unrealized appreciation (depreciation) on forward foreign currency contracts

As of December 31, 2017, the Fund has transactions subject to enforceable master netting agreements which govern the terms of certain transactions, and reduce the counterparty risk associated with such transactions. Master netting agreements allow a Fund to close out and net total exposure to a counterparty in the event of a deterioration in the credit quality or contractual default with respect to all of the transactions with a counterparty. As defined by the master netting agreement, the Fund may have collateral agreements with certain counterparties to mitigate risk. For financial reporting purposes the Statement of Assets and Liabilities generally shows derivatives assets and liabilities on a gross basis, which reflects the full risks and exposures prior to netting. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by a counterparty, including any collateral exposure, is included in the following tables:

Counterparty	Gross Amounts of Assets Presented in the Statement of Assets and Liabilities		Financial Instruments and Derivatives Available for Offset			Collateral Received		Net Amount of Derivative Assets
Canadian Imperial Bank of Commerce	$	6,057	$	—		$	—	$	6,057
Citigroup, Inc.		18,383		(16,912	)		—		1,471
Danske Bank AS		7,696		—			—		7,696
Goldman Sachs & Co.		480		—			—		480
JPMorgan Chase Securities, Inc.		27,459		(13,290	)		—		14,169
	$	60,075	$	(30,202	)	$	—	$	29,873

Counterparty	Gross Amounts of Liabilities Presented in the Statement of Assets and Liabilities		Financial Instruments and Derivatives Available for Offset			Collateral Pledged		Net Amount of Derivative Liabilities
Citigroup, Inc.	$	16,912	$	(16,912	)	$	—	$	—
HSBC Holdings PLC		5,670		—			—		5,670
JPMorgan Chase Securities, Inc.		13,290		(13,290	)		—		—
	$	35,872	$	(30,202	)	$	—	$	5,670

C. Purchases and Sales of Securities

During the year ended December 31, 2017, purchases and sales of investment securities (excluding short-term investments and U.S. Treasury securities) aggregated $354,519,795 and $361,479,195, respectively. Purchases and sales of U.S. Treasury securities aggregated $8,167,615 and $7,686,425, respectively.

D. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

20 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $250 million	.450	%
Next $750 million	.430	%
Next $1.5 billion	.410	%
Next $2.5 billion	.400	%
Next $2.5 billion	.380	%
Next $2.5 billion	.360	%
Next $2.5 billion	.340	%
Over $12.5 billion	.320	%

Accordingly, for the year ended December 31, 2017, the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.45% of the Fund’s average daily net assets.

For the period from January 1, 2017 through April 30, 2017, the Advisor had contractually agreed to waive all or a portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:

Class A	.58	%
Class B	.93	%

For the period from May 1, 2017 through September 30, 2017, the Advisor had contractually agreed to waive all or a portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:

Class A	.65	%
Class B	1.00	%

Effective October 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive all or a

portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:

Class A	.56	%
Class B	.91	%

For the year ended December 31, 2017, fees waived and/or expenses reimbursed for each class are as follows:

Class A	$	121,210
Class B		5,513
	$	126,723

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017, the Administration Fee was $48,976, of which $3,579 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017, the amounts charged to the Fund by DSC were as follows:

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 21

	Total Aggregated		Unpaid at December 31, 2017
Class A	$	251	$	63
Class B		51		13
	$	302	$	76

Distribution Service Agreement. Under the Fund’s Class B 12b-1 plan, Deutsche AM Distributors, Inc. (“DDI”) received a fee (“Distribution Service Fee”) of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2017, the Distribution Service Fee aggregated $5,337, of which $392 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017, the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $12,999, of which $5,907 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

Security Lending Fees. Deutsche Bank AG serves as securities lending agent for the Fund. For the year ended December 31, 2017, the Fund incurred securities lending agent fees to Deutsche Bank AG in the amount of $6.

E. Ownership of the Fund

At December 31, 2017, two participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 48% and 37%. One participating insurance company was the owner of record of 10% or more of the total outstanding Class B shares of the Fund, owning 94%.

F. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.

At December 31, 2017, the Fund had a $1,050,000 outstanding loan. Interest expense incurred on the borrowings was $510 for the period ended December 31, 2017. The average dollar amount of the borrowings was $503,846 the weighted average interest rate on these borrowings was 2.84%, and the Fund had a loan outstanding for thirteen days throughout the period. The borrowings were valued at cost, which approximates fair value.

G. Payments by Affiliates

During the year ended December 31, 2017, the Advisor agreed to reimburse the Fund $480 for losses incurred on trades executed incorrectly. The amount reimbursed was less than .01% of the Fund’s average net assets, thus having no impact on the Fund’s total return.

22 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and Shareholders of Deutsche Government & Agency Securities VIP:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche Government & Agency Securities VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II ) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.

Boston, Massachusetts

February 15, 2018

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 23

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,004.50	$	1,002.70
Expenses Paid per $1,000*	$	3.08	$	4.85
Hypothetical 5% Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,022.13	$	1,020.37
Expenses Paid per $1,000*	$	3.11	$	4.89

* Expenses are equal to the Fund’s annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratios	Class A			Class B
Deutsche Variable Series II — Deutsche Government & Agency Securities VIP		.61	%		.96	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

24 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Tax Information (Unaudited)

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 25

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche Government & Agency Securities VIP’s (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA is part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board

26 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 3rd quartile of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were higher than the median (4th quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board also reviewed data comparing each share class’s total (net) operating expenses to the applicable Broadridge Universe Expenses. The Board noted that the expense limitations agreed to by DIMA were expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to a comparable Deutsche U.S. registered fund (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Fund. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund, any fees received by an affiliate of DIMA for transfer agency services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 27

services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

28 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 29

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July��1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

30 | Deutsche Variable Series II — Deutsche Government & Agency Securities VIP

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

Deutsche Variable Series II — Deutsche Government & Agency Securities VIP | 31

VS2GAS-2 (R-025831-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche Government Money Market VIP

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
9	Statement of Assets and Liabilities
9	Statement of Operations
10	Statements of Changes in Net Assets
11	Financial Highlights
12	Notes to Financial Statements
15	Report of Independent Registered Public Accounting Firm
16	Information About Your Fund’s Expenses
17	Tax Information
17	Other Information
18	Advisory Agreement Board Considerations and Fee Evaluation
21	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time. You should not rely on or expect the Advisor to enter into support agreements or take other actions to maintain the Fund’s $1.00 share price. The credit quality of the Fund’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on the Fund’s share price. The Fund’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets. The actions of a few large investors in the Fund may have a significant adverse effect on the share price of the Fund. Please read the prospectus for 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.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED     NO BANK GUARANTEE     MAY LOSE VALUE     NOT A DEPOSIT

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Performance Summary December 31, 2017 (Unaudited)

All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. The yield quotation more closely reflects the current earnings of the Fund than the total return quotation.

You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.

	7-Day Current Yield
December 31, 2017	.83%
December 31, 2016	.04%*

* The investment advisor has agreed to waive fees/reimburse expenses. Without such fee waivers/expense reimbursements, the 7-day current yield would have been lower.

Yields are historical, will fluctuate and do not guarantee future performance. The 7-day current yield refers to the income paid by the Fund over a 7-day period expressed as an annual percentage rate of the Fund’s shares outstanding.

Deutsche Variable Series II — Deutsche Government Money Market VIP | 3

Management Summary December 31, 2017 (Unaudited)

During the 12-month period ended December 31, 2017, the Fund provided a total return of 0.45% (Class A shares, unadjusted for contract charges). All performance is historical and does not guarantee future results. Yields fluctuate and are not guaranteed.

Over the past 12 months ended December 31, 2017, short-term rates moved up based on a growing U.S. economy and evolving U.S. Federal Reserve Board (the Fed) statements and actions. Following a tumultuous election season in 2016, the first quarter of 2017 saw continued market improvements in anticipation of economically friendly fiscal policy initiatives from the incoming administration. While these policy expectations were eventually tempered, equity markets continued to climb, and hawkish statements from the Fed had investors pricing in a more aggressive Fed rate policy in 2017. Though the Fed did raise short-term rates at its March meeting, the accompanying statement was more restrained in tone, and short-term rate expectations moderated. Despite softening inflation data in the second quarter, a strong U.S. labor market prompted the Fed to raise short-term rates again in June, keeping its forward rate forecast unchanged and stating that the central bank would soon begin to unwind its significant holdings in Treasury and mortgage securities. By the end of the summer, the money market yield curve had flattened in reaction to political uncertainty in Washington, D.C. and the lack of any sign of an uptick in U.S. inflation. As we moved into the fourth quarter, concerns were expressed regarding the expiration of the government’s debt ceiling, with accompanying volatility in rates in October, but Congress was able to keep the government operating with a short-term agreement with the administration. This cleared the way for the market to increase its projection for economic growth in 2018. The economy continued to perform well, with unemployment at 4.1%. Yields moved higher in reaction to the Fed’s December rate hike, its third such move in 2017.

We were able to maintain what we believe to be a competitive yield for the Fund during the annual period ended December 31, 2017. The Fund held a large percentage of portfolio assets in agency and Treasury floating-rate securities linked to LIBOR to take advantage of an incremental rise in those rates. At the same time, the Fund invested in overnight agency repurchase agreements for liquidity and looked for yield opportunities from three- to six-month agency and Treasury securities.

In 2018, a number of factors could combine to push short-term rates higher. First, under the new federal tax law approved late last year, we may see some repatriation of corporate assets back to the United States, which could cause a decline in demand for money market instruments and push rates higher in response. Second, a tightening U.S. labor market could cause inflation to reawaken to some degree, and thus exert additional upward pressure on rates. Our current forecast is for two to three short-term rate hikes by the Fed in 2018. However, some analysts believe that Jerome Powell’s assumption of the Fed Chairmanship in March may tilt the U.S. central bank into a more hawkish stance regarding the normalization of short-term rates.

A group of investment professionals is responsible for the day-to-day management of the Fund. These investment professionals have a broad range of experience managing money market funds.

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.

4 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Terms to Know

The yield curve is a graphical representation of how yields on bonds of different maturities compare. Normally, yield curves slant up, as bonds with longer maturities typically offer higher yields than short-term bonds.

Floating-rate securities are debt instruments with floating-rate coupons that generally reset every 30 to 90 days. While floating-rate securities are senior to equity and fixed-income securities, there is no guaranteed return of principal in case of default. Floating-rate issues often have less interest-rate risk than other fixed-income investments. Floating-rate securities are most often secured assets, generally senior to a company’s secured debt, and can be transferred to debt holders, resulting in potential downside risk.

LIBOR, or the London Interbank Offered Rate, is a widely used benchmark for short-term taxable interest rates.

A repurchase agreement, or “overnight repo,” is an agreement between a seller and a buyer, usually of government securities, where the seller agrees to repurchase the securities at a given price and usually at a stated time. Repos are widely used money market instruments that serve as an interest-bearing, short-term “parking place” for large sums of money.

Deutsche Variable Series II — Deutsche Government Money Market VIP | 5

Portfolio Summary December 31, 2017 (Unaudited)

Asset Allocation (As a % of Investment Portfolio)	12/31/17		12/31/16
Government & Agency Obligations		76%		58%
Repurchase Agreements		24%		42%
		100%		100%
Weighted Average Maturity	12/31/17		12/31/16
Deutsche Variable Series II — Deutsche Government Money Market VIP		26 days		29 days
Government & Agency Retail Money Fund Average*		30 days		36 days

* The Fund is compared to its respective iMoneyNet Category: Government & Agency Retail Money Fund Average — Category includes the most broadly based of the government retail funds. These funds may invest in U.S. Treasury securities, securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities.

Weighted average maturity, also known as effective maturity, is the weighted average of the maturity date of bonds held by the Fund taking into consideration any available maturity shortening features.

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 7.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. In addition, each month, information about the Fund and its portfolio holdings is filed with the SEC on Form N-MFP. The SEC delays the public availability of the information filed on Form N-MFP for 60 days after the end of the reporting period included in the filing. These forms will be available on the SEC’s Web site at sec.gov, and they may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Investment Portfolio December 31, 2017

	Principal Amount ($)		Value ($)
Government & Agency Obligations 76.0%
U.S. Government Sponsored Agencies 51.1%
Federal Farm Credit Bank:
1-month LIBOR minus 0.180%, 1.192%*, 3/2/2018		1,000,000		1,000,000
1-month LIBOR minus 0.065%, 1.436%*, 7/20/2018		1,200,000		1,200,000
1-month LIBOR minus 0.115%, 1.437%*, 7/23/2018		1,500,000		1,499,965
1-month LIBOR minus 0.130%, 1.439%*, 4/29/2019		3,500,000		3,500,000
1-month LIBOR minus 0.095%, 1.44%*, 7/25/2019		1,000,000		999,980
1-month LIBOR plus 0.040%, 1.472%*, 1/10/2019		500,000		500,362
3-month Treasury Money Market Yield plus 0.280%, 1.73%*, 11/13/2018		1,500,000		1,500,000
Federal Home Loan Bank:
3-month LIBOR minus 0.380%, 1.023%*, 2/9/2018		2,000,000		2,000,000
1.156%**, 1/31/2018		1,000,000		999,050
1-month LIBOR minus 0.170%, 1.191%*, 2/1/2018		4,500,000		4,500,000
1-month LIBOR minus 0.180%, 1.192%*, 2/2/2018		1,500,000		1,500,000
1-month LIBOR minus 0.160%, 1.247%*, 2/8/2018		1,000,000		999,994
3-month LIBOR minus 0.150%, 1.269%*, 2/16/2018		1,750,000		1,749,955
1-month LIBOR minus 0.080%, 1.292%*, 2/4/2019		800,000		800,000
1-month LIBOR minus 0.190%, 1.301%*, 2/16/2018		2,750,000		2,749,956
3-month LIBOR minus 0.160%, 1.302%*, 2/26/2018		1,000,000		1,000,064
1.305%**, 2/2/2018		1,000,000		998,856
1-month LIBOR minus 0.160%, 1.317%*, 5/15/2018		600,000		600,000
1.318%**, 3/5/2018		500,000		498,863
3-month LIBOR minus 0.160%, 1.321%*, 5/30/2018		1,000,000		1,000,000
1-month LIBOR minus 0.110%, 1.322%*, 10/11/2018		3,500,000		3,501,048
1-month LIBOR minus 0.145%, 1.332%*, 8/15/2018		600,000		600,000
1-month LIBOR minus 0.160%, 1.335%*, 7/19/2018		1,500,000		1,500,000
1-month LIBOR minus 0.150%, 1.341%*, 7/16/2018		2,000,000		2,000,000
1-month LIBOR minus 0.135%, 1.356%*, 5/17/2018		2,500,000		2,500,000
1.375%, 3/9/2018		1,185,000		1,185,382
1-month LIBOR minus 0.125%, 1.376%*, 8/20/2018		2,000,000		2,000,000
1-month LIBOR minus 0.025%, 1.382%*, 3/8/2018		750,000		750,000
1-month LIBOR minus 0.165%, 1.387%*, 1/23/2018		1,000,000		1,000,000
1.489%**, 6/8/2018		500,000		496,776
Federal Home Loan Mortgage Corp.:
1.095%**, 2/6/2018		1,200,000		1,198,704

	Principal Amount ($)		Value ($)
3-month LIBOR minus 0.250%, 1.1%*, 10/10/2018		1,000,000		1,000,000
1.125%**, 2/20/2018		1,500,000		1,497,687
3-month LIBOR minus 0.280%, 1.13%*, 8/10/2018		500,000		500,000
1.186%**, 3/14/2018		1,000,000		997,660
3-month LIBOR minus 0.200%, 1.246%*, 2/22/2018		1,000,000		1,000,000
1-month LIBOR minus 0.170%, 1.302%*, 6/14/2018		1,000,000		1,000,000
1-month LIBOR minus 0.080%, 1.392%*, 2/14/2019		2,000,000		2,000,000
Federal National Mortgage Association:
1.308%**, 3/22/2018		1,000,000		997,133
3-month LIBOR minus 0.030%, 1.326%*, 1/11/2018		1,500,000		1,500,131
				56,821,566
U.S. Treasury Obligations 24.9%
U.S. Treasury Bills:
Zero Coupon**, 4/5/2018		650,000		647,657
Zero Coupon**, 4/5/2018		650,000		647,655
1.118%**, 2/22/2018		2,000,000		1,996,814
1.151%**, 3/8/2018		2,500,000		2,494,798
1.156%**, 3/15/2018		1,000,000		997,415
1.291%**, 3/22/2018		750,000		747,874
1.293%**, 3/15/2018		1,000,000		997,688
1.293%**, 3/15/2018		1,000,000		997,415
1.294%**, 3/22/2018		2,250,000		2,243,623
1.305%**, 3/8/2018		2,000,000		1,995,281
3.022%**, 5/31/2018		1,200,000		1,192,692
U.S. Treasury Floating Rate Notes:
3-month Treasury Money Market Yield plus 0.070%, 1.52%*, 4/30/2019		1,000,000		1,000,249
3-month Treasury Money Market Yield plus 0.170%, 1.62%*, 10/31/2018		2,050,000		2,053,803
3-month Treasury Money Market Yield plus 0.190%, 1.64%*, 4/30/2018		3,225,000		3,225,663
3-month Treasury Money Market Yield plus 0.272%, 1.722%*, 1/31/2018		6,500,000		6,501,080
				27,739,707
Total Government & Agency Obligations (Cost $84,561,273)				84,561,273
Repurchase Agreements 24.0%
Wells Fargo Bank, 1.41%, dated 12/29/2017, to be repurchased at $26,650,175 on 1/2/2018(a) (Cost $26,646,000)		26,646,000		26,646,000
	% of Net Assets		Value ($)
Total Investment Portfolio (Cost $111,207,273)		100.0		111,207,273
Other Assets and Liabilities, Net		0.0		12,689
Net Assets		100.0		111,219,962

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Government Money Market VIP | 7

* Floating rate security. These securities are shown at their current rate as of December 31, 2017.

** Annualized yield at time of purchase; not a coupon rate.

(a) Collateralized by:

Principal Amount ($)	Security	Rate (%)		Maturity Date		Collateral Value ($)
21,021,823	Federal Home Loan Mortgage Corp.		3.0-4.0		12/1/2032-11/1/2047		21,821,638
5,211,755	Federal National Mortgage Association		3.0-3.5		12/1/2032-11/1/2047		5,357,282
Total Collateral Value							27,178,920

LIBOR: London Interbank Offered Rate

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. Securities held by the Fund are reflected as Level 2 because the securities are valued at amortized cost (which approximates fair value) and, accordingly, the inputs used to determine value are not quoted prices in an active market.

The following is a summary of the inputs used as of December 31, 2017 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
Investments in Securities (b)	$	—	$	84,561,273	$	—	$	84,561,273
Repurchase Agreement		—		26,646,000		—		26,646,000
Total	$	—	$	111,207,273	$	—	$	111,207,273

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(b) See Investment Portfolio for additional detailed categorizations.

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Statement of Assets and Liabilities

As of December 31, 2017
Assets
Investments in securities, valued at amortized cost	$	84,561,273
Repurchased agreement, valued at amortized cost		26,646,000
Cash		729
Receivable for investments sold		1,292,303
Receivable for Fund shares sold		167,590
Interest receivable		85,375
Other assets		2,229
Total assets		112,755,499
Liabilities
Payable for investments purchased		1,295,312
Payable for Fund shares redeemed		38,476
Distributions payable		35,080
Accrued management fee		22,112
Accrued Trustees’ fees		2,709
Other accrued expenses and payables		141,848
Total liabilities		1,535,537
Net assets, at value	$	111,219,962
Net Assets Consist of
Undistributed net investment income		14,912
Accumulated net realized gain (loss)		53
Paid-in capital		111,204,997
Net assets, at value	$	111,219,962
Class A Net Asset Value
Net asset value, offering and redemption price per share ($111,219,962 ÷ 111,288,713 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	1.00

     Statement of Operations

For the year ended December 31, 2017
Investment Income
Income:
Interest	$	1,131,133
Expenses:
Management fee		284,839
Administration fee		121,208
Services to shareholders		2,878
Custodian fee		9,259
Professional fees		55,902
Reports to shareholders		94,217
Trustees’ fees and expenses		8,430
Other		6,574
Total expenses		583,307
Net investment income		547,826
Net realized gain (loss) from investments		53
Net increase (decrease) in net assets resulting from operations	$	547,879

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Government Money Market VIP | 9

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income (loss)	$	547,826		$	63,700
Net realized gain (loss)		53			14,243
Net increase (decrease) in net assets resulting from operations		547,879			77,943
Distributions to shareholders from:
Net investment income
Class A		(547,829	)		(63,706	)
Fund share transactions:
Class��A
Proceeds from shares sold		111,220,770			122,352,015
Reinvestment of distributions		514,778			62,278
Cost of shares redeemed		(122,921,320	)		(134,243,063	)
Net increase (decrease) in net assets from Class A share transactions		(11,185,772	)		(11,828,770	)
Increase (decrease) in net assets		(11,185,722	)		(11,814,533	)
Net assets at beginning of period		122,405,684			134,220,217
Net assets at end of year (including undistributed net investment income of $14,912 and $ 14,915, respectively)	$	111,219,962		$	122,405,684
Other Information
Class A
Shares outstanding at beginning of period		122,474,485			134,303,255
Shares sold		111,220,770			122,352,015
Shares issued to shareholders in reinvestment of distributions		514,778			62,278
Shares redeemed		(122,921,320	)		(134,243,063	)
Net increase (decrease) in Class A shares		(11,185,772	)		(11,828,770	)
Shares outstanding at end of period		111,288,713			122,474,485

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Financial Highlights

				Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Income from investment operations:
Net investment income		.005	*		.001	b		.000	*		.000	*		.000	*
Net realized gain (loss)		.000	*		.000	*		(.000	)*		.000	*		.000	*
Total from investment operations		.005	*		.001			.000	*		.000	*		.000	*
Less distributions from:
Net investment income		(.005	)*		(.001	)		(.000	)*		(.000	)*		(.000	)*
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Return (%)		.45			.05	a,b		.01	a		.01	a		.01	a
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		111			122			134			177			174
Ratio of expenses before expense reductions (%)c		.48			.51			.49			.49			.49
Ratio of expenses after expense reductions (%)c		.48			.44			.25			.18			.20
Ratio of net investment income (%)		.45			.05	b		.01			.01			.01

a Total return would have been lower had certain expenses not been reduced.

^b  Includes a non-recurring payment for overbilling of prior years’ custodian out-of-pocket fees. Excluding this payment, net investment income per share, total return, and ratio of net investment income to average net assets would have been reduced by $0.0004, 0.04%, and 0.04%, respectively.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

* Amount is less than $.0005.

Deutsche Variable Series II — Deutsche Government Money Market VIP | 11

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Government Money Market VIP (the “Fund”) is a diversified series of Deutsche Variable Series II (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’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. 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 Fund values all securities utilizing the amortized cost method permitted in accordance with Rule 2a-7 under the 1940 Act and certain conditions therein. Under this method, which does not take into account unrealized capital gains or losses on securities, an instrument is initially valued at its cost and thereafter assumes a constant accretion/amortization rate to maturity of any discount or premium. Securities held by the Fund are reflected as Level 2 because the securities are valued at amortized cost (which approximates fair value) and, accordingly, the inputs used to determine value are not quoted prices in an active market.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Repurchase Agreements. The Fund may enter into repurchase agreements, under the terms of a Master Repurchase Agreement, with certain banks and broker/dealers whereby the Fund, through its custodian or a sub-custodian bank, receives delivery of the underlying securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the value is equal to at least the principal amount of the repurchase price plus accrued interest. The custodian bank or another designated sub-custodian holds the collateral in a separate account until the agreement matures. If the value of the securities falls below the principal amount of the repurchase agreement plus accrued interest, the financial institution deposits additional collateral by the following business day. If the financial institution either fails to deposit the required additional collateral or fails to repurchase the securities as agreed, the Fund has the right to sell the securities and recover any resulting loss from the financial institution. If the financial institution enters into bankruptcy, the Fund’s claim on the collateral may be subject to legal proceedings.

As of December 31, 2017 the Fund held repurchase agreements with a gross value of $26,646,000. The value of the related collateral exceeded the value of the repurchase agreements at period end. The detail of the related collateral is included in the footnotes 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.

From November 1, 2017 through December 31, 2017, the Fund elects to defer qualified late year losses of $53 of net short-term realized capital losses and treat them as arising in the fiscal year ending December 31, 2018.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no positions for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. Net investment income of the Fund is declared as a daily dividend and is distributed to shareholders monthly. The Fund may take into account capital gains and losses in its daily dividend declarations. The Fund may also make additional distributions for tax purposes if necessary.

12 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Permanent book and tax differences relating to shareholder distributions will result in reclassifications to paid-in capital. Temporary book and tax differences will reverse in a subsequent period. There were no significant book to tax differences for the Fund.

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income $ 14,912

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $111,207,273.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income	$	547,829	$	63,706

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.

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. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes.

B. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

Pursuant to the Investment Management Agreement with the Advisor, the Fund pays the Advisor a monthly management fee based on its average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $500 million	.235	%
Next $500 million	.220	%
Next $1.0 billion	.205	%
Over $2.0 billion	.190	%

For the period from January 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive its fee and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) at 0.51%.

Accordingly, for the year ended December 31, 2017 the fee pursuant to the Investment Management Agreement aggregated $284,839, of which $22,112 is unpaid, resulting in an annual effective rate of 0.235% of the Fund’s average daily net assets.

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017 the Administration Fee was $121,208, of which $9,409 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the

Deutsche Variable Series II — Deutsche Government Money Market VIP | 13

shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017 the amounts charged to the Fund by DSC aggregated $2,613, of which $609 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017 the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $8,734, of which $4,009 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

C. Ownership of the Fund

At December 31, 2017 three participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 47%, 20% and 16%.

D. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate, plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

14 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and the Shareholders of Deutsche Government Money Market VIP:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche Government Money Market VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.

Boston, Massachusetts

February 15, 2018

Deutsche Variable Series II — Deutsche Government Money Market VIP | 15

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months December 31, 2017
Actual Fund Return		Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,003.20
Expenses Paid per $1,000*	$	2.42
Hypothetical 5% Fund Return		Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,022.79
Expenses Paid per $1,000*	$	2.45

* Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratio	Class A
Deutsche Variable Series II — Deutsche Government Money Market VIP		.48	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

16 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Tax Information (Unaudited)

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Other Information

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

Deutsche Variable Series II — Deutsche Government Money Market VIP | 17

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche Government Money Market VIP’s (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA is part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including a peer universe compiled using information supplied by iMoneyNet, an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-

18 | Deutsche Variable Series II — Deutsche Government Money Market VIP

and three-year periods ended December 31, 2016, the Fund’s gross performance (Class A shares) was in the 1st quartile of the applicable iMoneyNet universe (the 1st quartile being the best performers and the 4th quartile being the worst performers).

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were lower than the median (2nd quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board considered that the Fund’s management fee was reduced by 0.05% at all breakpoint levels in connection with the restructuring of the Fund into a government money market fund in 2016. The Board noted that the Fund’s Class A shares total (net) operating expenses were higher than the median (4th quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board noted the expense limitation agreed to by DIMA. The Board also noted the voluntary fee waivers implemented by DIMA to ensure the Fund maintained a positive yield. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable Deutsche U.S. registered funds (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund and any fees received by an affiliate of DIMA for transfer agency services provided to the Fund. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Deutsche Variable Series II — Deutsche Government Money Market VIP | 19

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

20 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

Deutsche Variable Series II — Deutsche Government Money Market VIP | 21

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

22 | Deutsche Variable Series II — Deutsche Government Money Market VIP

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

Deutsche Variable Series II — Deutsche Government Money Market VIP | 23

VS2GMM-2 (R-025834-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche High Income VIP

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
14	Statement of Assets and Liabilities
14	Statement of Operations
15	Statements of Changes in Net Assets
16	Financial Highlights
17	Notes to Financial Statements
25	Report of Independent Registered Public Accounting Firm
26	Information About Your Fund’s Expenses
27	Tax Information
27	Proxy Voting
28	Advisory Agreement Board Considerations and Fee Evaluation
31	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

Bond investments are subject to interest-rate, credit, liquidity and market risks to varying degrees. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investments in lower-quality (“junk bonds”) and non-rated securities present greater risk of loss than investments in higher-quality securities. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. The Fund may lend securities to approved institutions. Please read the prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED     NO BANK GUARANTEE     MAY LOSE VALUE     NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche High Income VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.

The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 are 0.80% and 1.21% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche High Income VIP

ICE BofA Merrill Lynch US High Yield Master II Constrained Index tracks the performance of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Comparative Results
Deutsche High Income VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$10,751	$11,595	$12,697	$18,390
	Average annual total return	7.51%	5.06%	4.89%	6.28%
ICE BofA Merrill Lynch US High Yield Master II Constrained Index	Growth of $10,000	$10,748	$12,046	$13,263	$21,501
	Average annual total return	7.48%	6.40%	5.81%	7.96%
Deutsche High Income VIP		1-Year	3-Year	5-Year	10-Year
Class B	Growth of $10,000	$10,721	$11,482	$12,487	$17,860
	Average annual total return	7.21%	4.72%	4.54%	5.97%
ICE BofA Merrill Lynch US High Yield Master II Constrained Index	Growth of $10,000	$10,748	$12,046	$13,263	$21,501
	Average annual total return	7.48%	6.40%	5.81%	7.96%

The growth of $10,000 is cumulative.

Deutsche Variable Series II — Deutsche High Income VIP | 3

Management Summary December 31, 2017 (Unaudited)

High-yield bonds gained 7.48% in 2017 — based on the performance of the ICE BofA Merrill Lynch US High Yield Master II Constrained Index — as the combination of synchronized global economic expansion, a continuation of accommodative central bank policies, and a further recovery in commodity prices were all broadly supportive of the high-yield market. The Fund produced a strong absolute return of 7.51% (Class A shares, unadjusted for contract charges), and finished slightly ahead the benchmark.

We continued to look for security-specific opportunities where the yields provided favorable compensation for the underlying risks. Although our primary emphasis is on bottom-up credit research and individual issue selection, the Fund’s broader allocations can also have an impact on performance. During the past year, for instance, an overweight positions in the mining and chemicals industries contributed positively. However, underweights in the banking and oil field services industries detracted. From a ratings perspective, an underweight in lower-rated issues — including those rated CCC and below — detracted.

At the individual security level, the metals and mining company Teck Resources Ltd. was among the leading contributors to fund performance. The bonds were supported by a recovery in commodity prices, the company’s successful debt-reduction initiative, and an upgrade to its credit rating. NRG Energy, Inc., a power generation firm, was an additional outperformer as its management cut costs and used asset sales to reduce debt, improve efficiency and cut ties to underperforming businesses. The bonds of the pharmaceutical development and distribution company Valeant Pharmaceuticals International, Inc. made a strong contribution as well. Following a change in senior management, Valeant stabilized its business lines and used the proceeds from asset sales to repay debt and reduce leverage.

The Fund’s positioning in the bonds of satellite services provider Intelsat Jackson Holdings SA detracted from results. The company took a number of steps to improve its financial condition, including refinancing its near-term debt maturities. However, the prices the company’s secured bonds — where the Fund had the largest position — did not improve as strongly as the company’s unsecured notes, where the Fund was underweight. The wireline telecommunications services provider Frontier Communications Corp. was another notable detractor. The bonds traded weaker during the year as Frontier had higher-than-anticipated subscriber losses and diminished cash flows, which subsequently caused the rating agencies to downgrade its debt. An underweight position in Tenet Healthcare Corp., an owner and operator of hospitals and long-term care facilities, hurt performance. The debt traded stronger as the company improved its financial results and concerns about disruptive changes to the Affordable Care Act began to fade.

The Fund employed derivatives to hedge its modest euro exposure back into U.S. dollars, which detracted given the rally in the European currency. We also used credit default swaps (“CDS”) to gain exposure to an individual issuer. The CDS rose in value, slightly benefiting performance, and we have since closed the position. While we use derivatives periodically for specific purposes, they are not a core aspect of our strategy.

