Goldman Sachs Variable Insurance Trust. Goldman Sachs Global Trends Allocation Fund

Transcription

1 Goldman Sachs Variable Insurance Trust Goldman Sachs Global Trends Allocation Fund Semi-Annual Report June 30, 2017

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3 INVESTMENT OBJECTIVE The Fund seeks total return while seeking to provide volatility management. Portfolio Management Discussion and Analysis Below, the Goldman Sachs Quantitative Investment Strategies Team discusses the Goldman Sachs Variable Insurance Trust Goldman Sachs Global Trends Allocation Fund s (the Fund ) performance and positioning for the six-month period ended June 30, 2017 (the Reporting Period ). How did the Fund perform during the Reporting Period? During the Reporting Period, the Fund s Institutional and Service Shares generated cumulative total returns of 5.65% and 5.48%, respectively. These returns compare to the 7.45% cumulative total return of the Fund s benchmark, the Global Trends Allocation Composite Index (the Index ), during the same time period. The components of the Fund s benchmark, the MSCI World Index (60%) and the Bloomberg Barclays U.S. Aggregate Bond Index (40%), generated cumulative total returns of 11.02% and 2.27%, respectively, during the same time period. Importantly, during the Reporting Period, the Fund s overall annualized volatility was 5.49%, less than the S&P 500 Index s annualized volatility of 6.96% during the same time period. What economic and market factors most influenced the Fund during the Reporting Period? As the Reporting Period began in January 2017, global equities rallied on the prospect of deregulation in the U.S. following Presidential executive orders on oil pipelines and further optimism around potential infrastructure spending. International equity markets subsequently retreated on political uncertainty and protectionism concerns, though U.S. stocks continued to advance. In February 2017, global equities were buoyed by risk on sentiment, or reduced risk aversion, owing to potential U.S. tax reform and deregulation as well as by stronger economic data. In March 2017, the U.S. Federal Reserve ( Fed ) raised interest rates for the third time since the global financial crisis, while maintaining projections for three rate hikes this year. However, a seemingly cautious stance on the future path of monetary tightening from the Fed Chair and the presence of a dissenter on the policy committee led to a dovish market reaction and to Japanese yen appreciation, despite the Bank of Japan ( BoJ ) maintaining its policy rate. (Dovish tends to suggest lower interest rates; opposite of hawkish.) Political risks subsequently drove U.S. equities lower in the wake of House Republicans struggle to schedule a vote on health care. Outside the U.S., the European Central Bank ( ECB ) kept its policy unchanged at its March 2017 meeting but revised its growth and inflation forecasts upwards. Markets interpreted the positive economic assessment as hawkish, sparking concerns around the sequencing of the ECB s policy steps namely, whether rates will rise before quantitative easing ends. In the second quarter of 2017, global equities posted gains. Strong first quarter 2017 corporate earnings results, with double-digit growth across virtually all major developed market regions, and receding political risk after the centrist candidate s win in the French election supported global equity markets. However, market expectations for pro-growth U.S. fiscal policy were dampened by domestic political developments. The U.S. labor market remained strong, but economic activity and inflation data appeared to be moderating. Core inflation softened to 1.7% year-over-year in May 2017, marking a third consecutive month of weakness, while core personal consumption expenditures remained below the Fed s 2% target at just 1.4% year-over-year. Nonetheless, the Fed proceeded to raise the targeted federal funds rate by 25 basis points in June 2017, citing ongoing strength in the labor market and a pick-up in household spending and business fixed investment. (A basis point is 1/100th of a percentage point.) Also in June, European markets reacted hawkishly to the ECB president s sanguine outlook for recovering inflation and cautious reference to tapering of asset purchases. Japanese equities saw a temporary pullback in June 2017, as market sentiment deteriorated and as the Japanese yen strengthened immediately after the Fed interest rate hike, but quickly rebounded. In terms of fixed income, when the Reporting Period started, spread (or non-government bond) sectors generally posted gains. Investors focused on the prospect of pro-growth policies from the new U.S. Administration, which helped boost business and consumer sentiment to near record levels. Investors also evaluated the positive impact of earlier fiscal stimulus in China. Global purchasing managers indices pointed to solid and synchronized global expansion, led by developed markets, most notably the U.S. In Europe, economic data strengthened and political risk remained contained, as markets weathered the official start of Brexit negotiations. (Brexit refers to the U.K. s efforts to exit the European Union.) The far right lost to centrists in the Netherlands election. In France, polls reflected a relatively low chance of victory for the far-right candidate in the country s then-upcoming presidential vote. Monetary policy presented few surprises during the first calendar quarter, as the ECB, BoJ and Bank of England ( BoE ) kept their respective monetary policies unchanged. In March 2017, the ECB raised its economic growth and inflation 1

