Prospectus
December 29, 2022
December 29, 2022
STRATEGIC
FACTOR FUNDS
THE SECURITIES AND
EXCHANGE COMMISSION AND COMMODITY FUTURES TRADING COMMISSION HAVE NOT APPROVED
OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
|
AN
INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT
INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES
INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN THE
FUND. |
◼
Goldman Sachs
Strategic Factor Allocation Fund
◼
Institutional
Shares: SFAFX
◼
Class R6
Shares: SRAFX
◼
Goldman Sachs
Strategic Volatility Premium Fund
◼
Institutional
Shares: SVPFX
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Institutional |
Class
R6 |
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Management
Fees |
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Other
Expenses1 |
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Acquired
(Underlying) Fund Fees and Expenses |
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Total
Annual Fund Operating Expenses2 |
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Fee
Waiver3 |
( |
( |
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Total
Annual Fund Operating Expenses After Fee Waiver |
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1
2
3
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1
Year |
3
Years |
5
Years |
10
Years |
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Institutional
Shares |
$ |
$ |
$ |
$ |
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Class
R6 Shares |
$ |
$ |
$ |
$ |
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1
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2
3
4
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1
Year |
5
Years |
Since
Inception |
Inception
Date | |
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Institutional
Shares |
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Returns
Before Taxes |
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Returns
After Taxes on Distributions |
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Returns
After Taxes on Distributions and Sale of Fund Shares |
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Class
R6 Shares |
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Returns
Before Taxes |
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Strategic
Factor Allocation Composite Index (reflects no deduction for fees or
expenses) |
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S&P
500®
Index (reflects no deduction for fees or expenses) |
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Bloomberg
U.S. Aggregate Bond Index (reflects no deduction for fees or
expenses) |
- |
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*
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Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Managers:
Oliver Bunn,
Vice President, has managed the Fund since 2022; and Patrick Hartnett, Vice
President, has managed the Fund since 2021.
5
|
Buying
and Selling Fund Shares |
The minimum
initial investment for Institutional Shares is, generally, $1,000,000 for
institutional investors, alone or in combination with other assets under the
management of GSAM and its affiliates. There is no minimum for initial purchases
of Class R6 Shares, except for certain institutional investors who purchase
Class R6 Shares directly with the Fund’s transfer agent for which the minimum
initial investment is $5,000,000. Institutional Shares do not impose a minimum
initial investment requirement on certain employee benefit plans and on certain
investment advisers investing on behalf of other accounts.
There is no
minimum subsequent investment for Institutional or Class R6
shareholders.
You may
purchase and redeem (sell) shares of the Fund on any business day through
certain intermediaries that have a relationship with Goldman Sachs & Co. LLC
(“Goldman Sachs”), including banks, trust companies, brokers, registered
investment advisers and other financial institutions authorized to accept, on
behalf of the Fund, purchase and exchange orders and redemption requests placed
by or on behalf of their customers (“Intermediaries”). Shares of the Fund are
offered exclusively to (i) clients of Goldman Sachs Private Wealth Management
(“GS PWM”), and (ii) Goldman Sachs, its affiliates or their respective officers,
partners, directors or employees (including retired employees and former
partners), and any Trustee or officer of the Trust.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 11 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 11 of
the Prospectus.
6
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Institutional |
|
Management
Fees |
|
|
Other
Expenses |
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|
Acquired
(Underlying) Fund Fees and Expenses |
|
|
Total
Annual Fund Operating Expenses1 |
|
|
Fee
Waiver2 |
( |
|
Total
Annual Fund Operating Expenses After Fee Waiver |
|
1
2
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
Institutional
Shares |
$ |
$ |
$ |
$ |
|
|
7
|
|
|
|
8
9
|
|
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Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Managers:
Oliver Bunn,
Vice President, has managed the Fund since 2022; and Patrick Hartnett, Vice
President, has managed the Fund since 2021.
|
Buying
and Selling Fund Shares |
The minimum
initial investment for Institutional Shares is, generally, $1,000,000 for
institutional investors, alone or in combination with other assets under the
management of GSAM and its affiliates. Institutional Shares do not impose a
minimum initial investment requirement on certain employee benefit plans and on
certain investment advisers investing on behalf of other accounts.
You may
purchase and redeem (sell) shares of the Fund on any business day through
certain intermediaries that have a relationship with Goldman Sachs & Co. LLC
(“Goldman Sachs”), including banks, trust companies, brokers, registered
investment advisers and other financial institutions authorized to accept, on
behalf of the Fund, purchase and exchange orders and redemption requests placed
by or on behalf of their customers (“Intermediaries”). Shares of the Fund are
offered exclusively to (i) clients of Goldman Sachs Private Wealth Management
(“GS PWM”), and (ii) Goldman Sachs, its affiliates or their respective officers,
partners, directors or employees (including retired employees and former
partners), and any Trustee or officer of the Trust.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 11 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 11 of
the Prospectus.
10
Strategic
Factor Funds –
Additional Summary Information
Additional Summary Information
|
Tax
Information |
The Funds'
distributions are taxable, and will be taxed as ordinary income or capital
gains, unless you are investing through a tax-deferred arrangement, such as a
401(k) plan or an individual retirement account. Investments made through
tax-deferred arrangements may become taxable upon withdrawal from such
arrangements.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
If you
purchase the Fund through an Intermediary, the Fund and/or its related companies
may pay the Intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the Intermediary and
your salesperson to recommend the Fund over another investment. Ask your
salesperson or visit your Intermediary’s website for more
information.
11
Investment
Management Approach
|
INVESTMENT
OBJECTIVE |
The Fund
seeks long-term total return. The Fund’s investment objective may be changed
without shareholder approval upon 60 days notice.
|
PRINCIPAL
INVESTMENT STRATEGY |
Strategic Factor
Allocation Fund
The Fund
seeks to achieve its investment objective through the implementation of the
proprietary Strategic Allocation process of the Investment Strategy Group. The
Strategic Allocation is generally derived from the Investment Strategy Group’s
market views on a variety of asset classes and instruments. The Investment
Advisor determines in its sole discretion how to implement the Strategic
Allocation.
The
Strategic Allocation was developed to provide exposure to “factors,” which are
academically derived drivers of investment returns that the Investment Adviser
believes offer the potential for greater and more consistent returns in
different market environments. These factors include, but are not limited to,
equity, term, flow, and volatility. Under normal circumstances, the Fund will
invest in a variety of asset classes, including, but not limited to, equity,
fixed income and foreign exchange contracts.