We retain a favorable view on the high-yield market. We consider forecasts for continuing global economic growth, combined with the consistent and measured shift away from an accommodative stance by the major central banks, as being supportive for the asset class. The use of new-issuance proceeds continues to be dominated by refinancing, which has reduced concerns about near-term maturities for high-yield issuers and contributed to decreasing default expectations. Recent economic data has been largely upbeat, which has been a further positive for the default outlook. Not least, we believe absolute yields could remain attractive enough to fuel continued investor demand. Potential disruptions to this outlook include the possibility of faster-than-expected U.S. Federal Reserve tightening and lingering geopolitical/macroeconomic issues. Additionally, we are concerned about the risk that increased issuance of lower-quality debt could lead to a meaningful market disruption once the cycle turns and credit conditions tighten. With this as the backdrop, we continued to use our bottom-up, research-based approach to identify securities that we believe offer the best risk-adjusted relative values.

Gary Russell, CFA, Managing Director

Thomas R. Bouchard, Director

Portfolio Managers

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.

4 | Deutsche Variable Series II — Deutsche High Income VIP

Terms to Know

The ICE BofA Merrill Lynch US High Yield Master II Constrained Index tracks the performance of U.S. dollar-denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market.

Credit quality measures a bond issuer’s ability to repay interest and principal in a timely manner. Rating agencies assign letter designations, such as AAA, AA and so forth. The lower the rating, the higher the probability of default. Credit quality does not remove market risk and is subject to change.

Overweight means a fund holds a higher weighting in a given sector or individual security compared with its benchmark index; underweight means a fund holds a lower weighting.

Contribution and detraction incorporate both an investment’s total return and its weighting in the fund.

Derivatives are contracts whose values can be based on a variety of instruments, including indices, currencies or securities. They can be utilized for a variety of reasons, including for hedging purposes, for risk management; for non-hedging purposes to seek to enhance potential gains, or as a substitute for direct investment in a particular asset class or to keep cash on hand to meet shareholder redemptions. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility.

A swap is an exchange of cash flows that are dependent on the price of an underlying commodity.

Deutsche Variable Series II — Deutsche High Income VIP | 5

Portfolio Summary (Unaudited)

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)	12/31/17		12/31/16
Corporate Bonds		93%		93%
Cash Equivalents		4%		5%
Convertible Bond		3%		1%
Common Stocks		0%		0%
Warrant		0%		0%
Government & Agency Obligations		—		1%
		100%		100%
Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
Consumer Discretionary		23%		27%
Energy		23%		18%
Materials		18%		16%
Telecommunication Services		10%		13%
Health Care		7%		6%
Industrials		7%		7%
Utilities		4%		4%
Information Technology		3%		3%
Consumer Staples		2%		2%
Real Estate		2%		2%
Financials		1%		2%
		100%		100%
Quality (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
AAA		—		1%
BBB		5%		9%
BB		54%		57%
B		34%		30%
CCC		3%		3%
Not Rated		4%		0%
		100%		100%

The quality ratings represent the higher of Moody’s Investors Service, Inc. (“Moody’s”), Fitch Ratings, Inc. (“Fitch”) or Standard & Poor’s Corporation (“S&P”) credit ratings. The ratings of Moody’s, Fitch and S&P represent their opinions as to the quality of the securities they rate. Credit quality measures a bond issuer’s ability to repay interest and principal in a timely manner. Ratings are relative and subjective and are not absolute standards of quality. Credit quality does not remove market risk and is subject to change.

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 7.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche High Income VIP

Investment Portfolio December 31, 2017

	Principal Amount ($)(a)		Value ($)
Corporate Bonds 91.7%
Consumer Discretionary 21.7%
1011778 B.C. Unlimited Liability Co.:
144A, 4.25%, 5/15/2024		135,000		134,663
144A, 5.0%, 10/15/2025		190,000		191,425
Adient Global Holdings Ltd.:
REG S, 3.5%, 8/15/2024	EUR	285,000		364,889
144A, 4.875%, 8/15/2026		340,000		349,350
Ally Financial, Inc., 5.75%, 11/20/2025 (b)		110,000		119,900
Altice Financing SA, 144A, 7.5%, 5/15/2026		570,000		607,050
Altice U.S. Finance I Corp., 144A, 5.5%, 5/15/2026		175,000		178,281
American Axle & Manufacturing, Inc.:
144A, 6.25%, 4/1/2025 (b)		110,000		115,775
144A, 6.5%, 4/1/2027 (b)		100,000		105,875
Asbury Automotive Group, Inc., 6.0%, 12/15/2024		320,000		333,184
Ashton Woods U.S.A. LLC, 144A, 6.75%, 8/1/2025		325,000		324,594
Boyd Gaming Corp., 6.875%, 5/15/2023		100,000		106,000
CalAtlantic Group, Inc., 5.0%, 6/15/2027		50,000		51,875
Carlson Travel, Inc., 144A, 9.5%, 12/15/2024		400,000		322,000
CCO Holdings LLC:
144A, 5.0%, 2/1/2028		310,000		301,475
144A, 5.125%, 5/1/2027		250,000		246,250
144A, 5.5%, 5/1/2026		210,000		215,250
144A, 5.875%, 4/1/2024		170,000		177,225
144A, 5.875%, 5/1/2027		350,000		360,500
Cequel Communications Holdings I LLC, 144A, 5.125%, 12/15/2021		437,000		438,092
Clear Channel Worldwide Holdings, Inc.:
Series A, 6.5%, 11/15/2022		180,000		181,350
Series B, 6.5%, 11/15/2022		265,000		268,975
Series A, 7.625%, 3/15/2020		80,000		78,300
CRC Escrow Issuer LLC, 144A, 5.25%, 10/15/2025		230,000		231,725
CSC Holdings LLC:
144A, 5.5%, 4/15/2027		545,000		555,900
144A, 10.125%, 1/15/2023		200,000		225,250
144A, 10.875%, 10/15/2025		230,000		273,700
Cumberland Farms, Inc., 144A, 6.75%, 5/1/2025		48,000		50,880
Dana Financing Luxembourg Sarl:
144A, 5.75%, 4/15/2025		315,000		331,931
144A, 6.5%, 6/1/2026		280,000		303,450
Dana, Inc., 5.5%, 12/15/2024		130,000		137,313
DISH DBS Corp.:
5.875%, 7/15/2022		435,000		437,175
5.875%, 11/15/2024		75,000		73,031
6.75%, 6/1/2021		165,000		173,250
Eldorado Resorts, Inc., 6.0%, 4/1/2025		260,000		271,700

	Principal Amount ($)(a)		Value ($)
Fiat Chrysler Automobiles NV, 5.25%, 4/15/2023		245,000		256,490
Group 1 Automotive, Inc., 5.0%, 6/1/2022		330,000		339,900
HD Supply, Inc., 144A, 5.75%, 4/15/2024		85,000		90,313
Mattel, Inc., 144A, 6.75%, 12/31/2025		105,000		106,412
Mediacom Broadband LLC, 6.375%, 4/1/2023		165,000		169,537
NCL Corp., Ltd., 144A, 4.75%, 12/15/2021		115,000		119,025
Penn National Gaming, Inc., 144A, 5.625%, 1/15/2027		80,000		83,000
Penske Automotive Group, Inc., 5.5%, 5/15/2026		165,000		167,425
PetSmart, Inc., 144A, 5.875%, 6/1/2025		65,000		49,888
Rivers Pittsburgh Borrower LP, 144A, 6.125%, 8/15/2021		50,000		49,625
Scientific Games International, Inc., 144A, 7.0%, 1/1/2022		510,000		537,412
Seminole Hard Rock Entertainment, Inc., 144A, 5.875%, 5/15/2021		90,000		91,350
SFR Group SA, 144A, 7.375%, 5/1/2026		610,000		626,012
Sonic Automotive, Inc., 6.125%, 3/15/2027		55,000		54,588
Staples, Inc., 144A, 8.5%, 9/15/2025		110,000		101,750
Suburban Propane Partners LP, 5.75%, 3/1/2025		105,000		103,688
Tesla, Inc., 144A, 5.3%, 8/15/2025 (b)		75,000		71,625
Toll Brothers Finance Corp., 4.875%, 3/15/2027		325,000		337,187
TRI Pointe Group, Inc., 5.25%, 6/1/2027		135,000		138,470
UPCB Finance IV Ltd., 144A, 5.375%, 1/15/2025		355,000		357,449
Viking Cruises Ltd., 144A, 5.875%, 9/15/2027		155,000		157,713
Virgin Media Secured Finance PLC:
144A, 5.25%, 1/15/2026		200,000		202,000
144A, 5.5%, 8/15/2026		215,000		220,375
WMG Acquisition Corp., 144A, 5.0%, 8/1/2023		75,000		77,625
				13,146,442
Consumer Staples 2.1%
Chobani LLC, 144A, 7.5%, 4/15/2025		35,000		37,100
FAGE International SA, 144A, 5.625%, 8/15/2026		220,000		212,300
JBS Investments GmbH, 144A, 7.25%, 4/3/2024		296,000		290,820
JBS U.S.A. LUX SA, 144A, 5.75%, 6/15/2025		210,000		202,125
Pilgrim’s Pride Corp.:
144A, 5.75%, 3/15/2025		50,000		51,688
144A, 5.875%, 9/30/2027		150,000		154,500

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche High Income VIP | 7

	Principal Amount ($)(a)		Value ($)
Post Holdings, Inc.:
144A, 5.625%, 1/15/2028		40,000		40,212
144A, 5.75%, 3/1/2027		215,000		218,762
Simmons Foods, Inc., 144A, 5.75%, 11/1/2024		100,000		99,375
				1,306,882
Energy 21.6%
Antero Midstream Partners LP, 5.375%, 9/15/2024		125,000		128,750
Antero Resources Corp.:
5.375%, 11/1/2021		180,000		184,500
5.625%, 6/1/2023		45,000		46,800
Blue Racer Midstream LLC, 144A, 6.125%, 11/15/2022		295,000		307,537
Carrizo Oil & Gas, Inc.:
6.25%, 4/15/2023 (b)		85,000		88,188
8.25%, 7/15/2025		100,000		109,875
Cheniere Corpus Christi Holdings LLC:
5.125%, 6/30/2027		230,000		237,912
5.875%, 3/31/2025		165,000		178,819
7.0%, 6/30/2024		470,000		534,919
Cheniere Energy Partners LP, 144A, 5.25%, 10/1/2025		150,000		152,625
Chesapeake Energy Corp.:
144A, 8.0%, 12/15/2022		174,000		187,703
144A, 8.0%, 1/15/2025		165,000		166,650
144A, 8.0%, 6/15/2027 (b)		315,000		302,400
Continental Resources, Inc.:
3.8%, 6/1/2024		290,000		286,737
144A, 4.375%, 1/15/2028		75,000		74,040
4.5%, 4/15/2023		255,000		260,100
5.0%, 9/15/2022		413,000		419,195
Crestwood Midstream Partners LP:
5.75%, 4/1/2025		125,000		129,063
6.25%, 4/1/2023		290,000		301,368
CrownRock LP, 144A, 5.625%, 10/15/2025		165,000		165,825
Diamondback Energy, Inc., 4.75%, 11/1/2024		125,000		125,469
Endeavor Energy Resources LP:
144A, 5.5%, 1/30/2026		35,000		35,613
144A, 5.75%, 1/30/2028		35,000		35,945
Energy Transfer Equity LP, 5.5%, 6/1/2027		420,000		428,400
Extraction Oil & Gas, Inc., 144A, 7.375%, 5/15/2024		70,000		74,725
Genesis Energy LP:
6.25%, 5/15/2026		215,000		214,194
6.5%, 10/1/2025		305,000		309,575
Gulfport Energy Corp.:
6.0%, 10/15/2024		60,000		60,000
6.375%, 5/15/2025		100,000		100,500
144A, 6.375%, 1/15/2026		150,000		150,375
Hess Infrastructure Partners LP, 144A, 5.625%, 2/15/2026		130,000		134,225
Hilcorp Energy I LP:
144A, 5.0%, 12/1/2024		105,000		103,950
144A, 5.75%, 10/1/2025		245,000		250,512
Holly Energy Partners LP, 144A, 6.0%, 8/1/2024		225,000		234,562

	Principal Amount ($)(a)		Value ($)
Jonah Energy LLC, 144A, 7.25%, 10/15/2025		95,000		95,713
Laredo Petroleum, Inc.:
5.625%, 1/15/2022		70,000		70,700
6.25%, 3/15/2023		215,000		222,589
MEG Energy Corp.:
144A, 6.375%, 1/30/2023		215,000		182,750
144A, 6.5%, 1/15/2025 (b)		234,000		231,075
Murphy Oil Corp., 5.75%, 8/15/2025		110,000		112,475
Murphy Oil U.S.A., Inc., 5.625%, 5/1/2027		65,000		68,263
Nabors Industries, Inc., 5.5%, 1/15/2023 (b)		70,000		67,900
Newfield Exploration Co., 5.375%, 1/1/2026		245,000		259,087
NGPL PipeCo LLC, 144A, 4.875%, 8/15/2027		285,000		295,687
NuStar Logistics LP, 5.625%, 4/28/2027		236,000		240,130
Oasis Petroleum, Inc.:
6.875%, 3/15/2022		145,000		148,806
6.875%, 1/15/2023		60,000		61,350
Parsley Energy LLC:
144A, 5.25%, 8/15/2025		55,000		55,138
144A, 5.375%, 1/15/2025		85,000		85,850
144A, 5.625%, 10/15/2027		120,000		122,700
PDC Energy, Inc., 6.125%, 9/15/2024		150,000		155,250
Peabody Energy Corp.:
144A, 6.0%, 3/31/2022		20,000		20,750
144A, 6.375%, 3/31/2025		175,000		182,000
Precision Drilling Corp., 144A, 7.125%, 1/15/2026		110,000		112,200
QEP Resources, Inc., 5.625%, 3/1/2026		130,000		131,788
Range Resources Corp.:
4.875%, 5/15/2025		125,000		120,625
5.0%, 8/15/2022		255,000		253,725
5.875%, 7/1/2022		140,000		142,800
Seven Generations Energy Ltd., 144A, 5.375%, 9/30/2025		80,000		80,800
Southwestern Energy Co., 7.75%, 10/1/2027		215,000		229,512
Summit Midstream Holdings LLC, 5.75%, 4/15/2025		60,000		60,503
Sunoco LP, 6.375%, 4/1/2023		425,000		447,844
Targa Resources Partners LP:
144A, 5.0%, 1/15/2028		235,000		234,412
5.375%, 2/1/2027		260,000		266,825
TerraForm Power Operating LLC, 144A, 5.0%, 1/31/2028		115,000		113,850
Trinidad Drilling Ltd., 144A, 6.625%, 2/15/2025		50,000		47,500
Weatherford International Ltd.:
4.5%, 4/15/2022 (b)		240,000		217,200
8.25%, 6/15/2023		70,000		70,700
Whiting Petroleum Corp.:
5.0%, 3/15/2019		100,000		102,550
5.75%, 3/15/2021 (b)		285,000		292,481
144A, 6.625%, 1/15/2026		220,000		224,400

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche High Income VIP

	Principal Amount ($)(a)		Value ($)
WildHorse Resource Development Corp., 6.875%, 2/1/2025		50,000		51,125
WPX Energy, Inc.:
5.25%, 9/15/2024		145,000		144,500
6.0%, 1/15/2022		215,000		224,675
7.5%, 8/1/2020		71,000		76,858
8.25%, 8/1/2023		215,000		244,025
				13,090,162
Financials 0.6%
Lincoln Finance Ltd., 144A, 7.375%, 4/15/2021		105,000		109,463
Seminole Tribe of Florida, Inc., 144A, 7.804%, 10/1/2020		170,000		171,700
Tempo Acquisition LLC, 144A, 6.75%, 6/1/2025		75,000		75,750
				356,913
Health Care 6.7%
Avantor, Inc., 144A, 6.0%, 10/1/2024		70,000		69,738
DaVita, Inc.:
5.0%, 5/1/2025		110,000		109,967
5.125%, 7/15/2024		110,000		111,100
Endo Dac, 144A, 6.0%, 7/15/2023		195,000		153,075
HCA, Inc.:
4.5%, 2/15/2027		363,000		364,815
4.75%, 5/1/2023		360,000		370,800
5.25%, 6/15/2026		280,000		296,800
5.875%, 2/15/2026		190,000		200,925
Hologic, Inc., 144A, 5.25%, 7/15/2022		65,000		67,275
LifePoint Health, Inc., 5.5%, 12/1/2021		90,000		91,800
Mallinckrodt International Finance SA, 144A, 5.625%, 10/15/2023		100,000		85,000
Tenet Healthcare Corp., 144A, 5.125%, 5/1/2025		100,000		97,500
Valeant Pharmaceuticals International, Inc.:
144A, 5.375%, 3/15/2020		259,000		259,324
144A, 5.5%, 11/1/2025		85,000		86,487
144A, 5.875%, 5/15/2023		170,000		157,675
144A, 6.125%, 4/15/2025		150,000		137,250
144A, 6.5%, 3/15/2022		105,000		110,250
144A, 7.0%, 3/15/2024		255,000		272,850
144A, 7.5%, 7/15/2021		545,000		554,537
144A, 9.0%, 12/15/2025		375,000		390,825
West Street Merger Sub, Inc., 144A, 6.375%, 9/1/2025		70,000		70,175
				4,058,168
Industrials 6.6%
Bombardier, Inc.:
144A, 5.75%, 3/15/2022		230,000		225,400
144A, 6.0%, 10/15/2022		190,000		186,675
144A, 7.5%, 12/1/2024		85,000		86,275
Booz Allen Hamilton, Inc., 144A, 5.125%, 5/1/2025		25,000		25,063
Covanta Holding Corp.:
5.875%, 3/1/2024		160,000		162,400
5.875%, 7/1/2025		85,000		85,425

	Principal Amount ($)(a)		Value ($)
DAE Funding LLC:
144A, 4.5%, 8/1/2022		8,000		7,860
144A, 5.0%, 8/1/2024		25,000		24,688
GFL Environmental, Inc., 144A, 5.625%, 5/1/2022		85,000		88,188
Itron, Inc., 144A, 5.0%, 1/15/2026		60,000		60,225
Jeld-Wen, Inc.:
144A, 4.625%, 12/15/2025		70,000		70,525
144A, 4.875%, 12/15/2027		105,000		106,050
Masonite International Corp., 144A, 5.625%, 3/15/2023		195,000		203,833
Moog, Inc., 144A, 5.25%, 12/1/2022		120,000		124,200
Novelis Corp.:
144A, 5.875%, 9/30/2026		230,000		234,600
144A, 6.25%, 8/15/2024		140,000		146,650
Oshkosh Corp., 5.375%, 3/1/2025		20,000		21,225
Park Aerospace Holdings Ltd.:
144A, 4.5%, 3/15/2023		310,000		296,050
144A, 5.25%, 8/15/2022		180,000		178,875
144A, 5.5%, 2/15/2024		245,000		243,162
Ply Gem Industries, Inc., 6.5%, 2/1/2022		200,000		206,500
Prime Security Services Borrower LLC, 144A, 9.25%, 5/15/2023		20,000		22,200
RBS Global, Inc., 144A, 4.875%, 12/15/2025		70,000		70,700
Standard Industries, Inc., 144A, 4.75%, 1/15/2028		155,000		155,358
Summit Materials LLC:
144A, 5.125%, 6/1/2025		30,000		30,600
6.125%, 7/15/2023		200,000		208,000
8.5%, 4/15/2022		70,000		77,525
Tennant Co., 144A, 5.625%, 5/1/2025		30,000		31,500
The Brink’s Co., 144A, 4.625%, 10/15/2027		125,000		122,500
United Rentals North America, Inc.:
4.875%, 1/15/2028		310,000		311,550
5.5%, 5/15/2027		40,000		42,100
5.875%, 9/15/2026		8,000		8,560
WESCO Distribution, Inc., 5.375%, 6/15/2024		140,000		143,850
				4,008,312
Information Technology 3.3%
Cardtronics, Inc., 144A, 5.5%, 5/1/2025		95,000		85,738
Change Healthcare Holdings LLC, 144A, 5.75%, 3/1/2025		210,000		210,000
Dell International LLC, 144A, 5.875%, 6/15/2021		110,000		114,125
First Data Corp., 144A, 7.0%, 12/1/2023		380,000		401,850
j2 Cloud Services LLC, 144A, 6.0%, 7/15/2025		125,000		131,562
Match Group, Inc., 144A, 5.0%, 12/15/2027		90,000		91,350
Netflix, Inc.:
4.375%, 11/15/2026		180,000		175,950
5.875%, 2/15/2025		120,000		127,500
Riverbed Technology, Inc., 144A, 8.875%, 3/1/2023		110,000		103,813

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche High Income VIP | 9

	Principal Amount ($)(a)		Value ($)
TTM Technologies, Inc., 144A, 5.625%, 10/1/2025		155,000		158,875
Western Digital Corp.:
144A, 7.375%, 4/1/2023		255,000		275,081
10.5%, 4/1/2024		123,000		142,526
				2,018,370
Materials 13.8%
AK Steel Corp.:
6.375%, 10/15/2025		365,000		361,350
7.0%, 3/15/2027		625,000		635,937
7.5%, 7/15/2023		145,000		156,963
Ardagh Packaging Finance PLC:
144A, 6.0%, 2/15/2025		440,000		463,100
144A, 7.25%, 5/15/2024		290,000		315,737
Berry Global, Inc., 5.5%, 5/15/2022		315,000		324,450
BWAY Holding Co., 144A, 5.5%, 4/15/2024		355,000		369,200
Cascades, Inc., 144A, 5.5%, 7/15/2022		26,000		26,715
Chemours Co.:
5.375%, 5/15/2027		115,000		119,025
6.625%, 5/15/2023		190,000		200,925
7.0%, 5/15/2025		60,000		65,100
Clearwater Paper Corp., 144A, 5.375%, 2/1/2025		125,000		125,625
Constellium NV:
144A, 4.625%, 5/15/2021		EUR 150,000		183,530
144A, 5.75%, 5/15/2024		250,000		255,000
144A, 6.625%, 3/1/2025		250,000		263,438
Cornerstone Chemical Co., 144A, 6.75%, 8/15/2024		125,000		124,844
FMG Resources (August 2006) Pty Ltd., 144A, 5.125%, 5/15/2024 (b)		100,000		101,250
Freeport-McMoRan, Inc.:
3.55%, 3/1/2022		120,000		118,650
3.875%, 3/15/2023		115,000		114,425
4.0%, 11/14/2021		180,000		180,000
5.4%, 11/14/2034		160,000		162,800
5.45%, 3/15/2043		65,000		64,919
6.875%, 2/15/2023		145,000		158,050
Hexion, Inc.:
6.625%, 4/15/2020		230,000		206,425
144A, 10.375%, 2/1/2022		40,000		37,225
Hudbay Minerals, Inc.:
144A, 7.25%, 1/15/2023		175,000		185,500
144A, 7.625%, 1/15/2025		50,000		54,750
Kaiser Aluminum Corp., 5.875%, 5/15/2024		145,000		154,063
Mercer International, Inc., 6.5%, 2/1/2024		110,000		116,875
Multi-Color Corp., 144A, 4.875%, 11/1/2025		35,000		35,131
NOVA Chemicals Corp.:
144A, 4.875%, 6/1/2024		365,000		364,087
144A, 5.25%, 6/1/2027		240,000		239,400
Plastipak Holdings, Inc., 144A, 6.25%, 10/15/2025		160,000		163,600
Platform Specialty Products Corp., 144A, 5.875%, 12/1/2025		301,000		298,742

	Principal Amount ($)(a)		Value ($)
Reynolds Group Issuer, Inc.:
144A, 5.125%, 7/15/2023		290,000		300,150
144A, 7.0%, 7/15/2024		35,000		37,450
Sealed Air Corp., 144A, 5.125%, 12/1/2024		40,000		42,800
Teck Resources Ltd.:
6.125%, 10/1/2035		105,000		117,600
6.25%, 7/15/2041		165,000		188,925
Tronox Finance PLC, 144A, 5.75%, 10/1/2025		100,000		102,750
United States Steel Corp.:
6.875%, 8/15/2025		295,000		307,921
144A, 8.375%, 7/1/2021		294,000		319,137
WR Grace & Co-Conn:
144A, 5.125%, 10/1/2021		65,000		68,331
144A, 5.625%, 10/1/2024		125,000		134,844
				8,366,739
Real Estate 2.1%
CyrusOne LP:
144A, (REIT), 5.0%, 3/15/2024		90,000		93,375
144A, (REIT), 5.375%, 3/15/2027		200,000		210,000
Howard Hughes Corp., 144A, 5.375%, 3/15/2025		365,000		374,125
Iron Mountain, Inc., 144A, (REIT), 5.25%, 3/15/2028		115,000		114,425
MGM Growth Properties Operating Partnership LP, 144A, (REIT), 4.5%, 1/15/2028		110,000		107,800
MPT Operating Partnership LP:
(REIT), 5.0%, 10/15/2027		145,000		147,719
(REIT), 5.25%, 8/1/2026		35,000		36,225
(REIT), 6.375%, 3/1/2024		170,000		179,775
				1,263,444
Telecommunication Services 9.6%
CenturyLink, Inc.:
Series V, 5.625%, 4/1/2020		180,000		181,350
Series W, 6.75%, 12/1/2023		180,000		176,400
Series Y, 7.5%, 4/1/2024 (b)		270,000		269,325
CommScope Technologies LLC, 144A, 5.0%, 3/15/2027		100,000		100,000
Frontier Communications Corp.:
6.25%, 9/15/2021		465,000		330,150
7.125%, 1/15/2023		440,000		292,600
Hughes Satellite Systems Corp., 7.625%, 6/15/2021		165,000		182,325
Intelsat Jackson Holdings SA:
7.25%, 10/15/2020		215,000		202,100
144A, 8.0%, 2/15/2024		327,000		344,167
144A, 9.75%, 7/15/2025		190,000		182,875
SoftBank Group Corp., REG S, 6.0%, 7/30/2025		230,000		244,246
Sprint Capital Corp.:
6.875%, 11/15/2028		85,000		85,531
8.75%, 3/15/2032		235,000		266,725
Sprint Communications, Inc., 7.0%, 8/15/2020		125,000		132,500
Sprint Corp.:
7.125%, 6/15/2024		885,000		900,487
7.625%, 2/15/2025 (b)		270,000		282,825

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche High Income VIP

	Principal Amount ($)(a)		Value ($)
T-Mobile U.S.A., Inc.:
6.0%, 4/15/2024		324,000		343,440
6.375%, 3/1/2025		362,000		387,340
6.5%, 1/15/2026		10,000		10,913
Telesat Canada, 144A, 8.875%, 11/15/2024		130,000		145,600
ViaSat, Inc., 144A, 5.625%, 9/15/2025		55,000		55,413
Zayo Group LLC:
144A, 5.75%, 1/15/2027		240,000		244,800
6.0%, 4/1/2023		185,000		192,687
6.375%, 5/15/2025		281,000		297,158
				5,850,957
Utilities 3.6%
AmeriGas Partners LP:
5.5%, 5/20/2025		235,000		237,350
5.75%, 5/20/2027		220,000		222,200
Calpine Corp.:
144A, 5.25%, 6/1/2026		90,000		88,201
5.75%, 1/15/2025		45,000		42,525
Dynegy, Inc.:
7.375%, 11/1/2022		195,000		205,725
7.625%, 11/1/2024		75,000		80,437
144A, 8.125%, 1/30/2026		80,000		87,400
NextEra Energy Operating Partners LP, 144A, 4.5%, 9/15/2027		115,000		114,425
NGL Energy Partners LP, 5.125%, 7/15/2019		140,000		142,450
NRG Energy, Inc.:
144A, 5.75%, 1/15/2028		200,000		202,000
6.25%, 7/15/2022		725,000		754,000
				2,176,713
Total Corporate Bonds (Cost $54,824,443)				55,643,102
Convertible Bonds 3.3%
Consumer Discretionary 0.1%
DISH Network Corp., 144A, 2.375%, 3/15/2024		35,000		33,622
Materials 3.2%
GEO Specialty Chemicals, Inc., 3-month USD-LIBOR + 14.0%, 15.709% PIK, 10/18/2025* (c)		1,542,668		1,950,703
Total Convertible Bonds (Cost $1,569,260)				1,984,325

	Shares			Value ($)
Common Stocks 0.1%
Industrials 0.0%
Quad Graphics, Inc.		249			5,628
Materials 0.1%
GEO Specialty Chemicals, Inc.** (c)		144,027			48,623
GEO Specialty Chemicals, Inc. 144A** (c)		2,206			745
					49,368
Total Common Stocks (Cost $292,150)					54,996
Warrant 0.0%
Materials
Hercules Trust II, Expiration Date 3/31/2029** (c) (Cost $244,286)		1,100			29,732
Securities Lending Collateral 2.8%
Deutsche Government & Agency Securities Portfolio “Deutsche Government Cash Institutional Shares”, 1.21% (d) (e) (Cost $1,697,463)		1,697,463			1,697,463
Cash Equivalents 3.7%
Deutsche Central Cash Management Government Fund, 1.30% (d) (Cost $2,240,926)		2,240,926			2,240,926
	% of Net Assets			Value ($)
Total Investment Portfolio (Cost $60,868,528)		101.6			61,650,544
Other Assets and Liabilities, Net		(1.6	)		(952,415	)
Net Assets		100.0			60,698,129

* Variable or floating rate security. These securities are shown at their current rate as of December 31, 2017. For securities based on a published reference rate and spread, the reference rate and spread are indicated within the description above. Certain variable rate securities are not based on a published reference rate and spread but adjust periodically based on current market conditions,

** Non-income producing security.

(a) Principal amount stated in U.S. dollars unless otherwise noted.

(b) All or a portion of these securities were on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The value of securities loaned at December 31, 2017 amounted to $1,634,608, which is 2.7% of net assets.

(c) Investment was valued using significant unobservable inputs.

(d) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

(e) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

PIK: Denotes that all or a portion of the income is paid in-kind in the form of additional principal.

REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.

REIT: Real Estate Investment Trust

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche High Income VIP | 11

As of December 31, 2017, the Fund had the following open forward foreign currency contracts:

Contracts to Deliver		In Exchange For		Settlement Date	Unrealized Depreciation ($)		Counterparty
EUR	468,564	USD	556,358	1/31/2018		(6,916)	Bank of America

Currency Abbreviations

EUR Euro

USD United States Dollar

For information on the Fund’s policy and additional disclosures regarding forward foreign currency contracts, please refer to the Derivatives section of Note A in the accompanying Notes to Financial Statements.

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1		Level 2			Level 3		Total
Fixed Income Investments (e)
Corporate Bonds	$	—	$	55,643,102		$	—	$	55,643,102
Convertible Bond		—		33,622			1,950,703		1,984,325
Common Stocks (e)		5,628		—			49,368		54,996
Warrant		—		—			29,732		29,732
Short-Term Investments (e)		3,938,389		—			—		3,938,389
Total	$	3,944,017	$	55,676,724		$	2,029,803	$	61,650,544
Liabilities	Level 1		Level 2			Level 3		Total
Derivatives (f)
Forward Foreign Currency Exchange Contracts	$	—	$	(6,916	)	$	—	$	(6,916	)
Total	$	—	$	(6,916	)	$	—	$	(6,916	)

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(e) See Investment Portfolio for additional detailed categorizations.

(f) Derivatives include unrealized appreciation (depreciation) on forward foreign currency exchange contracts.

Level 3 Reconciliation

The following is a reconciliation of the Fund’s Level 3 investments for which significant unobservable inputs were used in determining value:

	Convertible Bonds			Common Stocks			Warrant		Total
Balance as of December 31, 2016	$	1,459,104		$	57,426		$	4,994	$	1,521,524
Realized gains (loss)		—			—			—		—
Change in unrealized appreciation (depreciation)		367,752			(8,058	)		24,738		384,432
Amortization of premium/accretion of discount		7,619			—			—		7,619
Purchases		1,614,966			—			—		1,614,966
(Sales)		(1,498,738	)		—			—		(1,498,738	)
Transfer into Level 3		—			—			—		—
Transfer (out) of Level 3		—			—			—		—
Balance as of December 31, 2017	$	1,950,703		$	49,368		$	29,732	$	2,029,803
Net change in unrealized appreciation (depreciation) from investments still held as of December 31, 2017	$	367,752		$	(8,058	)	$	24,738	$	384,432

The accompanying notes are an integral part of the financial statements.

