Goldman Sachs Variable Insurance Trust. Goldman Sachs Strategic Growth Fund

Transcription

1 Goldman Sachs Variable Insurance Trust Goldman Sachs Strategic Growth Fund Semi-Annual Report June 30, 2018

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3 INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital. Portfolio Management Discussion and Analysis Below, the Goldman Sachs Fundamental Equity U.S. Equity Portfolio Management Team discusses the Goldman Sachs Variable Insurance Trust Goldman Sachs Strategic Growth Fund s (the Fund ) performance and positioning for the six-month period ended June 30, 2018 (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 9.07% and 8.94%, respectively. These returns compare to the 7.25% cumulative total return of the Fund s benchmark, the Russell 1000 Growth Index (with dividends reinvested) (the Russell Index ), during the same time period. What economic and market factors most influenced the equity markets as a whole during the Reporting Period? Representing the U.S. equity market, the S&P 500 Index gained 2.65% during the Reporting Period. U.S. equities saw a strong start to the Reporting Period in January 2018, driven by positive economic data, a $1.5 trillion tax reform law signed in December 2017, and a favorable corporate earnings season. In February 2018, however, U.S. and international equities sold off on market speculation of a faster pace of U.S. Federal Reserve ( Fed ) short-term interest rate hikes, which stoked a sharp rise in bond yields and an increase in equity market volatility. Concerns about Fed monetary policy tightening were further exacerbated by solid U.S. labor and inflation data. While the hawkish Fed minutes were largely expected, new Fed Chair Jerome Powell s Congressional testimony, positing a more optimistic economic outlook since the December 2017 Fed meeting, surprised equity markets with its hawkish tilt, sparking another sell-off in the U.S. equity markets. (Jerome Powell assumed the chairmanship of the Fed in February Hawkish language tends to suggest higher interest rates; opposite of dovish.) In March 2018, escalating trade tensions and potential tariffs weighed on investor sentiment. Meanwhile, the Fed delivered on a widely expected interest rate increase, with its dot plot pointing to a total of three interest rate hikes this calendar year and potentially two in (The dot plot shows rate projections of the members of the Fed s Open Market Committee.) However, Fed policymakers acknowledged that the economic outlook has strengthened in recent months, revising their economic growth forecast higher and their unemployment forecast lower. The U.S. and China continued to generate trade headlines and geopolitical uncertainty about sanctions on Russia surfaced, but the impact of such on the U.S. equity markets remained relatively muted during April 2018, as investors stayed rather resistant to the risk of a trade war. A number of macroeconomic drivers, including U.S. labor market strength, higher inflation and fiscal stimulus, pushed up U.S. Treasury yields, with the 10-year U.S. Treasury yield breaching 3% toward month end. With more than half of S&P 500 Index companies having reported their first quarter 2018 results, the earnings season began strongly during April U.S. equities rallied in May 2018, driven not only by strong corporate earnings but also by upside surprises in economic activity and sentiment data as well as on a new U.S. unemployment low of 3.8%. However, the U.S. equity rally was hampered by escalating geopolitical uncertainty stemming from the unexpected political outcome in Italy, the ongoing unpredictability around the U.S.-North Korea summit, and escalating trade tensions with many U.S. allies. The Fed raised interest rates again in June 2018, as widely expected, but the outcome of the Fed meeting was more hawkish than the consensus had anticipated. The Fed retained language indicating an accommodative monetary policy stance, but its economic growth and inflation forecasts were upgraded, and its median projection was lifted to four interest rate hikes in 2018 from the three it had indicated in March Fed Chair Powell was also slightly hawkish in his June press conference. Still-escalating trade tensions between the U.S. and China hurt market sentiment, with the U.S. threatening tariffs on $200 billion worth of Chinese goods and China vowing to retaliate. All told, then, the S&P 500 Index produced modestly positive but rather flat returns for the month of June For the Reporting Period overall, six sectors posted positive absolute returns and five generated negative returns. Consumer discretionary, information technology and energy were the best performing sectors in the S&P 500 Index, as measured by total return, and the weakest performing sectors in the S&P 500 Index during the Reporting Period were telecommunication services, consumer staples and industrials. 1