4 forecasts, while the Fed raised its target range for the federal funds rate. Minutes from the meeting raised expectations that Fed balance sheet normalization would begin in Despite the Fed s monetary policy tightening, the U.S. dollar weakened versus both developed and emerging markets currencies during the first calendar quarter. In the second quarter of 2017, spread sectors overall recorded positive returns. Political developments led to temporary bouts of volatility early in the quarter, driving weakness in Brazilian, U.S. and U.K. fixed income assets as well as a credit rating downgrade of South Africa s sovereign debt. Political risks receded in May 2017 on the centrist candidate s victory in the French presidential election, which was supportive of French bonds and the bonds of European peripheral countries broadly. On the economic front, weakness in U.S. core inflation cast uncertainty over the pace of Fed monetary tightening. Nonetheless, comments included in minutes from the Fed s May and June 2017 policy meetings suggested an announcement about how and when the Fed would begin reducing the size of its balance sheet would be made sooner than the markets had previously anticipated. In Europe, economic data continued to surprise to the upside. At its June 2017 policy meeting, the ECB provided an optimistic assessment of the risks to growth but revised downward its medium-term inflation forecasts. The ECB, BoJ and BoE left their respective monetary policies unchanged during the second calendar quarter, while the Fed raised interest rates for the second time in 2017 and for the fourth time in a decade at its June 2017 policy meeting. As the quarter came to an end, a string of hawkish comments from central bankers drove global interest rates up, as the market anticipated a faster than expected pace of monetary policy tightening by the BoE, ECB and Bank of Canada. During the second quarter of 2017, the U.S. dollar continued to weaken versus many global currencies. What key factors were responsible for the Fund s performance during the Reporting Period? The Fund primarily seeks to achieve its investment objective by investing in a global portfolio of equity and fixed income asset classes. Under normal market conditions, the Fund expects to invest at least 40% of its assets in equity investments and at least 20% of its assets in fixed income investments. The percentage of the Fund s portfolio exposed to any asset class or geographic region will vary from time to time as the weightings of the Fund change, and the Fund may not be invested in each asset class at all times. As part of the Fund s investment strategy, the Investment Adviser seeks to manage volatility and limit losses by allocating the Fund s assets away from risky investments in distressed or volatile market environments. Volatility is a statistical measurement of the magnitude of up and down fluctuations in the value of a financial instrument or index. In distressed or volatile market environments, the Fund may also hold significant amounts of U.S. Treasury, short-term or other fixed income investments, including money market funds and repurchase agreements or cash, and at times may invest up to 100% of its assets in such investments. During the Reporting Period, the Fund continued dynamically allocating across global asset classes, using a momentum-based methodology, as it sought total return while also seeking to provide volatility management. Momentum investing seeks growth of capital by gaining exposure to asset classes that have exhibited trends in price performance over selected time periods. In managing the Fund, we use a methodology that evaluates historical three-, six- and nine-month returns, volatilities and correlations across a range of nine global asset classes. Represented by indices, these asset classes include, within the equities category, U.S. large-cap and small-cap, European, Asian, emerging markets and U.K. stocks. Within the fixed income category, the Fund may allocate assets to the U.S., Europe and Japan. The analysis of these asset classes drives the aggregate allocations of the Fund over time. We believe market price momentum either positive or negative has significant predictive power. The Fund was hurt by its exposures to Japanese and U.S. government bonds late in the Reporting Period when interest rates rose. The Fund benefited during the Reporting Period from its allocations to global equities, including U.S. large-cap and small-cap stocks; European, Japanese and U.K. equities; and emerging markets stocks. An allocation to German government bonds also added value. What was the Fund s volatility during the Reporting Period? As part of our investment approach, we seek to mitigate the Fund s volatility. As mentioned earlier, for the Reporting Period overall, the Fund s actual volatility (annualized, using daily returns) was 5.49%, less than the S&P 500 Index s annualized volatility of 6.96%. How was the Fund positioned during the Reporting Period? During the Reporting Period, we tactically managed the Fund s allocations across equity and fixed income markets based on the momentum and volatility of these asset classes. At the beginning of the Reporting Period, the Fund s total assets were allocated 80% to equities, 20% to fixed income and 0% to cash (Many of these positions were implemented through the use of exchangetraded index future contracts.) Within the equity category, the Fund had allocations to five of six global equity asset classes. It did not have an allocation to emerging markets equities at the start of the Reporting Period. As for fixed income, the Fund had an emphasis on German government bonds with a smaller allocation to Japanese government bonds when the Reporting Period began. 2