12 | Deutsche Variable Series II — Deutsche High Income VIP

Quantitative Disclosure About Significant Unobservable Inputs
Asset Class	Fair Value at 12/31/17		Valuation Technique(s)		Unobservable Input	Range (Weighted Average)
Common Stocks
Materials		$49,368		Market Approach	EV/EBITDA Multiple	6.69%
					Discount to public comparables	20%
					Discount for lack of marketability	20%
Warrant
Materials		$29,732		Black Scholes Option Pricing Model	Implied Volatility of Option	20.62%
					Illiquidity Discount	20%
Convertible Bonds
Materials		$1,950,703		Market Approach	EV/EBITDA Multiple	6.69%
					Discount to public comparables	20%
					Discount for lack of marketability	20%

Qualitative Disclosure About Unobservable Inputs

Significant unobservable inputs developed by the Pricing Committee and used in the fair value measurement of the Fund’s equity and convertible bond investments include enterprise value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio with a discount for lack of marketability. A significant change in the EV to EBITDA ratio may result in a significant change in the fair value measurement, while a significant change in the discount for lack of marketability is unlikely to result in a materially higher or lower fair value measurement.

Significant unobservable inputs developed by the Pricing Committee and used in the fair value measurement of the Fund’s warrants include volatility and discount for lack of marketability. A change in the volatility of the underlying asset as an input to the Black-Scholes model may have a significant change in the fair value measurement. A significant change in the discount for lack of marketability is unlikely to have a material impact to the fair value measurement.

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche High Income VIP | 13

Statement of Assets and Liabilities

as of December 31, 2017
Assets
Investments in non-affiliated securities, at value (cost $56,930,139) — including $1,634,608 of securities loaned	$	57,712,155
Investment in Deutsche Government & Agency Securities Portfolio (cost $1,697,463)*		1,697,463
Investment in Deutsche Central Cash Management Government Fund (cost $2,240,926)		2,240,926
Cash		10,000
Foreign currency, at value (cost $10,181)		10,161
Receivable for Fund shares sold		3,616
Interest receivable		921,122
Other assets		1,901
Total assets		62,597,344
Liabilities
Payable upon return of securities loaned		1,697,463
Payable for Fund shares redeemed		44,038
Unrealized depreciation on forward foreign currency contracts		6,916
Accrued management fee		22,285
Accrued Trustees’ fees		1,985
Other accrued expenses and payables		126,528
Total liabilities		1,899,215
Net assets, at value	$	60,698,129
Net Assets Consist of
Undistributed net investment income		4,654,101
Net unrealized appreciation (depreciation) on:
Investments		782,016
Foreign currency		61
Forward foreign currency contracts		(6,916	)
Accumulated net realized gain (loss)		(6,336,893	)
Paid-in capital		61,605,760
Net assets, at value	$	60,698,129
Net Asset Value
Class A
Net Asset Value, offering and redemption price per share ($60,559,310 ÷ 9,527,083 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	6.36
Class B
Net Asset Value, offering and redemption price per share ($138,819 ÷ 21,761 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	6.38

* Represents collateral on securities loaned.

     Statement of Operations

for the year ended December 31, 2017
Investment Income
Income:
Interest	$	5,224,571
Income distributions — Deutsche Central Cash Management Government Fund		44,200
Securities lending income, net of borrower rebates		53,436
Total income		5,322,207
Expenses:
Management fee		466,632
Administration fee		93,326
Services to Shareholders		930
Record keeping fee (Class B)		750
Distribution service fees (Class B)		1,690
Custodian fee		5,067
Professional fees		93,629
Reports to shareholders		29,692
Trustees’ fees and expenses		6,993
Other		35,267
Total expenses before expense reductions		733,976
Expense reductions		(61,676	)
Total expenses after expense reductions		672,300
Net investment income		4,649,907
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		3,367,956
Swap contracts		208,389
Forward foreign currency contracts		(86,685	)
Foreign currency		5,356
		3,495,016
Change in net unrealized appreciation (depreciation) on:
Investments		(936,036	)
Swap contracts		(36,516	)
Forward foreign currency contracts		(2,359	)
Foreign currency		(510	)
		(975,421	)
Net gain (loss)		2,519,595
Net increase (decrease) in net assets resulting from operations	$	7,169,502

The accompanying notes are an integral part of the financial statements.

14 | Deutsche Variable Series II — Deutsche High Income VIP

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income (loss)	$	4,649,907		$	5,440,363
Net realized gain (loss)		3,495,016			(3,163,765	)
Change in net unrealized appreciation (depreciation)		(975,421	)		9,890,493
Net increase (decrease) in net assets resulting from operations		7,169,502			12,167,091
Distributions to shareholders from:
Net investment income:
Class A		(5,780,980	)		(6,259,405	)
Class B		(94,574	)		(122,558	)
Total distributions		(5,875,554	)		(6,381,963	)
Fund share transactions:
Class A
Proceeds from shares sold		12,759,797			15,011,086
Reinvestment of distributions		5,780,980			6,259,405
Cost of shares redeemed		(58,823,711	)		(28,525,830	)
Net increase (decrease) in net assets from Class A share transactions		(40,282,934	)		(7,255,339	)
Class B
Proceeds from shares sold		120,675			5,848,785
Reinvestment of distributions		94,574			122,558
Cost of shares redeemed		(1,640,132	)		(7,539,910	)
Net increase (decrease) in net assets from Class B share transactions		(1,424,883	)		(1,568,567	)
Increase (decrease) in net assets		(40,413,869	)		(3,038,778	)
Net assets at beginning of year		101,111,998			104,150,776
Net assets at end of year (including undistributed net investment income of $4,654,101 and $5,781,669, respectively)	$	60,698,129		$	101,111,998
Other Information
Class A
Shares outstanding at beginning of period		15,845,238			17,025,372
Shares sold		2,017,781			2,525,843
Shares issued to shareholders in reinvestment of distributions		946,151			1,081,072
Shares redeemed		(9,282,087	)		(4,787,049	)
Net increase (decrease) in Class A shares		(6,318,155	)		(1,180,134	)
Shares outstanding at end of period		9,527,083			15,845,238
Class B
Shares outstanding at beginning of period		254,095			530,185
Shares sold		18,818			990,197
Shares issued to shareholders in reinvestment of distributions		15,403			21,094
Shares redeemed		(266,555	)		(1,287,381	)
Net increase (decrease) in Class B shares		(232,334	)		(276,090	)
Shares outstanding at end of period		21,761			254,095

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche High Income VIP | 15

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	6.28			$5.93			$6.60			$6.96			$6.93	��
Income (loss) from investment operations:
Net investment incomea		.31			.32			.32			.36			.39
Net realized and unrealized gain (loss)		.15			.41			(.58	)		(.25	)		.14
Total from investment operations		.46			.73			(.26	)		.11			.53
Less distributions from:
Net investment income		(.38	)		(.38	)		(.41	)		(.47	)		(.50	)
Net asset value, end of period	$	6.36			$6.28			$5.93			$6.60			$6.96
Total Return (%)b		7.51			12.87			(4.44	)		1.47			7.91
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		61			100			101			135			165
Ratio of expenses before expense reductions (%)c		.78			.80			.75			.75			.73
Ratio of expenses after expense reductions (%)c		.72			.72			.72			.73			.72
Ratio of net investment income (%)		4.98			5.38			5.09			5.21			5.69
Portfolio turnover rate (%)		71			77			47			52			58

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

	Years Ended December 31,
Class B	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	6.30			$5.94			$6.63			$6.99			$6.97
Income (loss) from investment operations:
Net investment incomea		.31			.31			.32			.35			.36
Net realized and unrealized gain (loss)		.13			.41			(.61	)		(.26	)		.15
Total from investment operations		.44			.72			(.29	)		.09			.51
Less distributions from:
Net investment income		(.36	)		(.36	)		(.40	)		(.45	)		(.49	)
Net asset value, end of period	$	6.38			$6.30			$5.94			$6.63			$6.99
Total Return (%)b		7.21			12.67			(4.95	)		1.22			7.44
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		.1			2			3			.03			.32
Ratio of expenses before expense reductions (%)c		1.15			1.21			1.14			1.13			1.10
Ratio of expenses after expense reductions (%)c		.98			.98			1.02			.97			.97
Ratio of net investment income (%)		4.88			5.15			4.86			5.09			5.29
Portfolio turnover rate (%)		71			77			47			52			58

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

The accompanying notes are an integral part of the financial statements.

16 | Deutsche Variable Series II — Deutsche High Income VIP

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche High Income VIP (the “Fund”) is a diversified series of Deutsche Variable Series II (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.

Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Sales of Class B shares are subject to recordkeeping fees up to 0.15% and Rule 12b-1 fees under the 1940 Act equal to an annual rate of 0.25% of the average daily net assets of the Class B shares of the Fund. Class A shares are not subject to such fees.

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class (including the applicable Rule 12b-1 fee and recordkeeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.

The Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

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.

Debt securities are valued at prices supplied by independent pricing services approved by the Fund’s Board. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, prepayment speeds and other data, as well as broker quotes. If the pricing services are unable to provide valuations, debt securities are valued at the average of the most recent reliable bid quotations or evaluated prices, as applicable, obtained from broker-dealers. These securities are generally categorized as Level 2.

Equity securities are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities are generally categorized as Level 1 securities.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2.

Swap contracts are valued daily based upon prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer. Swap contracts are generally categorized as Level 2.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts and/or the appropriate stock exchange

Deutsche Variable Series II — Deutsche High Income VIP | 17

(for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Securities Lending. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. As of period end, any securities on loan were collateralized by cash. During the year ended December 31, 2017, the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by Deutsche Investment Management Americas Inc. As of December 31, 2017, the Fund invested the cash collateral in Deutsche Government & Agency Securities Portfolio. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017, the Fund had securities on loan, which were classified as corporate bonds in the Investment Portfolio. The value of the related collateral exceeded the value of the securities loaned at period end. As of period end, the remaining contractual maturity of the collateral agreements were overnight and continuous.

When-Issued/Delayed Delivery Securities. The Fund may purchase or sell securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the transaction is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. At the time the Fund enters into a purchase transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment. Additionally, the Fund or the counterparty may be required to post securities and/or cash collateral in accordance with the terms of the commitment.

Certain risks may arise upon entering into when-issued or delayed delivery transaction from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.

18 | Deutsche Variable Series II — Deutsche High Income VIP

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.

At December 31, 2017, the Fund had a net tax basis capital loss carryforward of approximately $6,337,000, which may be applied against realized net taxable capital gains indefinitely, including short-term losses ($500,000) and long-term losses ($5,837,000).

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. 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 swap contracts, expiration of capital loss carryforward and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	4,647,185
Capital loss carryforwards	$	(6,337,000	)
Unrealized appreciation (depreciation) on investments	$	782,016

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $60,868,528. The net unrealized appreciation for all investments based on tax cost was $782,016. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $2,074,675 and aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value of $1,292,659.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	5,875,554	$	6,381,963

* 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.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on ex-dividend date. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes for the Fund, with the exception of securities in default of principal.

Deutsche Variable Series II — Deutsche High Income VIP | 19

B. Derivative Instruments

Swaps. A swap is a contract between two parties to exchange future cash flows at periodic intervals based on the notional amount of the swap. A bilateral swap is a transaction between the fund and a counterparty where cash flows are exchanged between the two parties. A centrally cleared swap is a transaction executed between the fund and a counterparty, then cleared by a clearing member through a central clearinghouse. The central clearinghouse serves as the counterparty, with whom the fund exchanges cash flows.

The value of a swap is adjusted daily, and the change in value, if any, is recorded as unrealized appreciation or depreciation in the Statement of Assets and Liabilities. Gains or losses are realized when the swap expires or is closed. Certain risks may arise when entering into swap transactions including counterparty default; liquidity; or unfavorable changes in interest rates or the value of the underlying reference security, commodity or index. In connection with bilateral swaps, securities and/or cash may be identified as collateral in accordance with the terms of the swap agreement to provide assets of value and recourse in the event of default. The maximum counterparty credit risk is the net present value of the cash flows to be received from or paid to the counterparty over the term of the swap, to the extent that this amount is beneficial to the Fund, in addition to any related collateral posted to the counterparty by the Fund. This risk may be partially reduced by a master netting arrangement between the Fund and the counterparty. Upon entering into a centrally cleared swap, the Fund is required to deposit with a financial intermediary cash or securities (“initial margin”) in an amount equal to a certain percentage of the notional amount of the swap. Subsequent payments (“variation margin”) are made or received by the Fund dependent upon the daily fluctuations in the value of the swap. In a cleared swap transaction, counterparty risk is minimized as the central clearinghouse acts as the counterparty.

An upfront payment, if any, made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment, if any, received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations.

Credit default swaps are agreements between a buyer and a seller of protection against predefined credit events for the reference entity. The Fund may enter into credit default swaps to gain exposure to an underlying issuer’s credit quality characteristics without directly investing in that issuer or to hedge against the risk of a credit event on debt securities. As a seller of a credit default swap, the Fund is required to pay the par (or other agreed-upon) value of the referenced entity to the counterparty with the occurrence of a credit event by a third party, such as a U.S. or foreign corporate issuer, on the reference entity, which would likely result in a loss to the Fund. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the swap provided that no credit event has occurred. If no credit event occurs, the Fund keeps the stream of payments with no payment obligations. The Fund may also buy credit default swaps, in which case the Fund functions as the counterparty referenced above. This involves the risk that the swap may expire worthless. It also involves counterparty risk that the seller may fail to satisfy its payment obligations to the Fund with the occurrence of a credit event. When the Fund sells a credit default swap, it will cover its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the reference entities for all outstanding credit default swaps sold by the Fund. For the year ended December 31, 2017, the Fund entered into credit default swap agreements to gain exposure to the underlying issuer’s credit quality characteristics.

Under the terms of a credit default swap, the Fund receives or makes periodic payments based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss in the Statement of Operations. Payments received or made as a result of a credit event or termination of the swap are recognized, net of a proportional amount of the upfront payment, as realized gains or losses in the Statement of Operations.

There were no open credit default swap contracts as of December 31, 2017. For the year ended December 31, 2017, the Fund’s investment in credit default swap contracts sold had a total notional value generally indicative of a range from $0 to approximately $6,450,000.

Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. For the year ended December 31, 2017, the Fund entered into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings and to facilitate transactions in foreign currency denominated securities. Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies

20 | Deutsche Variable Series II — Deutsche High Income VIP

and unrealized gain (loss) is recorded daily. On the settlement date of the forward currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.

A summary of the open forward currency contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017, the investment in forward currency contracts short vs. U.S. dollars had a total contract value generally indicative of a range from approximately $498,000 to $885,000, and the investment in forward currency contracts long vs. U.S. dollars had a total contract value generally indicative of a range from $0 to approximately $217,000.

The following table summarizes the value of the Fund’s derivative instruments held as of December 31, 2017 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:

Liability Derivative	Forward Contract
Foreign Exchange Contracts (a)	$	(6,916	)

The above derivative is located in the following Statement of Assets and Liabilities account:

(a) Unrealized depreciation on foreign forward currency exchange contracts

Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the year ended December 31, 2017 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:

Realized Gain (Loss)	Forward Contracts			Swap Contracts		Total
Credit Contracts (b)	$	—		$	208,389	$	208,389
Foreign Exchange Contracts (c)		(86,685	)		—		(86,685	)
	$	(86,685	)	$	208,389	$	121,704

Each of the above derivatives is located in the following Statement of Operations accounts:

(b) Net realized gain (loss) from swap contracts

(c) Net realized gain loss from forward foreign currency contracts

Change in Net Unrealized Appreciation (Depreciation)	Forward Contracts			Swap Contracts			Total
Credit Contracts (d)	$	—		$	(36,516	)	$	(36,516	)
Foreign Exchange Contracts (e)		(2,359	)		—			(2,359	)
	$	(2,359	)	$	(36,516	)	$	(38,875	)

Each of the above derivatives is located in the following Statement of Operations accounts:

(d) Change in net unrealized appreciation (depreciation) on swap contracts

(e) Change in net unrealized appreciation (depreciation) on forward foreign currency contracts

As of December 31, 2017, the Fund has transactions subject to enforceable master netting agreements which govern the terms of certain transactions, and reduce the counterparty risk associated with such transactions. Master netting agreements allow a Fund to close out and net total exposure to a counterparty in the event of a deterioration in the credit quality or contractual default with respect to all of the transactions with a counterparty. As defined by the master netting agreement, the Fund may have collateral agreements with certain counterparties to mitigate risk. For financial reporting purposes the Statement of Assets and Liabilities generally shows derivatives assets and liabilities on a gross basis, which reflects the full risks and exposures prior to netting. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by a counterparty, including any collateral exposure, is included in the following table:

Counterparty	Gross Amounts of Liabilities Presented in the Statement of Assets and Liabilities		Financial Instruments and Derivatives Available for Offset		Collateral Pledged		Net Amount of Derivative Liabilities
Bank of America	$	6,916	$	—	$	—	$	6,916

Deutsche Variable Series II — Deutsche High Income VIP | 21

C. Purchases and Sales of Securities

During the year ended December 31, 2017, purchases and sales of investment transactions (excluding short-term investments and U.S. Treasury securities) aggregated $61,238,762 and $100,943,488, respectively.

D. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $250 million	.500	%
Next $750 million	.470	%
Next $1.5 billion	.450	%
Next $2.5 billion	.430	%
Next $2.5 billion	.400	%
Next $2.5 billion	.380	%
Next $2.5 billion	.360	%
Over $12.5 billion	.340	%

Accordingly, for the year ended December 31, 2017, the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.50% of the Fund’s average daily net assets.

For the period from January 1, 2017 through April 30, 2017, the Advisor had contractually agreed to waive all or a portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of each class as follows:

Class A	.72	%
Class B	.98	%

For the period from May 1, 2017 through September 30, 2017, the Advisor had contractually agreed to waive all or a portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of each class as follows:

Class A	.73	%
Class B	1.06	%

For the period from October 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive all or a portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of each class as follows:

Class A	.69	%
Class B	.97	%

For the year ended December 31, 2017, fees waived and/or expenses reimbursed for each class are as follows:

Class A	$	60,489
Class B		1,187
	$	61,676

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays

22 | Deutsche Variable Series II — Deutsche High Income VIP

DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017, the Administration Fee was $93,326 of which $5,181 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017, the amounts charged to the Fund by DSC were as follows:

Services to Shareholders	Total Aggregated		Unpaid at December 31, 2017
Class A	$	282	$	70
Class B		49		13
	$	331	$	83

Distribution Service Agreement. Under the Fund’s Class B 12b-1 plan, Deutsche AM Distributors, Inc. (“DDI”) received a fee (“Distribution Service Fee”) of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2017, the Distribution Service Fee was $1,690, of which $33 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017, the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $14,313, of which $6,967 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

Security Lending Fees. Deutsche Bank AG serves as lending agent for the Fund. For the year ended December 31, 2017, the Fund incurred lending agent fees to Deutsche Bank AG for the amount of $4,023.

E. Investing in High-Yield Debt Securities

High-yield debt securities or junk bonds are generally regarded as speculative with respect to the issuer’s continuing ability to meet principal and interest payments. The Fund’s performance could be hurt if an issuer of a debt security suffers an adverse change in financial condition that results in the issuer not making timely payments of interest or principal, a security downgrade or an inability to meet a financial obligation. High-yield debt securities’ total return and yield may generally be expected to fluctuate more than the total return and yield of investment-grade debt securities. A real or perceived economic downturn or an increase in market interest rates could cause a decline in the value of high-yield debt securities, result in increased redemptions and/or result in increased portfolio turnover, which could result in a decline in net asset value of the fund, reduce liquidity for certain investments and/or increase costs. High-yield debt securities are often thinly traded and can be more difficult to sell and value accurately than investment-grade debt securities as there may be no established secondary market. Investments in high yield debt securities could increase liquidity risk for the fund. In addition, the market for high-yield debt securities can experience sudden and sharp volatility which is generally associated more with investments in stocks.

Deutsche Variable Series II — Deutsche High Income VIP | 23

F. Ownership of the Fund

At December 31, 2017, two participating insurance companies were owners of record of 10% or more of the total outstanding Class A shares of the Fund, each owning 75% and 17%. Two participating insurance companies were owners of record of 10% or more of the total outstanding Class B shares of the Fund, each owning 87% and 11%.

G. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

24 | Deutsche Variable Series II — Deutsche High Income VIP

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and the Shareholders of Deutsche High Income VIP

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche High Income VIP (the “Fund) (one of the portfolios constituting the Deutsche Variable Series II) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.

Boston, Massachusetts

February 15, 2018

Deutsche Variable Series II — Deutsche High Income VIP | 25

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return	Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,029.10	$	1,029.00
Expenses Paid per $1,000*	$	3.63	$	4.65
Hypothetical 5% Fund Return	Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,021.63	$	1,020.62
Expenses Paid per $1,000*	$	3.62	$	4.63

* Expenses are equal to the Fund’s annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratios	Class A			Class B
Deutsche Variable Series II — Deutsche High Income VIP		.71	%		.91	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

26 | Deutsche Variable Series II — Deutsche High Income VIP

Tax Information (Unaudited)

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

Deutsche Variable Series II — Deutsche High Income VIP | 27

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche High Income VIP’s (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA is part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board

28 | Deutsche Variable Series II — Deutsche High Income VIP

believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 3rd quartile, 4th quartile and 4th quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board observed that the Fund had experienced improved relative performance during the first eight months of 2017. The Board recognized the efforts by DIMA in recent years to enhance its investment platform and improve long-term performance across the Deutsche fund complex.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were lower than the median (1st quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board also reviewed data comparing each share class’s total (net) operating expenses to the applicable Broadridge Universe Expenses. The Board noted that the expense limitations agreed to by DIMA were expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable Deutsche U.S. registered funds (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund, any fees received by an affiliate of DIMA for transfer agency services provided

Deutsche Variable Series II — Deutsche High Income VIP | 29

to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

30 | Deutsche Variable Series II — Deutsche High Income VIP

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

Deutsche Variable Series II — Deutsche High Income VIP | 31

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

32 | Deutsche Variable Series II — Deutsche High Income VIP

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

Deutsche Variable Series II — Deutsche High Income VIP | 33

VS2HI-2 (R-025832-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche International Growth VIP

(formerly Deutsche Global Growth VIP)

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
10	Statement of Assets and Liabilities
10	Statement of Operations
11	Statements of Changes in Net Assets
12	Financial Highlights
13	Notes to Financial Statements
18	Report of Independent Registered Public Accounting Firm
19	Information About Your Fund’s Expenses
20	Tax Information
20	Proxy Voting
21	Advisory Agreement Board Considerations and Fee Evaluation
24	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

Stocks may decline in value. Smaller company stocks tend to be more volatile than medium-sized or large company stocks. Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Emerging markets tend to be more volatile and less liquid than the markets of more mature economies, and generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. The Fund may lend securities to approved institutions. Please read prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED     NO BANK GUARANTEE     MAY LOSE VALUE     NOT A DEPOSIT

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche International Growth VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.

The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated October 1, 2017 are 1.36% and 1.68% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.

On October 1, 2017, the comparative broad-based index changed from the MSCI World Index to the MSCI All Country World Index ex USA. The Advisor believes that the MSCI World Index ex USA is more suitable for performance comparison given the fund’s investment strategy change.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche Global Growth VIP

The MSCI All Country World ex-USA Index is designed to provide a broad measure of stock performance throughout the world, with the exception of U.S.-based companies. The MSCI All Country World ex-USA Index includes both developed and emerging markets.   The MSCI World Index captures large and mid cap representation across 23 Developed Markets countries.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

The growth of $10,000 is cumulative.

Comparative Results
Deutsche International Growth VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$12,547	$12,853	$15,709	$13,623
	Average annual total return	25.47%	8.73%	9.45%	3.14%
MSCI All Country World ex-USA Index	Growth of $10,000	$12,719	$12,538	$13,896	$11,999
	Average annual total return	27.19%	7.83%	6.80%	1.84%
MSCI World Index	Growth of $10,000	$12,240	$13,045	$17,340	$16,341
	Average annual total return	22.40%	9.26%	11.64%	5.03%
Deutsche International Growth VIP		1-Year	3-Year	5-Year	10-Year
Class B	Growth of $10,000	$15,526	$12,748	$15,468	$13,186
	Average annual total return	25.26%	8.43%	9.11%	2.80%
MSCI All Country World ex-USA Index	Growth of $10,000	$12,719	$12,538	$13,896	$11,999
	Average annual total return	27.19%	7.83%	6.80%	1.84%
MSCI World Index	Growth of $10,000	$12,240	$13,045	$17,340	$16,341
	Average annual total return	22.40%	9.26%	11.64%	5.03%

Deutsche Variable Series II — Deutsche International Growth VIP | 3

Management Summary December 31, 2017 (Unaudited)

The Fund’s Class A shares returned 25.47% during 2017 (unadjusted for contract charges), trailing the 27.19% return of the MSCI All-Country World ex-USA Index.

On October 1, 2017, Deutsche International Growth VIP adopted a foreign large-cap growth strategy. The Deutsche Fund Board approved a proposal to reposition the Fund from an emphasis on both U.S. and foreign growth stocks to focus on growth stocks mainly outside of the United States. The Fund’s name changed to Deutsche International Growth VIP, and its benchmark changed from the MSCI World Index to the MSCI All Country World ex-USA Index. The Fund’s 12-month performance therefore reflects the results of two strategies.

The Fund’s positioning in the financials made the largest contribution to performance in 2017. Many of our top performers in the sector were U.S. companies that we have since sold, including S&P Global, Inc.* and Progressive Corp.* We also generated strong returns from a position in Brookfield Asset Management, Inc., a Canadian company that we owned prior to the strategy change. The stock performed very well in the 12-month period thanks to rising earnings, continued gains in its assets under management and the growth of its emerging-markets business. Ping An Insurance (Group) of China, Ltd. and PT Bank Rakyat Indonesia Persero Tbk both added meaningful value due to their strong showing late in the year. We held these positions based on the belief that well-managed financials are in a prime position to benefit from the economic growth prospects and associated wealth effect in their home markets, where financial services remain underpenetrated.

Information technology was an additional area of strength for the Fund, due in large part to investments in the Chinese media and internet giants Tencent Holdings Ltd. and Alibaba Group Holding Ltd. The two companies have capitalized on the rapid development of e-commerce in China, helping them exceed analysts’ growth expectations. Positions in the U.S. stocks Activision Blizzard, Inc. and Broadcom Ltd.* also made sizable contributions prior to the strategy shift. Technology remains a key area of focus for the Fund, as the sector is home to a high representation of the types of fast-growing companies we seek.

On the negative side, we lost some ground from the underperformance of a handful of holdings in health care. Celgene Corp., which reduced its long-term earnings expectations following a failed trial results, was the largest detractor in the sector. Shares of the specialty pharmaceutical company Allergan PLC also slid due to heightened generic competition for one of its key medications. Positions in the U.S. retailers L Brands, Inc.* and TJX Corp.* further weighed on performance, as the timing of the Fund’s move to an international-focused strategy in the autumn prompted us to sell the stocks prior to their fourth-quarter recovery.

As a result of the Fund’s strategy change, the majority of our portfolio activity for the year involved selling positions in U.S. equities and redeploying the proceeds into opportunities overseas. Our overall approach to stock selection remained the same, with a continued emphasis on companies that we believe feature strong organic growth trends, solid competitive advantages and exposure to important secular themes.

With regard to the broader market backdrop, we see little reason for a near-term shift away from the environment gradual economic expansion and subdued inflation. At the same time, we do not expect that the world economy will accelerate significantly from its current pace — a trend that could continue to drive investor demand for growth stocks. On a longer-term basis, we view the international markets as being fertile ground in which to find reasonably valued companies with sustainable, above-average growth prospects.

Sebastian P. Werner, PhD, Director

Mark Schumann, CFA, Director

Portfolio Managers

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.

4 | Deutsche Variable Series II — Deutsche International Growth VIP

Terms to Know

The MSCI World Index captures large and mid cap representation across 23 Developed Markets countries. With 1,652 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

The MSCI All Country World ex-USA Index is designed to provide a broad measure of stock performance throughout the world, with the exception of U.S.-based companies. The MSCI All Country World Index Ex-U.S. includes both developed and emerging markets.

Contribution and detraction incorporate both a stock’s total return and its weighting in the fund.

* Held and sold prior to December 31, 2017.