4 Within the U.S. equity market, there was significant disparity in performance not only among sectors but also among the various capitalization and style segments. While all capitalization segments posted positive returns, small-cap stocks, as measured by the Russell 2000 Index, performed best, followed at some distance by large-cap stocks, as measured by the Russell 1000 Index, and mid-cap stocks, as measured by the Russell Midcap Index, which performed similarly to each other. From a style perspective, growth-oriented stocks significantly outpaced value-oriented stocks across the capitalization spectrum, with value-oriented stocks overall in the large-cap and mid-cap segments posting modestly negative absolute returns. (All as measured by the FTSE Russell indices.) What key factors were responsible for the Fund s performance during the Reporting Period? The Fund outperformed the Russell Index during the Reporting Period attributable primarily to stock selection overall. Sector allocation as a whole contributed positively, albeit modestly. Which equity market sectors most significantly affected Fund performance? Contributing most positively to the Fund s relative results during the Reporting Period was effective stock selection in the consumer discretionary, information technology and health care sectors. The only two sectors that detracted from the Fund s relative results during the Reporting Period were consumer staples and real estate, wherein stock selection hurt. What were some of the Fund s best-performing individual stocks? Among those stocks the Fund benefited most from relative to the Russell Index were positions in Internet subscription service for streamed television shows and movies Netflix, customer relationship management services software on demand provider salesforce.com and financial transaction processing services provider Mastercard. Shares of Netflix rallied in January 2018 following its earnings announcement in which it reported in-line earnings and revenues, with subscriber growth well ahead of consensus estimates. The healthy subscriber growth was driven, according to Netflix, by strength in both its domestic and international markets. The company also reported free cash flow that exceeded consensus estimates, which was well-received by the market as the company continued to demonstrate strong execution. Later in the Reporting Period, with the help of an earnings report that beat market expectations, based on ongoing subscriber growth both domestically and internationally, and the announcement of game streaming on its platform, Netflix s shares continued to rally. Overall, at the end of the Reporting Period, we remained positive on Netflix as the market leader within the movie streaming space, offering, in our view, a convenient way to consume content without the burden of ownership. We also believed the introduction of gaming illustrated the company s ability to disrupt the global media industry and deepen its competitive position. Finally, we believed at the end of the Reporting Period that the company was well positioned to capture continued subscriber growth globally. Shares of salesforce.com rose in the middle of February 2018 following an upgrade in which the analyst cited strong enterprise growth as being a key driver to its strong performance. Also, the company reported earnings and revenue that beat consensus expectations, led by strong billings growth. The company s stock rose further following its earnings announcement in May 2018, in which both revenue and earnings per share exceeded market estimates with strong guidance. Overall, at the end of the Reporting Period, we believed the company presented an attractive growth story, as it continued to grow and gain market share through strategic partnerships, international markets and government opportunities. We also believed salesforce.com remained a high quality growth company with a strong management team. Mastercard reported strong quarterly results at the beginning of February 2018, with higher than market expected earnings and revenue, driven by improvements across processed transactions, cross-border volume and gross dollar volume. The company s stock continued to rise throughout the Reporting Period, as the information technology sector overall outperformed the broad U.S. equity market. At the end of the Reporting Period, we remained optimistic on the company s ability to grow its core payments business through new client wins and to further differentiate itself by expanding to new growth areas, such as consumer credit and peer-topeer lending. We also remained positive on the company s plans to accelerate investments, driven by the tax savings from recent U.S. tax reform legislation and by its own strong operating trends, which we believe position Mastercard well relative to its competitors. Which stocks detracted significantly from the Fund s performance during the Reporting Period? Detracting from the Fund s results relative to the Russell Index were positions in biopharmaceutical company Incyte, tobacco company Philip Morris International and kitchen equipment manufacturer Middleby. Incyte s shares sold off early in April 2018 following the highly anticipated Phase III trial results for its melanoma drug. Following the poor trial results, Incyte announced it would halt the study given that its product failed to show any benefit in conjunction with another cancer immunotherapy drug. At the end of June 2018, the company reported an end to another one of its drugs, REACH1, 2