5 At the end of January 2017, we added a small allocation to emerging markets equities, increasing it slightly by the end of May We increased the Fund s allocation to U.S. large-cap stocks at the start of the first calendar quarter and eliminated its allocation to U.S. small-cap stocks. We also reduced the Fund s allocation to German government bonds and increased its exposure to Japanese government bonds. Near the end of the Reporting Period, we reduced the size of the Fund s equity allocation and increased the size of its fixed income allocation. The Fund continued to have no allocation to cash. Within its equity allocation, the Fund had exposure to U.S. large-cap equities; European, Japanese and U.K. equities; and emerging markets equities. It had no exposure to U.S. small-cap equities. Within fixed income, we added some exposure to U.S. Treasuries and eliminated the Fund s allocation to German government bonds. How did the Fund use derivatives and similar instruments during the Reporting Period? During the Reporting Period, the Fund employed exchange-traded index futures contracts to gain exposure to U.S. large-cap and small-cap stocks, the European, Japanese and U.K. equity markets, and U.S., Japanese and German government bonds. On an absolute basis, the use of these instruments had a positive impact on the Fund s performance, as these allocations added to returns. What is the Fund s tactical asset allocation view and strategy for the months ahead? At the end of the Reporting Period, we slightly reduced the Fund s allocation to equities. Within equities, we modestly increased its allocations to U.S. large-cap stocks and Japanese equities, while reducing its exposures to European and U.K. equities. Overall, at the end of the Reporting Period, the Fund had more exposure to emerging markets equities than it did at the beginning of the Reporting Period and the same exposure to Japanese equities. The Fund maintained an allocation to emerging markets equities and had no allocation to U.S. small-cap equities. Within fixed income, we increased the Fund s allocation to U.S. Treasuries, while marginally reducing its allocation to Japanese government bonds. At the end of the Reporting Period, the Fund did not have an allocation to German government bonds due to their poor momentum amid rising yields. At the end of the Reporting Period, the Fund s total assets were allocated 72% to equities, 28% to fixed income and 0% to cash. Going forward, we intend to position the Fund to provide exposure to price momentum from among nine underlying asset classes, while dynamically managing the volatility, or risk, of the overall portfolio. In general, the Fund seeks to maintain a strategic allocation of 60% of its assets in equity investments and 40% of its assets in fixed income investments. The Fund may deviate from these strategic allocations in order to allocate a greater percentage to asset classes with strong momentum and to reduce its allocation to assets with weak momentum. When volatility increases, our goal is to preserve capital by proportionally increasing the Fund s cash exposure and reducing its exposure to riskier asset classes. There is no guarantee the Fund s dynamic management strategy will cause it to achieve its investment objective. 3

6 Index Definitions The Global Trends Allocation Composite Index is composed 60% of MSCI World Index and 40% of Bloomberg Barclays U.S. Aggregate Bond Index. It is a composite representation prepared by the Investment Adviser of the performance of the Fund s asset classes, weighted according to their respective weightings in the Fund s target range. The MSCI World Index (Net, USD, Unhedged) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of 23 developed markets. The Bloomberg Barclays U.S. Aggregate Bond Index represents an unmanaged diversified portfolio of fixed income securities, including U.S. Treasuries, investment grade corporate bonds, and mortgage-backed and asset-backed securities. 4

7 FUND BASICS Global Trends Allocation Fund as of June 30, 2017 STANDARDIZED TOTAL RETURNS 1 For the period ended 6/30/17 One Year Five Years Since Inception Inception Date Institutional 9.91% N/A 3.14% 10/16/13 Service % /16/12 1 Standardized Total Returns are average annual total returns as of the most recent calendar quarter-end. They assume reinvestment of all distributions at net asset value ( NAV ). Because Institutional Shares and Service Shares do not involve a sales charge, such a charge is not applied to their Standardized Total Returns. Total return figures in the above chart represent past performance and do not indicate future results, which will vary. The investment return and principal value of an investment will fluctuate and, therefore, an investor s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the total return figures in the above chart. Please visit to obtain the most recent month-end returns. Performance reflects fee waivers and/or expense limitations in effect during the periods shown. In their absence, performance would be reduced. EXPENSE RATIOS 2 Net Expense Ratio (Current) Gross Expense Ratio (Before Waivers) Institutional 0.73% 1.00% Service The expense ratios of the Fund, both current (net of applicable fee waivers and/or expense limitations) and before waivers (gross of applicable fee waivers and/or expense limitations) are as set forth above according to the most recent publicly available Prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights in this report. Pursuant to a contractual arrangement, the Fund s fee waivers and/or expense limitations will remain in place through at least April 28, 2018, and prior to such date, the Investment Adviser may not terminate the arrangements without the approval of the Fund s Board of Trustees. If these arrangements are discontinued in the future, the expense ratios may change without shareholder approval. 5

8 FUND BASICS FUND COMPOSITION 3 60% 54.5% as of 06/30/17 as of 12/31/16 50% 45.0% 40% 31.8% 30% 20% 10% 0% Investment Companies Exchange Traded Funds 21.0% Short-Term Investments % 0.0% 3 The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets (excluding investments in the securities lending reinvestment vehicle, if any). Figures in the above graph may not sum to 100% due to the exclusion of other assets and liabilities. The underlying composition of exchange traded funds and investment companies held by the Fund are not reflected in the graph above. Consequently, the Fund s overall composition may differ from the percentages contained in the graph above. The graph depicts the Fund s investments but may not represent the Fund s market exposure due to the exclusion of certain derivatives, if any, as listed in the Additional Investment Information section of the Schedule of Investments. 4 Short-Term Investments include investments in U.S. Government Agency Securities. U.S. Government Agency Securities include agency securities offered by companies such as Federal Home Loan Bank, Federal Home Loan Mortgage Corporation and Federal National Mortgage Association, which operate under a government charter. While they are required to report to a government regulator, their assets are not explicitly guaranteed by the government and they otherwise operate like any other publicly traded company. 6