Deutsche Variable Series II — Deutsche International Growth VIP | 5

Portfolio Summary (Unaudited)

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)	12/31/17		12/31/16
Common Stocks		96%		97%
Cash Equivalents		4%		2%
Preferred Stocks		0%		1%
Warrants		0%		0%
		100%		100%
Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
Financials		22%		18%
Industrials		17%		10%
Information Technology		17%		20%
Health Care		14%		20%
Consumer Discretionary		14%		13%
Materials		6%		5%
Consumer Staples		6%		9%
Energy		3%		3%
Telecommunication Services		1%		2%
		100%		100%
Geographical Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
United States		12%		56%
France		12%		1%
Canada		12%		5%
Germany		11%		6%
United Kingdom		10%		5%
China		7%		1%
Switzerland		7%		5%
Japan		6%		6%
Netherlands		3%		1%
Sweden		2%		3%
Singapore		2%		2%
Finland		2%		1%
Other		14%		8%
		100%		100%

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 7.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche International Growth VIP

Investment Portfolio December 31, 2017

	Shares		Value ($)
Common Stocks 94.6%
Australia 1.2%
Australia & New Zealand Banking Group Ltd. (Cost $224,846)		10,079		225,774
Canada 11.2%
Agnico Eagle Mines Ltd.		6,771		312,640
Alimentation Couche-Tard, Inc. “B”		4,430		231,157
Bank of Nova Scotia		3,715		239,746
Brookfield Asset Management, Inc. “A”		9,600		417,909
Canada Goose Holdings, Inc.*		4,791		151,353
Canadian National Railway Co.		2,973		245,148
Enbridge, Inc.		2,493		97,499
Gildan Activewear, Inc.		4,987		161,115
Toronto-Dominion Bank		4,184		245,149
(Cost $1,573,037)				2,101,716
China 7.1%
Alibaba Group Holding Ltd. (ADR)*		1,556		268,301
China Life Insurance Co., Ltd. “H”		58,000		182,202
China Literature Ltd. 144A*		6		64
Minth Group Ltd.		26,870		162,221
New Oriental Education & Technology Group, Inc. (ADR)		1,467		137,898
Ping An Insurance (Group) Co. of China Ltd. “H”		27,500		286,557
Sogou, Inc. (ADR)* (a)		1,116		12,912
Tencent Holdings Ltd.		5,600		291,274
(Cost $914,430)				1,341,429
Denmark 0.6%
Chr Hansen Holding AS (Cost $102,932)		1,174		110,148
Finland 1.6%
Cramo Oyj		2,641		62,703
Sampo Oyj “A”		4,507		247,926
(Cost $274,409)				310,629
France 11.7%
Air Liquide SA		2,152		271,407
AXA SA		5,573		165,567
Capgemini SE		2,054		244,131
LVMH Moet Hennessy Louis Vuitton SE		900		265,098
Schneider Electric SE*		3,257		276,333
SMCP SAS 144A*		8,560		197,711
Teleperformance		958		137,406
TOTAL SA		3,373		186,322
VINCI SA		2,689		274,906
Vivendi SA		7,235		194,335
(Cost $2,139,138)				2,213,216
Germany 10.6%
Allianz SE (Registered)		1,272		292,796
BASF SE		1,662		183,387
Continental AG		679		183,832
Deutsche Post AG (Registered)		3,105		148,424
Deutsche Telekom AG (Registered)		13,684		243,606

	Shares		Value ($)
Fresenius Medical Care AG & Co. KGaA		2,911		307,004
Infineon Technologies AG		4,351		119,335
OSRAM Licht AG		1,643		146,909
SAP SE		1,623		182,505
Siemens AG (Registered)		1,370		191,224
(Cost $1,642,173)				1,999,022
Hong Kong 0.8%
Techtronic Industries Co., Ltd. (Cost $52,263)		22,097		144,597
Indonesia 1.3%
PT Arwana Citramulia Tbk		621,918		15,637
PT Bank Rakyat Indonesia Persero Tbk		822,700		220,971
(Cost $206,264)				236,608
Ireland 1.2%
Kerry Group PLC “A” (Cost $134,923)		1,998		224,298
Italy 0.5%
Luxottica Group SpA (Cost $88,069)		1,502		92,110
Japan 5.5%
Bandai Namco Holdings, Inc.		2,700		88,351
FANUC Corp.		500		120,209
Hoya Corp.		3,500		174,780
Keyence Corp.		300		167,845
Komatsu Ltd.		3,700		134,189
MISUMI Group, Inc.		5,011		146,142
Murata Manufacturing Co., Ltd.		700		93,841
Omron Corp.		1,900		113,416
(Cost $850,894)				1,038,773
Korea 1.2%
Samsung Electronics Co., Ltd. (Cost $207,249)		98		233,996
Luxembourg 1.1%
Eurofins Scientific (Cost $77,451)		356		216,873
Macau 0.6%
Sands China Ltd. (Cost $113,186)		22,000		113,527
Malaysia 0.7%
IHH Healthcare Bhd. (Cost $129,229)		95,000		137,490
Netherlands 2.7%
ASML Holding NV		1,272		221,169
Core Laboratories NV (a) (b)		772		84,573
ING Groep NV		10,569		194,230
(Cost $426,152)				499,972
Norway 0.4%
Marine Harvest ASA* (Cost $47,889)		4,156		70,320
Singapore 1.7%
DBS Group Holdings Ltd. (Cost $264,978)		17,000		315,440

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche International Growth VIP | 7

	Shares		Value ($)
South Africa 1.2%
Naspers Ltd. “N” (Cost $182,437)		802		223,916
Spain 1.1%
Banco Santander SA (Cost $212,797)		32,354		212,882
Sweden 2.1%
Assa Abloy AB “B”		10,810		224,895
Nobina AB 144A		25,600		168,738
(Cost $304,722)				393,633
Switzerland 6.5%
Lonza Group AG (Registered)*		1,443		390,250
Nestle SA (Registered)		3,725		320,491
Novartis AG (Registered)		3,130		264,309
Roche Holding AG (Genusschein)		1,001		253,373
(Cost $933,354)				1,228,423
Taiwan 0.9%
Taiwan Semiconductor Manufacturing Co., Ltd. (Cost $139,216)		23,000		177,164
United Kingdom 9.4%
Aon PLC (b)		2,161		289,574
Clinigen Healthcare Ltd.		5,959		82,965
Compass Group PLC		13,264		286,560
ConvaTec Group PLC 144A		28,738		79,761
Experian PLC		8,505		187,774
Halma PLC		6,268		106,661
Prudential PLC		9,884		254,454
Reckitt Benckiser Group PLC		1,564		146,121
RELX NV		8,095		186,343
Smith & Nephew PLC		8,163		141,820
(Cost $1,523,591)				1,762,033
United States 11.7%
A.O. Smith Corp.		1,985		121,641
Activision Blizzard, Inc.		2,738		173,370
Allergan PLC		540		88,333
AMETEK, Inc.		2,720		197,118
Amphenol Corp. “A”		2,161		189,736
Celgene Corp.*		1,861		194,214
Ecolab, Inc.		1,504		201,807
EPAM Systems, Inc.*		909		97,654
Marsh & McLennan Companies, Inc.		2,176		177,105
Mastercard, Inc. “A”		1,272		192,530
NVIDIA Corp.		489		94,621
Schlumberger Ltd.		1,736		116,989

	Shares		Value ($)
The Priceline Group, Inc.*		101		175,512
Thermo Fisher Scientific, Inc.		978		185,702
(Cost $1,568,547)				2,206,332
Total Common Stocks (Cost $14,334,176)				17,830,321
Warrants 0.0%
France
Parrot SA Expiration Date (c) 12/15/2022*		924		217
Parrot SA Expiration Date (c) 12/22/2022*		924		249
Total Warrants (Cost $0)				466
Preferred Stocks 0.4%
Germany 0.3%
Draegerwerk AG & Co. KGaA (Cost $45,679)		630		54,722
United States 0.1%
Providence Service Corp. (c) (Cost $13,600)		136		20,236
Total Preferred Stocks (Cost $59,279)				74,958
Securities Lending Collateral 0.5%
Deutsche Government & Agency Securities Portfolio “Deutsche Government Cash Institutional Shares”, 1.21% (d) (e) (Cost $88,780)		88,780		88,780
Cash Equivalents 3.6%
Deutsche Central Cash Management Government Fund, 1.30% (d) (Cost $687,282)		687,282		687,282
	% of Net Assets		Value ($)
Total Investment Portfolio (Cost $15,169,517)		99.1		18,681,807
Other Assets and Liabilities, Net		0.9		160,710
Net Assets		100.0		18,842,517

* Non-income producing security.

(a) All or a portion of these securities were on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The value of securities loaned at December 31, 2017 amounted to $87,487, which is 0.5% of net assets.

(b) Listed on the New York Stock Exchange.

(c) Investment was valued using significant unobservable inputs.

(d) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

(e) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

ADR: American Depositary Receipt

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche International Growth VIP

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1		Level 2		Level 3		Total
Common Stocks
Australia	$	—	$	225,774	$	—	$	225,774
Canada		2,101,716		—		—		2,101,716
China		419,175		922,254		—		1,341,429
Denmark		—		110,148		—		110,148
Finland		—		310,629		—		310,629
France		197,711		2,015,505		—		2,213,216
Germany		—		1,999,022		—		1,999,022
Hong Kong		—		144,597		—		144,597
Indonesia		—		236,608		—		236,608
Ireland		—		224,298		—		224,298
Italy		—		92,110		—		92,110
Japan		—		1,038,773		—		1,038,773
Korea		—		233,996		—		233,996
Luxembourg		—		216,873		—		216,873
Macau		—		113,527		—		113,527
Malaysia		—		137,490		—		137,490
Netherlands		84,573		415,399		—		499,972
Norway		—		70,320		—		70,320
Singapore		—		315,440		—		315,440
South Africa		—		223,916		—		223,916
Spain		—		212,882		—		212,882
Sweden		—		393,633		—		393,633
Switzerland		—		1,228,423		—		1,228,423
Taiwan		—		177,164		—		177,164
United Kingdom		289,574		1,472,459		—		1,762,033
United States		2,206,332		—		—		2,206,332
Warrants (f)		—		—		466		466
Preferred Stocks (f)		—		54,722		20,236		74,958
Short-Term Investments (f)		776,062		—		—		776,062
Total	$	6,075,143	$	12,585,962	$	20,702	$	18,681,807

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(f) See Investment Portfolio for additional detailed categorizations.

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche International Growth VIP | 9

Statement of Assets and Liabilities

as of December 31, 2017
Assets
Investments in non-affiliated securities, at value (cost $14,393,455) — including $87,487 of securities loaned	$	17,905,745
Investment in Deutsche Government & Agency Securities Portfolio (cost $88,780)*		88,780
Investment in Deutsche Central Cash Management Government Fund (cost $687,282)		687,282
Cash		9,818
Foreign currency, at value (cost $246,064)		248,327
Receivable for Fund shares sold		36,238
Dividends receivable		6,327
Interest receivable		392
Foreign taxes recoverable		14,718
Other assets		1,032
Total assets		18,998,659
Liabilities
Payable upon return of securities loaned		88,780
Payable for Fund shares redeemed		2,553
Accrued Trustees’ fees		853
Other accrued expenses and payables		63,956
Total liabilities		156,142
Net assets, at value	$	18,842,517
Net Assets Consist of
Undistributed net investment income		166,256
Net unrealized appreciation (depreciation) on:
Investments		3,512,290
Foreign currency		2,509
Accumulated net realized gain (loss)		(31,943	)
Paid-in capital		15,193,405
Net assets, at value	$	18,842,517
Net Asset Value
Class A
Net Asset Value, offering and redemption price per share ($18,635,478 ÷ 1,340,522 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	13.90
Class B
Net Asset Value, offering and redemption price per share ($207,039 ÷ 14,862 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	13.93

* Represents collateral on securities loaned.

     Statement of Operations

for the year ended December 31, 2017
Investment Income
Income:
Dividends (net of foreign taxes withheld of $33,602)	$	408,307
Income distributions — Deutsche Central Cash Management Government Fund		4,259
Securities lending income, net of borrower rebates		1,447
Total income		414,013
Expenses:
Management fee		231,216
Administration fee		27,084
Services to shareholders		636
Record keeping fee (Class B)		76
Distribution service fees (Class B)		337
Custodian fee		30,425
Professional fees		83,039
Reports to shareholders		26,913
Trustees’ fees and expenses		3,029
Other		21,229
Total expenses before expense reductions		423,984
Expense reductions		(174,230	)
Total expenses after expense reductions		249,754
Net investment income (loss)		164,259
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		4,628,855
Foreign currency		14,964
Payments by affiliates (see Note G)		7,312
		4,651,131
Change in net unrealized appreciation (depreciation) on:
Investments		1,406,765
Foreign currency		7,934
		1,414,699
Net gain (loss)		6,065,830
Net increase (decrease) in net assets resulting from operations	$	6,230,089

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche International Growth VIP

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income (loss)	$	164,259		$	146,983
Net realized gain (loss)		4,651,131			1,336,318
Change in net unrealized appreciation (depreciation)		1,414,699			(701,827	)
Net increase (decrease) in net assets resulting from operations		6,230,089			781,474
Distributions to shareholders from:
Net investment income:
Class A		(106,825	)		(243,128	)
Class B		(65	)		(285	)
Total distributions		(106,890	)		(243,413	)
Fund share transactions:
Class A
Proceeds from shares sold		2,240,215			1,028,197
Reinvestment of distributions		106,825			243,128
Cost of shares redeemed		(16,678,132	)		(8,614,441	)
Net increase (decrease) in net assets from Class A share transactions		(14,331,092	)		(7,343,116	)
Class B
Proceeds from shares sold		117,051			14,771
Reinvestment of distributions		65			285
Cost of shares redeemed		(6,431	)		(11,122	)
Net increase (decrease) in net assets from Class B share transactions		110,685			3,934
Increase (decrease) in net assets		(8,097,208	)		(6,801,121	)
Net assets at beginning of period		26,939,725			33,740,846
Net assets at end of period (including undistributed net investment income of $166,256 and $93,056, respectively)	$	18,842,517		$	26,939,725
Other Information
Class A
Shares outstanding at beginning of period		2,417,159			3,116,107
Shares sold		171,566			95,060
Shares issued to shareholders in reinvestment of distributions		8,713			22,163
Shares redeemed		(1,256,916	)		(816,171	)
Net increase (decrease) in Class A shares		(1,076,637	)		(698,948	)
Shares outstanding at end of period		1,340,522			2,417,159
Class B
Shares outstanding at beginning of period		6,272			6,040
Shares sold		9,077			1,328
Shares issued to shareholders in reinvestment of distributions		5			26
Shares redeemed		(492	)		(1,122	)
Net increase (decrease) in Class B shares		8,590			232
Shares outstanding at end of period		14,862			6,272

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche International Growth VIP | 11

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	11.12		$	10.81		$	11.04		$	11.13		$	9.24
Income (loss) from investment operations:
Net investment incomea		.08			.06			.07			.08			.10
Net realized and unrealized gain (loss)		2.75			.34			(.21	)		(.06	)		1.92
Total from investment operations		2.83			.40			(.14	)		.02			2.02
Less distributions from:
Net investment income		(.05	)		(.09	)		(.09	)		(.11	)		(.13	)
Net asset value, end of period	$	13.90		$	11.12		$	10.81		$	11.04		$	11.13
Total Return (%)b		25.47			3.72			(1.32	)		.21			22.08
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		19			27			34			47			51
Ratio of expenses before expense reductions (%)c		1.56			1.66			1.44			1.41			1.45
Ratio of expenses after expense reductions (%)c		.92			.95			.90			.82			.88
Ratio of net investment income (%)		.61			.51			.65			.71			1.00
Portfolio turnover rate (%)		62			70			64			63			171

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

	Years Ended December 31,
Class B	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	11.13		$	10.82		$	11.05		$	11.14		$	9.25
Income (loss) from investment operations:
Net investment incomea		.02			.02			.05			.02			.07
Net realized and unrealized gain (loss)		2.79			.35			(.23	)		(.04	)		1.92
Total from investment operations		2.81			.37			(.18	)		(.02	)		1.99
Less distributions from:
Net investment income		(.01	)		(.06	)		(.05	)		(.07	)		(.10	)
Net asset value, end of period	$	13.93		$	11.13		$	10.82		$	11.05		$	11.14
Total Return (%)b		25.26			3.38			(1.64	)		(.15	)		21.62
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		.2			.07			.1			.1			3
Ratio of expenses before expense reductions (%)c		1.90			1.98			1.76			1.76			1.81
Ratio of expenses after expense reductions (%)c		1.15			1.24			1.22			1.15			1.23
Ratio of net investment income (%)		.12			.17			.40			.14			.66
Portfolio turnover rate (%)		62			70			64			63			171

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

The accompanying notes are an integral part of the financial statements.

12 | Deutsche Variable Series II — Deutsche International Growth VIP

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche International Growth VIP (formerly Deutsche Global Growth VIP) (the “Fund”) is a diversified series of Deutsche Variable Series II (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.

Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Sales of Class B shares are subject to recordkeeping fees up to 0.15% and Rule 12b-1 fees under the 1940 Act equal to an annual rate of 0.25% of the average daily net assets for Class B shares of the Fund. Class A shares are not subject to such fees.

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class (including the applicable Rule 12b-1 fee and recordkeeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.

The Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

Equity securities are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities are generally categorized as Level 1. For certain international equity securities, in order to adjust for events which may occur between the close of the foreign exchanges and the close of the New York Stock Exchange, a fair valuation model may be used. This fair valuation model takes into account comparisons to the valuation of American Depository Receipts (ADRs), exchange-traded funds, futures contracts and certain indices and these securities are categorized as Level 2.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Deutsche Variable Series II — Deutsche International Growth VIP | 13

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Securities Lending. Brown Brothers Harriman & Co., as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. As of period end, any securities on loan were collateralized by cash. During the year ended December 31, 2017, the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by Deutsche Investment Management Americas Inc. As of December 31, 2017, the Fund invested the cash collateral in Deutsche Government & Agency Securities Portfolio. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017, the Fund had securities on loan, which were classified as common stock in the Investment Portfolio. The value of the related collateral exceeded the value of the securities loaned at period end. As of period end, the remaining contractual maturity of the collateral agreements were overnight and continuous.

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.

Additionally, the Fund may be subject to taxes imposed by the governments of countries in which it invests and are generally based on income and/or capital gains earned or repatriated, a portion of which may be recoverable. Based upon the current interpretation of the tax rules and regulations, estimated tax liabilities and recoveries on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized gain/loss on investments. Tax liabilities realized as a result of security sales are reflected as a component of net realized gain/loss on investments.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. 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

14 | Deutsche Variable Series II — Deutsche International Growth VIP

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 foreign denominated investments, income received from passive foreign investment companies, expiration of capital loss carryforwards and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	166,256
Unrealized appreciation (depreciation) on investments	$	3,480,347

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $15,201,460. The net unrealized appreciation for all investments based on tax cost was $3,480,347. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $3,677,854 aggregate gross unrealized depreciation for all investments in which was an excess of tax cost over value of $197,507.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	106,890	$	243,413

* 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.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments.

B. Purchases and Sales of Securities

During the year ended December 31, 2017, purchases and sales of investment transactions (excluding short-term investments) aggregated $16,322,812 and $30,686,381, respectively.

C. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

Deutsche Variable Series II — Deutsche International Growth VIP | 15

For the period from January 1, 2017 through September 30, 2017, pursuant to the Investment Management Agreement with the Advisor, the Fund paid a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $250 million	.915	%
Next $500 million	.865	%
Next $750 million	.815	%
Next $1.5 billion	.765	%
Over $3 billion	.715	%

Effective October 1, 2017, the Fund pays the Advisor a monthly management fee computed and accrued daily and payable monthly, at the a rate of 0.62% of the Fund’s average daily net assets.

Accordingly, for the year ended December 31, 2017, the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.854% of the Fund’s average daily net assets.

For the period from January 1, 2017 through September 30, 2017, the Advisor had contractually agreed to waive all or a portion of its fee and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of each class as follows:

Class A	.95	%
Class B	1.20	%

For the period from October 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive its fees and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of each class as follows:

Class A	.81	%
Class B	1.06	%

For the year ended December 31, 2017, fees waived and/or expenses reimbursed for each class are as follows:

Class A	$	173,216
Class B		1,014
	$	174,230

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017, the Administration Fee was $27,084, of which $1,573 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017, the amounts charged to the Fund by DSC were as follows:

Services to Shareholders	Total Aggregated		Unpaid at December 31, 2017
Class A	$	241	$	61
Class B		47		12
	$	288	$	73

16 | Deutsche Variable Series II — Deutsche International Growth VIP

Distribution Service Agreement. Under the Fund’s Class B 12b-1 plan, Deutsche AM Distributors, Inc. (“DDI”) received a fee (“Distribution Service Fee”) of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2017, the Distribution Service Fee aggregated $337, of which $43 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017, the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $8,910, of which $2,907 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

D. Ownership of the Fund

At December 31, 2017, one participating insurance company was owner of record of 10% or more of the total outstanding Class A shares of the Fund, owning 85%. Three participating insurance companies were owners of record of 10% or more of the total outstanding Class B shares of the Fund, owning 52%, 31%, and 17%.

E. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

F. Fund Name and Strategy Change

Effective October 1, 2017, Deutsche Global Growth VIP was renamed Deutsche International Growth VIP. At that time, the Fund’s principal investment strategy changed to reflect a foreign growth strategy and the Fund repositioned from a focus on U.S. and foreign growth stocks to focus on growth stocks mainly outside the U.S. The Fund will generally invest less than 20% of its assets in U.S. equities. To better reflect its new investment strategy, the Fund changed its principal benchmark index from the MSCI World Index to the MSCI All Country World ex-USA Index.

G. Payment by Affiliate

During the year ended December 31, 2017, the Advisor agreed to reimburse the Fund $7,312 for commission costs incurred in connection with purchases and sales of portfolio assets due to certain changes in the principal investment strategy of the Fund. The amount reimbursed was 0.03% of the Fund’s average net assets.

Deutsche Variable Series II — Deutsche International Growth VIP | 17

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and Shareholders of Deutsche International Growth VIP:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche International Growth VIP, formerly Deutsche Global Growth VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.

Boston, Massachusetts

February 15, 2018

18 | Deutsche Variable Series II — Deutsche International Growth VIP

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,085.10	$	1,083.20
Expenses Paid per $1,000*	$	4.68	$	5.88
Hypothetical 5% Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,020.72	$	1,019.56
Expenses Paid per $1,000*	$	4.53	$	5.70

* Expenses are equal to the Fund’s annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratios	Class A			Class B
Deutsche Variable Series II — Deutsche International Growth VIP		.89	%		1.12	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

Deutsche Variable Series II — Deutsche International Growth VIP | 19

Tax Information (Unaudited)

For corporate shareholders, 100% of the ordinary dividends (i.e., income dividends plus short-term capital gains) paid during the Fund’s fiscal year ended December 31, 2017, qualified for the dividends received deduction.

The Fund paid foreign taxes of $30,873 and earned $121,405 of foreign source income during the year ended December 31, 2017. Pursuant to Section 853 of the Internal Revenue Code, the Fund designates $0.02 per share as foreign taxes paid and $0.09 per share as income earned from foreign sources for the year ended December 31, 2017.

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

20 | Deutsche Variable Series II — Deutsche International Growth VIP

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche International Growth VIP’s (formerly Deutsche Global Growth VIP) (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA is part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board

Deutsche Variable Series II — Deutsche International Growth VIP | 21

believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 3rd quartile, 4th quartile and 4th quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board considered that, effective October 3, 2016, the Fund’s investment strategy and certain members of the portfolio management team were changed, and that, effective October 1, 2017, the Fund would further change its investment strategy. The Board observed that the Fund had experienced improved relative performance during the first eight months of 2017. The Board recognized the efforts by DIMA in recent years to enhance its investment platform and improve long-term performance across the Deutsche fund complex.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were higher than the median (4th quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that, effective October 1, 2017, DIMA agreed to reduce the Fund’s contractual management fee rate to an annual rate of 0.62% in connection with changes to the Fund’s investment strategy. The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board also reviewed data comparing each share class’s total (net) operating expenses to the applicable Broadridge Universe Expenses. The Board noted that the expense limitations agreed to by DIMA were expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable Deutsche U.S. registered funds (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM managed an institutional account comparable to the Fund’s investment strategy as of July 31, 2017, but that Deutsche AM does not manage any comparable Deutsche Europe funds. The Board took note of the differences in services provided to Deutsche Funds as compared to institutional accounts and that such differences made comparison difficult.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

22 | Deutsche Variable Series II — Deutsche International Growth VIP

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. In this regard, the Board observed that while the Fund’s reduced investment management fee schedule would not include breakpoints, the Fund’s fee schedule would represent an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund, any fees received by an affiliate of DIMA for transfer agency services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

Advisory Agreement Amendment

At a meeting held in July 2017, the Board of Trustees, all members of which are Independent Trustees, approved an amendment to the Fund’s Agreement to adopt a revised management fee schedule reducing DIMA’s management fee under the Agreement. The revised management fee schedule took effect on October 1, 2017.

In connection with its review of the amendment in July 2017, the Board noted that it most recently approved the renewal of the Agreement pursuant to a process that concluded in September 2016. The Board considered that the amendment was part of DIMA’s proposal to transition to a new international growth investment strategy for the Fund. The Board also received a report from a fee consultant retained by the Board regarding the revised management fee schedule. In addition, the Board also considered:

– With the exception of the revised management fee schedule, the terms of the Agreement remained the same.

– DIMA’s statement that there would be no reduction in services to the Fund as a result of the revised management fee schedule.

Based on all of the information considered, the Board concluded that the revised management fee schedule was reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA. The Board unanimously determined that approval of the revised management fee schedule was in the best interests of the Fund.

Deutsche Variable Series II — Deutsche International Growth VIP | 23

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

24 | Deutsche Variable Series II — Deutsche International Growth VIP

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

Deutsche Variable Series II — Deutsche International Growth VIP | 25

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

26 | Deutsche Variable Series II — Deutsche International Growth VIP

VS2IG-2 (R-025830-8 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche Multisector Income VIP

(formerly Deutsche Unconstrained Income VIP)

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
13	Statement of Assets and Liabilities
13	Statement of Operations
14	Statements of Changes in Net Assets
15	Financial Highlights
16	Notes to Financial Statements
25	Report of Independent Registered Public Accounting Firm
26	Information About Your Fund’s Expenses
27	Tax Information
27	Proxy Voting
28	Advisory Agreement Board Considerations and Fee Evaluation
31	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

Bond investments are subject to interest-rate, credit, liquidity and market risks to varying degrees. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investments in lower-quality (“junk bonds”) and non-rated securities present greater risk of loss than investments in higher-quality securities. Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Emerging markets tend to be more volatile and less liquid than the markets of more mature economies, and generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. The Fund may lend securities to approved institutions. See the prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED     NO BANK GUARANTEE     MAY LOSE VALUE     NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns.

The gross expense ratio of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 is 1.34% for Class A shares and may differ from the expense ratio disclosed in the Financial Highlights table in this report.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche Multisector Income VIP

  The unmanaged Bloomberg Barclays U.S. Universal Index represents the union of the U.S. Aggregate Index, the U.S. High-Yield Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index and the non-ERISA portion of the CMBS Index.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Comparative Results
Deutsche Multisector Income VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$10,678	$10,408	$10,528	$15,622
	Average annual total return	6.78%	1.34%	1.04%	4.56%
Bloomberg Barclays U.S. Universal Index	Growth of $10,000	$10,409	$10,863	$11,312	$15,277
	Average annual total return	4.09%	2.80%	2.50%	4.33%

The growth of $10,000 is cumulative.    

Deutsche Variable Series II — Deutsche Multisector Income VIP | 3

Management Summary December 31, 2017 (Unaudited)

The Class A shares of the Fund returned 6.78% (unadjusted for contract charges) in 2017, outperforming the 4.09% return of the Bloomberg Barclays U.S. Universal Index.

The past year brought mixed results for the global bond market. Although U.S. Treasuries and agency mortgage-backed securities posted weak relative returns, categories with above-average sensitivity to economic growth registered healthy gains. In this environment, the Fund was helped by its focus on the credit-sensitive areas of the market and corresponding underweight in U.S. Treasuries and mortgage-backed securities.

The Fund’s overweight position in emerging-markets bonds, which are not represented in the index, made the largest positive contribution. We saw the asset class as having greater upside potential than other market segments due to its more reasonable valuations and above-average yields. The strongest returns came from our positions in higher-yielding countries, including Argentina and issuers in Sub-Saharan Africa. We also benefited from holding local-currency issues via an exchange-traded fund and positions in Indonesia and Mexico. Conversely, we lost some relative performance from certain positions in Turkey, as well as a zero weighting in Brazil.

Our large allocation to high-yield bonds, which reflected our belief that improving economic conditions, low defaults and a favorable balance of supply and demand in the market would fuel outperformance, made a healthy contribution as well. While we maintained a sizeable weighting in high yield at the close of the year, we also shifted our positioning within the category to reflect the compression in yield spreads. Rather than investing primarily in individual bonds, we rotated a large portion of the allocation into exchange-traded funds and derivative instruments. We think this move helps insulate the Fund from the risks associated with individual securities, and it also provides a higher degree of flexibility to shift the allocation efficiently if the risk/return equation changes.

In the Fund’s investment-grade portfolio, we added value by tilting toward the higher-yielding segments of the corporate bond market over the lower-risk, lower-yielding areas that generally underperformed. An allocation to Portugal was a further positive. However, our positions in U.S. Treasuries and agency mortgage-backed securities, to the extent that we invested in these categories, detracted from results. We held an underweight in the investment-grade space overall, as we found less attractive values in this area.

The Fund used derivatives during the year. In addition to owning credit default swaps to facilitate exposure to the high-yield market, we used derivatives to manage the foreign currency exposure of certain positions in foreign bonds. Both aspects of our strategy made modest contributions. We also used interest-rate futures and swaps to manage the Fund’s duration exposure (interest-rate sensitivity), which was a small detractor. Overall, our use of derivatives was a small net positive.

We maintained a focus on the higher-yielding, credit-oriented segments of the market throughout the year. We believed these categories offered the potential for a continued return advantage due to both the greater contribution from yield and their ability to benefit from strengthening economic growth. At the same time, we took a somewhat defensive approach as the year progressed since low yield spreads could translate to higher risk. Further, we sought to maintain a high degree of portfolio flexibility — highlighted by a larger-than-normal cash position and above-average liquidity — so we will be in a position to take advantage of downdrafts in either the broader market or in individual bonds. We believe this approach can add value if the investment backdrop remains constructive, while also giving us the latitude to capitalize on a re-emergence of volatility.

John D. Ryan, Managing Director

Kevin Bliss, Director

Portfolio Managers

Prior to August 1, 2017, the portfolio management team was as follows:

Gary Russell, CFA, Managing Director

John D. Ryan, Managing Director

Darwei Kung, Managing Director

Portfolio Managers

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.

4 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Terms to Know

The Barclays U.S. Universal Index represents the union of the U.S. Aggregate Index, the U.S. High-Yield Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index and the non-ERISA portion of the CMBS Index. Index returns do not reflect fees or expenses and it is not possible to invest directly in an index.

Overweight means the fund holds a higher weighting in a given sector or security than the benchmark. Underweight means the fund holds a lower weighting.

Contribution and detraction incorporate both a stock’s total return and its weighting in the index.

Yield spread refers to differences between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument.

Derivatives are contracts whose values can be based on a variety of instruments, including indices, currencies or securities. They can be utilized for a variety of reasons, including for hedging purposes, for risk management; for non-hedging purposes to seek to enhance potential gains, or as a substitute for direct investment in a particular asset class or to keep cash on hand to meet shareholder redemptions. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility.

A swap is an exchange of cash flows that are dependent on the price of an underlying commodity.

Futures contracts are contractual agreements to buy or sell a particular commodity or financial instrument at a predetermined price in the future.

Duration, which is expressed in years, measures the sensitivity of the price of a bond or bond fund to a change in interest rates.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 5

Portfolio Summary (Unaudited)

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)	12/31/17		12/31/16
Government & Agency Obligations		29%		41%
Corporate Bonds		24%		20%
Collateralized Mortgage Obligations		13%		10%
Short-Term U.S. Treasury Obligations		12%		2%
Loan Participations and Assignments		7%		5%
Cash Equivalents		6%		5%
Commercial Mortgage-Backed Securities		5%		5%
Asset-Backed		2%		1%
Convertible Bond		2%		0%
Common Stocks		0%		0%
Warrant		0%		0%
Exchange-Traded Funds		—		11%
Put Options Purchased		—		0%
		100%		100%
Quality (Excludes Cash Equivalents, Securities Lending Collateral and Exchange-Traded Funds)	12/31/17		12/31/16
AAA		25%		41%
AA		1%		1%
A		8%		9%
BBB		24%		31%
BB		23%		9%
B		9%		3%
CCC or Below		3%		6%
Non Rated		7%		—
		100%		100%
Interest Rate Sensitivity	12/31/17		12/31/16
Effective Maturity		5.4 years		7.2 years
Effective Duration		3.6 years		4.6 years

The quality ratings represent the higher of Moody’s Investors Service, Inc. (“Moody’s”), Fitch Ratings, Inc. (“Fitch”) or Standard & Poor’s Corporation (“S&P”) credit ratings. The ratings of Moody’s, Fitch and S&P represent their opinions as to the quality of the securities they rate. Credit quality measures a bond issuer’s ability to repay interest and principal in a timely manner. Ratings are relative and subjective and are not absolute standards of quality. Credit quality does not remove market risk and is subject to change.

Effective maturity is the weighted average of the maturity date of bonds held by the Fund taking into consideration any available maturity shortening features.

Effective duration is an approximate measure of the Fund’s sensitivity to interest rate changes taking into consideration any maturity shortening features.