5 after the drug reported a low response rate. Despite these setbacks, we remained confident at the end of the Reporting Period in what we see as the company s strong internal research and development capability and deep product pipeline. In April 2018, shares of Philip Morris International declined sharply following a disappointing quarterly earnings announcement. Its earnings per share beat market estimates, but its top-line revenue was lower than market expectations, driven primarily by disappointing results in the company s iqos segment and organic sales. (iqos is the company s electronic smokeless cigarette products line.) Later in the second calendar quarter, the company raised its quarterly dividend by more than 6% and finished a study concluding that its iqos segment met its primary objective. At the end of the Reporting Period, we felt the company provided bestin-class pricing, was attractively valued and paid an above-market dividend. We continued to view Philip Morris International as a high quality franchise, well positioned to benefit from an improving macroeconomic backdrop. Middleby s stock price declined sharply in early May 2018 following its disappointing earnings release. Middleby reported persistent organic growth weakness and higher than company-expected operating expenses related to recent acquisitions. This announcement led us to review our initial investment thesis and to ultimately exit the Fund s position as our confidence in the company s ability to execute eroded. How did the Fund use derivatives and similar instruments during the Reporting Period? During the Reporting Period, we did not use derivatives as part of an active management strategy. Did the Fund make any significant purchases or sales during the Reporting Period? Among the purchases initiated during the Reporting Period, we established a Fund position in Visa. Visa is a global leader in the provisioning of payment services. At the time of purchase, we felt confident the company would benefit from several secular growth themes as transaction volume continues to shift toward electronic payments. We also viewed the company favorably, as it invests in multiple services and geographies, which we think provides several potential sources of growth. Finally, we felt the stock was trading at attractive levels given what we see as its growth prospects. We initiated a Fund position in integrated circuit manufacturer Analog Devices. The company engages in the design and manufacturing of analog, mixed-signal and digital signal processing integrated circuits used in virtually all types of electronic equipment. We feel the company has an attractive revenue growth and margin profile and has lagged the industry in recent years, which we believe presented a compelling buying opportunity for the Fund. Conversely, in addition to those sales already mentioned, we sold the Fund s position in Amgen. During the Reporting Period, we grew less positive on one of the company s key drugs, Repatha, which we believe might experience slower growth than Amgen had previously expected. While we still believe Amgen is one of the leaders in the biotechnology industry and has a strong balance sheet and good free cash flow, we decided to exit the position and allocate the capital elsewhere. We eliminated the Fund s position in SunTrust Banks. Its stock had rallied toward the end of 2017, as U.S. tax reform legislation was passed and the consensus outlook for further monetary tightening became clearer. Its share price also increased following an earnings announcement in January 2018 in which SunTrust Banks reported strong expense control and improved net interest income. While we continue to believe SunTrust Banks is a high quality company with favorable growth prospects, we felt its share price increase during the Reporting Period presented an attractive opportunity to realize gains and reallocate the capital to ideas we considered to have better risk/reward profiles. Were there any notable changes in the Fund s weightings during the Reporting Period? In constructing the Fund s portfolio, we focus on picking stocks rather than on making industry or sector bets. We seek to outpace the benchmark index by overweighting stocks that we expect to outperform and underweighting those that we think may lag. Consequently, changes in its sector weights are generally the direct result of individual stock selection or of stock appreciation or depreciation. That said, during the Reporting Period, the Fund s exposure to consumer discretionary and materials increased compared to the Russell Index. The Fund s allocation compared to the Russell Index in financials decreased. How was the Fund positioned relative to its benchmark index at the end of the Reporting Period? At the end of June 2018, the Fund had overweighted positions relative to the Russell Index in the health care and consumer discretionary sectors. On the same date, the Fund had an underweighted position compared to the Russell Index in financials and was rather neutrally weighted to the Russell Index in energy, industrials, materials, consumer staples, real estate and information technology. The Fund had no exposure to the utilities and telecommunication services sectors at the end of the Reporting Period. 3