9 Schedule of Investments June 30, 2017 (Unaudited) Shares Description Value Shares Distribution Rate Value Exchange Traded Funds 31.8% 201,944 ishares Core S&P 500 Fund $ 49,155, ,674 ishares MSCI Emerging Markets Fund 25,151, ,262 Vanguard S&P 500 Fund 45,358,420 TOTAL EXCHANGE TRADED FUNDS (Cost $104,234,734) $119,665,236 Investment Companies (a)(b) 54.5% Goldman Sachs Financial Square Government Fund Institutional Shares 113,194, % $113,194,937 Goldman Sachs Financial Square Treasury Obligations Fund Institutional Shares 46,048, ,048,357 Goldman Sachs Financial Square Treasury Solutions Fund Institutional Shares 45,546, ,546,579 TOTAL INVESTMENT COMPANIES (Cost $204,789,873) $204,789,873 TOTAL INVESTMENTS 86.3% (Cost $309,024,607) $324,455,109 OTHER ASSETS IN EXCESS OF LIABILITIES 13.7% 51,467,196 NET ASSETS 100.0% $375,922,305 The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. (a) Represents an affiliated issuer. (b) Variable rate security. Interest rate or distribution rate disclosed is that which is in effect on June 30, ADDITIONAL INVESTMENT INFORMATION FUTURES CONTRACTS At June 30, 2017, the Fund had the following futures contracts: Type Number of Contracts Long (Short) Expiration Date Current Value Unrealized Gain (Loss) EURO STOXX 50 Index 953 September 2017 $37,345,369 $(1,517,232) FTSE 100 Index 199 September ,771,658 (515,043) S&P 500 E-Mini Index 519 September ,822,355 (133,603) TSE TOPIX Index 134 September ,199, , Year Japanese Government Bonds 45 September ,057,346 (183,214) 10 Year U.S. Treasury Notes 449 September ,363,531 (337,576) TOTAL $(2,557,593) The accompanying notes are an integral part of these financial statements. 7

10 Statement of Assets and Liabilities June 30, 2017 (Unaudited) Assets: Investments in unaffiliated issuers, at value (cost $104,234,734) $119,665,236 Investments in affiliated issuers, at value (cost $204,789,873) 204,789,873 Cash 43,562,352 Receivables: Collateral on certain derivative contracts 7,216,059 Fund shares sold 354,381 Dividends 132,828 Reimbursement from investment adviser 15,044 Securities lending income 5,703 Variation margin on certain derivative contracts 861,383 Other assets 1,130 Total assets 376,603,989 Liabilities: Payables: Fund shares redeemed 211,283 Management fees 193,990 Distribution and Service fees and Transfer Agency fees 84,207 Investments purchased 72,376 Accrued expenses 119,828 Total liabilities 681,684 Net Assets: Paid-in capital 358,859,104 Undistributed net investment income 1,033,452 Accumulated net realized gain 3,054,753 Net unrealized gain 12,974,996 NET ASSETS $375,922,305 Net Assets: Institutional $ 28,047 Service 375,894,258 Total Net Assets $375,922,305 Shares outstanding $0.001 par value (unlimited shares authorized): Institutional 2,343 Service 31,482,564 Net asset value, offering and redemption price per share: Institutional $11.97 Service The accompanying notes are an integral part of these financial statements.

11 Statement of Operations For the Six Months Ended June 30, 2017 (Unaudited) Investment income: Dividends unaffiliated issuers $ 1,367,941 Dividends affiliated issuers 452,606 Interest 88,833 Securities lending income affiliated issuer 13,852 Total investment income 1,923,232 Expenses: Management fees 1,439,417 Distribution and Service fees Service Shares 455,477 Professional fees 53,259 Transfer Agency fees (a) 36,438 Custody, accounting and administrative services 29,356 Printing and mailing costs 17,360 Trustee fees 8,505 Other 6,521 Total expenses 2,046,333 Less expense reductions (268,992) Net expenses 1,777,341 NET INVESTMENT INCOME 145,891 Realized and unrealized gain (loss): Net realized gain from: Investments 9,043,020 Futures contracts 11,130,911 Foreign currency transactions 80,364 Net change in unrealized gain (loss) on: Investments 3,535,972 Futures contracts (4,769,762) Foreign currency translation 122,024 Net realized and unrealized gain 19,142,529 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,288,420 (a) Institutional and Service Shares incurred Transfer Agency fees of $3 and $36,435, respectively. The accompanying notes are an integral part of these financial statements. 9

12 Statements of Changes in Net Assets For the Six Months Ended June 30, 2017 (Unaudited) For the Fiscal Year Ended December 31, 2016 From operations: Net investment income $ 145,891 $ 701,709 Net realized gain 20,254, ,837 Net change in unrealized gain (loss) (1,111,766) 14,319,840 Net increase in net assets resulting from operations 19,288,420 15,247,386 Distributions to shareholders: From net investment income Institutional Shares (119) Service Shares (992,542) Total distributions to shareholders (992,661) From share transactions: Proceeds from sales of shares 20,569,816 57,559,506 Reinvestment of distributions 992,661 Cost of shares redeemed (17,577,503) (74,879,513) Net increase (decrease) in net assets resulting from share transactions 2,992,313 (16,327,346) TOTAL INCREASE (DECREASE) 22,280,733 (2,072,621) Net assets: Beginning of period 353,641, ,714,193 End of period $375,922,305 $353,641,572 Undistributed net investment income $ 1,033,452 $ 887, The accompanying notes are an integral part of these financial statements.