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 7.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Investment Portfolio December 31, 2017

	Principal Amount ($)(a)		Value ($)
Corporate Bonds 22.6%
Consumer Discretionary 2.7%
American Axle & Manufacturing, Inc., 144A, 6.25%, 4/1/2025 (b)		60,000		63,150
Charter Communications Operating LLC, 3.75%, 2/15/2028		60,000		57,492
CVS Health Corp., 5.125%, 7/20/2045		30,000		34,383
Expedia, Inc., 3.8%, 2/15/2028		55,000		53,147
Nordstrom, Inc.:
4.0%, 3/15/2027		20,000		19,925
5.0%, 1/15/2044		35,000		33,742
				261,839
Consumer Staples 0.5%
BAT Capital Corp., 144A, 4.54%, 8/15/2047		30,000		31,587
Molson Coors Brewing Co., 4.2%, 7/15/2046		15,000		15,286
				46,873
Energy 7.1%
Canadian Natural Resources Ltd., 4.95%, 6/1/2047		20,000		22,383
Chesapeake Energy Corp., 144A, 8.0%, 1/15/2025		65,000		65,650
Energy Transfer LP:
4.5%, 11/1/2023		20,000		20,679
5.95%, 10/1/2043		10,000		10,632
EnLink Midstream Partners LP, 5.45%, 6/1/2047		35,000		36,984
Halliburton Co., 4.85%, 11/15/2035		10,000		11,218
Hess Corp., 5.8%, 4/1/2047		25,000		27,820
KazMunayGas National Co. JSC, 144A, 4.75%, 4/19/2027		200,000		210,580
Kinder Morgan Energy Partners LP, 4.7%, 11/1/2042		40,000		38,723
Noble Energy, Inc., 3.85%, 1/15/2028		70,000		70,214
Noble Holding International Ltd., 5.75%, 3/16/2018		10,000		10,025
Oasis Petroleum, Inc., 6.875%, 3/15/2022		50,000		51,313
Sunoco Logistics Partners Operations LP, 5.3%, 4/1/2044		10,000		9,869
Weatherford International Ltd., 9.875%, 2/15/2024		100,000		106,250
				692,340
Financials 3.7%
Everest Reinsurance Holdings, Inc., 4.868%, 6/1/2044		30,000		31,922
FS Investment Corp., 4.75%, 5/15/2022		40,000		41,180
KKR Group Finance Co. III LLC, 144A, 5.125%, 6/1/2044		20,000		22,170
Legg Mason, Inc., 5.625%, 1/15/2044		20,000		22,297

	Principal Amount ($)(a)		Value ($)
Nationwide Financial Services, Inc., 144A, 5.3%, 11/18/2044		20,000		23,725
TC Ziraat Bankasi AS, 144A, 5.125%, 5/3/2022		200,000		198,290
Voya Financial, Inc., 4.8%, 6/15/2046		15,000		16,709
				356,293
Health Care 0.6%
Allergan Funding SCS, 4.75%, 3/15/2045		4,000		4,258
Celgene Corp., 5.0%, 8/15/2045		10,000		11,346
Express Scripts Holding Co., 4.8%, 7/15/2046		20,000		21,276
Mylan NV, 5.25%, 6/15/2046		25,000		27,393
				64,273
Industrials 0.6%
Park Aerospace Holdings Ltd., 144A, 5.25%, 8/15/2022		60,000		59,625
Information Technology 1.4%
Dell International LLC, 144A, 8.1%, 7/15/2036		20,000		25,256
DXC Technology Co., 4.75%, 4/15/2027		60,000		63,804
Pitney Bowes, Inc., 3.625%, 9/15/2020		15,000		14,850
Seagate HDD Cayman, 144A, 4.25%, 3/1/2022		30,000		30,366
				134,276
Materials 1.2%
AK Steel Corp., 7.0%, 3/15/2027 (b)		100,000		101,750
CF Industries, Inc., 144A, 4.5%, 12/1/2026		5,000		5,212
Glencore Funding LLC, 144A, 4.625%, 4/29/2024		10,000		10,558
				117,520
Real Estate 2.9%
CBL & Associates LP:
(REIT), 5.25%, 12/1/2023		25,000		23,609
(REIT), 5.95%, 12/15/2026 (b)		35,000		32,560
Crown Castle International Corp., (REIT), 5.25%, 1/15/2023		15,000		16,424
Government Properties Income Trust, (REIT), 4.0%, 7/15/2022		55,000		55,332
Omega Healthcare Investors, Inc.:
(REIT), 4.75%, 1/15/2028		35,000		34,694
(REIT), 4.95%, 4/1/2024		30,000		31,341
Select Income REIT:
(REIT), 4.15%, 2/1/2022		30,000		30,337
(REIT), 4.25%, 5/15/2024		10,000		9,918
VEREIT Operating Partnership LP, (REIT), 3.95%, 8/15/2027		45,000		44,486
				278,701

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 7

	Principal Amount ($)(a)		Value ($)
Telecommunication Services 1.8%
Frontier Communications Corp., 6.25%, 9/15/2021		100,000		71,000
Intelsat Jackson Holdings SA, 7.25%, 10/15/2020		100,000		94,000
Verizon Communications, Inc., 4.272%, 1/15/2036		10,000		9,948
				174,948
Utilities 0.1%
Southern Power Co., Series F, 4.95%, 12/15/2046		7,000		7,678
Total Corporate Bonds (Cost $2,176,106)				2,194,366
Asset-Backed 2.3%
Home Equity Loans 0.2%
CIT Group Home Equity Loan Trust, “AF6”, Series 2002-1, 6.2%, 2/25/2030		19,529		19,896
Miscellaneous 2.1%
Domino’s Pizza Master Issuer LLC, “A23”, Series 2017-1A, 144A, 4.118%, 7/25/2047		109,725		112,104
Hilton Grand Vacations Trust, “B”, Series 2014-AA, 144A, 2.07%, 11/25/2026		95,648		94,077
				206,181
Total Asset-Backed (Cost $224,432)				226,077
Commercial Mortgage-Backed Security 4.7%
GMAC Commercial Mortgage Securities, Inc., “G”, Series 2004-C1, 144A, 5.455%, 3/10/2038 (Cost $493,496)		490,430		458,945
Collateralized Mortgage Obligations 12.7%
Banc of America Mortgage Securities, “2A2”, Series 2004-A, 3.594%**, 2/25/2034		38,103		38,024
Bear Stearns Adjustable Rate Mortgage Trust, “2A1”, Series 2005-11, 4.119%**, 12/25/2035		50,807		51,674
Countrywide Home Loans, “2A5”, Series 2004-13, 5.75%, 8/25/2034		35,838		35,692
Fannie Mae Connecticut Avenue Securities, “1M1”, Series 2016-C02, 1-month USD-LIBOR + 2.150%, 3.702%**, 9/25/2028		82,842		83,658
Federal Home Loan Mortgage Corp.:
“AI”, Series 4016, Interest Only, 3.0%, 9/15/2025		413,351		17,262
“PI”, Series 3843, Interest Only, 4.5%, 5/15/2038		144,194		10,486

	Principal Amount ($)(a)		Value ($)
“C31”, Series 303, Interest Only, 4.5%, 12/15/2042		466,984		93,627
“HI”, Series 2934, Interest Only, 5.0%, 2/15/2020		21,099		808
“WI”, Series 3010, Interest Only, 5.0%, 7/15/2020		32,798		1,205
Federal National Mortgage Association, “4”, Series 406, Interest Only, 4.0%, 9/25/2040		107,895		21,279
Government National Mortgage Association:
“GI”, Series 2014-146, Interest Only, 3.5%, 9/20/2029		1,054,737		124,240
“PI”, Series 2015-40, Interest Only, 4.0%, 4/20/2044		133,962		15,478
“HI”, Series 2015-77, Interest Only, 4.0%, 5/20/2045		268,899		46,228
“IP”, Series 2014-115, Interest Only, 4.5%, 2/20/2044		42,286		7,801
“IV”, Series 2009-69, Interest Only, 5.5%, 8/20/2039		136,320		23,077
“IN”, Series 2009-69, Interest Only, 5.5%, 8/20/2039		139,551		25,519
“IJ”, Series 2009-75, Interest Only, 6.0%, 8/16/2039		123,459		21,586
JPMorgan Mortgage Trust, “2A1”, Series 2006-A2, 3.396%**, 4/25/2036		150,850		148,924
Merrill Lynch Mortgage Investors Trust, “2A”, Series 2003-A6, 3.78%**, 10/25/2033		32,471		32,643
RESIMAC, “A2”, Series 2017-2, Australian Bank Bill Short Term Rates 1 Month Mid + 1.200%, 2.89%**, 1/15/2049		AUD 500,000		390,927
Wells Fargo Mortgage-Backed Securities Trust, “2A3”,Series 2004-EE, 3.425%**, 12/25/2034		42,120		42,068
Total Collateralized Mortgage Obligations (Cost $995,169)				1,232,206
Government & Agency Obligations 28.1%
Other Government Related (c) 5.5%
Sberbank of Russia, 144A, 5.125%, 10/29/2022		200,000		206,420
Southern Gas Corridor CJSC, 144A, 6.875%, 3/24/2026		290,000		329,513
				535,933
Sovereign Bonds 18.9%
Export Credit Bank of Turkey, 144A, 5.375%, 10/24/2023		200,000		202,110
Government of Indonesia, Series FR56, 8.375%, 9/15/2026		IDR 1,340,000,000		111,591
Ivory Coast Government International Bond, 144A, 5.375%, 7/23/2024		200,000		203,514
Mexican Udibonos Inflation-Linked Bond, Series S, 2.0%, 6/9/2022		MXN 2,864,014		137,009

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche Multisector Income VIP

	Principal Amount ($)(a)		Value ($)
Republic of Angola, 144A, 9.5%, 11/12/2025		200,000		230,336
Republic of Argentina-Inflation Linked Bond, 5.83%, 12/31/2033		ARS              375		159
Republic of Hungary, Series 19/A, 6.5%, 6/24/2019		HUF 11,600,000		49,055
Republic of Namibia, 144A, 5.25%, 10/29/2025		200,000		203,780
Republic of Senegal, 144A, 6.25%, 7/30/2024		200,000		215,864
Republic of Slovenia, 144A, 5.5%, 10/26/2022		100,000		112,992
Republic of Zambia, 144A, 5.375%, 9/20/2022		200,000		195,112
United Mexican States, Series M, 5.75%, 3/5/2026		MXN 3,845,600		172,885
				1,834,407
U.S. Treasury Obligations 3.7%
U.S. Treasury Bond, 3.0%, 5/15/2047		20,000		21,027
U.S. Treasury Notes:
1.5%, 5/31/2019		232,600		231,437
1.625%, 12/31/2019		109,000		108,430
				360,894
Total Government & Agency Obligations (Cost $2,660,096)				2,731,234
Short-Term U.S. Treasury Obligations 11.3%
U.S. Treasury Bills:
1.18%***, 8/16/2018 (d)		380,000		376,231
1.381%***, 10/11/2018 (d)		730,000		720,479
Total Short-Term U.S. Treasury Obligations (Cost $1,099,250)				1,096,710
Loan Participations and Assignments 6.2%
Senior Loans**
American Rock Salt Co., LLC, First Lien Term Loan, 3-month USD LIBOR + 3.750%, 5.229%, 5/20/2021		101,222		101,222
DaVita HealthCare Partners, Inc., Term Loan B, 1-month USD LIBOR + 2.750%, 4.319%, 6/24/2021		67,550		68,183
Level 3 Financing, Inc., Term Loan B, 3-month USD LIBOR + 2.250%, 3.696%, 2/22/2024		60,000		60,086
MacDermid, Inc., Term Loan B6, 1-month USD LIBOR + 3.000%, 4.569%, 6/7/2023		57,187		57,552
MEG Energy Corp., Term Loan B, 3-month USD LIBOR + 3.500%, 5.2%, 12/31/2023		29,378		29,454
NRG Energy, Inc., Term Loan B, 3-month USD LIBOR + 2.250%, 3.943%, 6/30/2023		114,002		114,205

	Principal Amount ($)(a)		Value ($)
Quebecor Media, Inc., Term Loan B1, 3-month USD LIBOR + 2.250%, 3.663%, 8/17/2020		86,175		86,443
Valeant Pharmaceuticals International, Inc., Term Loan B, 1-month USD LIBOR + 3.500%, 4.94%, 4/1/2022		80,188		81,422
Total Loan Participations and Assignments (Cost $595,484)				598,567
Convertible Bond 1.9%
Materials
GEO Specialty Chemicals, Inc., 3-month USD-LIBOR + 14.0%, 15.709% PIK, 10/18/2025 (e) (Cost $141,966)		142,844		180,626
	Shares		Value ($)
Common Stocks 0.0%
Materials
GEO Specialty Chemicals, Inc.* (e) (Cost $19,933)		13,196		4,455
Warrant 0.0%
Materials
Hercules Trust II, Expiration Date 3/31/2029* (e) (Cost $17,432)		85		2,298
Securities Lending Collateral 1.6%
Deutsche Government & Agency Securities Portfolio “Deutsche Government Cash Institutional Shares”, 1.21% (f) (g) (Cost $154,990)		154,990		154,990
Cash Equivalents 5.5%
Deutsche Central Cash Management Government Fund, 1.30% (f) (Cost $539,169)		539,169		539,169
	% of Net Assets		Value ($)
Total Investment Portfolio (Cost $9,117,523)		96.9		9,419,643
Other Assets and Liabilities, Net		3.1		297,816
Net Assets		100.0		9,717,459

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 9

* Non-income producing security.

** Variable or floating rate security. These securities are shown at their current rate as of December 31, 2017. For securities based on a published reference rate and spread, the reference rate and spread are indicated within the description above. Certain variable rate securities are not based on a published reference rate and spread but adjust periodically based on current market conditions, prepayment of underlying positions and/or other variables.

*** Annualized yield at time of purchase; not a coupon rate.

(a) Principal amount stated in U.S. dollars unless otherwise noted.

(b) All or a portion of these securities were on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The value of securities loaned at December 31, 2017 amounted to $149,742, which is 1.5% of net assets.

(c) Government-backed debt issued by financial companies or government sponsored enterprises.

(d) At December 31, 2017, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.

(e) Investment was valued using significant unobservable inputs.

(f) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

(g) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

CJSC: Closed Joint Stock Company

Interest Only: Interest Only (IO) bonds represent the “interest only” portion of payments on a pool of underlying mortgages or mortgage-backed securities. IO securities are subject to prepayment risk of the pool of underlying mortgages.

JSC: Joint Stock Company

LIBOR: London Interbank Offered Rate

PIK: Denotes that all or a portion of the income is paid in-kind in the form of additional principal.

REIT: Real Estate Investment Trust

Included in the portfolio are investments in mortgage or asset-backed securities which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal National Mortgage Association issues which have similar coupon rates have been aggregated for presentation purposes in this investment portfolio.

At December 31, 2017, open futures contracts purchased were as follows:

Futures

Currency

Expiration Date

Contracts

Notional Amount ($)

Notional Value ($)

Unrealized (Depreciation) ($)

Ultra 10 Year U.S. Treasury Note

USD

3/20/2018

6

804,938

801,375

(3,563

)

As of December 31, 2017, the Fund had the following open forward foreign currency contracts:

Contracts to Deliver		In Exchange For		Settlement Date		Unrealized Appreciation ($)		Counterparty
USD	233,092	EUR	200,000		1/10/2018		7,024	Credit Agricole
MXN	3,546,000	USD	183,972		1/24/2018		4,507	HSBC Holdings PLC
Total unrealized appreciation							11,531
Contracts to Deliver		In Exchange For		Settlement Date		Unrealized Depreciation ($)		Counterparty
EUR	200,000	USD	234,563		1/10/2018		(5,553)	Credit Agricole
AUD	500,000	USD	385,625		2/6/2018		(4,509)	National Australia Bank Ltd.
Total unrealized depreciation							(10,062)

Currency Abbreviations

ARS Argentine Peso

AUD Australian Dollar

EUR Euro

HUF Hungarian Forint

IDR Indonesian Rupiah

MXN Mexican Peso

USD United States Dollar

For information on the Fund’s policy and additional disclosures regarding futures contracts and forward foreign currency contracts, please refer to the Derivatives section of Note B in the accompanying Notes to Financial Statements.

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1			Level 2			Level 3		Total
Fixed Income Investments (h)
Corporate Bonds	$	—		$	2,194,366		$	—	$	2,194,366
Asset-Backed		—			226,077			—		226,077
Commercial Mortgage-Backed Security		—			458,945			—		458,945
Collateralized Mortgage Obligations		—			1,232,206			—		1,232,206
Government & Agency Obligations		—			2,731,234			—		2,731,234
Short-Term U.S. Treasury Obligations		—			1,096,710			—		1,096,710
Loan Participations and Assignments		—			598,567			—		598,567
Convertible Bond		—			—			180,626		180,626
Common Stocks		—			—			4,455		4,455
Warrant		—			—			2,298		2,298
Short-Term Investments (h)		694,159			—			—		694,159
Derivatives (i)
Forward Foreign Currency Contracts		—			11,531			—		11,531
Total	$	694,159		$	8,549,636		$	187,379	$	9,431,174
Liabilities	Level 1			Level 2			Level 3		Total
Derivatives (i)
Futures Contracts	$	(3,563	)	$	—		$	—	$	(3,563	)
Forward Foreign Currency Contracts		—			(10,062	)		—		(10,062	)
Total	$	(3,563	)	$	(10,062	)	$	—	$	(13,625	)

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(h) See Investment Portfolio for additional detailed categorizations.

(i) Derivatives include unrealized appreciation (depreciation) on open futures contracts and forward foreign currency contracts.

Level 3 Reconciliation

The following is a reconciliation of the Fund’s Level 3 investments for which significant unobservable inputs were used in determining value:

	Convertible Bonds			Common Stock			Warrants		Total
Balance as of December 31, 2016	$	135,110		$	5,182		$	386	$	140,678
Realized gains (loss)		0			—			—		0
Change in unrealized appreciation (depreciation)		34,108			(727	)		1,912		35,293
Amortization premium/discount		648			—			—		648
Purchases		149,617			—			—		149,617
(Sales)		(138,857	)		—			—		(138,857	)
Transfers into Level 3		—			—			—		—
Transfers (out) of Level 3		—			—			—		—
Balance as of December 31, 2017	$	180,626		$	4,455		$	2,298	$	187,379
Net change in unrealized appreciation (depreciation) from investments still held as of December 31, 2017	$	34,108		$	(727	)	$	1,912	$	35,293

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 11

Quantitative Disclosure About Significant Unobservable Inputs
Asset Class	Fair Value at 12/31/17		Valuation Technique(s)		Unobservable Input	Range (Weighted Average)
Convertible Bonds
Materials		$180,626		Market Approach	EV/EBITDA Multiple	6.69%
					Discount to public comparables	20%
					Discount for lack of marketability	20%
Common Stocks
Materials		$4,455		Market Approach	EV/EBITDA Multiple	6.69%
					Discount to public comparables	20%
					Discount for lack of marketability	20%
Warrant
Materials		$2,298		Black Scholes Option Pricing Model	Implied Volatility of Option	20.62%
					Illiquidity Discount	20%

Qualitative Disclosure About Unobservable Inputs

Significant unobservable inputs developed by the Pricing Committee and used in the fair value measurement of the Fund’s equity and convertible bond investments include enterprise value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio with a discount for lack of marketability. A significant change in the EV to EBITDA ratio may result in a significant change in the fair value measurement, while a significant change in the discount for lack of marketability is unlikely to result in a materially higher or lower fair value measurement.

Significant unobservable inputs developed by the Pricing Committee and used in the fair value measurement of the Fund’s warrants include volatility and discount for lack of marketability. A change in the volatility of the underlying asset as an input to the Black-Scholes model may have a significant change in the fair value measurement. A significant change in the discount for lack of marketability is unlikely to have a material impact to the fair value measurement.

The accompanying notes are an integral part of the financial statements.

12 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Statement of Assets and Liabilities

as of December 31, 2017
Assets
Investments in non-affiliated securities, at value (cost $8,423,364) — including $149,742 of securities loaned	$	8,725,484
Investments in Deutsche Government & Agency Securities Portfolio (cost $154,990)*		154,990
Investment in Deutsche Central Cash Management Government Fund (cost $539,169)		539,169
Cash		351
Foreign currency, at value (cost $466,339)		459,761
Receivable for variation margin on futures contracts		1,709
Receivable for Fund shares sold		99
Interest receivable		90,901
Unrealized appreciation on forward foreign currency contracts		11,531
Foreign taxes recoverable		672
Due from Advisor		6,096
Other assets		649
Total assets		9,991,412
Liabilities
Payable upon return of securities loaned		154,990
Payable for Fund shares redeemed		32
Unrealized depreciation on forward foreign currency contracts		10,062
Accrued Trustees’ fees		1,080
Other accrued expenses and payables		107,789
Total liabilities		273,953
Net assets, at value	$	9,717,459
Net Assets Consist of
Undistributed net investment income		636,964
Net unrealized appreciation (depreciation) on:
Investments		302,120
Futures		(3,563	)
Foreign currency		(6,682	)
Forward foreign currency contracts		1,469
Accumulated net realized gain (loss)		(4,554,952	)
Paid-in capital		13,342,103
Net assets, at value	$	9,717,459
Class A
Net Asset Value
Net Asset Value, offering and redemption price per share ($9,717,459 ÷ 951,249 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	10.22

* Represents collateral on securities loaned.

Statement of Operations

for the year ended December 31, 2017
Investment Income
Income:
Interest (net of foreign taxes withheld of $839)	$	642,326
Dividends		98,765
Income distributions — Deutsche Central Cash Management Government Fund		6,756
Securities lending income, net of borrower rebates		9,386
Total income		757,233
Expenses:
Management fee		119,671
Administration fee		21,759
Services to Shareholders		256
Custodian fee		24,795
Professional fees		88,667
Reports to shareholders		18,417
Trustees’ fees and expenses		3,185
Pricing service fee		16,998
Other		3,506
Total expenses before expense reductions		297,254
Expense reductions		(152,082	)
Total expenses after expense reductions		145,172
Net investment income		612,061
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		16,217
Swap contracts		238,263
Futures		191,262
Written options		93,862
Forward foreign currency contracts		(83,399	)
Foreign currency		42,233
Payments by affiliates (see Note I)		187
		498,625
Change in net unrealized appreciation (depreciation) on:
Investments		716,852
Swap contracts		(380,270	)
Futures		97,392
Written options		(86,505	)
Forward foreign currency contracts		706
Foreign currency		24,630
		372,805
Net gain (loss)		871,430
Net increase (decrease) in net assets resulting from operations	$	1,483,491

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 13

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income	$	612,061		$	620,959
Net realized gain (loss)		498,625			(1,726,036	)
Change in net unrealized appreciation (depreciation)		372,805			1,292,328
Net increase (decrease) in net assets resulting from operations		1,483,491			187,251
Distributions to shareholders from:
Net investment income:
Class A		(201,605	)		(2,341,380	)
Total distributions		(201,605	)		(2,341,380	)
Fund share transactions:
Class A
Proceeds from shares sold		710,821			1,180,584
Reinvestment of distributions		201,605			2,341,380
Payments for shares redeemed		(17,200,328	)		(9,433,108	)
Net increase (decrease) in net assets from Class A share transactions		(16,287,902	)		(5,911,144	)
Increase (decrease) in net assets		(15,006,016	)		(8,065,273	)
Net assets at beginning of period		24,723,475			32,788,748
Net assets at end of period (including undistributed net investment income of $636,964 and $148,268, respectively)	$	9,717,459		$	24,723,475
Other Information
Class A
Shares outstanding at beginning of period		2,560,974			3,142,272
Shares sold		71,456			115,644
Shares issued to shareholders in reinvestment of distributions		20,405			245,171
Shares redeemed		(1,701,586	)		(942,113	)
Net increase (decrease) in Class A shares		(1,609,725	)		(581,298	)
Shares outstanding at end of period		951,249			2,560,974

The accompanying notes are an integral part of the financial statements.

14 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	9.65		$	10.43		$	11.20		$	11.53			$12.60
Income (loss) from investment operations:
Net investment incomea		.28			.22			.40			.49			.49
Net realized and unrealized gain (loss)		.37			(.17	)		(.72	)		(.23	)		(.59	)
Total from investment operations		.65			.05			(.32	)		.26			(.10	)
Less distributions from:
Net investment income		(.08	)		(.83	)		(.45	)		(.59	)		(.62	)
Net realized gains		—			—			—			—			(.35	)
Total distributions		(.08	)		(.83	)		(.45	)		(.59	)		(.97	)
Net asset value, end of period	$	10.22		$	9.65		$	10.43		$	11.20			$11.53
Total Return (%)b		6.78			.50			(3.02	)		2.23			(1.04	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		10			25			33			54			61
Ratio of expenses before expense reductions (%)c		1.37			1.31			1.15			1.08			1.02
Ratio of expenses after expense reductions (%)c		.67			.68			.70			.77			.74
Ratio of net investment income (%)		2.81			2.19			3.67			4.23			4.16
Portfolio turnover rate (%)		96			159			185			185			183

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 15

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Multisector Income VIP (formerly Deutsche Unconstrained Income VIP) (the “Fund”) is a diversified series of Deutsche Variable Series II (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’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

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.

Debt securities and loan participations and assignments are valued at prices supplied by independent pricing services approved by the Fund’s Board. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, prepayment speeds and other data, as well as broker quotes. If the pricing services are unable to provide valuations, debt securities are valued at the average of the most recent reliable bid quotations or evaluated prices, as applicable, obtained from broker-dealers and loan participations and assignments are valued at the mean of the most recent bid and ask quotations or evaluated prices, as applicable, obtained from one or more broker-dealers. Certain securities may be valued on the basis of a price provided by a single source or broker-dealer. No active trading market may exist for some senior loans and they may be subject to restrictions on resale. The inability to dispose of senior loans in a timely fashion could result in losses. These securities are generally categorized as Level 2.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1.

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2.

Swap contracts are valued daily based upon prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer. Swap contracts are generally categorized as Level 2.

Exchange-traded options are valued at the last sale price or, in the absence of a sale, the mean between the closing bid and asked prices or at the most recent asked price (bid for purchased options) if no bid or asked price are available. Exchange-traded options are categorized as Level 1. Over-the-counter written or purchased options are valued at prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer with which the option was traded. Over-the-counter written or purchased options are generally categorized as Level 2.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts,

16 | Deutsche Variable Series II — Deutsche Multisector Income VIP

and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Securities Lending. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. As of period end, any securities on loan were collateralized by cash. During the year ended December 31, 2017 the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by Deutsche Investment Management Americas Inc. As of December 31, 2017 the Fund invested the cash collateral in Deutsche Government & Agency Securities Portfolio. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017 the Fund had securities on loan, which were classified as corporate bonds in the Investment Portfolio. The value of the related collateral exceeded the value of the securities loaned at period end.

Loan Participations and Assignments. Loan Participations and Assignments are portions of loans originated by banks and sold in pieces to investors. These floating-rate loans (“Loans”) in which the Fund invests are arranged between the borrower and one or more financial institutions (“Lenders”). These Loans may take the form of Senior Loans, which are corporate obligations often issued in connection with recapitalizations, acquisitions, leveraged buy outs and refinancing. The Fund invests in such Loans in the form of participations in Loans (“Participations”) or assignments of all or a portion of Loans from third parties (“Assignments”). Participations typically result in the Fund having a contractual relationship with only the Lender, not with the borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, or any rights

Deutsche Variable Series II — Deutsche Multisector Income VIP | 17

of set off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement. Loans held by the Fund are generally in the form of Assignments, but the Fund may also invest in Participations. If affiliates of the Advisor participate in the primary and secondary market for senior loans, legal limitations may restrict the Fund’s ability to participate in restructuring or acquiring some senior loans. All Loans involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.

When-Issued/Delayed Delivery Securities. The Fund may purchase or sell securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the transaction is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. At the time the Fund enters into this type of transaction, it is required to segregate cash or other liquid assets at least equal to the amount of the commitment. Additionally, the Fund may be required to post securities and/or cash collateral in accordance with the terms of the commitment.

Certain risks may arise upon entering into when-issued or delayed delivery transactions from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.

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.

Additionally, the Fund may be subject to taxes imposed by the governments of countries in which it invests and are generally based on income and/or capital gains earned or repatriated, a portion of which may be recoverable. Based upon the current interpretation of the tax rules and regulations, estimated tax liabilities and recoveries on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized gain/loss on investments. Tax liabilities realized as a result of security sales are reflected as a component of net realized gain/loss on investments.

At December 31, 2017, the Fund had net tax basis capital loss carryforwards of approximately $4,557,000, which may be applied against realized net taxable capital gains indefinitely, including short-term losses ($1,958,000) and long-term losses ($2,599,000).

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 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 foreign denominated investments, futures contracts, swap contracts and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	638,433
Capital loss carryforwards	$	(4,557,000	)
Unrealized appreciation (depreciation) on investments	$	301,386

18 | Deutsche Variable Series II — Deutsche Multisector Income VIP

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $9,118,257. The net unrealized appreciation for all investments based on tax cost was $301,386. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $431,028 and aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value of $129,642.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	201,605	$	2,341,380

* 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.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes for the Fund, with the exception of securities in default of principal.

B. Derivative Instruments

Swaps. A swap is a contract between two parties to exchange future cash flows at periodic intervals based on the notional amount of the swap. A bilateral swap is a transaction between the fund and a counterparty where cash flows are exchanged between the two parties. A centrally cleared swap is a transaction executed between the fund and a counterparty, then cleared by a clearing member through a central clearinghouse. The central clearinghouse serves as the counterparty, with whom the fund exchanges cash flows.

The value of a swap is adjusted daily, and the change in value, if any, is recorded as unrealized appreciation or depreciation in the Statement of Assets and Liabilities. Gains or losses are realized when the swap expires or is closed. Certain risks may arise when entering into swap transactions including counterparty default; liquidity; or unfavorable changes in interest rates or the value of the underlying reference security, commodity or index. In connection with bilateral swaps, securities and/or cash may be identified as collateral in accordance with the terms of the swap agreement to provide assets of value and recourse in the event of default. The maximum counterparty credit risk is the net present value of the cash flows to be received from or paid to the counterparty over the term of the swap, to the extent that this amount is beneficial to the Fund, in addition to any related collateral posted to the counterparty by the Fund. This risk may be partially reduced by a master netting arrangement between the Fund and the counterparty. Upon entering into a centrally cleared swap, the Fund is required to deposit with a financial intermediary cash or securities (“initial margin”) in an amount equal to a certain percentage of the notional amount of the swap. Subsequent payments (“variation margin”) are made or received by the Fund dependent upon the daily fluctuations in the value of the swap. In a cleared swap transaction, counterparty risk is minimized as the central clearinghouse acts as the counterparty.

An upfront payment, if any, made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment, if any, received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations.

Interest Rate Swaps. Interest rate swaps are agreements in which the Fund agrees to pay to the counterparty a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment, or the Fund agrees to receive from the counterparty a fixed rate payment in exchange for the counterparty agreeing to receive from the Fund a variable rate payment. The payment obligations are based

Deutsche Variable Series II — Deutsche Multisector Income VIP | 19

on the notional amount of the swap. For the year ended December 31, 2017 the Fund entered into interest rate swap agreements to gain exposure to different parts of the yield curve while managing overall duration.

There were no open interest rate swap contracts as of December 31, 2017. For the year ended December 31, 2017 the investment in interest rate swap contracts had a total notional amount generally indicative of a range from $0 to $17,200,000.

Credit Default Swaps. Credit default swaps are agreements between a buyer and a seller of protection against predefined credit events for the reference entity. The Fund may enter into credit default swaps to gain exposure to an underlying issuer’s credit quality characteristics without directly investing in that issuer or to hedge against the risk of a credit event on debt securities. As a seller of a credit default swap, the Fund is required to pay the par (or other agreed-upon) value of the referenced entity to the counterparty with the occurrence of a credit event by a third party, such as a U.S. or foreign corporate issuer, on the reference entity, which would likely result in a loss to the Fund. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the swap provided that no credit event has occurred. If no credit event occurs, the Fund keeps the stream of payments with no payment obligations. The Fund may also buy credit default swaps, in which case the Fund functions as the counterparty referenced above. This involves the risk that the swap may expire worthless. It also involves counterparty risk that the seller may fail to satisfy its payment obligations to the Fund with the occurrence of a credit event. When the Fund sells a credit default swap, it will cover its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the reference entities for all outstanding credit default swaps sold by the Fund. For the year ended December 31, 2017 the Fund entered into credit default swap agreements to gain exposure to the underlying issuer’s credit quality characteristics and to hedge the risk of default on fund securities.

Under the terms of a credit default swap, the Fund receives or makes periodic payments based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss in the Statement of Operations. Payments received or made as a result of a credit event or termination of the swap are recognized, net of a proportional amount of the upfront payment, as realized gains or losses in the Statement of Operations.

There were no open credit default swap contracts as of December 31, 2017. For the year ended December 31, 2017 the investment in credit default swap contracts sold had a total notional value generally indicative of a range from $0 to $3,070,000.

Options. An option contract is a contract in which the writer (seller) of the option grants the buyer of the option, upon payment of a premium, the right to purchase from (call option), or sell to (put option), the writer a designated instrument at a specified price within a specified period of time. The Fund may write or purchase interest rate swaption agreements which are options to enter into a pre-defined swap agreement. The interest rate swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer upon exercise. Certain options, including options on indices, will require cash settlement by the Fund if the option is exercised. For the year ended December 31, 2017 the Fund entered into options on interest rate swaps in order to hedge against potential adverse interest rate movements of portfolio assets.

If the Fund writes a covered call option, the Fund foregoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price. If the Fund writes a put option it accepts the risk of a decline in the value of the underlying security below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund’s maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund’s ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities.

There were no open purchased or written option contracts as of December 31, 2017. For the year ended December 31, 2017 the investment in purchased option contracts had a total value generally indicative of a range from $0 to approximately $15,000, and written option contracts had a total value generally indicative of a range from $0 to approximately $116,000.

Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). For the year ended December 31, 2017 the Fund entered into interest rate futures to gain exposure to different parts of the yield curve while managing overall duration and for non-hedging purposes to seek to enhance potential gains.

20 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary cash or securities (“initial margin”) in an amount equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments (“variation margin”) are made or received by the Fund dependent upon the daily fluctuations in the value and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are exchange-traded, counterparty risk is minimized as the exchange’s clearinghouse acts as the counterparty, and guarantees the futures against default.