6 Were there any changes to the Fund s portfolio management team during the Reporting Period? Effective January 9, 2018, Goldman Sachs Asset Management, L.P. (the Investment Adviser ) centralized its Fundamental Equity U.S. Value and Fundamental Equity U.S. Growth Teams into a single Fundamental Equity U.S. Equity Team. The Investment Adviser believes these changes will benefit the Funds by providing a more holistic investment perspective and the ability to leverage investment ideas across the U.S. Fundamental Equity platform. Effective the same date, co-lead portfolio manager for the Fund, Tim Leahy, left the firm. Tim shared portfolio management responsibility with Steve Barry and Stephen Becker, who have been co-lead portfolio managers of the Fund s strategy since 2000 and 2013, respectively, and who continue in those roles. There were no changes to the investment process or philosophy of the Fund s strategy. We remain committed to high quality, bottom-up research and to the time-tested investment philosophy of the Fund s strategy. We continue to believe that deep knowledge of company-specific and industry trends is key to our research edge. What is the Fund s tactical view and strategy for the months ahead? At the end of the Reporting Period, there were increasing market concerns that the equities cycle had reached its peak, particularly in the U.S., as central banks pursue their interest rate hiking policies. However, history has shown that rising interest rates alone are a poor indicator of subsequent equity returns; the context is just as important. If interest rates increase because of stronger economic growth, as is the case in the current hiking cycle, equities can benefit despite valuation headwinds. We estimate that U.S. equities can absorb a 10-year U.S. Treasury yield of approximately 3.5% before rates become a material negative. In fact, U.S. equities saw double-digit positive returns over the subsequent 12 months for all but one hiking cycle exceeding 100 basis points since (A basis point is 1/100 th of a percentage point.) Furthermore, in our view, the normalization of interest rates and resulting rising cost of capital reinforce a Darwinistic framework wherein strong companies thrive and the weak perish, increasing the dispersion among companies and sectors. For large-cap U.S. equities, much of the corporate earnings recovery since the 2007/2008 financial crisis has been driven by cost-cutting measures and margins growth rather than by revenue growth. With rising cost pressures, we believe pricing power may well become an increasingly important differentiator of future success. We further believe the increased dispersion between winners and losers reinforces the importance of active management. Not all areas of the U.S. equity market have fully participated in the bull market rally. Small-cap U.S. equities remain an underappreciated bright spot, in our view. The more domestically-oriented nature of these companies often enables them to benefit more from fiscal stimulus and tax cuts, while being relatively insulated from the negative effect of potential tariffs and trade tensions. Moreover, small-cap companies have historically outperformed large-cap companies in a late cycle, rising interest rate environment. At the end of the Reporting Period, operating margins for small-cap companies remained well below pre-financial crisis peaks in contrast to the new highs reached by large-cap companies overall, offering the potential, in our view, to tap higher operational leverage. Regardless of market direction, we remain committed to our core philosophy and process. We intend to maintain a long-term time horizon, rather than forecast the next quarter. We intend to continue to favor high quality growth businesses over breathtaking concepts. We intend to invest when we consider valuations to be attractive, rather than following the trend. These core beliefs have guided our team during the past 30 years; we believe they hold the answer for the next 30. As always, we maintain our focus on seeking companies that we believe will generate long-term growth in today s ever-changing market conditions. 4

7 Index Definitions The Russell 1000 Growth Index (with dividends reinvested) is an unmanaged market capitalization weighted index of the 1000 largest U.S. companies with higher price-to-book ratios and higher forecasted growth values. The figures for the index do not include any deduction for fees, expenses or taxes. The Russell 2000 Index (with dividends reinvested) is an unmanaged index of common stock prices that measures the performance of the 2000 smallest companies in the Russell 3000 Index. The figures for the index do not include any deduction for fees, expenses or taxes. The S&P 500 Index (with dividends reinvested) is the Standard & Poor s 500 Composite Index of 500 stocks, an unmanaged index of common stock prices. The figures for the index do not include any deduction for fees, expenses or taxes. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represent approximately 92% of the total market capitalization of the Russell 3000 Index. It is not possible to invest directly in an index. 5

8 FUND BASICS Strategic Growth Fund as of June 30, 2018 STANDARDIZED TOTAL RETURNS 1 For the period ended 6/30/18 One Year Five Years Ten Years Since Inception Inception Date Institutional 22.28% 15.76% 10.42% 6.54% 4/30/98 Service /09/06 1 The 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 0.74% 0.78% Service The expense ratios of the Fund, both current (net of any fee waivers and/or expense limitations) and before waivers (gross of any 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 30, 2019, 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. TOP TEN HOLDINGS AS OF 6/30/18 3 Holding % of Net Assets Line of Business Microsoft Corp. 6.2% Software & Services Apple, Inc. 6.2 Technology Hardware & Equipment Amazon.com, Inc. 5.9 Retailing Facebook, Inc. Class A 4.1 Software & Services Alphabet, Inc. Class A 3.2 Software & Services Visa, Inc. Class A 2.7 Software & Services Alphabet, Inc. Class C 2.4 Software & Services Mastercard, Inc. Class A 1.9 Software & Services NIKE, Inc. Class B 1.9 Consumer Durables & Apparel Boeing Co. (The) 1.8 Capital Goods 3 The top 10 holdings may not be representative of the Fund s future investments. 6