13 Financial Highlights Selected Data for a Share Outstanding Throughout Each Period Income (loss) from investment operations Distributions to shareholders Year - Share Class Net asset value, beginning of period Net investment income (loss) (a) Net realized and unrealized gain (loss) Total from investment operations From net investment income From net realized gains Total distributions Net asset value, end of period Total return (b) Net assets, end of period (in 000s) Ratio of net expenses to average net assets Ratio of total expenses to average net assets Ratio of net investment income (loss) to average net assets Portfolio turnover rate (c) FOR THE SIX MONTHS ENDED JUNE 30, (UNAUDITED) Institutional $11.33 $ 0.02 $ 0.62 $ 0.64 $ $ $ $ % $ % (d) 0.87% (d) 0.33% (d) 44% Service (e) , (d) 1.12 (d) 0.08 (d) 44 FOR THE FISCAL YEARS ENDED DECEMBER 31, Institutional (0.03) (0.05) (0.05) (0.25) Service (0.03) (0.03) , Institutional (0.67) (0.66) (0.03) (0.24) (0.27) (5.52) 1, Service (0.02) (0.67) (0.69) (0.01) (0.24) (0.25) (5.82) 354, (0.16) Institutional (0.03) (0.10) (0.13) Service (e) (e) (0.10) (0.10) , Institutional (Commenced October 16, 2013) (0.02) (0.28) (0.30) (d) 1.09 (d) 0.33 (d) Service (0.02) (0.01) (0.28) (0.29) , (0.21) 195 FOR THE PERIOD ENDED DECEMBER 31, Service (Commenced April 16, 2012) (0.01) (0.01) , (d) 4.21 (d) 0.27(d) 300 (a) Calculated based on the average shares outstanding methodology. (b) Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, and a complete redemption of the investment at the net asset value at the end of the period. Total returns for periods less than one full year are not annualized. (c) The Fund s portfolio turnover rate is calculated in accordance with regulatory requirements, without regard to transactions involving short term investments and certain derivatives. If such transactions were included, the Fund s portfolio turnover rate may be higher. (d) Annualized. (e) Amount is less than $0.005 per share. The accompanying notes are an integral part of these financial statements. 11

14 Notes to Financial Statements June 30, 2017 (Unaudited) 1. ORGANIZATION Goldman Sachs Variable Insurance Trust (the Trust or VIT ) is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the Act ), as an open-end management investment company. The Trust includes the Goldman Sachs Global Trends Allocation Fund (the Fund ). The Fund is a non-diversified portfolio under the Act offering two classes of shares Institutional and Service Shares. Shares of the Trust are offered to separate accounts of participating life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Goldman Sachs Asset Management, L.P. ( GSAM ), an affiliate of Goldman Sachs & Co. LLC (formerly Goldman, Sachs & Co.) ( Goldman Sachs ), serves as investment adviser to the Fund pursuant to a management agreement (the Agreement ) with the Trust. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ( GAAP ) and require management to make estimates and assumptions that may affect the reported amounts and disclosures. Actual results may differ from those estimates and assumptions. A. Investment Valuation The Fund s valuation policy is to value investments at fair value. B. Investment Income and Investments Investment income includes interest income, dividend income and securities lending income. Interest income is accrued daily and adjusted for amortization of premiums and accretion of discounts. Dividend income is recognized on ex-dividend date or, for certain foreign securities, as soon as such information is obtained subsequent to the ex-dividend date. Investment transactions are reflected on trade date. Realized gains and losses are calculated using identified cost. Investment transactions are recorded on the following business day for daily net asset value ( NAV ) calculations. For derivative contracts, realized gains and losses are recorded upon settlement of the contract. C. Class Allocations and Expenses Investment income, realized and unrealized gain (loss), and non-class specific expenses of the Fund are allocated daily based upon the proportion of net assets of each class. Non-class specific expenses directly incurred by the Fund are charged to the Fund, while such expenses incurred by the Trust are allocated across the Fund on a straight-line and/ or pro-rata basis depending upon the nature of the expenses. Class specific expenses, where applicable, are borne by the respective share classes and include Distribution and Service and Transfer Agency fees. D. Federal Taxes and Distributions to Shareholders It is the Fund s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended (the Code ), applicable to regulated investment companies (mutual funds) and to distribute each year substantially all of its investment company taxable income and capital gains to its shareholders. Accordingly, the Fund is not required to make any provisions for the payment of federal income tax. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gains distributions, if any, are declared and paid annually. Net capital losses, if any, are carried forward to future fiscal years and may be used to the extent allowed by the Code to offset any future capital gains. Losses that are carried forward will retain their character as either short-term or long-term capital losses. Utilization of capital loss carryforwards will reduce the requirement of future capital gains distributions. The characterization of distributions to shareholders for financial reporting purposes is determined in accordance with federal income tax rules, which may differ from GAAP. The source of the Fund s distributions may be shown in the accompanying financial statements as either from net investment income, net realized gain or capital. Certain components of the Fund s net assets on the Statement of Assets and Liabilities reflect permanent GAAP/tax differences based on the appropriate tax character. E. Foreign Currency Translation The accounting records and reporting currency of the Fund are maintained in United States ( U.S. ) dollars. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars using the current exchange rates at the close of each business day. The effect of changes in foreign currency exchange rates on investments is included within net realized and unrealized gain (loss) on investments. Changes in the value of other assets and liabilities as a result of fluctuations 12