Certain risks may arise upon entering into futures contracts, including the risk that an illiquid market will limit the Fund’s ability to close out a futures contract prior to the settlement date and the risk that the futures contract is not well correlated with the security, index or currency to which it relates. Risk of loss may exceed amounts disclosed in the Statement of Assets and Liabilities.

A summary of the open futures contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017 the investment in futures contracts purchased had a total notional value generally indicative of a range from approximately $801,000 to $8,144,000, and the investment in futures contracts sold had a total notional value generally indicative of a range from approximately $0 to approximately $5,938,000.

Forward Foreign Currency Contracts. A forward foreign currency contract (“forward currency contract”) is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. For the year ended December 31, 2017 the Fund entered into forward currency contracts in order to hedge against anticipated currency market changes and for non-hedging purposes to seek to enhance potential gains.

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. On the settlement date of the forward currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.

A summary of the open forward currency contracts as of December 31, 2017 is included in a table following the Fund’s Investment Portfolio. For the year ended December 31, 2017 the investment in forward currency contracts short vs. U.S. dollars had a total contract value generally indicative of a range from approximately $804,000 to $2,150,000, and the investment in forward currency contracts long vs. U.S. dollars had a total contract value generally indicative of a range from approximately $233,000 to $1,551,000.

The following tables summarize the value of the Fund’s derivative instruments held as of December 31, 2017 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:

Asset Derivatives	Forward Contracts
Foreign Exchange Contracts (a)	$	11,531

The above derivative is located in the following Statement of Assets and Liabilities accounts:

(a) Unrealized appreciation on forward foreign currency contracts

Liability Derivatives	Forward Contracts			Futures Contracts			Total
Interest Rate Contracts (b)	$	—		$	(3,563	)	$	(3,563	)
Foreign Exchange Contracts (c)		(10,062	)		—			(10,062	)
	$	(10,062	)	$	(3,563	)	$	(13,625	)

Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:

(b) Includes cumulative depreciation of futures as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.

(c) Unrealized depreciation on forward foreign currency contracts

Deutsche Variable Series II — Deutsche Multisector Income VIP | 21

Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the year ended December 31, 2017 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:

Realized Gain (Loss)	Purchased Options			Written Options		Forward Contracts			Swap Contracts		Futures Contracts		Total
Interest Rate Contracts (d)	$	(225,738	)	$	93,862	$	—		$	21,933	$	191,262	$	81,319
Credit Contracts (d)		—			—		—			216,330		—		216,330
Foreign Exchange Contracts (e)		—			—		(83,399	)		—		—		(83,399	)
	$	(225,738	)	$	93,862	$	(83,399	)	$	238,263	$	191,262	$	214,250

Each of the above derivatives is located in the following Statement of Operations accounts:

(d) Net realized gain (loss) from investments (includes purchased options), written options, swap contracts and futures, respectively

(e) Net realized gain (loss) from forward foreign currency contracts

Change in Net Unrealized Appreciation (Depreciation)	Purchased Options		Written Options			Forward Contracts		Swap Contracts			Futures Contracts		Total
Interest Rate Contracts (f)	$	210,480	$	(86,505	)	$	—	$	(290,521	)	$	97,392	$	(69,154	)
Credit Contracts (f)		—		—			—		(89,749	)		—		(89,749	)
Foreign Exchange Contracts (g)		—		—			706		—			—		706
	$	210,480	$	(86,505	)	$	706	$	(380,270	)	$	97,392	$	(158,197	)

Each of the above derivatives is located in the following Statement of Operations accounts:

(f) Change in net unrealized appreciation (depreciation) on investments (includes purchased options), written options, swap contracts and futures, respectively

(g) Change in net unrealized appreciation (depreciation) on forward foreign currency contracts

As of December 31, 2017 the Fund has transactions subject to enforceable master netting agreements which govern the terms of certain transactions, and reduce the counterparty risk associated with such transactions. Master netting agreements allow a Fund to close out and net total exposure to a counterparty in the event of a deterioration in the credit quality or contractual default with respect to all of the transactions with a counterparty. As defined by the master netting agreement, the Fund may have collateral agreements with certain counterparties to mitigate risk. For financial reporting purposes the Statement of Assets and Liabilities generally shows derivatives assets and liabilities on a gross basis, which reflects the full risks and exposures prior to netting. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by a counterparty, including any collateral exposure, is included in the following tables:

Counterparty	Gross Amounts of Assets Presented in the Statement of Assets and Liabilities		��	Financial Instruments and Derivatives Available for Offset			Collateral Received		Net Amount of Derivative Assets
Credit Agricole	$	7,024		$	(5,553	)	$	—	$	1,471
HSBC Holdings PLC		4,507			—			—		4,507
	$	11,531		$	(5,553	)	$	—	$	5,978
Counterparty	Gross Amounts of Liabilities Presented in the Statement of Assets and Liabilities			Financial Instruments and Derivatives Available for Offset			Collateral Pledged		Net Amount of Derivative Liabilities
Credit Agricole	$	5,553		$	(5,553	)	$	—	$	—
National Australia Bank Ltd.		4,509			—			—		4,509
	$	10,062		$	(5,553	)	$	—	$	4,509

C. Purchases and Sales of Securities

During the year ended December 31, 2017 purchases and sales of investment transactions (excluding short-term investments and U.S. Treasury obligations) aggregated $17,412,428 and $27,105,969, respectively. Purchases and sales of U.S. Treasury obligations aggregated $1,356,035 and $7,123,237, respectively.

22 | Deutsche Variable Series II — Deutsche Multisector Income VIP

D. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund or delegates such responsibility to the Fund’s subadvisor.

Effective March 1, 2017, Deutsche Alternative Asset Management (Global) Limited (DAAM Global), also an indirect, wholly owned subsidiary of Deutsche Bank AG, serves as subadvisor for the Fund and, as such, provides portfolio manager services to the Fund. Pursuant to a sub-advisory agreement between DIMA and DAAM Global, DIMA, not the Fund, compensates DAAM Global for the services it provides to the Fund.

Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $250 million	.550	%
Next $750 million	.520	%
Next $1.5 billion	.500	%
Next $2.5 billion	.480	%
Next $2.5 billion	.450	%
Next $2.5 billion	.430	%
Next $2.5 billion	.410	%
Over $12.5 billion	.390	%

Accordingly, for the year ended December 31, 2017 the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.55% of the Fund’s average daily net assets.

For the period from January 1, 2017 through September 30, 2017, the Advisor had contractually agreed to waive its fee and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) at 0.67%.

Effective October 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive its fee and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) at 0.65%.

For the year ended December 31, 2017 fees waived and/or expenses reimbursed amounted to $152,082.

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017 the Administration Fee was $21,759, of which $842 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017 the amounts charged to the Fund by DSC aggregated $131, of which $33 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended December 31, 2017 the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $13,320, of which $6,398 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market

Deutsche Variable Series II — Deutsche Multisector Income VIP | 23

funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

Security Lending Fees. Deutsche Bank AG serves as securities lending agent for the Fund. For the year ended December 31, 2017 the Fund incurred securities lending agent fees to Deutsche Bank AG in the amount of $706.

E. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

F. Investing in High-Yield Securities

High-yield debt securities or junk bonds are generally regarded as speculative with respect to the issuer’s continuing ability to meet principal and interest payments. The Fund’s performance could be hurt if an issuer of a debt security suffers an adverse change in financial condition that results in the issuer not making timely payments of interest or principal, a security downgrade or an inability to meet a financial obligation. High-yield debt securities’ total return and yield may generally be expected to fluctuate more than the total return and yield of investment-grade debt securities. A real or perceived economic downturn or an increase in market interest rates could cause a decline in the value of high-yield debt securities, result in increased redemptions and/or result in increased portfolio turnover, which could result in a decline in net asset value of the Fund, reduce liquidity for certain investments and/or increase costs. High-yield debt securities are often thinly traded and can be more difficult to sell and value accurately than investment-grade debt securities as there may be no established secondary market. Investments in high yield debt securities could increase liquidity risk for the Fund. In addition, the market for high-yield debt securities can experience sudden and sharp volatility which is generally associated more with investments in stocks.

G. Investing in Emerging Markets

Investing in emerging markets may involve special risks and considerations not typically associated with investing in developed markets. These risks include revaluation of currencies, high rates of inflation or deflation, repatriation restrictions on income and capital, and future adverse political, social and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls or delayed settlements, and may have prices that are more volatile or less easily assessed than those of comparable securities of issuers in developed markets.

H. Ownership of the Fund

At December 31, 2017 one participating insurance company was owners of record of 10% or more of the total outstanding Class A shares of the Fund, owning 92%.

I. Payments by Affiliates

During the year ended December 31, 2017, the Advisor agreed to reimburse the Fund $187 for losses incurred on trades executed incorrectly. The amount reimbursed was less than .01% of the Fund’s average net assets, thus having no impact on the Fund’s total return.

24 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and the Shareholders of Deutsche Multisector Income VIP

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche Multisector Income VIP, formerly Deutsche Unconstrained Income VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.

Boston, Massachusetts

February 15, 2018

Deutsche Variable Series II — Deutsche Multisector Income VIP | 25

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

— Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

— Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return		Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,027.10
Expenses Paid per $1,000*	$	3.37
Hypothetical 5% Fund Return		Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,021.88
Expenses Paid per $1,000*	$	3.36

* Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratio	Class A
Deutsche Variable Series II — Deutsche Multisector Income VIP		.66	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

26 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Tax Information (Unaudited)

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 27

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche Multisector Income VIP’s (formerly Deutsche Unconstrained Income VIP) (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017. DIMA has also entered into a sub-advisory agreement with Deutsche Alternative Asset Management (Global) Limited (“DAAM Global”), an affiliate of DIMA, that has an initial term through September 30, 2018.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA and DAAM Global are part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s and DAAM Global’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that DIMA and DAAM Global provide portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. Throughout the course of the year, the Board also received information regarding DIMA’s oversight of fund sub-advisers, including DAAM Global. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an

28 | Deutsche Variable Series II — Deutsche Multisector Income VIP

independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 4th quartile of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA and DAAM Global the factors contributing to such underperformance and actions being taken to improve performance. The Board noted certain changes in the Fund’s portfolio management team that were made effective August 1, 2017. The Board observed that the Fund had experienced improved relative performance during the first eight months of 2017. The Board recognized the efforts by DIMA in recent years to enhance its investment platform and improve long-term performance across the Deutsche fund complex.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were higher than the median (3rd quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that DIMA pays a sub-advisory fee to DAAM Global out of its fee. The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board noted that the expense limitation agreed to by DIMA was expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to comparable Deutsche U.S. registered funds (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Funds. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA and DAAM Global.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 29

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund and any fees received by an affiliate of DIMA for transfer agency services provided to the Fund. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

30 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

Deutsche Variable Series II — Deutsche Multisector Income VIP | 31

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

32 | Deutsche Variable Series II — Deutsche Multisector Income VIP

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

Deutsche Variable Series II — Deutsche Multisector Income VIP | 33

VS2MSI-2 (R-025836-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche Small Mid Cap Growth VIP

Contents

3	Performance Summary
4	Management Summary
5	Portfolio Summary
6	Investment Portfolio
9	Statement of Assets and Liabilities
9	Statement of Operations
10	Statements of Changes in Net Assets
11	Financial Highlights
12	Notes to Financial Statements
16	Report of Independent Registered Public Accounting Firm
17	Information About Your Fund’s Expenses
18	Tax Information
18	Proxy Voting
19	Advisory Agreement Board Considerations and Fee Evaluation
22	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

Stocks may decline in value. Smaller and medium company stocks tend to be more volatile than large company stocks. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. The Fund may lend securities to approved institutions. Please read the prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED      NO BANK GUARANTEE      MAY LOSE VALUE      NOT A DEPOSIT

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns.

The gross expense ratio of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 is 0.75% for Class A shares and may differ from the expense ratio disclosed in the Financial Highlights table in this report.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche Small Mid Cap Growth VIP

The Russell 2500^TM Growth Index is an unmanaged index that measures the performance of the small- to mid-cap growth segment of the U.S. equity universe. It includes those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Comparative Results
Deutsche Small Mid Cap Growth VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$12,212	$13,201	$19,922	$20,119
	Average annual total return	22.12%	9.70%	14.78%	7.24%
Russell 2500 Growth Index	Growth of $10,000	$12,446	$13,631	$20,524	$25,051
	Average annual total return	24.46%	10.88%	15.47%	9.62%

The growth of $10,000 is cumulative.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 3

Management Summary December 31, 2017 (Unaudited)

For the 12-month period ended December 31, 2017, the Fund returned 22.12% (Class A shares, unadjusted for contract charges), compared with the 24.46% return of the Russell 2500^™ Growth Index.

In 2017, financial markets performed well in the face of a number of difficult issues, including political volatility in Washington, Brexit negotiations and increased tensions with North Korea. Investors focused instead on steady economic growth, earnings increases and the eventual overhaul of the U.S. tax code. Oil prices slumped during the early summer on concerns regarding possible oversupply. However, the concerns were alleviated later in the year based in part on OPEC’s agreement for extended production cuts. Over the course of the period, stocks benefited from sustained growth and firming inflation. In addition, market sectors that had outperformed earlier in the year began to see weakness, and sectors that had lagged recovered as the momentum/growth trade turned to value and quality.

The portfolio’s underperformance was due primarily to unfavorable sector allocation, based on overweights in energy earlier in the year coupled with weak stock selection in financials and materials. This was offset by strong stock selection in energy, health care, real estate and information technology. Cognex Corp. and IPG Photonics Corp. were the top individual contributors for the year, while Cardtronics PLC* and Medicines Co.* were the largest individual detractors. Cognex, which manufactures machine vision systems, outperformed due to better than expected earnings results throughout the year. IPG Photonics, a manufacturer of laser systems for materials processing, was helped by consistent increases in its earnings forecasts. Cardtronics, a leading provider of non-bank ATMs, underperformed as the company faced the unexpected removal of interchange fees by major Australian banks. Medicines Co., a biopharmaceutical firm focused on cardiovascular and infectious diseases, underperformed as investors were disappointed at the results of a strategic review of the firm. The Fund sold Cardtronics and Medicines Co.

We continue to position the Fund for sustained economic recovery and remain focused on our bottom-up stock selection process. We maintain a long-term perspective, investing in quality small- and mid-cap growth stocks that trade at attractive valuations and are likely to benefit from a strong merger and acquisition cycle. Historically, in periods of accelerating GDP growth and increasing inflation, small-cap stocks have outperformed their larger-cap peers.

Joseph Axtell, CFA, Managing Director

Peter Barsa, Director

Michael A. Sesser, CFA, Vice President

Portfolio Managers

Prior to May 30, 2017, the portfolio management team was as follows:

Joseph Axtell, CFA, Managing Director

Rafaelina M. Lee, Managing Director

Portfolio Managers

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 Russell 2500 Growth Index is an unmanaged, capitalization-weighted measure of the performance of the small- to mid-cap growth segment of the U.S. equity universe. It includes Russell 2500^™ Index companies with higher price-to-book ratios and higher forecasted growth values. Index returns do not reflect fees or expenses and it is not possible to invest directly in an index.

“Overweight” means that the Fund holds a higher weighting in a given sector or security than the benchmark. “Underweight” means that the Fund holds a lower weighting.

* Not held in the portfolio as of December 31, 2017.

4 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Portfolio Summary (Unaudited)

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)	12/31/17		12/31/16
Common Stocks		97%		97%
Cash Equivalents		2%		3%
Convertible Preferred Stock		1%		0%
		100%		100%
Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
Information Technology		23%		20%
Health Care		21%		18%
Industrials		19%		20%
Consumer Discretionary		15%		20%
Materials		7%		7%
Financials		6%		7%
Consumer Staples		4%		4%
Real Estate		3%		1%
Energy		2%		3%
		100%		100%

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 6.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 5

Investment Portfolio as of December 31, 2017

	Shares		Value ($)
Common Stocks 97.3%
Consumer Discretionary 15.0%
Auto Components 2.1%
Gentherm, Inc.*		22,804		724,027
Tenneco, Inc.		14,844		868,968
				1,592,995
Diversified Consumer Services 2.2%
Bright Horizons Family Solutions, Inc.*		10,132		952,408
ServiceMaster Global Holdings, Inc.*		13,978		716,652
				1,669,060
Hotels, Restaurants & Leisure 2.1%
Hilton Grand Vacations, Inc.*		15,442		647,792
Jack in the Box, Inc.		10,099		990,813
				1,638,605
Household Durables 2.3%
Helen of Troy Ltd.*		7,668		738,812
iRobot Corp.* (a)		13,414		1,028,854
				1,767,666
Media 0.7%
Cinemark Holdings, Inc.		15,719		547,335
Specialty Retail 4.0%
Burlington Stores, Inc.*		11,449		1,408,570
The Children’s Place, Inc.		8,248		1,198,847
Ulta Salon, Cosmetics & Fragrance, Inc.*		2,361		528,061
				3,135,478
Textiles, Apparel & Luxury Goods 1.6%
Carter’s, Inc.		6,302		740,422
Hanesbrands, Inc. (a)		22,866		478,128
				1,218,550
Consumer Staples 3.3%
Food & Staples Retailing 0.9%
Casey’s General Stores, Inc.		6,150		688,431
Food Products 1.3%
Hain Celestial Group, Inc.*		16,391		694,815
SunOpta, Inc.*		44,516		344,999
				1,039,814
Household Products 1.1%
Spectrum Brands Holdings, Inc.		7,393		830,973
Energy 2.3%
Energy Equipment & Services 1.9%
Dril-Quip, Inc.*		16,509		787,479
Oil States International, Inc.*		23,188		656,221
				1,443,700
Oil, Gas & Consumable Fuels 0.4%
Diamondback Energy, Inc.*		2,809		354,636
Financials 5.8%
Banks 3.9%
FCB Financial Holdings, Inc. “A”*		15,144		769,315
Pinnacle Financial Partners, Inc.		10,105		669,962
South State Corp.		8,497		740,514
SVB Financial Group*		3,490		815,857
				2,995,648

	Shares		Value ($)
Capital Markets 1.9%
Lazard Ltd. “A”		14,525		762,562
Moelis & Co. “A”		15,610		757,085
				1,519,647
Health Care 20.1%
Biotechnology 9.7%
Acceleron Pharma, Inc.*		17,115		726,361
Alkermes PLC*		12,591		689,105
Amicus Therapeutics, Inc.*		19,754		284,260
Arena Pharmaceuticals, Inc.*		6,443		218,869
Bluebird Bio, Inc.*		3,054		543,917
Clovis Oncology, Inc.*		3,126		212,568
Emergent Biosolutions, Inc.*		14,518		674,651
Heron Therapeutics, Inc.* (a)		44,567		806,663
Ligand Pharmaceuticals, Inc.* (a)		9,659		1,322,607
Neurocrine Biosciences, Inc.*		10,796		837,662
Retrophin, Inc.*		51,813		1,091,700
TESARO, Inc.*		1,300		107,731
				7,516,094
Health Care Equipment & Supplies 0.7%
Cardiovascular Systems, Inc.*		22,867		541,719
Health Care Providers & Services 6.7%
BioScrip, Inc.*		401,165		1,167,390
Centene Corp.*		3,810		384,353
Molina Healthcare, Inc.*		20,857		1,599,315
Providence Service Corp.*		16,969		1,006,940
RadNet, Inc.*		58,745		593,324
Tivity Health, Inc.*		11,432		417,840
				5,169,162
Health Care Technology 1.0%
athenahealth, Inc.*		3,075		409,098
HMS Holdings Corp.*		22,512		381,579
				790,677
Pharmaceuticals 2.0%
Avadel Pharmaceuticals PLC (ADR)*		58,167		476,970
Pacira Pharmaceuticals, Inc.*		22,119		1,009,732
				1,486,702
Industrials 18.5%
Aerospace & Defense 1.2%
HEICO Corp.		9,954		939,160
Airlines 1.1%
JetBlue Airways Corp.*		37,786		844,139
Building Products 3.3%
A.O. Smith Corp.		16,215		993,655
Allegion PLC		9,100		723,996
Fortune Brands Home & Security, Inc.		12,443		851,599
				2,569,250
Commercial Services & Supplies 2.1%
Advanced Disposal Services, Inc.*		39,685		950,059
UniFirst Corp.		3,890		641,461
				1,591,520

The accompanying notes are an integral part of the financial statements.

6 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

	Shares		Value ($)
Construction & Engineering 0.5%
Primoris Services Corp.		13,972		379,899
Electrical Equipment 1.3%
Thermon Group Holdings, Inc.*		41,624		985,240
Machinery 6.7%
IDEX Corp.		8,695		1,147,479
Kennametal, Inc.		22,978		1,112,365
WABCO Holdings, Inc.*		10,763		1,544,490
Welbilt, Inc.*		59,629		1,401,878
				5,206,212
Trading Companies & Distributors 2.3%
Rush Enterprises, Inc. “A”*		35,301		1,793,644
Information Technology 22.8%
Electronic Equipment, Instruments & Components 5.2%
Belden, Inc.		11,502		887,609
Cognex Corp.		17,784		1,087,669
IPG Photonics Corp.*		8,243		1,765,074
Knowles Corp.*		19,535		286,383
				4,026,735
Internet Software & Services 2.6%
CoStar Group, Inc.*		4,948		1,469,309
Five9, Inc.*		20,949		521,211
				1,990,520
IT Services 4.9%
Broadridge Financial Solutions, Inc.		16,136		1,461,599
Euronet Worldwide, Inc.*		3,300		278,091
MAXIMUS, Inc.		9,060		648,515
WEX, Inc.*		4,517		637,936
WNS Holdings Ltd. (ADR)*		19,111		766,924
				3,793,065
Semiconductors & Semiconductor Equipment 3.4%
Advanced Energy Industries, Inc.*		19,780		1,334,755
Advanced Micro Devices, Inc.* (a)		22,933		235,751
Ambarella, Inc.*		5,149		302,504
Cypress Semiconductor Corp.		50,093		763,417
				2,636,427
Software 6.2%
Aspen Technology, Inc.*		19,088		1,263,626
Proofpoint, Inc.*		8,009		711,279
QAD, Inc. “A”		7,196		279,565
Take-Two Interactive Software, Inc.*		2,302		252,713
Tyler Technologies, Inc.*		7,927		1,403,475
Varonis Systems, Inc.*		17,800		864,190
				4,774,848
Technology Hardware, Storage & Peripherals 0.5%
Super Micro Computer, Inc.*		20,606		431,181

	Shares			Value ($)
Materials 6.9%
Chemicals 4.3%
Huntsman Corp.		12,575			418,622
KMG Chemicals, Inc.		16,579			1,095,540
Minerals Technologies, Inc.		13,266			913,364
Trinseo SA		12,784			928,119
					3,355,645
Construction Materials 1.5%
Eagle Materials, Inc.		10,034			1,136,852
Containers & Packaging 1.1%
Berry Global Group, Inc.*		13,757			807,123
Real Estate 2.6%
Equity Real Estate Investment Trusts (REITs)
National Storage Affiliates Trust		36,400			992,264
SBA Communications Corp. *		2,141			349,754
Urban Edge Properties		27,384			698,018
					2,040,036
Total Common Stocks (Cost $47,515,365)					75,248,388
Convertible Preferred Stock 0.6%
Health Care
Providence Service Corp., 5.5% (b) (Cost $283,300)		2,833			421,540
Securities Lending Collateral 5.1%
Deutsche Government & Agency Securities Portfolio “Deutsche Government Cash Institutional Shares”, 1.21% (c) (d) (Cost $3,961,099)		3,961,099			3,961,099
Cash Equivalents 2.3%
Deutsche Central Cash Management Government Fund, 1.30% (c) (Cost $1,762,858)		1,762,858			1,762,858
	% of Net Assets			Value ($)
Total Investment Portfolio (Cost $53,522,622)		105.2			81,393,885
Other Assets and Liabilities, Net		(5.2	)		(4,050,359	)
Net Assets		100.0			77,343,526

* Non-income producing security.

(a) All or a portion of these securities were on loan. In addition, “Other Assets and Liabilities, Net” may include pending sales that are also on loan. The value of securities loaned at December 31, 2017 amounted to $3,796,401, which is 4.9% of net assets.

(b) Investment was valued using significant unobservable inputs.

(c) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

(d) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.

ADR: American Depositary Receipt

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 7

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1		Level 2		Level 3		Total
Common Stocks (e)	$	75,248,388	$	—	$	—	$	75,248,388
Convertible Preferred Stock		—		—		421,540		421,540
Short-Term Investments (e)		5,723,957		—		—		5,723,957
Total	$	80,972,345	$	—	$	421,540	$	81,393,885

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(e) See Investment Portfolio for additional detailed categorizations.

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Statement of Assets and Liabilities

as of December 31, 2017
Assets
Investments in non-affiliated securities, at value (cost $47,798,665) — including $3,796,401 of securities loaned	$	75,669,928
Investment in Deutsche Government & Agency Securities Portfolio (cost $3,961,099)*		3,961,099
Investment in Deutsche Central Cash Management Government Fund (cost $1,762,858)		1,762,858
Cash		26,581
Receivable for Fund shares sold		26,612
Dividends receivable		17,997
Interest receivable		2,614
Other assets		2,119
Total assets		81,469,808
Liabilities
Payable upon return of securities loaned		3,961,099
Payable for investments purchased		27,500
Payable for Fund shares redeemed		4,503
Accrued management fee		35,913
Accrued Trustees’ fees		1,997
Other accrued expenses and payables		95,270
Total liabilities		4,126,282
Net assets, at value	$	77,343,526
Net Assets Consist of
Net unrealized appreciation (depreciation) on investments		27,871,263
Accumulated net realized gain (loss)		24,783,124
Paid-in capital		24,689,139
Net assets, at value	$	77,343,526
Net Asset Value
Net Asset Value, offering and redemption price per share ($77,343,526 ÷ 3,525,232 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	21.94

* Represents collateral on securities loaned.

     Statement of Operations

for the year ended December 31, 2017
Investment Income
Income:
Dividends (net of foreign taxes withheld of $3,276)	$	698,660
Income distributions — Deutsche Central Cash Management Government Fund		28,598
Securities lending income, net of borrower rebates		48,600
Total income		775,858
Expenses:
Management fee		630,509
Administration fee		114,638
Services to Shareholders		1,109
Custodian fee		2,703
Professional fees		76,989
Reports to shareholders		20,893
Trustees’ fees and expenses		7,799
Other		8,608
Total expenses		863,248
Net investment income (loss)		(87,390	)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from: Investments		25,564,215
Payments by affiliates (see Note F)		67
		25,564,282
Change in net unrealized appreciation (depreciation) on investments		(2,783,953	)
Net gain (loss)		22,780,329
Net increase (decrease) in net assets resulting from operations	$	22,692,939

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 9

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income (loss)	$	(87,390	)	$	124,275
Net realized gain (loss)		25,564,282			6,541,357
Change in net unrealized appreciation (depreciation)		(2,783,953	)		1,718,283
Net increase (decrease) in net assets resulting from operations		22,692,939			8,383,915
Distributions to shareholders from:
Net investment income
Class A		(124,128	)		—
Net realized gains
Class A		(6,452,819	)		(20,264,895	)
Total distributions		(6,576,947	)		(20,264,895	)
Fund share transactions:
Class A
Proceeds from shares sold		3,919,157			2,382,262
Reinvestment of distributions		6,576,947			20,264,895
Payments for shares redeemed		(67,645,663	)		(27,583,809	)
Net increase (decrease) in net assets from Class A share transactions		(57,149,559	)		(4,936,652	)
Increase (decrease) in net assets		(41,033,567	)		(16,817,632	)
Net assets at beginning of period		118,377,093			135,194,725
Net assets at end of period (including distributions in excess of investment income and undistributed net investment income $0 and $115,705, respectively)	$	77,343,526		$	118,377,093
Other Information
Class A
Shares outstanding at beginning of period		6,244,931			6,467,679
Shares sold		194,850			129,160
Shares issued to shareholders in reinvestment of distributions		336,589			1,137,838
Shares redeemed		(3,251,138	)		(1,489,746	)
Net increase (decrease) in Class A shares		(2,719,699	)		(222,748	)
Shares outstanding at end of period		3,525,232			6,244,931

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	18.96		$	20.90		$	22.83		$	21.59		$	15.14
Income (loss) from investment operations:
Net investment income (loss)a		(.02	)		.02			(.04	)		(.02	)		(.04	)
Net realized and unrealized gain (loss)		4.08			1.64			(.00	)		1.26			6.51
Total from investment operations		4.06			1.66			(.04	)		1.24			6.47
Less distributions from:
Net investment income		(.02	)		—			—			—			(.02	)
Net realized gains		(1.06	)		(3.60	)		(1.89	)		—			—
Total distributions		(1.08	)		(3.60	)		(1.89	)		—			(.02	)
Net asset value, end of period	$	21.94		$	18.96		$	20.90		$	22.83		$	21.59
Total Return (%)		22.12			9.08			(.90	)		5.74			42.78
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		77			118			135			172			187
Ratio of expenses (%)b		.75			.75			.72			.73			.72
Ratio of net investment income (loss) (%)		(.08	)		.11			(.19	)		(.11	)		(.22	)
Portfolio turnover rate (%)		32			28			42			44			56

^a  Based on average shares outstanding during the period.

^b  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 11

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Small Mid Cap Growth VIP (the “Fund”) is a diversified series of Deutsche Variable Series II (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’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

Equity securities and exchange-trade funds (“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. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities and ETFs are generally categorized as Level 1.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Securities Lending. Deutsche Bank AG, as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. As of period end, any securities on loan were collateralized by cash. During the year ended December 31, 2017 the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by Deutsche Investment Management Americas Inc. As of December 31, 2017 the Fund invested the cash collateral in Deutsche Government & Agency Securities Portfolio. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency

12 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017 the Fund had securities on loan, which were classified as common stock in the Investment Portfolio. The value of the related collateral exceeded the value of the securities loaned at period end. As of period end, the remaining contractual maturity of the collateral agreements were overnight and continuous.

Federal Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no provision for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. 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 certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	1,627,634
Undistributed long-term capital gains	$	23,669,051
Net unrealized appreciation (depreciation) on investments	$	27,357,702

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $54,036,183. The net unrealized appreciation for all investments based on tax cost was $27,357,702. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $29,109,327 aggregate gross unrealized depreciation for all investments in which was an excess of tax cost over value of $1,751,625.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	124,128	$	239,535
Distributions from long-term capital gains	$	6,452,819	$	20,025,360

* 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.

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.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 13

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments.

B. Purchases and Sales of Securities

During the year ended December 31, 2017 purchases and sales of investment transactions (excluding short-term investments) aggregated $35,326,742 and $97,990,961, respectively.

C. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $250 million	.550	%
Next $750 million	.525	%
Over $1 billion	.500	%

Accordingly, for the year ended December 31, 2017 the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.55% of the Fund’s average daily net assets.

For the period from January 1, 2017 through September 30, 2017, the Advisor had contractually agreed to waive its fees and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of Class A at 0.88%.

For the period from October 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive its fees and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of Class A at 0.84%.

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017 the Administration Fee was $114,638, of which $6,530 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017 the amounts charged to the Fund by DSC aggregated $372, of which $99 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017 the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $9,369, of which $3,451 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market

14 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

Securities Lending Agent Fees. Deutsche Bank AG serves as securities lending agent for the Fund. For the year ended December 31, 2017 the Fund incurred securities lending agent fees to Deutsche Bank AG in the amount of $3,658.

D. Ownership of the Fund

At December 31, 2017 one participating insurance company was owner of record of 10% or more of the total outstanding Class A shares of the Fund, owning 92%.

E. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

F. Payments by Affiliates

During the year ended December 31, 2017, the Advisor agreed to reimburse the Fund $67 for losses incurred on trades executed incorrectly. The amount reimbursed was less than 0.01% of the Fund’s average net assets, thus having no impact on the Fund’s total return.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 15

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and the Shareholders of Deutsche Small Mid Cap Growth VIP

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Small Mid Cap Growth VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.
Boston, Massachusetts
February 15, 2018

16 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

– Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

– Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return	Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,098.60
Expenses Paid per $1,000*	$	4.02
Hypothetical 5% Fund Return	Class A
Beginning Account Value 7/1/17	$	1,000.00
Ending Account Value 12/31/17	$	1,021.37
Expenses Paid per $1,000*	$	3.87

* Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratio	Class A
Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP		.75	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 17

Tax Information (Unaudited)

The Fund paid distributions of $1.06 per share from net long-term capital gains during its year ended December 31, 2017.