9 FUND BASICS FUND vs. BENCHMARK SECTOR ALLOCATIONS 4 As of June 30, % 41.2% 41.6% Fund Russell 1000 Growth Index 40% 30% 20% 10% 0% 18.9% Information Technology Materials 2.2% 1.8% Real Estate 1.8% 2.2% Energy 17.9% 14.4% 1.9% 1.0% Consumer Discretionary 13.3% 11.1% Health Care 11.9% 5.9% Industrials 5.8% 2.6% Consumer Staples 4.5% Financials 4 The Fund is actively managed and, as such, its composition may differ over time. Consequently, the Fund s overall sector allocations may differ from percentages contained in the graph above. The graph categorizes investments using Global Industry Classification Standard ( GICS ); however, the sector classifications used by the portfolio management team may differ from GICS. The percentage shown for each investment category reflects the value of investments in that category as a percentage of market value (excluding investments in the securities lending reinvestment vehicle, if any). Investments in the securities lending reinvestment vehicle represented 0.6% of the Fund s net assets at June 30,

10 Schedule of Investments June 30, 2018 (Unaudited) Shares Description Value Common Stocks 99.8% Automobiles & Components 1.7% 32,322 Aptiv plc $ 2,961,665 22,629 Delphi Technologies plc 1,028,714 6,766 Tesla, Inc.* (a) 2,320,400 6,310,779 Banks 1.1% 41,305 First Republic Bank 3,997,911 Capital Goods 8.4% 20,269 Boeing Co. (The) 6,800,452 34,170 Fortive Corp. 2,634,849 12,309 General Dynamics Corp. 2,294,521 38,785 Honeywell International, Inc. 5,586,979 16,176 Northrop Grumman Corp. 4,977,355 6,624 Roper Technologies, Inc. 1,827,628 46,564 Sensata Technologies Holding plc* 2,215,515 14,025 Stanley Black & Decker, Inc. 1,862,660 46,394 Xylem, Inc. 3,126,028 31,325,987 Consumer Durables & Apparel 2.7% 88,551 NIKE, Inc. Class B 7,055,744 20,241 PVH Corp. 3,030,482 10,086,226 Consumer Services 2.8% 52,136 Dunkin Brands Group, Inc. 3,601,034 30,787 Las Vegas Sands Corp. 2,350,895 27,287 McDonald s Corp. 4,275,600 10,227,529 Diversified Financials 1.0% 35,802 Northern Trust Corp. 3,683,668 Energy 1.9% 15,266 Diamondback Energy, Inc. 2,008,548 30,332 EOG Resources, Inc. 3,774,211 19,047 Marathon Petroleum Corp. 1,336,337 7,119,096 Food & Staples Retailing 0.7% 29,352 Walmart, Inc. 2,513,999 Food, Beverage & Tobacco 3.8% 106,944 Coca-Cola Co. (The) 4,690,564 30,426 Kraft Heinz Co. (The) 1,911,361 77,493 Monster Beverage Corp.* 4,440,349 39,145 Philip Morris International, Inc. 3,160,567 14,202,841 Health Care Equipment & Services 5.5% 137,190 Boston Scientific Corp.* 4,486,113 37,216 Danaher Corp. 3,672,475 26,097 Edwards Lifesciences Corp.* 3,798,940 10,841 Humana, Inc. 3,226,607 7,201 Intuitive Surgical, Inc.* 3,445,534 7,875 UnitedHealth Group, Inc. 1,932,053 20,561,722 Shares Description Value Common Stocks (continued) Household & Personal Products 1.4% 53,245 Colgate-Palmolive Co. $ 3,450,808 13,191 Estee Lauder Cos., Inc. (The) Class A 1,882,224 5,333,032 Insurance 0.5% 1,592 Markel Corp.* 1,726,285 Materials 2.2% 29,108 DowDuPont, Inc. 1,918,799 30,138 Ecolab, Inc. 4,229,266 4,833 Sherwin-Williams Co. (The) 1,969,786 8,117,851 Media 0.9% 102,146 Comcast Corp. Class A 3,351,410 Pharmaceuticals, Biotechnology & Life Sciences 8.9% 11,708 AbbVie, Inc. 1,084,746 49,206 Agilent Technologies, Inc. 3,042,899 20,128 Alexion Pharmaceuticals, Inc.* 2,498,891 31,299 Alkermes plc* 1,288,267 61,388 Eli Lilly & Co. 5,238,238 16,602 Illumina, Inc.* 4,636,773 30,197 Incyte Corp.* 2,023,199 23,652 Shire plc ADR 3,992,458 27,546 Vertex Pharmaceuticals, Inc.* 4,681,718 53,302 Zoetis, Inc. 4,540,797 33,027,986 Real Estate Investment Trusts 1.8% 25,797 American Tower Corp. 3,719,153 6,730 Equinix, Inc. 2,893,160 6,612,313 Retailing 10.8% 12,813 Amazon.com, Inc.* 21,779,537 2,388 Booking Holdings, Inc.* 4,840,691 18,983 Home Depot, Inc. (The) 3,703,583 16,687 Netflix, Inc.* 6,531,793 40,367 Ross Stores, Inc. 3,421,103 40,276,707 Semiconductors & Semiconductor Equipment 4.1% 45,996 Analog Devices, Inc. 4,411,937 69,533 Marvell Technology Group Ltd. 1,490,788 21,207 NVIDIA Corp. 5,023,938 39,969 Texas Instruments, Inc. 4,406,582 15,333,245 Software & Services 28.9% 22,868 Adobe Systems, Inc.* 5,575,447 9,394 Alibaba Group Holding Ltd. ADR* 1,742,869 10,539 Alphabet, Inc. Class A* 11,900,534 8,045 Alphabet, Inc. Class C* 8,975,404 16,289 Autodesk, Inc.* 2,135,325 32,663 Electronic Arts, Inc.* 4,606,136 8 The accompanying notes are an integral part of these financial statements.