The
Investment Adviser implements the Strategic Allocation by investing in
derivatives and Underlying Funds, which may include affiliated investment
companies and ETNs. Strategic Allocation may also be implemented by investing in
any one or a combination of the following asset classes: (i) U.S. and foreign
equity securities, including common and preferred stocks; (ii) fixed income
instruments, which include, among others, debt issued by governments (including
the U.S. and foreign governments), their agencies, instrumentalities, sponsored
entities, and political subdivisions, notes, debt participations and
non-investment grade securities (commonly known as “junk bonds”); and (iii)
foreign exchange contracts.
The Fund
may invest without restriction as to issuer capitalization, country currency,
maturity, duration or credit rating. The Fund may implement short positions for
hedging purposes or to seek to enhance total return, and may do so by using
swaps, futures, forwards or options, or through short sales of any instrument
that the Fund may purchase for investment. The Fund invests in liquid
derivatives, such as exchange-traded futures, options and currency forwards, as
well as ETFs to get exposure to the factors.
The Fund
may invest in derivatives for both hedging and non-hedging purposes. Derivative
positions may be listed or OTC and may or may not be centrally cleared. The
Fund’s derivative investments may include but are not limited to (i) futures
contracts, including futures based on equity or fixed income securities and/or
equity or fixed income indices, interest rate futures, currency futures and swap
futures; (ii) swaps, including equity, currency, interest rate, total return,
variance and credit default swaps, and swaps on futures contracts; (iii)
options, including long and short positions in call options and put options on
indices, individual securities or currencies, swaptions and options on futures
contracts; (iv) forward contracts, including forwards based on equity or fixed
income securities and/or equity or fixed income indices, currency forwards,
interest rate forwards, swap forwards and non-deliverable forwards; and (v)
other instruments, including structured securities. As a result of the Fund’s
use of derivatives, the Fund may also hold significant amounts of U.S.
Treasuries or short-term investments, including money market funds, repurchase
agreements, cash and time deposits.
The Fund
seeks to generate income by selling call and put options on various reference
securities, including equity market indices and U.S. Treasury futures. The Fund
will generally “delta-hedge” an option it sells by taking long or short
positions in the option’s reference security, potentially through the use of
ETFs and futures. Delta-hedging is intended to reduce the Fund’s exposure to
volatility in the markets. The Fund will generally realize gains to the extent
the income from collected premiums exceeds the aggregate appreciation or
depreciation of the reference security over the exercise price of an
option.
The Fund
may, from time to time, take temporary defensive positions that are inconsistent
with the Fund’s principal investment strategies in attempting to respond to
adverse market, political or other conditions. For temporary defensive purposes,
the Fund may invest up to 100% of its total assets in securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or sponsored
enterprises (“U.S. Government Securities”), commercial paper rated at least A-2
by S&P Global Ratings (“Standard & Poor’s”), P-2 by Moody’s Investors
Service, Inc. (“Moody’s”) or having a comparable credit rating by another
nationally recognized statistical rating organization (“NRSRO”) (or, if unrated,
determined by the Investment Adviser to be of comparable credit quality),
certificates of deposit, bankers’ acceptances, repurchase agreements,
non-convertible preferred stocks and nonconvertible corporate bonds with a
remaining maturity of less than one year, ETFs and other investment companies
and cash items. When
the Fund’s assets are invested in such instruments, the Fund may not be
achieving its investment objective.
12
Investment
Management Approach
The
Strategic Factor Allocation Fund may use derivatives, including futures,
forwards, options and swaps, to implement short positions. The Strategic Factor
Allocation Fund may also take short positions in equity securities (including
ETFs) directly. When a Fund sells a security short, it borrows the security from
a lender and then sells it to a third party. To complete or close the short
transaction, a Fund must acquire the same security in the market and return it
to the lender. If a Fund can close the transaction by buying the security at a
price lower than the price paid by the third party, a profit results; however,
if the price rises, a loss occurs. When a Fund makes a short sale, the Fund may
use all or a portion of the cash proceeds of the short sale to purchase
additional securities or for any other Fund purpose. When a Fund does this, it
is required to pledge replacement collateral as security to the broker, and may
use securities it owns to meet any such collateral obligations.
Short sales
involve forms of leveraging, so an investment in the Strategic Factor Allocation
Fund may present more risk than other funds that do not engage in short selling
transactions. For example, the Strategic Factor Allocation Fund’s long positions
could decline in value at the same time that the value of the Fund’s short
positions increases, thereby increasing the potential for loss. In addition, the
investment of cash proceeds from a short sale in equity securities or other
investments may increase further the volatility of the Strategic Factor
Allocation Fund’s NAV and investment performance, and may result in greater
potential investment losses. For additional information, see “Risks of the
Funds.”
The Fund’s
blended benchmark index is the Strategic Factor Allocation Composite Index,
which is comprised of the S&P 500® Index
(50%) and the Bloomberg U.S. Aggregate Bond Index (50%). The S&P
500® Index is
the Standard & Poor’s 500 Composite Stock Price Index of 500 stocks, an
unmanaged index of common stock prices. The Bloomberg U.S. Aggregate Bond Index
is an unmanaged index of bond prices.
Strategic Volatility
Premium Fund
The Fund seeks to achieve
its investment objective through the implementation of a proprietary volatility
overlay strategy (“Strategic Volatility Premium”). The Strategic Volatility
Premium is a “factor” within the proprietary Strategic Factor Allocation process
of the Goldman Sachs Investment Strategy Group (“Investment Strategy Group”).
The Strategic Factor Allocation process was developed to provide exposure to
“factors,” which the Investment Adviser believes to be systematic drivers of
investment returns that offer the potential for greater and more consistent
returns in different market environments. The Strategic Volatility Premium is
generally derived from the Investment Strategy Group’s market views. The
Investment Adviser determines in its sole discretion how to implement the
Strategic Volatility Premium.
The Strategic Volatility
Premium seeks to enhance the returns of a fixed income allocation to U.S.
Treasury securities with the implementation of
an
options-based overlay strategy whereby the Fund sells (writes) options on
securities indices
and/or
various
other
reference securities,
such
as
U.S.
Treasury
futures. To limit the downside risk of these written options, the Fund may
utilize long options on instruments corresponding to the instruments underlying
the written options as well as
take positions
in these instruments directly or by acquiring other closely related securities
such as futures on these instruments. These positions are intended to reduce the
impacts on the Fund if the underlying instrument
approaches or
falls past the strike price of a written put option or if it increases past the
strike price of a written call option.Under
normal
circumstances, the Fund will primarily invest in fixed and floating rate U.S.