15 2. SIGNIFICANT ACCOUNTING POLICIES (continued) in foreign exchange rates are included in the Statement of Operations within net change in unrealized gain (loss) on foreign currency translations. Transactions denominated in foreign currencies are translated into U.S. dollars on the date the transaction occurred, the effects of which are included within net realized gain (loss) on foreign currency transactions. 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS U.S. GAAP defines the fair value of a financial instrument as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price); the Fund s policy is to use the market approach. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these investments. The three levels of the fair value hierarchy are described below: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 Quoted prices in markets that are not active or financial instruments for which significant inputs are observable (including, but not limited to, quoted prices for similar investments, interest rates, foreign exchange rates, volatility and credit spreads), either directly or indirectly; Level 3 Prices or valuations that require significant unobservable inputs (including GSAM s assumptions in determining fair value measurement). Changes in valuation techniques may result in transfers into or out of an assigned level within the hierarchy. In accordance with the Fund s policy, transfers between different levels of the fair value hierarchy resulting from such changes are deemed to have occurred as of the beginning of the reporting period. The Board of Trustees ( Trustees ) has approved Valuation Procedures that govern the valuation of the portfolio investments held by the Fund, including investments for which market quotations are not readily available. The Trustees have delegated to GSAM day-to-day responsibility for implementing and maintaining internal controls and procedures related to the valuation of the Fund s portfolio investments. To assess the continuing appropriateness of pricing sources and methodologies, GSAM regularly performs price verification procedures and issues challenges as necessary to third party pricing vendors or brokers, and any differences are reviewed in accordance with the Valuation Procedures. A. Level 1 and Level 2 Fair Value Investments The valuation techniques and significant inputs used in determining the fair values for investments classified as Level 1 and Level 2 are as follows: Equity Securities Equity securities traded on a U.S. securities exchange or the NASDAQ system, or those located on certain foreign exchanges, including but not limited to the Americas, are valued daily at their last sale price or official closing price on the principal exchange or system on which they are traded. If there is no sale or official closing price or such price is believed by GSAM to not represent fair value, equity securities are valued at the last bid price for long positions and at the last ask price for short positions. To the extent these investments are actively traded, they are classified as Level 1 of the fair value hierarchy, otherwise they are generally classified as Level 2. Unlisted equity securities for which market quotations are available are valued at the last sale price on the valuation date, or if no sale occurs, at the last bid price. Securities traded on certain foreign securities exchanges are valued daily at fair value determined by an independent fair value service (if available) under Valuation Procedures approved by the Trustees and consistent with applicable regulatory guidance. The independent fair value service takes into account multiple factors including, but not limited to, movements in the securities markets, certain depositary receipts, futures contracts and foreign currency exchange rates that have occurred subsequent to the close of the foreign securities exchange. These investments are generally classified as Level 2 of the fair value hierarchy. 13

16 Notes to Financial Statements (continued) June 30, 2017 (Unaudited) 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued) Underlying Funds (including Money Market Funds) Underlying Funds ( Underlying Funds ) include other investment companies and exchange-traded funds ( ETFs ). Investments in the Underlying Funds (except ETFs) are valued at the NAV per share of the Institutional Share class on the day of valuation. ETFs are valued daily at the last sale price or official closing price on the principal exchange or system on which the investment is traded. Because the Fund invests in Underlying Funds that fluctuate in value, the Fund s shares will correspondingly fluctuate in value. To the extent these investments are actively traded, they are classified as Level 1 of the fair value hierarchy, otherwise they are generally classified as Level 2. For information regarding an Underlying Fund s accounting policies and investment holdings, please see the Underlying Fund s shareholder report. Debt Securities Debt securities for which market quotations are readily available are valued daily on the basis of quotations supplied by dealers or an independent pricing service approved by the Trustees. The pricing services may use valuation models or matrix pricing, which consider: (i) yield or price with respect to bonds that are considered comparable in characteristics such as rating, interest rate and maturity date or (ii) quotations from securities dealers to determine current value. With the exception of treasury securities of G8 countries, which are generally classified as Level 1, these investments are generally classified as Level 2 of the fair value hierarchy. Derivative Contracts A derivative is an instrument whose value is derived from underlying assets, indices, reference rates or a combination of these factors. The Fund enters into derivative transactions to hedge against changes in interest rates, securities prices, and/or currency exchange rates, to increase total return, or to gain access to certain markets or attain exposure to other underliers. Exchange-traded derivatives, including futures and options contracts, are valued at the last sale or settlement price and typically fall within Level 1 of the fair value hierarchy. Over-the-counter ( OTC ) and centrally cleared derivatives are valued using market transactions and other market evidence, including market-based inputs to models, calibration to market-clearing transactions, broker or dealer quotations, or other alternative pricing sources. Where models are used, the selection of a particular model to value OTC and centrally cleared derivatives depends upon the contractual terms of, and specific risks inherent in, the instrument, as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, voluntary and involuntary prepayment rates, loss severity rates and correlations of such inputs. For OTC and centrally cleared derivatives that trade in liquid markets, model inputs can generally be verified and model selection does not involve significant management judgment. OTC and centrally cleared derivatives are classified within Level 2 of the fair value hierarchy when significant inputs are corroborated by market evidence. i. Futures Contracts Futures contracts are contracts to buy or sell a standardized quantity of a specified commodity or security and are valued based on exchanged settlement prices or independent market quotes. Futures contracts are valued at the last settlement price, or in the absence of a sale, the last bid price for long positions and at the last ask price for short positions, at the end of each day on the board of trade or exchange upon which they are traded. Upon entering into a futures contract, the Fund deposits cash or securities in an account on behalf of the broker in an amount sufficient to meet the initial margin requirement. Subsequent payments are made or received by the Fund equal to the daily change in the contract value and are recorded as variation margin receivable or payable with a corresponding offset to unrealized gains or losses. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Fund and cash collateral received, if any, is reported separately on the Statement of Assets and Liabilities as receivables/payables for collateral on certain derivative contracts. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Short Term Investments Short-term investments having a maturity of 60 days or less are valued using available market quotations as provided by a third party pricing vendor or broker. These investments are classified as Level 2 of the fair value hierarchy. B. Level 3 Fair Value Investments To the extent that significant inputs to valuation models and other alternative pricing sources are unobservable, or if quotations are not readily available, or if GSAM believes that such quotations do not accurately reflect fair value, the fair value of the Fund s investments may be determined under Valuation Procedures approved by the Trustees. GSAM, consistent with its procedures and applicable regulatory guidance, may make an adjustment to the most recent 14