11 Schedule of Investments (continued) June 30, 2018 (Unaudited) Shares Description Value Common Stocks (continued) Software & Services (continued) 77,578 Facebook, Inc. Class A* $ 15,074,957 33,829 Fiserv, Inc.* 2,506,391 30,872 Global Payments, Inc. 3,441,919 23,197 Intuit, Inc. 4,739,263 35,936 Mastercard, Inc. Class A 7,062, ,592 Microsoft Corp. 23,133,117 46,564 salesforce.com, Inc.* 6,351,330 76,612 Visa, Inc. Class A 10,147, ,392,094 Technology Hardware & Equipment 8.1% 42,914 Amphenol Corp. Class A 3,739, ,534 Apple, Inc. 23,052,489 78,881 Cisco Systems, Inc. 3,394,249 30,186,693 Transportation 2.6% 78,914 CSX Corp. 5,033,135 14,422 FedEx Corp. 3,274,659 13,873 XPO Logistics, Inc.* 1,389,797 9,697,591 TOTAL INVESTMENTS BEFORE SECURITIES LENDING REINVESTMENT VEHICLE (Cost $227,251,562) $371,084,965 Shares Distribution Rate Value Securities Lending Reinvestment Vehicle (b) 0.6% Goldman Sachs Financial Square Government Fund Institutional Shares 2,378, % $ 2,378,334 (Cost $2,378,334) TOTAL INVESTMENTS 100.4% (Cost $229,629,896) $373,463,299 LIABILITIES IN EXCESS OF OTHER ASSETS (0.4)% (1,661,794) NET ASSETS 100.0% $371,801,505 The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. * Non-income producing security. (a) All or a portion of security is on loan. (b) Represents an Affiliated Issuer. Investment Abbreviation: ADR American Depositary Receipt The accompanying notes are an integral part of these financial statements. 9