Treasury securities,
futures and
options. U.S. Treasury securities include U.S. Treasury notes, U.S. Treasury
bills and U.S. Treasury floating rate bonds with remaining maturities between
one and five years. The Fund may also use futures to gain exposure to U.S.
Treasury securities. The options-based overlay strategy seeks to enhance the
returns of the U.S.
Treasury
securities. The
options-based
overlay strategy is designed to provide the Fund with enhanced returns and
additional income. The downside risk may be mitigated by long options positions
to the extent of the difference between the strike prices of the purchased
options and the strike prices of the written options, as well as hedging
positions in the instruments underlying the written options or other closely
related securities such as futures on these instruments.As the seller of
options, the Fund will receive cash (the “premium”) from the purchaser. If the
purchaser exercises an option, the Fund pays the purchaser the difference
between the strike price of the option and the price of the underlier at the
time of exercise in the case of a put option or the difference between the price
of the underlier at the time of exercise and the strike price of the option in
the case of a call option. The premium, the exercise price and the market price
of the underlier determine the gain or loss realized by the Fund as the seller
of options. As the buyer of options, the Fund will pay the “premium” to the
seller. If the Fund exercises a put option, the seller will pay the Fund the
difference between the strike price of the option and the price of the underlier
at the time of exercise. If the Fund exercises a call option, the seller will
pay the Fund the difference between the price of the underlier at the time of
exercise and the strike price of the option. The premium, the exercise price and
the market price of the underlier determine the gain or loss realized by the
Fund as the buyer of options.
During periods
in which the expected volatility of the markets
for the
instruments underlying the options exceeds subsequent realized volatility, a
portfolio of U.S. Treasury securities with an options-based overlay strategy may
outperform the same portfolio without such an options overlay strategy. However,
a portfolio with an options-based overlay strategy may underperform the same
portfolio without these options, for example, if realized volatility in the
underlying
markets
exceeds expected volatility.
13
In addition
to the Strategic Volatility Premium, the Fund may use futures contracts,
primarily futures on indexes, options on indexes and options on futures to more
effectively gain targeted exposure to the volatility premium, to equitize cash
and to hedge the Fund’s portfolio if it is unable to purchase or write the
necessary options for its overlay strategy. Derivative positions may be listed
or over-the-counter (“OTC”) and may or may not be centrally cleared.
The Fund
may, from time to time, take temporary defensive positions that are inconsistent
with the Fund’s principal investment strategies in attempting to respond to
adverse market, political or other conditions. For temporary defensive purposes,
the Fund may invest up to 100% of its total assets in securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or sponsored
enterprises (“U.S. Government Securities”), commercial paper rated at least A-2
by Standard & Poor’s, P-2 by Moody’s Investors Service, Inc. (“Moody’s”) or
having a comparable credit rating by another nationally recognized statistical
rating organization (“NRSRO”) (or, if unrated, determined by the Investment
Adviser to be of comparable credit quality), certifi- cates of deposit, bankers’
acceptances, repurchase agreements, non-convertible preferred stocks and
nonconvertible corporate bonds with a remaining maturity of less than one year,
ETFs and other investment companies and cash items. When
the Fund’s assets are invested in such instruments, the Fund may not be
achieving its investment objective.
The Fund’s
benchmark index is the Bloomberg 1-5 Year U.S. Treasury Index. The Bloomberg 1-5
Year U.S. Treasury Index is an unmanaged index of bond prices.
Investment
Philosophy
The
Investment Strategy Group, a group of researchers, economists, and strategists
within Goldman Sachs, is responsible for strategic and tactical asset allocation
recommendations for Goldman Sachs and its clients by employing a range of
fundamental, quantitative, and technical analyses at macro, regional, country
and sector levels.
The
Strategic Factor Allocation Fund will not necessarily track the Investment
Strategy Group’s Strategic Allocation, and the Strategic Volatility Premium Fund
will not necessarily track the Investment Strategy Group’s Volatility Premium;
rather, the Investment Adviser will have complete and final discretion as to
whether any Investment Strategy Group’s Strategic Allocation views or Volatility
Premium views will be implemented within each respective Fund. The Investment
Adviser will evaluate the Investment Strategy Group’s Strategic Allocation views
or Volatility Premium views, as applicable, and determine whether such Strategic
Allocation views or Volatility Premium views should be implemented. In addition,
the Investment Adviser may not implement the Strategic Allocation or Strategic
Volatility Premium in the same magnitude or utilize the same implementation
techniques.
With
respect to the Investment Strategy Group’s Strategic Allocation views or
Strategic Volatility Premium views that the Investment Adviser determines to
implement within the Strategic Factor Allocation Fund or the Strategic
Volatility Premium Fund, respectively, the Investment Adviser will determine, in
its sole discretion, the timing and the sizing of each Strategic Allocation or
Strategic Volatility Premium implemented by the applicable Fund and the
structure, instruments and techniques that will be used to implement the
Investment Strategy Group’s Strategic Allocation views or Strategic Volatility
Premium views within the applicable Fund. The structure, method and instruments
used to implement a view within a Fund may differ from those proposed by the
Investment Strategy Group.
|
ADDITIONAL
FEES AND EXPENSES INFORMATION |
“Acquired
Fund Fees and Expenses” reflect the expenses (including the management fees)
borne by a Fund through its ownership of shares in other investment
companies.
Differences
in the “Expense Limitation” ratios across a Fund’s share classes are the result
of, among other things, the effect of mathematical rounding on the daily accrual
of expense reimbursement, particularly, in respect to share classes with small
amounts of assets.
Differences
in the “Other Expenses” ratios across a Fund’s share classes are the result of,
among other things, contractual differences in transfer agency fees and/or the
effect of mathematical rounding on the daily accrual of certain expenses,
particularly, in respect to share classes with small amounts of
assets.
|
ADDITIONAL
PERFORMANCE INFORMATION |
The below
is additional information that relates to the “Performance” section of each
Fund’s Summary section.
Note that
the “Best Quarter” and “Worst Quarter” figures shown in the “Performance”
section of the Fund’s Summary section are applicable only to the time period
covered by the bar chart.
These
definitions apply to the after-tax returns shown in the “Performance” section of
the Fund’s Summary section.
14
Investment
Management Approach
Average
Annual Total Returns Before Taxes. These
returns do not reflect taxes on distributions on the Fund’s Shares nor do they
show how performance can be impacted by taxes when shares are redeemed (sold) by
you.