17 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued) valuation prices of either domestic or foreign securities in light of significant events to reflect what it believes to be the fair value of the securities at the time of determining the Fund s NAV. Significant events which could affect a large number of securities in a particular market may include, but are not limited to: significant fluctuations in U.S. or foreign markets; market dislocations; market disruptions; or unscheduled market closings. Significant events which could also affect a single issuer may include, but are not limited to: corporate actions such as reorganizations, mergers and buy-outs; ratings downgrades; and bankruptcies. C. Fair Value Hierarchy The following is a summary of the Fund s investments and derivatives classified in the fair value hierarchy as of June 30, 2017: Investment Type Level 1 Level 2 Level 3 Assets Exchange Traded Funds $119,665,236 $ $ Investment Companies 204,789,873 Total $324,455,109 $ $ Derivative Type Assets (a) Futures Contracts $ 129,075 $ $ Liabilities (a) Futures Contracts $ (2,686,668) $ $ (a) Amount shown represents unrealized gain (loss) at period end. For further information regarding security characteristics, see the Schedule of Investments. 4. INVESTMENTS IN DERIVATIVES The following table sets forth, by certain risk types, the gross value of derivative contracts as of June 30, These instruments were used as part of the Fund s investment strategies and to obtain and/or manage exposure related to the risks below. The values in the table below exclude the effects of cash collateral received or posted pursuant to these derivative contracts, and therefore are not representative of the Fund s net exposure. Risk Statement of Assets and Liabilities Assets (a) Statement of Assets and Liabilities Liabilities (a) Equity Variation margin on certain derivative contracts $129,075 Variation margin on certain derivative contracts $(2,165,878) Interest Rate Variation margin on certain derivative contracts (520,790) Total $129,075 $(2,686,668) (a) Includes unrealized gain (loss) on futures contracts described in the Additional Investment Information section of the Schedule of Investments. Only the variation margin as of June 30, 2017 is reported within the Statement of Assets and Liabilities. The following table sets forth, by certain risk types, the Fund s gains (losses) related to these derivatives and their indicative volumes for the six months ended June 30, These gains (losses) should be considered in the context that these derivative contracts may have been executed to create investment opportunities and/or economically hedge certain investments, and 15