12 Statement of Assets and Liabilities June 30, 2018 (Unaudited) Assets: Investments in unaffiliated issuers, at value (cost $227,251,562) (a) $371,084,965 Investments in affiliated securities lending reinvestment vehicle, at value (cost $2,378,334) 2,378,334 Cash 969,296 Receivables: Dividends 189,791 Reimbursement from investment adviser 15,974 Fund shares sold 14,143 Securities lending income 3,374 Other assets 3,059 Total assets 374,658,936 Liabilities: Payables: Payable upon return of securities loaned 2,378,334 Management fees 221,035 Fund shares redeemed 131,266 Distribution and Service fees and Transfer Agency fees 59,300 Accrued expenses 67,496 Total liabilities 2,857,431 Net Assets: Paid-in capital 124,563,373 Undistributed net investment income 512,224 Accumulated net realized gain 102,892,505 Net unrealized gain 143,833,403 NET ASSETS $371,801,505 Net Assets: Institutional $118,615,085 Service 253,186,420 Total Net Assets $371,801,505 Shares outstanding $0.001 par value (unlimited shares authorized): Institutional 5,512,487 Service 11,809,364 Net asset value, offering and redemption price per share: Institutional $21.52 Service (a) Includes loaned securities having a market value of $2,331, The accompanying notes are an integral part of these financial statements.

13 Statement of Operations For the Six Months Ended June 30, 2018 (Unaudited) Investment income: Dividends unaffiliated issuers $ 2,284,886 Securities lending income unaffiliated issuer 16,319 Dividends affiliated issuers 1,860 Total investment income 2,303,065 Expenses: Management fees 1,596,890 Distribution and Service fees Service Shares 394,009 Transfer Agency fees (a) 43,259 Professional fees 42,164 Custody, accounting and administrative services 30,731 Printing and mailing costs 30,299 Trustee fees 9,213 Other 8,532 Total expenses 2,155,097 Less expense reductions (153,405) Net expenses 2,001,692 NET INVESTMENT INCOME 301,373 Realized and unrealized gain (loss): Net realized gain from investments unaffiliated issuers (including commissions recaptured of $3,523) 94,401,465 Net change in unrealized loss on investments unaffiliated issuers (55,343,700) Net realized and unrealized gain 39,057,765 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 39,359,138 (a) Institutional and Service Shares incurred Transfer Agency fees of $11,741 and $31,518, respectively. The accompanying notes are an integral part of these financial statements. 11

14 Statements of Changes in Net Assets For the Six Months Ended June 30, 2018 (Unaudited) For the Fiscal Year Ended December 31, 2017 From operations: Net investment income $ 301,373 $ 1,482,058 Net realized gain 94,401,465 42,429,492 Net change in unrealized gain (loss) (55,343,700) 92,211,760 Net increase in net assets resulting from operations 39,359, ,123,310 Distributions to shareholders: From net investment income Institutional Shares (558,904) Service Shares (1,043,857) From net realized gains Institutional Shares (4,843,084) Service Shares (17,928,563) Total distributions to shareholders (24,374,408) From share transactions: Proceeds from sales of shares 8,670,577 16,566,518 Reinvestment of distributions 24,374,408 Cost of shares redeemed (217,600,793) (77,648,929) Net decrease in net assets resulting from share transactions (208,930,216) (36,708,003) TOTAL INCREASE (DECREASE) (169,571,078) 75,040,899 Net assets: Beginning of period 541,372, ,331,684 End of period $ 371,801,505 $541,372,583 Undistributed net investment income $ 512,224 $ 210, The accompanying notes are an integral part of these financial statements.

15 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 (a) Net realized and unrealized gain 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 to average net assets Portfolio turnover rate (c) FOR THE SIX MONTHS ENDED JUNE 30, (UNAUDITED) Institutional $19.73 $0.03 $1.76 $1.79 $ $ $ $ % $118, % (d) 0.82% (d) 0.33% (d) 25% Service , (d) 1.06 (d) 0.07 (d) 25 FOR THE FISCAL YEARS ENDED DECEMBER 31, Institutional (0.10) (0.86) (0.96) , Service (0.05) (0.86) (0.91) , Institutional (0.10) (e) (0.10) , Service (0.06) (e) (0.06) , Institutional (f) (0.06) (1.03) (1.09) , (f) Service (f) (0.02) (1.03) (1.05) , (f) Institutional (0.07) (3.72) (3.79) , Service (0.02) (3.72) (3.74) , Institutional (0.07) (0.63) (0.70) , Service (0.03) (0.63) (0.66) , (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. 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. (f) Reflects income recognized from special dividends which amounted to $0.03 per share and 0.20% of average net assets. The accompanying notes are an integral part of these financial statements. 13