Average
Annual Total Returns After Taxes on Distributions. These
returns assume that taxes are paid on distributions on the Fund’s Institutional
Shares (i.e., dividends and capital gains) but do not reflect taxes that may be
incurred upon redemption (sale) of the Institutional Shares at the end of the
performance period.
Average
Annual Total Returns After Taxes on Distributions and Sale of Fund
Shares. These
returns reflect taxes paid on distributions on the Fund’s Institutional Shares
and taxes applicable when the shares are redeemed (sold).
Note
on Tax Rates. The
after-tax performance figures are calculated using the historically highest
individual federal marginal income tax rates at the time of the distributions
and do not reflect state and local taxes. In calculating the federal income
taxes due on redemptions, capital gains taxes resulting from a redemption are
subtracted from the redemption proceeds and the tax benefits from capital losses
resulting from the redemption are added to the redemption proceeds. Under
certain circumstances, the addition of the tax benefits from capital losses
resulting from redemptions may cause the Returns After Taxes on Distributions
and Sale of Fund Shares to be greater than the Returns After Taxes on
Distributions or even the Returns Before Taxes.
|
OTHER
INVESTMENT PRACTICES AND
SECURITIES |
Although
each Fund’s principal investment strategies are described in the Fund’s
Summary—Principal Strategy section of the Prospectus, the following tables
identify some of the investment techniques that may (but are not required to) be
used by the Funds in seeking to achieve their respective investment objectives.
Numbers in these tables show allowable usage only; for actual usage, consult
each Fund’s annual/semi-annual reports. For more information about these and
other investment practices and securities, see Appendix A. The Funds publish on
their website (http://www.gsamfunds.com) complete portfolio holdings as of the
end of each month subject to a 10 calendar day lag between the date of the
information and the date on which the information is disclosed. In addition, a
description of the Fund’s policies and procedures with respect to the disclosure
of the Fund’s portfolio holdings is available in the Fund’s Statement of
Additional Information (“SAI”).
15
|
10
Percent of total assets (including securities lending collateral) (italic
type)
10 Percent
of net assets (excluding borrowings for investment purposes) (roman
type)
• No
specific percentage limitation on usage; limited only by the objective and
strategies of the Fund |
Strategic
Factor
Allocation
Fund |
Strategic
Volatility
Premium
Fund |
|
Investment
Practices |
|
|
|
Borrowings |
33 1∕3 |
33 1∕3 |
|
Credit,
Currency, Equity, Index, Interest Rate, Total Return, and Mortgage Swaps
and Options on Swaps |
• |
• |
|
Cross
Hedging of Currencies |
• |
— |
|
Custodial
Receipts and Trust Certificates |
• |
— |
|
Direct
Equity Investments |
• |
— |
|
Foreign
Currency Transactions (including forward contracts) |
• |
— |
|
Futures
Contracts and Options and Swaps on Futures Contracts |
• |
• |
|
Illiquid
Investments1
|
15 |
15 |
|
Interest
Rate Caps, Floors and Collars |
• |
— |
|
Investment
Company Securities (including ETFs)2
|
10 |
10 |
|
Mortgage
Dollar Rolls |
• |
— |
|
Options
on Foreign Currencies3
|
• |
— |
|
Options
on Securities and Securities Indices4
|
• |
• |
|
Preferred
Stock, Warrants and Stock Purchase Rights |
• |
— |
|
Repurchase
Agreements |
• |
33 1∕3 |
|
Securities
Lending |
33 1∕3 |
— |
|
Short
Sales |
• |
— |
|
Short
Sales Against the Box |
• |
— |
|
Unseasoned
Companies |
• |
— |
|
When-Issued
Securities and Forward Commitments |
• |
— |
1
Illiquid
investments are any investments that a Fund reasonably expects cannot be sold or
disposed of in current market conditions in seven calendar days or less without
the sale or disposition significantly changing the market value of the
investment.
2
This
percentage limitation does not apply to a Fund’s investments in investment
companies (including ETFs) where a higher percentage limitation is permitted
under the Investment Company Act or rules,
regulations
or
exemptive
relief
thereunder.
3
The
Strategic Factor Allocation Fund may purchase and sell call and put options on
foreign currencies.
4
The
Funds may sell call and put options and purchase call and put options on
securities and securities indices.
16
Investment
Management Approach
|
10 Percent
of total assets (italic type)
10 Percent
of Net Assets (including borrowings for investment purposes) (roman
type)
• No
specific percentage limitation on usage; limited only by the objective and
strategies of the Fund |
Strategic
Factor
Allocation
Fund |
Strategic
Volatility
Premium
Fund |
|
Investment
Securities |
|
|
|
American,
European and Global Depositary Receipts |
• |
— |
|
Asset-Backed
and Mortgage-Backed Securities |
• |
— |
|
Bank
Obligations |
• |
— |
|
Collateralized
Loan Obligations |
• |
— |
|
Commodity-Linked
Derivative Instruments |
• |
— |
|
Convertible
Securities |
• |
— |
|
Corporate
Debt Obligations |
• |
— |
|
Derivatives |
• |
• |
|
Emerging
Country Securities |
• |
— |
|
Equity
Investments |
• |
• |
|
Fixed
Income Securities |
• |
• |
|
Floating
and Variable Rate Obligations |
• |
• |
|
Foreign
Government Securities |
• |
— |
|
Foreign
Securities |
• |
— |
|
Loans
and Loan Participations |
• |
— |
|
Master
Limited Partnerships (“MLPs”) |
• |
— |
|
Municipal
Securities |
• |
— |
|
Non-Investment
Grade Fixed Income Securities5
|
• |
— |
|
Preferred
Stock, Warrants, and Rights |
• |
— |
|
REITs |
• |
— |
|
Stripped
Mortgage-Backed Securities |
• |
— |
|
Structured
Securities (which may include equity or credit linked
notes) |
• |
— |
|
Temporary
Investments |
• |
• |
|
U.S.
Government Securities |
• |
• |
|
Yield
Curve Options and Inverse Floating Rate Securities |
• |
— |
5
May
be rated BB+ or lower by Standard & Poor’s, Ba1 or lower by Moody’s or have
a comparable rating by another NRSRO at the time of
investment.
17
Risks of
the Fund
Loss
of money is a risk of investing in the Fund (which, for the remainder of this
Prospectus, refers to one or more of the Funds offered in this Prospectus). The
principal risks of the Fund are discussed in the Summary section of the
Prospectus. The following section provides additional information on the risks
that apply to the Fund.