18 Notes to Financial Statements (continued) June 30, 2017 (Unaudited) 4. INVESTMENTS IN DERIVATIVES (continued) accordingly, certain gains (losses) on such derivative contracts may offset certain (losses) gains attributable to investments. These gains (losses) are included in Net realized gain (loss) or Net change in unrealized gain (loss) on the Statement of Operations: Risk Statement of Operations Net Realized Gain (Loss) Net Change in Unrealized Gain (Loss) Average Number of Contracts (a) Equity Interest Rate Net realized gain (loss) from futures contracts/net change in unrealized gain (loss) on futures contracts $ 9,930,743 $(3,624,953) 2,300 Net realized gain (loss) from futures contracts/net change in unrealized gain (loss) on futures contracts 1,200,168 (1,144,809) 284 Total $11,130,911 $(4,769,762) 2,584 (a) Average number of contracts is based on the average of month end balances for the six months ended June 30, AGREEMENTS AND AFFILIATED TRANSACTIONS A. Management Agreement Under the Agreement, GSAM manages the Fund, subject to the general supervision of the Trustees. As compensation for the services rendered pursuant to the Agreement, the assumption of the expenses related thereto and administration of the Fund s business affairs, including providing facilities, GSAM is entitled to a management fee, accrued daily and paid monthly, equal to an annual percentage rate of the Fund s average daily net assets. For the six months ended June 30, 2017, contractual and effective net management fees with GSAM were at the following rates: Contractual Management Rate First $1 billion Next $1 billion Next $3 billion Next $3 billion Over $8 billion Effective Rate Effective Net Management Rate^ 0.79% 0.71% 0.68% 0.66% 0.65% 0.79% 0.70* ^ Effective Net Management Rate includes the impact of management fee waivers of affiliated Underlying Funds, if any. * GSAM agreed to waive a portion of its management fee in order to achieve a net management rate, as defined in the Fund s most recent prospectus. This waiver will be effective through at least April 28, 2018, and prior to such date GSAM may not terminate the arrangement without approval of the Trustees. For the six months ended June 30, 2017, GSAM waived $79,271 of its management fee. The Fund invests in Institutional Shares of the Goldman Sachs Financial Square Government Fund, which is an affiliated Underlying Fund. GSAM has agreed to waive a portion of its management fee payable by the Fund in an amount equal to the management fee it earns as an investment adviser to any of the affiliated Underlying Funds in which the Fund invests. For the six months ended June 30, 2017, GSAM waived $79,510 of the Fund s management fee. B. Distribution and/or Service (12b-1) Plan The Trust, on behalf of Service Shares of the Fund, has adopted a Distribution and Service Plan subject to Rule 12b-1 under the Act. Under the Distribution and Service Plan, Goldman Sachs, which serves as distributor (the Distributor ), is entitled to a fee accrued daily and paid monthly, for distribution services and personal and account maintenance services, which may then be paid by Goldman Sachs to authorized dealers, equal to, on an annual basis, 0.25% of the Fund s average daily net assets attributable to Service Shares. C. Transfer Agency Agreement Goldman Sachs also serves as the transfer agent of the Fund for a fee pursuant to the Transfer Agency Agreement. The fees charged for such transfer agency services are accrued daily and paid monthly at an annual rate of 0.02% of the average daily net assets of Institutional and Service Shares. 16

19 5. AGREEMENTS AND AFFILIATED TRANSACTIONS (continued) D. Other Expense Agreements and Affiliated Transactions GSAM has agreed to limit certain Other Expenses of the Fund (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification, and extraordinary expenses) to the extent such expenses exceed, on an annual basis, a percentage rate of the average daily net assets of the Fund. Such Other Expense reimbursements, if any, are accrued daily and paid monthly. In addition, the Fund is not obligated to reimburse GSAM for prior fiscal year expense reimbursements, if any. The Other Expense limitation as an annual percentage rate of average daily net assets for the Fund is 0.004%. The Other Expense limitation will remain in place through at least April 28, 2018, and prior to such date GSAM may not terminate the arrangement without the approval of the Trustees. For the six months ended June 30, 2017, GSAM reimbursed $107,709 to the Fund. In addition, the Fund has entered into certain offset arrangements with the custodian and the transfer agent, which may result in a reduction of the Fund s expenses and are received irrespective of the application of the Other Expense limitation described above. For the six months ended June 30, 2017, custody fee credits were $2,502. E. Line of Credit Facility As of June 30, 2017, the Fund participated in a $1,100,000,000 committed, unsecured revolving line of credit facility (the facility ) together with other funds of the Trust and certain registered investment companies having management agreements with GSAM or its affiliates. This facility is to be used for temporary emergency purposes, or to allow for an orderly liquidation of securities to meet redemption requests. The interest rate on borrowings is based on the federal funds rate. The facility also requires a fee to be paid by the Fund based on the amount of the commitment that has not been utilized. For the six months ended June 30, 2017, the Fund did not have any borrowings under the facility. F. Other Transactions with Affiliates The following table provides information about the Fund s investment in the Underlying Funds as of and for the six months ended June 30, 2017: Investment Companies Market Value 12/31/2016 Purchases at Cost Proceeds from Sales Market Value 06/30/2017 Dividend Income Goldman Sachs Financial Square Government Fund $74,421,507 $233,653,069 $(194,879,639) $113,194,937 $297,218 Goldman Sachs Financial Square Treasury Obligations Fund 46,048,357 46,048,357 76,463 Goldman Sachs Financial Square Treasury Solutions Fund 45,546,579 45,546,579 78,925 Total $74,421,507 $325,248,005 $(194,879,639) $204,789,873 $452,606 As of June 30, 2017, The Goldman Sachs Group, Inc. was the beneficial owner of approximately 100% of the Institutional Class Shares of the Fund. 6. PORTFOLIO SECURITIES TRANSACTIONS The cost of purchases and proceeds from sales and maturities of long-term securities for the six months ended June 30, 2017, were $58,667,085 and $110,651,001, respectively. 7. SECURITIES LENDING Pursuant to exemptive relief granted by the Securities and Exchange Commission ( SEC ) and the terms and conditions contained therein, the Fund may lend its securities through a securities lending agent, Goldman Sachs Agency Lending ( GSAL ), a wholly-owned subsidiary of Goldman Sachs, to certain qualified borrowers including Goldman Sachs and affiliates. In accordance with the Fund s securities lending procedures, the Fund receives cash collateral at least equal to the market value of the securities 17