16 Notes to Financial Statements June 30, 2018 (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 Strategic Growth Fund (the Fund ). The Fund is a 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 ( 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, if any. 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. Distributions received from the Fund s investments in United States ( U.S. ) real estate investment trusts ( REITs ) may be characterized as ordinary income, net capital gain or a return of capital. A return of capital is recorded by the Fund as a reduction to the cost basis of the REIT. C. Class Allocations and Expenses Investment income, realized and unrealized gain (loss), if any, 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 straightline 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. Commission Recapture GSAM, on behalf of certain Funds, may direct portfolio trades, subject to seeking best execution, to various brokers who have agreed to rebate a portion of the commissions generated. Such rebates are made directly to the Fund as cash payments and are included in net realized gain (loss) from investments on the Statement of Operations. 14

17 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 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, and are generally classified as Level 2. Money Market Funds Investments in the Goldman Sachs Financial Square Government Fund ( Underlying Fund ) are valued at the NAV of the Institutional Share class on the day of valuation. These investments are generally classified as Level 1 of the fair value hierarchy. For information regarding an Underlying Fund s accounting policies and investment holdings, please see the Underlying Fund s shareholder report. 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 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 15

18 Notes to Financial Statements (continued) June 30, 2018 (Unaudited) 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued) 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 classified in the fair value hierarchy as of June 30, 2018: Investment Type Level 1 Level 2 Level 3 Assets Common Stock and/or Other Equity Investments (a) North America $371,084,965 $ $ Securities Lending Reinvestment Vehicle 2,378,334 Total $373,463,299 $ $ (a) Amounts are disclosed by continent to highlight the impact of time zone differences between local market close and the calculation of NAV. Security valuations are based on the principal exchange or system on which they are traded, which may differ from country of domicile. For further information regarding security characteristics, see the Schedule of Investments. 4. 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. As of June 30, 2018, contractual management fees with GSAM were at the following rates. The effective contractual management rate and effective net management rate represent the rates for the six month period ended June 30, First $1 billion Next $1 billion Contractual Management Rate Next $3 billion Next $3 billion Over $8 billion Effective Rate Effective Net Management Rate^ 0.71% 0.64% 0.61% 0.59% 0.58% 0.74% 0.71% ^ Effective Net Management Rate includes the impact of management fee waivers of affiliated Underlying Funds, if any. The Effective Net Management Rate may not correlate to the Contractual Management Rate as a result of management fee waivers that may be in effect from time to time. For the six months ended June 30, 2018, GSAM waived $61,074 of its management fee. Prior to April 30, 2018, the contractual management fee rates for the Fund was as stated below and GSAM agreed to waive a portion of its management fee in order to achieve an Effective Net Management Rate as set forth in the Fund s prospectus dated April 28, First $1 billion Next $1 billion Next $3 billion Next $3 billion Over $8 billion 0.75% 0.68% 0.65% 0.64% 0.63% 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 the affiliated Underlying Fund in which the Fund invests, except those 16

19 4. AGREEMENTS AND AFFILIATED TRANSACTIONS (continued) management fees it earns from the Fund s investments of cash collateral received in connection with securities lending transactions in the Goldman Sachs Financial Square Government Fund. For the six months ended June 30, 2018, GSAM waived $211 of the Fund s management fee. B. Distribution and 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, 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. 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, service fees and shareholder administration fees (as applicable), taxes, interest, brokerage fees, expenses of shareholder meetings, litigation and 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 0.014%. The Other Expense limitation will remain in place through at least April 30, 2019, and prior to such date GSAM may not terminate the arrangement without the approval of the Trustees. For the six months ended June 30, 2018, GSAM reimbursed $90,640 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, 2018, custody fee credits were $1,480. E. Line of Credit Facility As of June 30, 2018, the Fund participated in a $770,000,000 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, 2018, the Fund did not have any borrowings under the facility. Prior to May 1, 2018 the facility was $1,100,000,000. The facility was decreased to $770,000,000 effective May 1, F. Other Transactions with Affiliates The following table provides information about the Fund s investment in the Goldman Sachs Financial Square Government Fund as of and for the six months ended June 30, 2018: Beginning Value as of December 31, 2017 Purchases at Cost Proceeds from Sales Ending Value as of June 30, 2018 Shares as of June 30, 2018 Dividend Income from Affiliated Investment Company $722 $7,344,401 $(7,345,123) $ $1, PORTFOLIO SECURITIES TRANSACTIONS The cost of purchases and proceeds from sales and maturities of long-term securities for the six months ended June 30, 2018, were $112,059,021 and $317,824,077, respectively. 17