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $26,061,033 as capital gain dividends for its year ended December 31, 2017.

For corporate shareholders, 100% of the ordinary dividends (i.e., income dividends plus short-term capital gains) paid during the Fund’s fiscal year ended December 31, 2017, qualified for the dividends received deduction.

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

18 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche Small Mid Cap Growth VIP’s (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA is part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 19

believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 3rd quartile, 2nd quartile and 2nd quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were lower than the median (1st quartile) of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board noted that the expense limitation agreed to by DIMA was expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to a comparable Deutsche U.S. registered fund (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Fund. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund and any fees received by an affiliate of DIMA for transfer agency services provided to the Fund. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

20 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 21

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

22 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP | 23

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

24 | Deutsche Variable Series II — Deutsche Small Mid Cap Growth VIP

VS2SMCG-2 (R-025835-7 2/18)

December 31, 2017

Annual Report

Deutsche Variable Series II

Deutsche Small Mid Cap Value VIP

Contents

3	Performance Summary
4	Management Summary
6	Portfolio Summary
7	Investment Portfolio
9	Statement of Assets and Liabilities
9	Statement of Operations
10	Statements of Changes in Net Assets
11	Financial Highlights
12	Notes to Financial Statements
17	Report of Independent Registered Public Accounting Firm
18	Information About Your Fund’s Expenses
19	Tax Information
19	Proxy Voting
20	Advisory Agreement Board Considerations and Fee Evaluation
23	Board Members and Officers

This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus or summary prospectus, if available, call (800) 728-3337 or your financial representative. We advise you to consider the Fund’s objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the Fund. Please read the prospectus carefully before you invest.

Stocks may decline in value. Smaller and medium company stocks tend to be more volatile than large company stocks. Any fund that focuses in a particular segment of the market or region of the world will generally be more volatile than a fund that invests more broadly. The Fund may lend securities to approved institutions. Please read the prospectus for details.

Deutsche Asset Management represents the asset management activities conducted by Deutsche Bank AG or any of its subsidiaries.

Deutsche AM Distributors, Inc., 222 South Riverside Plaza, Chicago, IL 60606, (800) 621-1148

NOT FDIC/NCUA INSURED     NO BANK GUARANTEE     MAY LOSE VALUE     NOT A DEPOSIT

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

2 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Performance Summary December 31, 2017 (Unaudited)

Fund performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Fund’s most recent month-end performance. Performance doesn’t reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.

The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated May 1, 2017 are 0.83% and 1.19% for Class A and Class B shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.

Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only, and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights.

Growth of an Assumed $10,000 Investment in Deutsche Small Mid Cap Value VIP

The Russell 2500^TM Value Index is an unmanaged Index of those securities in the Russell 3000^® Index with lower price-to-book ratios and lower forecasted growth values.   Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.

Comparative Results
Deutsche Small Mid Cap Value VIP		1-Year	3-Year	5-Year	10-Year
Class A	Growth of $10,000	$11,052	$12,672	$18,085	$20,537
	Average annual total return	10.52%	8.21%	12.58%	7.46%
Russell 2500 Value Index	Growth of $10,000	$11,036	$13,059	$18,649	$23,287
	Average annual total return	10.36%	9.30%	13.27%	8.82%
Deutsche Small Mid Cap Value VIP		1-Year	3-Year	5-Year	10-Year
Class B	Growth of $10,000	$11,013	$12,543	$17,756	$19,834
	Average annual total return	10.13%	7.85%	12.17%	7.09%
Russell 2500 Value Index	Growth of $10,000	$11,036	$13,059	$18,649	$23,287
	Average annual total return	10.36%	9.30%	13.27%	8.82%

The growth of $10,000 is cumulative.

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 3

Management Summary December 31, 2017 (Unaudited)

Class A shares of Deutsche Small Mid Cap VIP returned 10.52% in 2017 (unadjusted for contract charges), outperforming the 10.36% return of the Russell 2500 Value Index. We added the most value through individual stock selection in the real estate, information technology and financial sectors, while selection in consumer discretionary and health care detracted.

The Fund has long been underweight in real estate, but we added to the position in the past 18 months to limit the effect of sector allocations on relative performance. In doing so, we focused on real estate investment trusts (REITs) with exposure to positive industry trends and avoided areas, such as retail, with weaker fundamentals. This approach worked well and enabled us to add value through positions in Gaming and Leisure Properties, Inc.* and Pebblebrook Hotel Trust, among others. In technology, the specialty materials manufacturer Rogers Corp. — which was boosted by robust earnings and the announcement of acquisitions that were well-received by the markets — was the leading contributor to performance. Harris Corp.* also rallied thanks to better-than-expected cost synergies from an acquisitions, an expansion of its overseas business, and initiatives by the U.S. military to upgrade its communications systems. Walker and Dunlop, Inc. was a the top contributor in financials. The company benefited from several positive earnings developments and continued market-share gains in its mortgage-origination franchise. Outside of these three sectors, The Brink’s Co. was the top contributor. The security specialist hired a new chief executive officer, who successfully executed a plan to bring the company’s profit margins up to the level of its competitors.

Our decisions with regard to the Fund’s key detractors offers a closer look into our investment process. While we typically hold on to a poor-performing stock when the fundamentals remain intact, we are willing to cut our losses by selling positions if the investment case no longer holds. For example, we eliminated the Fund’s position in AMC Entertainment Holdings, Inc.* after a stretch of weakness since we saw no meaningful catalyst for a turnaround amid the broader downturn in box office receipts. We also eliminated the Fund’s position in the sporting-goods retailer Hibbett Sports, Inc.,* which declined due to the growing competitive threat from online retailers, as we believed the fundamental headwinds were too strong to warrant a continued investment. In contrast, we maintained our position in Puerto Rico-based OFG Bancorp. The stock slid in the aftermath of Hurricane Maria, but we believed the core business was healthy and the stock was undervalued. We see this disciplined approach — maintaining positions in companies that continue to execute while selling those where the fundamental story is falling short of expectations — as a critical aspect of successful risk management.

We were fairly active in managing the portfolio during the year, with 12 new purchases and 19 holdings that we chose to eliminate (four as a result of acquisitions). The high level of activity reflects the unusual nature of the market environment. Although the headline indices performed very well, there was also a large degree of “herd behavior” as investors rotated in and out of sectors and individual companies rapidly in response to headlines. This tendency created a growing number of value opportunities as otherwise good companies sold off indiscriminately, and we sought to capitalize on the trend by adding to stocks on our watch list. At the same time, we reduced or sold holdings that climbed to what we saw as full valuations. We believe this active and value-oriented approach has helped us take advantage of the constantly changing opportunity set in the small- and mid-cap space.

We believe our focus on companies with strong fundamentals and attractive valuations is evident in some of the portfolio’s underlying metrics. As of December 31, 2017, the Fund’s price-to-earnings (P/E) ratio (based on 12-month earnings estimates) was in line with the P/E of the Russell 2500 Value Index. However, the three- to five-year expected growth rate of the Fund’s holdings was 11.9%, which compared with 8.7% for the companies in the index. Additionally, the Fund’s aggregate return on equity of 12.0% exceeded the 6.7% ROE for the benchmark. We believe these portfolio characteristics, which reflect our preference for higher-quality companies trading at or below their historic valuation ranges, provide a healthy foundation for longer-term performance.

Richard Hanlon, CFA, Director

Mary Schafer Mahrer, Director

Portfolio Managers

4 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

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 Russell 2500 Value Index is an unmanaged index of those securities in the Russell 3000 Index with lower price-to-book ratios and lower forecasted growth values. Index returns do not reflect fees or expenses and it is not possible to invest directly into an index.

Consumer discretionary represents industries that produce goods and services that are not necessities in everyday life.

Overweight means the fund holds a higher weighting in a given sector or security than the benchmark. Underweight means the fund holds a lower weighting.

Contribution and detraction incorporate both a stock’s total return and its weighting in the fund.

Source: Factset. Price-to-earnings (P/E) ratio compares share price to per-share earnings.

Source: Factset. Return on equity is the amount of net income returned as a percentage of shareholders’ equity.

* Held and sold prior to December 31, 2017

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 5

Portfolio Summary (Unaudited)

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)	12/31/17		12/31/16
Common Stocks		96%		95%
Cash Equivalents		4%		5%
		100%		100%
Sector Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral)	12/31/17		12/31/16
Financials		20%		24%
Industrials		19%		15%
Real Estate		13%		7%
Information Technology		11%		15%
Consumer Discretionary		9%		14%
Energy		7%		7%
Consumer Staples		7%		6%
Utilities		5%		5%
Materials		5%		3%
Health Care		4%		4%
		100%		100%

Portfolio holdings and characteristics are subject to change.

For more complete details about the Fund’s investment portfolio, see page 7.

Following the Fund’s fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC’s Web site at sec.gov, and it also may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the SEC’s Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s portfolio holdings are also posted on deutschefunds.com from time to time. Please see the Fund’s current prospectus for more information.

6 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Investment Portfolio as of December 31, 2017

	Shares		Value ($)
Common Stocks 96.2%
Consumer Discretionary 8.3%
Auto Components 4.3%
Cooper Tire & Rubber Co.		19,600		692,860
Standard Motor Products, Inc.		50,604		2,272,626
Visteon Corp.*		16,037		2,006,870
				4,972,356
Automobiles 0.8%
Winnebago Industries, Inc.		16,400		911,840
Diversified Consumer Services 0.7%
Regis Corp.*		52,100		800,256
Hotels, Restaurants & Leisure 0.9%
Denny’s Corp.*		80,900		1,071,116
Media 1.2%
TEGNA, Inc.		95,267		1,341,359
Textiles, Apparel & Luxury Goods 0.4%
Carter’s, Inc.		3,600		422,964
Consumer Staples 6.3%
Food Products 3.2%
Lamb Weston Holdings, Inc.		39,076		2,205,840
Pinnacle Foods, Inc.		23,500		1,397,545
				3,603,385
Household Products 3.1%
Central Garden & Pet Co.*		46,200		1,798,104
Energizer Holdings, Inc.		37,318		1,790,518
				3,588,622
Energy 6.8%
Energy Equipment & Services 0.9%
U.S. Silica Holdings, Inc.		31,839		1,036,678
Oil, Gas & Consumable Fuels 5.9%
Cimarex Energy Co.		13,062		1,593,695
Golar LNG Ltd.		37,178		1,108,276
Matador Resources Co.*		69,315		2,157,776
Noble Energy, Inc.		65,400		1,905,756
				6,765,503
Financials 19.2%
Banks 10.6%
First Horizon National Corp.		57,783		1,155,082
Great Western Bancorp., Inc.		62,102		2,471,660
Hancock Holding Co.		43,616		2,158,992
MB Financial, Inc.		32,600		1,451,352
OFG Bancorp.		135,982		1,278,231
Pacific Premier Bancorp., Inc.*		31,500		1,260,000
Sterling Bancorp.		95,454		2,348,168
				12,123,485
Insurance 6.5%
CNO Financial Group, Inc.		123,078		3,038,796
ProAssurance Corp.		19,800		1,131,570
Reinsurance Group of America, Inc.		21,249		3,313,356
				7,483,722
Thrifts & Mortgage Finance 2.1%
Walker & Dunlop, Inc.*		50,131		2,381,223

	Shares		Value ($)
Health Care 3.5%
Health Care Providers & Services 2.4%
Encompass Health Corp.		54,935		2,714,339
Life Sciences Tools & Services 1.1%
PerkinElmer, Inc.		16,843		1,231,560
Industrials 18.7%
Commercial Services & Supplies 4.5%
Interface, Inc.		74,475		1,873,046
Pitney Bowes, Inc.		81,763		914,111
The Brink’s Co.		29,733		2,339,987
				5,127,144
Electrical Equipment 1.3%
EnerSys		21,200		1,476,156
Industrial Conglomerates 1.3%
Carlisle Companies, Inc.		13,310		1,512,681
Machinery 9.4%
Douglas Dynamics, Inc.		42,200		1,595,160
Federal Signal Corp.		78,600		1,579,074
Global Brass & Copper Holdings, Inc.		49,100		1,625,210
Hillenbrand, Inc.		79,967		3,574,525
Stanley Black & Decker, Inc.		14,159		2,402,641
				10,776,610
Professional Services 0.3%
ManpowerGroup, Inc.		3,200		403,552
Trading Companies & Distributors 1.9%
AerCap Holdings NV*		41,633		2,190,312
Information Technology 10.7%
Electronic Equipment, Instruments & Components 7.6%
Dolby Laboratories, Inc. “A”		32,358		2,006,196
Insight Enterprises, Inc.*		49,400		1,891,526
Keysight Technologies, Inc.*		54,952		2,286,003
Rogers Corp.*		12,035		1,948,707
Sanmina Corp.*		19,100		630,300
				8,762,732
IT Services 1.2%
Convergys Corp.		49,660		1,167,010
Travelport Worldwide Ltd.		11,000		143,770
				1,310,780
Software 1.9%
Verint Systems, Inc.*		52,794		2,209,429
Materials 4.5%
Chemicals 2.5%
GCP Applied Technologies, Inc.*		35,438		1,130,472
Minerals Technologies, Inc.		25,800		1,776,330
				2,906,802
Containers & Packaging 1.6%
Owens-Illinois, Inc.*		83,800		1,857,846
Metals & Mining 0.4%
Steel Dynamics, Inc.		10,000		431,300

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 7

	Shares		Value ($)
Real Estate 12.9%
Equity Real Estate Investment Trusts (REITs)
Agree Realty Corp.		52,502		2,700,703
Brixmor Property Group, Inc.		71,400		1,332,324
Community Healthcare Trust, Inc.		50,000		1,405,000
Easterly Government Properties, Inc.		70,091		1,495,742
Highwoods Properties, Inc.		28,800		1,466,208
Pebblebrook Hotel Trust		69,839		2,595,915
Physicians Realty Trust		96,608		1,737,978
STAG Industrial, Inc.		76,900		2,101,677
				14,835,547
Utilities 5.3%
Electric Utilities 3.2%
IDACORP, Inc.		39,783		3,634,575
Gas Utilities 2.1%
ONE Gas, Inc.		33,200		2,432,232
Total Common Stocks (Cost $88,431,856)				110,316,106

	Shares			Value ($)
Cash Equivalents 3.9%
Deutsche Central Cash Management Government Fund, 1.30% (a) (Cost $4,418,900)		4,418,900			4,418,900
	% of Net Assets			Value ($)
Total Investment Portfolio (Cost $92,850,756)		100.1			114,735,006
Other Assets and Liabilities, Net		(0.1	)		(76,136	)
Net Assets		100.0			114,658,870

* Non-income producing security.

(a) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.

Fair Value Measurements

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

The following is a summary of the inputs used as of December 31, 2017 in valuing the Fund’s investments. For information on the Fund’s policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets	Level 1		Level 2		Level 3		Total
Common Stocks (b)	$	110,316,106	$	—	$	—	$	110,316,106
Short-Term Investments		4,418,900		—		—		4,418,900
Total	$	114,735,006	$	—	$	—	$	114,735,006

There have been no transfers between fair value measurement levels during the year ended December 31, 2017.

(b) See Investment Portfolio for additional detailed categorizations.

The accompanying notes are an integral part of the financial statements.

8 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Statement of Assets and Liabilities

as of December 31, 2017
Assets
Investments in non-affiliated securities, at value (cost $88,431,856)	$	110,316,106
Investment in Deutsche Central Cash Management Government Fund (cost $4,418,900)		4,418,900
Receivable for Fund shares sold		20,712
Dividends receivable		210,535
Interest receivable		4,208
Other assets		2,687
Total assets		114,973,148
Liabilities
Payable for Fund shares redeemed		135,657
Accrued management fee		71,427
Accrued Trustees’ fees		2,562
Other accrued expenses and payables		104,632
Total liabilities		314,278
Net assets, at value	$	114,658,870
Net Assets Consist of
Undistributed net investment income		1,432,026
Net unrealized appreciation (depreciation) on investments		21,884,250
Accumulated net realized gain (loss)		18,971,102
Paid-in capital		72,371,492
Net assets, at value	$	114,658,870
Net Asset Value
Class A
Net Asset Value, offering and redemption price per share ($96,135,249 ÷ 5,375,574 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	17.88
Class B
Net Asset Value, offering and redemption price per share ($18,523,621 ÷ 1,037,183 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized)	$	17.86

     Statement of Operations

for the year ended December 31, 2017
Investment Income
Income:
Dividends (net of foreign taxes withheld of $4,243)	$	2,748,993
Income distributions — Deutsche Central Cash Management Government Fund		42,309
Securities lending income, net of borrower rebates		22,279
Total income		2,813,581
Expenses:
Management fee		1,010,270
Administration fee		155,426
Services to Shareholders		2,120
Record keeping fee (Class B)		19,399
Distribution and service fees (Class B)		42,268
Custodian fee		5,250
Professional fees		70,624
Reports to shareholders		23,191
Trustees’ fees and expenses		10,182
Other		9,906
Total expenses before expense reductions		1,348,636
Expense reductions		(2,161	)
Total expenses after expense reductions		1,346,475
Net investment income		1,467,106
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from investments		18,971,820
Change in net unrealized appreciation (depreciation) on investments		(5,654,443	)
Net gain (loss)		13,317,377
Net increase (decrease) in net assets resulting from operations	$	14,784,483

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 9

Statements of Changes in Net Assets

	Years Ended December 31,
Increase (Decrease) in Net Assets	2017			2016
Operations:
Net investment income (loss)	$	1,467,106		$	1,525,205
Net realized gain (loss)		18,971,820			3,137,095
Change in net unrealized appreciation (depreciation)		(5,654,443	)		19,608,211
Net increase (decrease) in net assets resulting from operations		14,784,483			24,270,511
Distributions to shareholders from:
Net investment income:
Class A		(1,100,828	)		(888,084	)
Class B		(59,126	)		(31,217	)
Net realized gains:
Class A		(3,269,636	)		(15,665,658	)
Class B		(353,505	)		(1,422,898	)
Total distributions		(4,783,095	)		(18,007,857	)
Fund share transactions:
Class A
Proceeds from shares sold		6,806,078			8,157,267
Reinvestment of distributions		4,370,464			16,553,742
Payments for shares redeemed		(77,117,368	)		(37,741,593	)
Net increase (decrease) in net assets from Class A share transactions		(65,940,826	)		(13,030,584	)
Class B
Proceeds from shares sold		4,800,663			2,712,137
Reinvestment of distributions		412,631			1,454,115
Payments for shares redeemed		(3,308,695	)		(3,082,291	)
Net increase (decrease) in net assets from Class B share transactions		1,904,599			1,083,961
Increase (decrease) in net assets		(54,034,839	)		(5,683,969	)
Net assets at beginning of period		168,693,709			174,377,678
Net assets at end of period (including undistributed net investment income of $1,432,026 and $1,465,989, respectively)	$	114,658,870		$	168,693,709
Other Information
Class A
Shares outstanding at beginning of period		9,208,579			10,068,570
Shares sold		399,609			525,679
Shares issued to shareholders in reinvestment of distributions		259,221			1,110,244
Shares redeemed		(4,491,835	)		(2,495,914	)
Net increase (decrease) in Class A shares		(3,833,005	)		(859,991	)
Shares outstanding at end of period		5,375,574			9,208,579
Class B
Shares outstanding at beginning of period		923,852			852,173
Shares sold		283,457			176,025
Shares issued to shareholders in reinvestment of distributions		24,445			97,461
Shares redeemed		(194,571	)		(201,807	)
Net increase (decrease) in Class B shares		113,331			71,679
Shares outstanding at end of period		1,037,183			923,852

The accompanying notes are an integral part of the financial statements.

10 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Financial Highlights

	Years Ended December 31,
Class A	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	16.65		$	15.97		$	17.79		$	17.08		$	12.78
Income (loss) from investment operations:
Net investment incomea		.17			.15			.09			.05			.12
Net realized and unrealized gain (loss)		1.55			2.34			(.31	)		.88			4.35
Total from investment operations		1.72			2.49			(.22	)		.93			4.47
Less distributions from:
Net investment income		(.12	)		(.10	)		(.05	)		(.14	)		(.17	)
Net realized gains		(.37	)		(1.71	)		(1.55	)		(.08	)		—
Total distributions		(.49	)		(1.81	)		(1.60	)		(.22	)		(.17	)
Net asset value, end of period	$	17.88		$	16.65		$	15.97		$	17.79		$	17.08
Total Return (%)		10.52	b		16.89	b		(1.91	)		5.53			35.24
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		96			153			161			205			240
Ratio of expenses before expense reductions (%)c		.83			.83			.80			.82			.82
Ratio of expenses after expense reductions (%)c		.83			.82			.80			.82			.82
Ratio of net investment income (%)		.98			.99			.51			.32			.81
Portfolio turnover rate (%)		35			53			25			34			115

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

	Years Ended December 31,
Class B	2017			2016			2015			2014			2013
Selected Per Share Data
Net asset value, beginning of period	$	16.63		$	15.95		$	17.77		$	17.07		$	12.78
Income (loss) from investment operations:
Net investment incomea		.11			.09			.02			(.01	)		.07
Net realized and unrealized gain (loss)		1.55			2.34			(.29	)		.87			4.34
Total from investment operations		1.66			2.43			(.27	)		.86			4.41
Less distributions from:
Net investment income		(.06	)		(.04	)		—			(.08	)		(.12	)
Net realized gains		(.37	)		(1.71	)		(1.55	)		(.08	)		—
Total distributions		(.43	)		(1.75	)		(1.55	)		(.16	)		(.12	)
Net asset value, end of period	$	17.86		$	16.63		$	15.95		$	17.77		$	17.07
Total Return (%)		10.13	b		16.47	b		(2.21	)		5.09			34.70
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)		19			15			14			17			20
Ratio of expenses before expense reductions (%)c		1.19			1.19			1.16			1.17			1.17
Ratio of expenses after expense reductions (%)c		1.19			1.18			1.16			1.17			1.17
Ratio of net investment income (loss) (%)		.65			.57			.14			(.04	)		.45
Portfolio turnover rate (%)		35			53			25			34			115

^a  Based on average shares outstanding during the period.

^b  Total return would have been lower had certain expenses not been reduced.

^c  Expense ratio does not reflect charges and fees associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

The accompanying notes are an integral part of the financial statements.

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 11

Notes to Financial Statements

A. Organization and Significant Accounting Policies

Deutsche Small Mid Cap Value VIP (the “Fund”) is a diversified series of Deutsche Variable Series II (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.

Multiple Classes of Shares of Beneficial Interest. The Fund offers two classes of shares (Class A shares and Class B shares). Sales of Class B shares are subject to recordkeeping fees up to 0.15% and Rule 12b-1 fees under the 1940 Act equal to an annual rate of 0.25% of the average daily net assets of the Class B shares of the Fund. Class A shares are not subject to such fees.

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class (including the applicable Rule 12b-1 fee and recordkeeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.

The Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) which require the use of management estimates. Actual results could differ from those estimates. The Fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of U.S. GAAP. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.

Equity securities are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities are generally categorized as Level 1.

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund’s valuation procedures, factors considered in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security’s disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company’s or issuer’s financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund’s Investment Portfolio.

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into

12 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Securities Lending. Brown Brothers Harriman & Co., as lending agent, lends securities of the Fund to certain financial institutions under the terms of its securities lending agreement. During the term of the loans, the Fund continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the securities lending agreement. As of period end, any securities on loan were collateralized by cash. During the year ended December 31, 2017 the Fund invested the cash collateral into a joint trading account in affiliated money market funds managed by Deutsche Investment Management Americas Inc. As of December 31, 2017 the Fund invested the cash collateral in Deutsche Government & Agency Securities Portfolio. Deutsche Investment Management Americas Inc. receives a management/administration fee (0.13% annualized effective rate as of December 31, 2017) on the cash collateral invested in Deutsche Government & Agency Securities Portfolio. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan at any time, and the borrower, after notice, is required to return borrowed securities within a standard time period There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

As of December 31, 2017, the Fund had no securities on loan.

Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders.

The Fund has reviewed the tax positions for the open tax years as of December 31, 2017 and has determined that no positions for income tax and/or uncertain tax positions is required in the Fund’s financial statements. The Fund’s federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. 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 income received from Real Estate Investment Trusts and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 13

At December 31, 2017, the Fund’s components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income*	$	1,402,971
Undistributed long-term capital gains	$	18,953,744
Unrealized appreciation (depreciation) on investments	$	21,901,608

At December 31, 2017, the aggregate cost of investments for federal income tax purposes was $92,833,398. The net unrealized appreciation for all investments based on tax cost was $21,901,608. This consisted of aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost of $24,836,354 aggregate gross unrealized depreciation for all investments in which was an excess of tax cost over value of $2,934,746.

In addition, the tax character of distributions paid by the Fund is summarized as follows:

	Years Ended December 31,
	2017		2016
Distributions from ordinary income*	$	1,159,954	$	1,718,093
Distributions from long-term capital gains	$	3,623,141	$	16,289,764

* 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.

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.

Real Estate Investment Trusts. The Fund at its fiscal year end recharacterizes distributions received from a Real Estate Investment Trust (“REIT”) investment based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available timely from a REIT, the recharacterization will be estimated for financial reporting purposes and a recharacterization will be made to the accounting records in the following year when such information becomes available. Distributions received from REITs in excess of income are recorded as either a reduction of cost of investments or realized gains.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments.

B. Purchases and Sales of Securities

During the year ended December 31, 2017 purchases and sales of investment transactions (excluding short-term investments) aggregated $52,632,032 and $114,767,583, respectively.

C. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. (“DIMA” or the “Advisor”), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

14 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Pursuant to the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund’s average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $250 million	.650	%
Next $750 million	.620	%
Next $1.5 billion	.600	%
Next $2.5 billion	.580	%
Next $2.5 billion	.550	%
Next $2.5 billion	.540	%
Next $2.5 billion	.530	%
Over $12.5 billion	.520	%

Accordingly, for the year ended December 31, 2017 the fee pursuant to the Investment Management Agreement was equivalent to an annual rate (exclusive of any applicable waivers/reimbursements) of 0.65% of the Fund’s average daily net assets.

For the period from January 1, 2017 through September 30, 2017, the Advisor had contractually agreed to waive its fees and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of each class as follows:

Class A	.84	%
Class B	1.20	%

Effective October 1, 2017 through September 30, 2018, the Advisor has contractually agreed to waive its fees and/or reimburse certain operating expenses to the extent necessary to maintain the total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) of each class as follows:

Class A	.81	%
Class B	1.16	%

For the year ended December 31, 2017, fees waived and/or expenses reimbursed for each class are as follows:

Class A	$	1,001
Class B		1,160
	$	2,161

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DIMA an annual fee (“Administration Fee”) of 0.10% of the Fund’s average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2017 the Administration Fee was $155,426, of which $9,810 is unpaid.

Service Provider Fees. Deutsche AM Service Company (“DSC”), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DSC and DST Systems, Inc. (“DST”), DSC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DSC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2017 the amounts charged to the Fund by DSC were as follows:

Service to Shareholders	Total Aggregated		Unpaid at December 31, 2017
Class A	$	630	$	157
Class B		462		116
	$	1,092	$	273

Distribution Service Agreement. Under the Fund’s Class B 12b-1 plan, Deutsche AM Distributors, Inc. (“DDI”) received a fee (“Distribution Service Fee”) of 0.25% of average daily net assets of Class B shares.

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 15

For the year ended December 31, 2017 the Distribution Service Fee aggregated $42,268, of which $3,964 is unpaid.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing certain pre-press and regulatory filing services to the Fund. For the year ended December 31, 2017 the amount charged to the Fund by DIMA included in the Statement of Operations under “Reports to shareholders” aggregated $10,154, of which $4,275 is unpaid.

Trustees’ Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Deutsche Central Cash Management Government Fund and Deutsche Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the 1940 Act, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Deutsche Central Cash Management Government Fund seeks to maintain a stable net asset value, and Deutsche Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Deutsche Central Cash Management Government Fund does not pay the Advisor an investment management fee. To the extent that Deutsche Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund’s assets invested in Deutsche Variable NAV Money Fund.

D. Ownership of the Fund

At December 31, 2017 one participating insurance company was owner of record of 10% or more of the total outstanding Class A shares of the Fund, owning 67%. Four participating insurance companies were owners of record of 10% or more of the total outstanding Class B shares of the Fund, each owning 28%, 22%, 18% and 13%.

E. Line of Credit

The Fund and other affiliated funds (the “Participants”) share in a $400 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if the one-month LIBOR exceeds the Federal Funds Rate, the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2017.

16 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Deutsche Variable Series II and the Shareholders of Deutsche Small Mid Cap

Value VIP:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Deutsche Small Mid Cap Value VIP (the “Fund”) (one of the funds constituting the Deutsche Variable Series II) (the “Trust”), including the schedule of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the portfolios constituting the Deutsche Variable Series II) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the auditor of one or more investment companies in the Deutsche family of funds since at least 1979, but we are unable to determine the specific year.

Boston, Massachusetts

February 15, 2018

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 17

Information About Your Fund’s Expenses (Unaudited)

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include contract charges, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2017 to December 31, 2017).

The tables illustrate your Fund’s expenses in two ways:

–Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund’s actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Expenses Paid per $1,000” line under the share class you hold.

–Hypothetical 5% Fund Return. This helps you to compare your Fund’s ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund’s actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The “Expenses Paid per $1,000” line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.

Expenses and Value of a $1,000 Investment for the six months ended December 31, 2017
Actual Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,082.30	$	1,080.50
Expenses Paid per $1,000*	$	4.36	$	6.19
Hypothetical 5% Fund Return		Class A		Class B
Beginning Account Value 7/1/17	$	1,000.00	$	1,000.00
Ending Account Value 12/31/17	$	1,021.02	$	1,019.26
Expenses Paid per $1,000*	$	4.23	$	6.01

* Expenses are equal to the Fund’s annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.

Annualized Expense Ratios	Class A			Class B
Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP		.83	%		1.18	%

For more information, please refer to the Fund’s prospectus.

These tables do not reflect charges and fees (“contract charges”) associated with the separate account that invests in the Fund or any variable life insurance policy or variable annuity contract for which the Fund is an investment option.

For an analysis of the fees associated with an investment in the fund or similar funds, please refer to the current and hypothetical expense calculators for Variable Insurance Products which can be found at deutschefunds.com/EN/resources/calculators.jsp.

18 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Tax Information (Unaudited)

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please contact your insurance provider.

The Fund paid distributions of $0.37 per share from net long-term capital gains during its year ended December 31, 2017.

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $20,892,000 as capital gain dividends for its year ended December 31, 2017.

For corporate shareholders, 100% of the ordinary dividends (i.e., income dividends plus short-term capital gains) paid during the Fund’s fiscal year ended December 31, 2017, qualified for the dividends received deduction.

Proxy Voting

The Trust’s policies and procedures for voting proxies for portfolio securities and information about how the Trust voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 are available on our Web site — deutschefunds.com (click on “proxy voting” at the bottom of the page) — or on the SEC’s Web site — sec.gov. To obtain a written copy of the Trust’s policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 19

Advisory Agreement Board Considerations and Fee Evaluation

The Board of Trustees (hereinafter referred to as the “Board” or “Trustees”) approved the renewal of Deutsche Small Mid Cap Value VIP’s (the “Fund”) investment management agreement (the “Agreement”) with Deutsche Investment Management Americas Inc. (“DIMA”) in September 2017.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

– During the entire process, all of the Fund’s Trustees were independent of DIMA and its affiliates (the “Independent Trustees”).

– The Board met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board’s Contract Committee reviewed extensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund’s performance, fees and expenses, and profitability from a fee consultant retained by the Fund’s Independent Trustees (the “Fee Consultant”). Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Board. The Board then reviewed the Contract Committee’s findings and recommendations.

– The Board also received extensive information throughout the year regarding performance of the Fund.

– The Independent Trustees regularly met privately with counsel to discuss contract review and other matters. In addition, the Independent Trustees were advised by the Fee Consultant in the course of their review of the Fund’s contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.

– In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund’s Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund’s shareholders. DIMA is part of Deutsche Bank AG’s (“Deutsche Bank”) Asset Management (“Deutsche AM”) division. Deutsche AM is a global asset management business that offers a wide range of investing expertise and resources, including research capabilities in many countries throughout the world.