The
investment program of the Fund is speculative, entails substantial risks and
includes alternative investment techniques not employed by traditional mutual
funds. The risks applicable to the Fund are presented below in alphabetical
order, and not in the order of importance or potential exposure. The Fund should
not be relied upon as a complete investment program. The Fund’s investment
techniques (if they do not perform as designed) may increase the volatility of
performance and the risk of investment loss, including the loss of the entire
amount that is invested, and there can be no assurance that the investment
objective of the Fund will be achieved. Moreover, certain investment techniques
which the Fund may employ in its investment program can substantially increase
the adverse impact to which the Fund’s investments may be subject. There is no
assurance that the investment processes of the Fund will be successful, that the
techniques utilized therein will be implemented successfully or that they are
adequate for their intended uses, or that the discretionary element of the
investment processes of the Fund will be exercised in a manner that is
successful or that is not adverse to the Fund. An investment in the Fund is not
a bank deposit and is not insured or guaranteed by the FDIC or any other
governmental agency. Investors should carefully consider these risks before
investing.
18
Risks
of the Fund
|
✓ Principal
Risk
• Additional
Risk |
Strategic
Factor
Allocation
Fund |
Strategic
Volatility
Premium
Fund |
|
Absence
of Regulation |
✓ |
✓ |
|
Asset
Allocation |
✓ |
— |
|
Call/Prepayment |
• |
— |
|
Counterparty |
✓ |
✓ |
|
Credit/Default |
✓ |
— |
|
Cybersecurity |
• |
• |
|
Derivatives |
✓ |
✓ |
|
Emerging
Countries |
• |
— |
|
Expenses |
• |
• |
|
Extension |
• |
— |
|
Foreign |
✓ |
— |
|
Geographic |
• |
— |
|
Interest
Rate |
✓ |
✓ |
|
Investing
in the Underlying Funds |
✓ |
— |
|
Investments
in ETFs |
✓ |
• |
|
Large
Shareholder Transactions |
✓ |
✓ |
|
Leverage |
✓ |
✓ |
|
Liquidity |
✓ |
✓ |
|
Management |
✓ |
✓ |
|
Market |
✓ |
✓ |
|
Mid
Cap and Small Cap |
• |
— |
|
Mortgage-Backed
and Other Asset-Backed |
• |
— |
|
NAV |
✓ |
✓ |
|
Non-Hedging
Foreign Currency Trading |
✓ |
— |
|
Non-Investment
Grade Fixed Income Securities |
• |
— |
|
Option
Writing Risk |
✓ |
✓ |
|
Other
Investment Company |
✓ |
• |
|
REIT |
• |
— |
|
Regulatory
(Volcker Rule) |
— |
• |
|
Short
Selling/Position |
✓ |
— |
|
Sovereign
Default |
|
|
|
Economic |
• |
— |
|
Political |
• |
— |
|
Repayment |
• |
— |
|
Stock |
✓ |
✓ |
|
Swaps |
• |
• |
|
Temporary
Investments |
✓ |
• |
|
U.S.
Government Securities |
✓ |
• |
◼
Absence
of Regulation Risk —The Fund
engages in OTC transactions, which trade in a dealer network, rather than on an
exchange. In general, there is less governmental regulation and supervision of
transactions in the OTC markets (in which option contracts and certain options
on swaps are generally traded) than of transactions entered into on organized
exchanges.
◼
Asset
Allocation Risk —The Fund’s
allocations to the various asset classes may cause the Fund to underperform
other funds with a similar investment objective. It is possible that the
Investment Adviser will allocate Fund assets to asset classes that perform
poorly or underperform other investments under various market
conditions.
◼
Call/Prepayment
Risk—An issuer
could exercise its right to pay principal on an obligation held by the
Fund (such as a mortgage-backed security) earlier than expected. This may
happen when there is a decline in interest rates, when credit spreads change, or
when an issuer’s credit quality improves. Under these circumstances, the Fund
may be unable to recoup all of its initial investment and will also suffer from
having to reinvest in lower-yielding securities.
◼
Counterparty
Risk—Many of the
protections afforded to cleared transactions, such as the security afforded by
transacting through a clearing house, might not be available in connection with
certain OTC transactions. Therefore, in those instances in which the
19
Fund enters
into certain OTC transactions, the Fund will be subject to the risk that its
direct counterparty will not perform its obligations under the transactions and
that the Fund will sustain losses. However, recent regulatory developments
require margin on certain uncleared OTC transactions which may reduce, but not
eliminate, this risk.
◼
Credit/Default
Risk—An issuer
or guarantor of fixed income securities or instruments held by the Fund (which
may have low credit ratings) may default on its obligation to pay interest and
repay principal or default on any other obligation. The credit quality of the
Fund’s portfolio securities or instruments may meet the Fund’s credit quality
requirements at the time of purchase but then deteriorate thereafter, and such a
deterioration can occur rapidly. In certain instances, the downgrading or
default of a single holding or guarantor of the Fund’s holdings may impair the
Fund’s liquidity and have the potential to cause significant NAV deterioration.
These risks are heightened in market environments where interest rates are
rising as well as in connection with the Fund’s investments in non-investment
grade fixed income securities.
◼
Cybersecurity
Risk—The Fund
and/or an Underlying Fund may be susceptible to operational and information
security risks resulting from cyber-attacks. Cyber-attacks include, among
others, stealing or corrupting confidential information and other data that is
maintained online or digitally for financial gain, denial-of-service attacks on
websites causing operational disruption, and the unauthorized release of
confidential information and other data. Cyber-attacks have the ability to cause
significant disruptions and impact business operations; to result in financial
losses; to prevent shareholders from transacting business; to interfere with the
Fund’s calculation of NAV; and to lead to violations of applicable privacy and
other laws, regulatory fines, penalties, reputational damage, reimbursement or
other compensation costs and/or additional compliance costs. Cyber-attacks
affecting the Fund or its Investment Adviser, custodian, Transfer Agent, or
other third-party service providers may adversely impact the Fund and its
shareholders.
◼
Derivatives
Risk—The
Fund’s use of options, futures, forwards, swaps, options on futures and
swaps, structured securities and other derivatives and similar instruments
(collectively referred to in this paragraph as “derivatives”) may result in
losses, including due to adverse market movements. Derivatives, which may pose
risks in addition to and greater than those associated with investing directly
in securities, currencies or other assets and instruments, may increase market
exposure and be illiquid or less liquid, volatile, difficult to price and
leveraged so that small changes in the value of the underlying assets or
instruments may produce disproportionate losses to the Fund. Certain derivatives
are also subject to counterparty risk, which is the risk that the other party in
the transaction will not fulfill,
or lacks the
capacity or authority to fulfill, its contractual obligations, liquidity
risk,
which includes
the risk that the Fund will not be able to close its derivatives position when
it is advantageous to do so, and risks arising from margin requirements, which
include the risk that the Fund will be required to pay additional margin or set
aside additional collateral to maintain open derivative positions. Derivatives
may be used for both hedging and non-hedging purposes.
The use of
derivatives is a highly specialized activity that involves investment techniques
and risks different from those associated with investments in more traditional
securities and instruments, and there is no guarantee that the use of
derivatives will achieve their intended result. If the Investment Adviser is
incorrect in its expectation of the timing or level of fluctuation in securities
prices, interest rates, currency prices or other variables, the use of
derivatives could result in losses, which in some cases may be significant. A
lack of correlation between changes in the value of derivatives and the value of
the portfolio assets (if any) being hedged could also result in losses. In
addition, there is a risk that the performance of the derivatives or other
instruments used by the Investment Adviser to replicate the performance of a
particular asset class may not accurately track the performance of that asset
class.
The use of derivatives is
also subject to operational and legal risks. Operational risks generally refer
to risks related to potential operational issues, including documentation
issues, settlement issues, system failures, inadequate controls, and human
error. Legal risks generally refer to risks of loss resulting from insufficient
documentation or legality or enforceability of a contract.
The Fund
may use derivatives, including futures and swaps, to implement short positions.
Taking short positions involves leverage of the Fund’s assets and presents
various risks. If the value of the instrument or market in which the Fund has
taken a short position increases, then the Fund will incur a loss equal to the
increase in value from the time that the short position was entered into plus
any premiums and interest paid to a counterparty. Therefore, taking short
positions involves the risk that losses may be exaggerated, potentially losing
more money than the actual cost of the investment.
◼
Emerging
Countries Risk—Investments in securities
of issuers located in, or otherwise economically tied to, emerging countries are
subject to the risks associated with investments in foreign securities. The
securities markets of most emerging countries are less liquid, developed and
efficient, are subject to greater price volatility, and have smaller market
capitalizations. In addition, emerging markets and frontier countries may have
more or less government regulation and generally do not impose as extensive and
frequent accounting, auditing, financial and other reporting requirements as the
securities markets of more developed countries. As a result, there could be less
information available about issuers in emerging and frontier market countries,
which could negatively affect the Investment Adviser’s ability to evaluate local
companies or their potential impact on the Fund’s performance. Further,
investments in securities of issuers located in certain emerging countries
involve the risk of loss resulting from problems in share registration,
settlement or custody, substantial economic, political and social disruptions
and the imposition of sanctions or exchange controls
20
Risks
of the Fund
(including
repatriation restrictions). The legal remedies for investors in emerging and
frontier markets may be more limited than the remedies available in the U.S.,
and the ability of U.S. authorities (e.g., SEC and
the U.S. Department of Justice) to bring actions against bad actors may be
limited. These risks are not normally associated with investments in more
developed countries. For more information about these risks, see Appendix
A.
◼
Expenses
Risk—Because the
Fund may invest in pooled investment vehicles (including investment
companies, ETFs and money market funds (as applicable)), and, with respect to
the Strategic Factor Allocation Fund, partnerships and real estate investment
trusts (“REITs”), the investor will incur not only a proportionate share of the
expenses of the other pooled investment vehicles, partnerships and REITs held by
the Fund (including operating costs and investment management fees), but also
expenses of the Fund.
◼
Extension
Risk—An issuer
could exercise its right to pay principal on an obligation held by the
Fund (such as a mortgage-backed security) later than expected. This
may happen when there is a rise in interest rates. Under these circumstances,
the value of the obligation will decrease, and the Fund will also suffer
from the inability to reinvest in higher yielding securities.
◼
Foreign
Risk—When the
Fund invests in foreign securities, it may be subject to risk of loss not
typically associated with U.S. issuers. Loss may result because of more or less
foreign government regulation; less public information; less stringent investor
protections; less stringent accounting, corporate governance, financial
reporting and disclosure standards; less liquid, developed or efficient trading
markets; greater volatility; and less economic, political and social stability
in the countries in which the Fund invests. Loss may also result from, among
other things, deteriorating economic and business conditions in other countries,
including the United States, regional and global conflicts, the imposition of
sanctions, exchange controls (including repatriation restrictions), foreign
taxes, confiscation of assets and property, trade restrictions (including
tariffs), expropriations and other government restrictions by the United States
and other governments, higher transaction costs, difficulty enforcing
contractual obligations or from problems in share registration, settlement or
custody. The type and severity of sanctions and other similar measures,
including counter sanctions and other retaliatory actions, that may be imposed
could vary broadly in scope, and their impact is impossible to predict. These
types of measures may include, but are not limited to, banning a sanctioned
country from global payment systems that facilitate cross-border payments,
restricting the settlement of securities transactions by certain investors, and
freezing the assets of particular countries, entities, or persons. The
imposition of sanctions and other similar measures could, among other things,
cause a decline in the value and/or liquidity of securities issued by the
sanctioned country or companies located in or economically tied to the
sanctioned country, downgrades in the credit ratings of the sanctioned country
or companies located in or economically tied to the sanctioned country,
devaluation of the sanctioned country’s currency, and increased market
volatility and disruption in the sanctioned country and throughout the world.
Sanctions and other similar measures could limit or prevent the Fund from buying
and selling securities
(in the
sanctioned country and other markets), significantly delay or prevent the
settlement of securities transactions, and significantly impact the Fund’s
liquidity and performance. The Fund or the Investment Adviser may determine not
to invest in, or may limit its overall investment in, a particular issuer,
country or geographic region due to, among other things, heightened risks
regarding sanctions, repatriation restrictions, confiscation of assets and
property, expropriation or nationalization. The Fund will also be subject to the
risk of negative foreign currency rate fluctuations, which may cause the value
of securities denominated in such foreign currency (or other instruments through
which the Fund has exposure to foreign currencies) to decline in value. Currency
exchange rates may fluctuate significantly over short periods of time. Foreign
risks will normally be greatest when the Fund invests in securities of issuers
located in emerging countries.