As part of the contract review process, the Board carefully considered the fees and expenses of each Deutsche fund overseen by the Board in light of the fund’s performance. In many cases, this led to the negotiation and implementation of expense caps. As part of these negotiations, the Board indicated that it would consider relaxing these caps in future years following sustained improvements in performance, among other considerations.

While shareholders may focus primarily on fund performance and fees, the Fund’s Board considers these and many other factors, including the quality and integrity of DIMA’s personnel and administrative support services provided by DIMA, such as back-office operations, fund valuations, and compliance policies and procedures.

Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel and the resources made available to such personnel. The Board reviewed the Fund’s performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market index(es) and a peer universe compiled using information supplied by Morningstar Direct (“Morningstar”), an independent fund data service. The Board also noted that it has put into place a process of identifying “Funds in Review” (e.g., funds performing poorly relative to a peer universe), and receives additional reporting from DIMA regarding such funds and, where appropriate, DIMA’s plans to address underperformance. The Board

20 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that, for the one-, three- and five-year periods ended December 31, 2016, the Fund’s performance (Class A shares) was in the 3rd quartile, 4th quartile and 4th quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-, three- and five-year periods ended December 31, 2016. The Board noted the disappointing investment performance of the Fund in some past periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized the efforts by DIMA in recent years to enhance its investment platform and improve long-term performance across the Deutsche fund complex.

Fees and Expenses. The Board considered the Fund’s investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Broadridge Financial Solutions, Inc. (“Broadridge”) and the Fee Consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund’s administrative services agreement, were equal to the median of the applicable Broadridge peer group (based on Broadridge data provided as of December 31, 2016). The Board noted that the Fund’s Class A shares total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Broadridge expense universe (based on Broadridge data provided as of December 31, 2016, and analyzing Broadridge expense universe Class A (net) expenses less any applicable 12b-1 fees) (“Broadridge Universe Expenses”). The Board also reviewed data comparing each share class’s total (net) operating expenses to the applicable Broadridge Universe Expenses. The Board noted that the expense limitations agreed to by DIMA were expected to help the Fund’s total (net) operating expenses remain competitive. The Board considered the Fund’s management fee rate as compared to fees charged by DIMA to a comparable Deutsche U.S. registered fund (“Deutsche Funds”) and considered differences between the Fund and the comparable Deutsche Fund. The information requested by the Board as part of its review of fees and expenses also included information about institutional accounts (including any sub-advised funds and accounts) and funds offered primarily to European investors (“Deutsche Europe funds”) managed by Deutsche AM. The Board noted that DIMA indicated that Deutsche AM does not manage any institutional accounts or Deutsche Europe funds comparable to the Fund.

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs to DIMA, and pre-tax profits realized by DIMA, from advising the Deutsche Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of DIMA and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant reviewed DIMA’s methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed certain publicly available information regarding the profitability of certain similar investment management firms. The Board noted that, while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates’ overall profitability with respect to the Deutsche Funds (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of most comparable firms for which such data was available.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund’s investment management fee schedule includes fee breakpoints. The Board concluded that the Fund’s fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.

Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund, any fees received by an affiliate of DIMA for transfer agency services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 21

benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities. In addition, the Board considered the incidental public relations benefits to DIMA related to Deutsche Funds advertising and cross-selling opportunities among DIMA products and services. The Board considered these benefits in reaching its conclusion that the Fund’s management fees were reasonable.

Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience, seniority and time commitment of the individuals serving as DIMA’s and the Fund’s chief compliance officers; (ii) the large number of DIMA compliance personnel; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board unanimously determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination, the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and counsel present. It is possible that individual Independent Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

22 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Fund. Each Board Member’s year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the Fund. Because the Fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Keith R. Fox, CFA (1954) Chairperson since 2017, and Board Member since 1996	Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011–2012)		89	—
Kenneth C. Froewiss (1945) Vice Chairperson since 2017, and Board Member since 2001	Retired Clinical Professor of Finance, NYU Stern School of Business (1997–2014); Member, Finance Committee, Association for Asian Studies (2002–present); Director, Mitsui Sumitomo Insurance Group (US) (2004–present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)		92	—
John W. Ballantine (1946) Board Member since 1999	Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996–1998); Executive Vice President and Head of International Banking (1995–1996); former Directorships: Director and former Chairman of the Board, Healthways, Inc.2 (population well-being and wellness services) (2003–2014); Stockwell Capital Investments PLC (private equity); Enron Corporation; FNB Corporation; Tokheim Corporation; First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International. Not-for-Profit Director, Trustee: Palm Beach Civic Association; Public Radio International; Window to the World Communications (public media); Harris Theater for Music and Dance (Chicago)		89	Portland General Electric2 (utility company) (2003– present)
Henry P. Becton, Jr. (1943) Board Member since 1990	Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The Pew Charitable Trusts (charitable organization); former Directorships: Becton Dickinson and Company2 (medical technology company); Belo Corporation2 (media company); The PBS Foundation; Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College; North Bennett Street School (Boston)		89	—
Dawn-Marie Driscoll (1946) Board Member since 1987	Emeritus Executive Fellow, Center for Business Ethics, Bentley University; formerly: President, Driscoll Associates (consulting firm); Partner, Palmer & Dodge (law firm) (1988–1990); Vice President of Corporate Affairs and General Counsel, Filene’s (retail) (1978–1988). Directorships: Advisory Board, Center for Business Ethics, Bentley University; Trustee and former Chairman of the Board, Southwest Florida Community Foundation (charitable organization); former Directorships: ICI Mutual Insurance Company (2007–2015); Sun Capital Advisers Trust (mutual funds) (2007–2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)		89	—

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 23

Name, Year of Birth, Position with the Fund and Length of Time Served1	Business Experience and Directorships During the Past Five Years	Number of Funds in Deutsche Fund Complex Overseen		Other Directorships Held by Board Member
Paul K. Freeman (1950) Board Member since 1993	Consultant, World Bank/Inter-American Development Bank; Independent Directors Council (former chair); Investment Company Institute (executive and nominating committees); formerly: Chairman of Education Committee of Independent Directors Council; Project Leader, International Institute for Applied Systems Analysis (1998–2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986–1998); Directorships: Denver Zoo Foundation (December 2012–present); Knoebel Institute for Healthy Aging, University of Denver (2017–present); former Directorships: Prisma Energy International		89	—
Richard J. Herring (1946) Board Member since 1990	Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995–June 2000); Director, Lauder Institute of International Management Studies (July 2000–June 2006)		89	Director, Aberdeen Singapore and Japan Funds (since 2007); Independent Director of Barclays Bank Delaware (since September 2010)
William McClayton (1944) Board Member since 2004	Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001–2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966–2001); Trustee, Ravinia Festival		89	—
Rebecca W. Rimel (1951) Board Member since 1995	President, Chief Executive Officer and Director, The Pew Charitable Trusts (charitable organization) (1994–present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983–2004); Board Member, Investor Education (charitable organization) (2004–2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001–2007); Director, Viasys Health Care2 (January 2007–June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994–2012)		89	Director, Becton Dickinson and Company2 (medical technology company) (2012– present); Director, BioTelemetry Inc2 (health care) (2009– present)
William N. Searcy, Jr. (1946) Board Member since 1993	Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989–September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998–2012)		89	—
Jean Gleason Stromberg (1943) Board Member since 1997	Retired. Formerly, Consultant (1997–2001); Director, Financial Markets U.S. Government Accountability Office (1996–1997); Partner, Norton Rose Fulbright, L.L.P. (law firm) (1978–1996); former Directorships: The William and Flora Hewlett Foundation (charitable organization) (2000–2015); Service Source, Inc. (nonprofit), Mutual Fund Directors Forum (2002–2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987–1990 and 1994–1996)		89	—

24 | Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP

Officers4
Name, Year of Birth, Position with the Fund and Length of Time Served5	Business Experience and Directorships During the Past Five Years
Hepsen Uzcan6,9 (1974) President and Chief Executive Officer, 2017–present Assistant Secretary, 2013–present	Director,3 Deutsche Asset Management; formerly: Vice President for the Deutsche funds (2016–2017)
John Millette8 (1962) Vice President and Secretary, 1999–present	Director,3 Deutsche Asset Management; Chief Legal Officer, Deutsche Investment Management Americas Inc. (2015–present); and Director and Vice President, Deutsche AM Trust Company (since 2016); formerly: Secretary, Deutsche Investment Management Americas Inc. (2015–2017)
Paul H. Schubert6 (1963) Chief Financial Officer, 2004–present Treasurer, 2005–present	Managing Director,3 Deutsche Asset Management, and Chairman, Director and President, Deutsche AM Trust Company (since 2013); Vice President, Deutsche AM Distributors, Inc. (since 2016); Director, Deutsche AM Service Company (since 2017); Director and President, DB Investment Managers, Inc. (since 2017); formerly: Director, Deutsche AM Trust Company (2004–2013)
Caroline Pearson8 (1962) Chief Legal Officer, 2010–present	Managing Director,3 Deutsche Asset Management; formerly: Secretary, Deutsche AM Distributors, Inc.; and Secretary, Deutsche AM Service Company
Scott D. Hogan8 (1970) Chief Compliance Officer, 2016–present	Director,3 Deutsche Asset Management
Wayne Salit7 (1967) Anti-Money Laundering Compliance Officer, 2014–present	Director,3 Deutsche Asset Management; formerly: Managing Director, AML Compliance Officer at BNY Mellon (2011–2014); and Director, AML Compliance Officer at Deutsche Bank (2004–2011)
Sheila Cadogan8 (1966) Assistant Treasurer, since July 12, 2017	Director,3 Deutsche Asset Management
Paul Antosca8 (1957) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management
Diane Kenneally8 (1966) Assistant Treasurer, 2007–present	Director,3 Deutsche Asset Management

¹  The length of time served represents the year in which the Board Member joined the board of one or more Deutsche funds currently overseen by the Board.

²  A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

³  Executive title, not a board directorship.

⁴  As a result of their respective positions held with the Advisor, these individuals are considered “interested persons” of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the Fund.

⁵  The length of time served represents the year in which the officer was first elected in such capacity for one or more Deutsche funds.

⁶  Address: 345 Park Avenue, New York, NY 10154.

⁷  Address: 60 Wall Street, New York, NY 10005.

⁸  Address: One International Place, Boston, MA 02110.

⁹  Appointed President and Chief Executive Officer effective December 1, 2017.

The Fund’s Statement of Additional Information (“SAI”) includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 728-3337.

Deutsche Variable Series II — Deutsche Small Mid Cap Value VIP | 25

VS2SMCV-2 (R-025829-7 2/18)

ITEM 2.	CODE OF ETHICS
	As of the end of the period covered by this report, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR that applies to its Principal Executive Officer and Principal Financial Officer. There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2. A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3.	AUDIT COMMITTEE FINANCIAL EXPERT
	The fund’s audit committee is comprised solely of trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The fund’s Board of Trustees has determined that there are several "audit committee financial experts" (as such term has been defined by the Regulations) serving on the fund’s audit committee including Mr. Paul K. Freeman, the chair of the fund’s audit committee. An “audit committee financial expert” is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and the designation or identification of a person as an “audit committee financial expert” does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.
ITEM 4.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

deutsche variable series II
form n-csr disclosure re: AUDIT FEES

The following table shows the amount of fees that Ernst & Young LLP (“EY”), the Fund’s Independent Registered Public Accounting Firm, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that EY provided to the Fund.

Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Fund

Fiscal Year Ended December 31,	Audit Fees Billed to Fund	Audit-Related Fees Billed to Fund	Tax Fees Billed to Fund	All Other Fees Billed to Fund
2017	$631,691	$0	$71,822	$0
2016	$644,583	$0	$73,288	$0

The above “Tax Fees” were billed for professional services rendered for tax return preparation.

Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers

The following table shows the amount of fees billed by EY to Deutsche Investment Management Americas, Inc. (“DIMA” or the “Adviser”), and any entity controlling, controlled by or under common control with DIMA (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.

Fiscal Year Ended December 31,	Audit-Related Fees Billed to Adviser and Affiliated Fund Service Providers	Tax Fees Billed to Adviser and Affiliated Fund Service Providers	All Other Fees Billed to Adviser and Affiliated Fund Service Providers
2017	$0	$502,238	$0
2016	$0	$449,529	$0

The above “Tax Fees” were billed in connection with tax compliance services and agreed upon procedures. All other engagement fees were billed for services in connection with agreed upon procedures for DIMA and other related entities.

Non-Audit Services

The following table shows the amount of fees that EY billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that EY provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from EY about any non-audit services that EY rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating EY’s independence.

Fiscal Year Ended December 31,	Total Non-Audit Fees Billed to Fund (A)	Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) (B)	Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C)	Total of (A), (B) and (C)
2017	$71,822	$502,238	$606,585	$1,180,645
2016	$73,288	$449,529	$595,469	$1,118,286

All other engagement fees were billed for services in connection with agreed upon procedures and tax compliance for DIMA and other related entities.

Audit Committee Pre-Approval Policies and Procedures. Generally, each Fund’s Audit Committee must pre approve (i) all services to be performed for a Fund by a Fund’s Independent Registered Public Accounting Firm and (ii) all non-audit services to be performed by a Fund’s Independent Registered Public Accounting Firm for the DIMA Entities with respect to operations and financial reporting of the Fund, except that the Chairperson or Vice Chairperson of each Fund’s Audit Committee may grant the pre-approval for non-audit services described in items (i) and (ii) above for non-prohibited services for engagements of less than $100,000. All such delegated pre approvals shall be presented to each Fund’s Audit Committee no later than the next Audit Committee meeting.

There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.

According to the registrant’s principal Independent Registered Public Accounting Firm, substantially all of the principal Independent Registered Public Accounting Firm's hours spent on auditing the registrant's financial statements were attributed to work performed by full-time permanent employees of the principal Independent Registered Public Accounting Firm.

***

In connection with the audit of the 2016 financial statements, the Fund entered into an engagement letter with EY. The terms of the engagement letter required by EY, and agreed to by the Audit Committee, included provisions in which the parties consent to the sole jurisdiction of federal courts in New York, Boston or the Northern District of Illinois, as well as a waiver of right to a trial by jury.

In connection with the audit of the 2017 financial statements, the Fund entered into an engagement letter with EY. The terms of the engagement letter required by EY, and agreed to by the Audit Committee, include a provision mandating the use of mediation and arbitration to resolve any controversy or claim between the parties arising out of or relating to the engagement letter or services provided thereunder.

***

1.)       In various communications beginning on April 20, 2016, EY advised the Fund’s Audit Committee that EY had identified the following matters that it determined to be inconsistent with the SEC’s auditor independence rules.

· EY advised the Fund’s Audit Committee of financial relationships held by covered persons within EY and its affiliates that were in violation of the Rule 2-01(c)(1) of Regulation S-X. EY advised the Audit Committee that after consideration of the facts and circumstances and the applicable independence rules, EY concluded that the independence breaches did not and do not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements of the Fund and that a reasonable investor would reach the same conclusion. In assessing this matter, EY indicated that upon detection the breaches were corrected promptly and that none of the breaches (i) related to financial relationships directly in the Fund, (ii) involved professionals who were part of the audit engagement team for the Fund or in a position to influence the audit engagement team, or (iii) were for services directly for the Fund.

· EY advised the Fund’s Audit Committee that, in 2016, a pension plan for the Ernst & Young Global Limited (“EYG”) member firm in Germany (“EY Germany”), through one of its investment advisors, purchased an investment in an entity that may be deemed to be under common control with the Fund. EY informed the Audit Committee that this investment was inconsistent with Rule 2-01(c)(1)(i) of Regulation S-X. EY advised the Audit Committee that in assessing the impact of the independence breach, in fact and appearance, EY considered all relevant facts and circumstances to assess whether a reasonable investor would conclude that EY was and is capable of exercising objective and impartial judgment on all issues encompassed within the audit engagement. EY advised the Audit Committee that after consideration of the facts and circumstances and the applicable independence rules, EY concluded that the independence breach did not and does not impair EY’s ability to exercise objective and impartial judgment in connection with the audit of the financial statements of the Fund and that a reasonable investor would reach the same conclusion. In reaching this conclusion, EY noted a number of factors, including that the purchase was by EY Germany’s investment advisor without EY Germany’s permission, authorization or knowledge and EY Germany instructed its investment advisor to sell the shares of the entity that may be deemed to be under common control with the Fund immediately upon detection of the purchase and the breach did not involve any professionals who were part of the audit engagement team for the Fund or in a position to influence the audit engagement team. In addition, EY noted that the independence breach did not (i) create a mutual or conflicting interest with the Fund, (ii) place EY in the position of auditing its own work, (iii) result in EY acting as management or an employee of the Fund, or (iv) place EY in a position of being an advocate of the Fund.

· EY advised the Fund’s Audit Committee that, in 2014, the EYG member firm in Spain (“EY Spain”) completed an acquisition of a small consulting firm that had a deposit account with an overdraft line of credit at the time of the acquisition with Deutsche Bank SA Espanola, which EY Spain acquired. EY informed the Audit Committee that having this line of credit with an entity that may be deemed to be under common control with the Fund was inconsistent with Rule 2-01(c)(1)(ii) of Regulation S-X. EY advised the Audit Committee that in assessing the impact of the independence breach, in fact and appearance, EY considered all relevant facts and circumstances to assess whether a reasonable investor would conclude that EY was and is capable of exercising objective and impartial judgment on all issues encompassed within the audit engagements. EY advised the Audit Committee that after consideration of the facts and circumstances and the applicable independence rules, EY concluded that the independence breach did not and does not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements of the Fund and that a reasonable investor would reach the same conclusion. In reaching this conclusion, EY noted a number of factors, including that that the credit line was terminated and the breach did not involve any professionals who were part of the audit engagement team for the Fund or in a position to influence the audit engagement team. In addition, EY noted that the independence breach did not (i) create a mutual or conflicting interest with the Fund, (ii) place EY in the position of auditing its own work, (iii) result in EY acting as management or an employee of the Fund, or (iv) place EY in a position of being an advocate of the Fund.

EY advised the Audit Committee that the above described matters, individually and in the aggregate, do not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements for the Fund and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY has been and is capable of objective and impartial judgment on all issues encompassed within EY’s audit engagements, and that EY can continue to act as the Independent Registered Public Accounting Firm.

Management and the Audit Committee considered these matters and, based solely upon EY’s description of the facts and the representations made by EY, believe that (1) these matters did not impact EY’s application of objective and impartial judgment with respect to all issues encompassed within EY’s audit engagements; and (2) a reasonable investor with knowledge of all relevant facts and circumstances would reach the same conclusion.

2.)       In various communications beginning on June 27, 2016, EY also informed the Audit Committee that EY had identified independence breaches where EY and covered persons maintain lending relationships with owners of greater than 10% of the shares of certain investment companies within the “investment company complex” as defined under Rule 2-01(f)(14) of Regulation S-X. EY informed the Audit Committee that these lending relationships are inconsistent with Rule 2-01(c)(l)(ii)(A) of Regulation S-X (referred to as the “Loan Rule”).

The Loan Rule specifically provides that an accounting firm would not be independent if it receives a loan from a lender that is a record or beneficial owner of more than ten percent of an audit client’s equity securities. For purposes of the Loan Rule, audit clients include the Fund as well as all registered investment companies advised by the Deutsche Investment Management Americas Inc. (the “Adviser”), the Fund’s investment adviser, and its affiliates, including other subsidiaries of the Adviser’s parent company, Deutsche Bank AG (collectively, the “Deutsche Funds Complex”). EY’s lending relationships affect EY’s independence under the Loan Rule with respect to all investment companies in the Deutsche Funds Complex.

EY informed the Audit Committee that, after evaluating the facts and circumstances and the applicable independence rules, EY has concluded that the lending relationships described above do not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements for the Fund and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY has been and is capable of objective and impartial judgment on all issues encompassed within EY’s audit engagements. EY informed the Audit Committee that its conclusion was based on a number of factors, including, among others, EY’s belief that the lenders are not able to impact the impartiality of EY or assert any influence over the investment companies in the Deutsche Funds Complex whose shares the lenders own or the applicable investment company’s investment adviser. In addition, the individuals at EY who arranged EY’s lending relationships have no oversight of, or ability to influence, the individuals at EY who conducted the audits of the Fund’s financial statements.

On June 20, 2016, the SEC Staff issued a “no-action” letter to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter) related to similar Loan Rule issues as those described above. In that letter, the SEC Staff confirmed that it would not recommend enforcement action against an investment company that relied on the audit services performed by an audit firm that was not in compliance with the Loan Rule in certain specified circumstances. The circumstances described in the no-action letter appear to be substantially similar to the circumstances that effected EY’s independence under the Loan Rule with respect to the Fund. EY confirmed to the Audit Committee that it meets the conditions of the no-action letter.

3.)       In various communications beginning on January 25, 2017, EY advised the Fund’s Audit Committee that EY had identified the following matters that it determined to be inconsistent with the SEC’s auditor independence rules.

· EY advised the Fund’s Audit Committee of financial relationships held by covered persons within EY and its affiliates that were in violation of the Rule 2-01(c)(1) of Regulation S-X. EY advised the Audit Committee that after consideration of the facts and circumstances and the applicable independence rules, EY concluded that the independence breaches do not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements of the Fund and that a reasonable investor would reach the same conclusion. In assessing this matter, EY indicated that upon detection the breaches were corrected promptly and that none of the breaches (i) related to financial relationships directly in the Fund, (ii) involved professionals who were part of the audit engagement team for the Fund or in a position to influence the audit engagement team, or (iii) were for services directly for the Fund.

· EY advised the Fund’s Audit Committee that, in 2015, the Ernst & Young Global Limited (“EYG”) member firm in Spain (“EY Spain”) provided a loaned staff service to Deutsche Bank AG, where a manager from EY Spain analyzed investment opportunities in Spain under the supervision of Deutsche Bank AG personnel. EY informed the Audit Committee that this loaned staff service where the EY professional temporarily acted as an employee of Deutsche Bank AG was inconsistent with Rule 2-01(c)(4)(vi) of Regulation S-X. EY advised the Audit Committee that in assessing the impact of the independence breach, in fact and appearance, EY considered all relevant facts and circumstances to assess whether a reasonable investor would conclude that EY was and is capable of exercising objective and impartial judgment on all issues encompassed within the audit engagements. EY advised the Audit Committee that after consideration of the facts and circumstances and the applicable independence rules, EY concluded that the independence breach did not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements of the Fund and that a reasonable investor would reach the same conclusion. In reaching this conclusion, EY noted a number of factors, including that the breach did not involve any professionals who were part of the audit engagement team for the Fund or in a position to influence the audit engagement team and did not involve services provided directly for the Fund. In addition, EY noted that the independence breach did not (i) create a mutual or conflicting interest with the Fund, (ii) place EY in the position of auditing its own work, (iii) result in EY acting as management or an employee of the Fund, or (iv) place EY in a position of being an advocate of the Fund.

EY advised the Audit Committee that the above described matters, individually and in the aggregate, do not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements for the Fund and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY has been and is capable of objective and impartial judgment on all issues encompassed within EY’s audit engagements, and that EY can continue to act as the Independent Registered Public Accounting Firm.

4.)       In various communications beginning on January 25, 2017, EY informed the Audit Committee that EY had identified an independence breach where a covered person maintains a lending relationship with an owner of greater than 10% of the shares of certain investment companies within the “investment company complex” as defined under Rule 2-01(f)(14) of Regulation S-X. EY informed the Audit Committee that this lending relationship is inconsistent with Rule 2-01(c)(l)(ii)(A) of Regulation S-X (referred to as the “Loan Rule”).

The Loan Rule specifically provides that an accounting firm would not be independent if it receives a loan from a lender that is a record or beneficial owner of more than ten percent of an audit client’s equity securities. For purposes of the Loan Rule, audit clients include the Fund as well as all registered investment companies advised by the Deutsche Investment Management Americas Inc. (the “Adviser”), the Fund’s investment adviser, and its affiliates, including other subsidiaries of the Adviser’s parent company, Deutsche Bank AG (collectively, the “Deutsche Funds Complex”). The covered person’s lending relationship affects EY’s independence under the Loan Rule with respect to all investment companies in the Deutsche Funds Complex.

EY informed the Audit Committee that, after evaluating the facts and circumstances and the applicable independence rules, EY has concluded that the lending relationship described above does not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements for the Fund and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY has been and is capable of objective and impartial judgment on all issues encompassed within EY’s audit engagements. EY informed the Audit Committee that its conclusion was based on a number of factors, including, among others, EY’s belief that the lender is not able to impact the impartiality of EY or assert any influence over the investment companies in the Deutsche Funds Complex whose shares the lenders own or the applicable investment company’s investment adviser.

On June 20, 2016, the SEC Staff issued a “no-action” letter to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter) related to similar Loan Rule issues as those described above. In that letter, the SEC Staff confirmed that it would not recommend enforcement action against an investment company that relied on the audit services performed by an audit firm that was not in compliance with the Loan Rule in certain specified circumstances. The circumstances described in the no-action letter appear to be substantially similar to the circumstances that effected EY’s independence under the Loan Rule with respect to the Fund. EY confirmed to the Audit Committee that it meets the conditions of the no-action letter.

5.)       On July 11, 2017, EY advised the Fund’s Audit Committee that EY had identified the following matters that it determined to be inconsistent with the SEC’s auditor independence rules.

· EY advised the Fund’s Audit Committee of financial relationships held by covered persons within EY and its affiliates that were in violation of Rule 2-01(c)(1) of Regulation S-X. EY advised the Audit Committee that after consideration of the facts and circumstances and the applicable independence rules, EY concluded that the independence breaches do not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements of the Fund and that a reasonable investor would reach the same conclusion. In assessing this matter, EY indicated that upon detection the breaches were corrected promptly and that none of the breaches (i) related to financial relationships directly in the Fund, (ii) involved professionals who were part of the audit engagement team for the Fund or in a position to influence the audit engagement team, or (iii) were for services directly for the Fund.

EY advised the Audit Committee that the above described matters, individually and in the aggregate, do not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements for the Fund and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY has been and is capable of objective and impartial judgment on all issues encompassed within EY’s audit engagements, and that EY can continue to act as the Independent Registered Public Accounting Firm.

6.)       On July 11, 2017, EY informed the Audit Committee that EY had identified an independence breach where EY maintains a lending relationship with an entity that owned for a period of time greater than 10% of the shares of an investment company within the “investment company complex” as defined under Rule 2-01(f)(14) of Regulation S-X. EY informed the Audit Committee that this lending relationship was inconsistent with Rule 2-01(c)(l)(ii)(A) of Regulation S-X (referred to as the “Loan Rule”).

The Loan Rule specifically provides that an accounting firm would not be independent if it receives a loan from a lender that is a record or beneficial owner of more than ten percent of an audit client’s equity securities. For purposes of the Loan Rule, audit clients include the Fund as well as all registered investment companies advised by the Deutsche Investment Management Americas Inc. (the “Adviser”), the Fund’s investment adviser, and its affiliates, including other subsidiaries of the Adviser’s parent company, Deutsche Bank AG (collectively, the “Deutsche Funds Complex”). EY’s lending relationship affects EY’s independence under the Loan Rule with respect to all investment companies in the Deutsche Funds Complex.

EY informed the Audit Committee that, after evaluating the facts and circumstances and the applicable independence rules, EY has concluded that the lending relationship described above did not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements for the Fund and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY has been and is capable of objective and impartial judgment on all issues encompassed within EY’s audit engagements. EY informed the Audit Committee that its conclusion was based on a number of factors, including, among others, EY’s belief that the lender is not able to impact the impartiality of EY and was not able to assert any influence over the investment company in the Deutsche Funds Complex whose shares the lender owned or the applicable investment company’s investment adviser.

On June 20, 2016, the SEC Staff issued a “no-action” letter to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter) related to similar Loan Rule issues as those described above. In that letter, the SEC Staff confirmed that it would not recommend enforcement action against an investment company that relied on the audit services performed by an audit firm that was not in compliance with the Loan Rule in certain specified circumstances. The circumstances described in the no-action letter appear to be substantially similar to the circumstances that effected EY’s independence under the Loan Rule with respect to the Fund. EY confirmed to the Audit Committee that it meets the conditions of the no-action letter.

7.)       On October 24, 2017, EY advised the Fund’s Audit Committee that EY had identified the following matter that it determined to be inconsistent with the SEC’s auditor independence rules.

· EY advised the Fund’s Audit Committee of a financial relationship held by a covered person within EY and its affiliates that was in violation of Rule 2-01(c)(1) of Regulation S-X. EY advised the Audit Committee that after consideration of the facts and circumstances and the applicable independence rules, EY concluded that the independence breach did not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements of the Fund and that a reasonable investor would reach the same conclusion. In assessing this matter, EY indicated that upon detection the breach was corrected promptly and that the breach (i) did not relate to financial relationships directly in the Fund, (ii) did not involve professionals who were part of the audit engagement team for the Fund or in a position to influence the audit engagement team, and (iii) were not for services directly for the Fund.

EY advised the Audit Committee that the above described matter did not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements for the Fund and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY has been and is capable of objective and impartial judgment on all issues encompassed within EY’s audit engagements, and that EY can continue to act as the Independent Registered Public Accounting Firm.

8.)       On October 24, 2017, EY informed the Audit Committee that EY had identified independence breaches where EY maintains lending relationships with entities that own greater than 10% of the shares of certain investment companies within the “investment company complex” as defined under Rule 2-01(f)(14) of Regulation S-X. EY informed the Audit Committee that these lending relationships were inconsistent with Rule 2-01(c)(l)(ii)(A) of Regulation S-X (referred to as the “Loan Rule”).

The Loan Rule specifically provides that an accounting firm would not be independent if it receives a loan from a lender that is a record or beneficial owner of more than ten percent of an audit client’s equity securities. For purposes of the Loan Rule, audit clients include the Fund as well as all registered investment companies advised by the Deutsche Investment Management Americas Inc. (the “Adviser”), the Fund’s investment adviser, and its affiliates, including other subsidiaries of the Adviser’s parent company, Deutsche Bank AG (collectively, the “Deutsche Funds Complex”). EY’s lending relationships affect EY’s independence under the Loan Rule with respect to all investment companies in the Deutsche Funds Complex.

EY informed the Audit Committee that, after evaluating the facts and circumstances and the applicable independence rules, EY has concluded that the lending relationships described above do not and will not impair EY’s ability to exercise objective and impartial judgment in connection with the audits of the financial statements for the Fund and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY has been and is capable of objective and impartial judgment on all issues encompassed within EY’s audit engagements. EY informed the Audit Committee that its conclusion was based on a number of factors, including, among others, EY’s belief that the lenders are not able to impact the impartiality of EY or assert any influence over the investment company in the Deutsche Funds Complex whose shares the lender owned or the applicable investment company’s investment adviser.

On June 20, 2016, the SEC Staff issued a “no-action” letter to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter) related to similar Loan Rule issues as those described above. In that letter, the SEC Staff confirmed that it would not recommend enforcement action against an investment company that relied on the audit services performed by an audit firm that was not in compliance with the Loan Rule in certain specified circumstances. The circumstances described in the no-action letter appear to be substantially similar to the circumstances that effected EY’s independence under the Loan Rule with respect to the Fund. EY confirmed to the Audit Committee that it meets the conditions of the no-action letter.

ITEM 5.	AUDIT COMMITTEE OF LISTED REGISTRANTS
	Not applicable
ITEM 6.	SCHEDULE OF INVESTMENTS
	Not applicable
ITEM 7.	DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
	Not applicable
ITEM 8.	PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
	Not applicable
ITEM 9.	PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS
	Not applicable
ITEM 10.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	There were no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board.  The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Keith R. Fox, Deutsche Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600.
ITEM 11.	CONTROLS AND PROCEDURES
	(a)	The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
	(b)	There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.
ITEM 12.	Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
	Not applicable
ITEM 13.	EXHIBITS
	(a)(1)	Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH.
	(a)(2)	Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.
	(b)	Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant:	Deutsche Variable Series II
By:	/s/Hepsen Uzcan Hepsen Uzcan President
Date:	2/15/2018

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/Hepsen Uzcan Hepsen Uzcan President
Date:	2/15/2018
By:	/s/Paul Schubert Paul Schubert Chief Financial Officer and Treasurer
Date:	2/15/2018