The Fund's
investments in foreign securities may also be subject to foreign currency risk,
as described above, the risk of negative foreign currency rate
fluctuations, which may cause the value of securities denominated in such
foreign currency (or other instruments through which the Fund may have exposure
to foreign currencies) to decline in value. Currency exchange rates may
fluctuate significantly over short periods of time. Foreign risks will normally
be greatest when the Fund invests in securities of issuers located in emerging
countries. For more information about these risks, see Appendix A.
◼
Geographic
Risk—If
the Fund focuses its investments in securities of issuers located in a
particular country or geographic region, it will subject the Fund, to a
greater extent than if its investments were less focused, to the risks of
volatile economic cycles and/or conditions and developments that may be
particular to that country or region, such as: adverse securities markets;
adverse exchange rates; adverse social, political, regulatory, economic,
business, environmental or other developments; or natural
disasters.
◼
Interest
Rate Risk—When
interest rates increase, fixed income securities or instruments held by the Fund
(which may include inflation protected securities) will generally decline in
value. Long-term fixed income securities or instruments will normally have more
price volatility because of this risk than short-term fixed income securities or
instruments. A wide variety of market factors can cause interest rates to rise,
including central bank monetary policy, rising inflation and changes in general
economic conditions. The risks associated with changing interest rates may have
unpredictable effects on the markets and a Fund’s investments, and funds with
longer average portfolio durations will generally be more sensitive to changes
in interest rates than funds with a shorter average portfolio duration. In
addition, changes in monetary policy may exacerbate the risks associated with
changing interest rates.
Fluctuations
in interest rates may also affect the liquidity of fixed income securities and
instruments held by the Fund.
21
Although
interest rates
in the United States remain at relatively low levels, they are expected to
increase in the future. Certain countries have experienced negative interest
rates on certain fixed-income instruments. Changing interest rates
may result in
heightened market volatility and may detract from Fund performance to the extent
the Fund is exposed to such interest rates and/or volatility.
◼
Investing
in the Underlying Funds—The Fund’s investments are
concentrated in one or more of the Underlying Funds (including ETFs and other
registered investment companies) subject to limitations and/or conditions
prescribed by the Investment Company Act or rules, regulations or exemptive
relief thereunder. The Fund’s investment performance is directly related to the
investment performance of the Underlying Funds it holds. The Fund is subject to
the risk factors associated with investments of the Underlying Funds in direct
proportion to the amount of assets allocated to each. The ability of the Fund to
meet its investment objective is directly related to the ability of the
Underlying Funds to meet their objectives as well as the allocation among those
Underlying Funds by the Investment Adviser. The value of the Underlying Funds’
investments, and the net asset values (“NAV”) of the shares of both the Fund and
the Underlying Funds, will fluctuate in response to various market and economic
factors related to the equity and fixed income markets, as well as the financial
condition and prospects of issuers in which the Underlying Funds invest. If the
Fund has a relative concentration of its portfolio in a single Underlying Fund,
it may be more susceptible to adverse developments affecting that Underlying
Fund and may be more susceptible to losses because of these developments. There
can be no assurance that the investment objective of the Fund or any Underlying
Fund will be achieved. The risks presented by the investment practices of the
Underlying Funds are discussed in Appendix A. The portfolio managers may also be
subject to conflicts of interest in allocating Fund assets among the various
Underlying Funds because the Fund’s portfolio management team may also manage
some of the Underlying Funds.
◼
Investments
in ETFs Risk—The Fund may also invest
directly in affiliated and/or unaffiliated ETFs. The Fund’s investments in these
ETFs will be subject to limitations
and/or
conditions
prescribed by
the Investment Company Act
or
rules,
regulations or exemptive
relief
thereunder.
◼
Large
Shareholder Transactions Risk—The Fund
may experience adverse effects when certain large shareholders, such as other
funds, institutional investors (including those trading by use of
non-discretionary mathematical formulas), financial intermediaries (who may make
investment decisions on behalf of underlying clients and/or include the Fund in
their investment model), individuals, accounts and Goldman Sachs affiliates,
purchase or redeem large amounts of shares of the Fund. Such large shareholder
redemptions, which may occur rapidly or unexpectedly, may cause the Fund to sell
portfolio securities at times when it would not otherwise do so, which may
negatively impact the Fund’s NAV and liquidity. Similarly, large Fund share
purchases may adversely affect the Fund’s performance to the extent that the
Fund is delayed in investing new cash or otherwise maintains a larger cash
position than it ordinarily would. These transactions may also accelerate the
realization of taxable income to shareholders if such sales of investments
resulted in gains, and may also increase transaction costs. In addition, a large
redemption could result in the Fund’s current expenses being allocated over a
smaller asset base, leading to an increase in the Fund’s expense
ratio.
◼
Leverage
Risk—Leverage
creates exposure to potential gains and losses in excess of the initial amount
invested. Borrowing and the use of derivatives may result in leverage and may
increase market exposure and make the Fund more volatile. When the Fund uses
leverage, the sum of the Fund's investment exposures may significantly exceed
the amount of assets invested in the Fund, although these exposures may vary
over time. Relatively small market movements may result in large changes in the
value of a leveraged investment. The use of leverage may cause the Fund to
liquidate portfolio positions to satisfy its obligations or to meet
margin/collateral requirements when it may not be advantageous to do so. The use
of leverage by the Fund can substantially increase the Fund's investment risks
and
cause
losses
to
be
realized
more
quickly.
◼
Liquidity
Risk—The Fund
may invest in securities or instruments that trade in lower volumes,
that are less
liquid than other investments
and/or that
may become less liquid in response to market developments or adverse investor
perceptions. Investments that are illiquid or that trade in lower volumes may be
more difficult to value. When there is no willing buyer and investments cannot
be readily sold at the desired time or price, the Fund may have to accept a
lower price or may not be able to sell the security or instrument at all. An
inability to sell one or more portfolio positions can adversely affect the
Fund's value or prevent the Fund from being able to take advantage of other
investment opportunities.
Illiquidity
can be caused
by a drop in overall market trading volume, an inability to find a willing
buyer, or legal restrictions on the securities’ resale. To the extent that the
traditional dealer counterparties that engage in fixed income trading do not
maintain inventories of bonds (which provide an important indication of their
ability to “make markets”) that keep pace with the growth of the bond markets
over time, relatively low levels of dealer inventories could lead to decreased
liquidity and increased volatility in the fixed income markets. Additionally,
market participants other than the Fund may attempt to sell fixed income
holdings at the same time as the Fund, which could cause downward pricing
pressure and contribute to decreased liquidity.
22
Risks
of the Fund
Because the Fund may invest
in non-investment grade fixed income securities, small- and mid-capitalization
stocks, REITs and/or emerging country issuers, the Fund may be especially
subject to the risk that during certain periods, the liquidity of particular
issuers or industries, or all securities within a particular investment
category, may shrink or disappear suddenly and without warning as a result of
adverse economic, market or political events (including periods of rapid
interest rate changes), or adverse investor perceptions, whether or not
accurate.
Liquidity risk may also
refer to the risk that the Fund will not be able to pay redemption proceeds
within the allowable time period stated in the Prospectus or without significant
dilution to remaining investors’ interests because of unusual market conditions,
declining prices of the securities sold, an unusually high volume of redemption
requests or other reasons. While the Fund reserves the right to meet redemption
requests through in-kind distributions, the Fund may instead choose to raise
cash to meet redemption requests through sales of portfolio securities or
permissible borrowings. If the Fund is forced to sell securities at an
unfavorable time and/or under unfavorable conditions, such sales may adversely
affect the Fund's NAV and dilute remaining investors’ interests.
Certain
shareholders, including clients or affiliates of the Investment Adviser and/or
other funds managed by the Investment Adviser, may from time to time own or
control a significant percentage of the Fund's shares. Redemptions by these
shareholders of their shares of the Fund may further increase the Fund's
liquidity risk and may impact the Fund's NAV. These shareholders may include,
for example, institutional investors, funds of funds, discretionary
advisory clients, certain participating insurance companies, accounts or
Goldman Sachs affiliates and other shareholders, whose buy-sell decisions are
controlled by a single decision-maker.
◼
Management
Risk—A strategy
used by the Investment Adviser may fail to produce the intended
results.
◼
Market
Risk—The value
of the securities in which the Fund invests may go up or down in response
to the prospects of individual companies, particular sectors or governments
and/or general economic conditions throughout the world. Price changes may be
temporary or last for extended periods. The Fund's investments may be
overweighted from time to time in one or more sectors or countries, which will
increase the Fund's exposure to risk of loss from adverse developments affecting
those sectors or countries.
Global economies and
financial markets are becoming increasingly interconnected, and conditions and
events in one country, region or financial market may adversely impact issuers
in a different country, region or financial market. Furthermore, local, regional
and global events such as war, military conflict, acts of terrorism, social
unrest, natural disasters, recessions, inflation, rapid interest rate changes,
supply chain disruptions, sanctions, the spread of infectious illness or other
public health threats could also adversely impact issuers, markets and
economies, including in ways that cannot necessarily be foreseen. The Fund could
be negatively impacted if the value of a portfolio holding were harmed by such
political or economic conditions or events. In addition, governmental and
quasi-governmental organizations have taken a number of unprecedented actions
designed to support the markets. Such conditions, events and actions may result
in greater market risk.
◼
Mid-Cap
and Small-Cap Risk—The
securities of mid-capitalization and small-capitalization companies involve
greater risks than those associated with larger, more established companies and
may be subject to more abrupt or erratic price movements. Securities of such
issuers may lack sufficient market liquidity to enable the Fund to effect sales
at an advantageous time or without a substantial drop in price. Both
mid-capitalization and small-capitalization companies often have narrower
markets and more limited managerial and financial resources than larger, more
established companies. As a result, their performance can be more volatile and
they face greater risk of business failure, which could increase the volatility
of the Fund's portfolio. Generally, the smaller the company size, the greater
these risks become.
◼
Mortgage-Backed
and Other Asset-Backed Securities Risk—Mortgage-related and other
asset-backed securities are subject to credit/default, interest rate and certain
additional risks. Generally, rising interest rates tend to extend the duration
of fixed rate mortgage-backed securities, making them more sensitive to changes
in interest rates. As a result, in a period of rising interest rates, if the
Fund holds mortgage-backed securities, it may exhibit additional volatility.
This is known as extension risk. In addition, adjustable and fixed rate
mortgage-backed securities are subject to prepayment risk. When interest rates
decline, borrowers may pay off their mortgages sooner than expected. This can
reduce the returns of the Fund because the Fund may have to reinvest that money
at the lower prevailing interest rates. Due
to these
risks, asset-backed securities may become more volatile in certain interest rate
environments.
The Fund’s
investments in other asset-backed securities are subject to risks similar to
those associated with mortgage-backed securities, as well as additional risks
associated with the nature of the assets and the servicing of those assets.
Asset-backed securities may not have the benefit of a security interest in
collateral comparable to that of mortgage assets, resulting in additional credit
risk.
The Fund
may invest in mortgage-backed securities issued by the U.S. Government (see
“U.S. Government Securities Risk”). To the extent that the Fund invests in
mortgage-backed securities offered by non-governmental issuers, such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers, the Fund may be
subject to additional risks. Timely payment of interest and principal of
non-governmental issuers are supported by various forms
23
of private insurance or
guarantees, including individual loan, title, pool and hazard insurance
purchased by the issuer. There can be no assurance that the private insurers can
meet their obligations under the policies. An unexpectedly high rate of defaults
on the mortgages held by a mortgage pool may adversely affect the value of a
mortgage-backed security and could result in losses to the Fund. The risk of
such defaults is generally higher in the case of mortgage pools that include
subprime mortgages or during periods of rising interest rates. Subprime
mortgages refer to loans made to borrowers with weakened credit histories or
with a lower capacity to make timely payments on their mortgages.
◼
NAV
Risk—The NAV of
the Fund and the value of your investment will fluctuate.
◼
Non-Hedging
Foreign Currency Trading Risk—The Fund
may engage in forward foreign currency transactions for both hedging and
non-hedging purposes. The Fund’s Investment Adviser may purchase or sell foreign
currencies through the use of forward contracts based on the Investment
Adviser’s judgment regarding the direction of the market for a particular
foreign currency or currencies. In pursuing this strategy, the Investment
Adviser seeks to profit from anticipated movements in currency rates by
establishing “long” and/or “short” positions in forward contracts on various
foreign currencies. Foreign exchange rates can be extremely volatile and a
variance in the degree of volatility of the market or in the direction of the
market from the Investment Adviser’s expectations may produce significant losses
to the Fund. Some of the transactions may also be subject to interest rate
risk.
◼
Non-Investment
Grade Fixed Income Securities Risk—Non-investment
grade fixed income securities and unrated securities of comparable credit
quality (commonly known as “junk bonds”) are considered speculative and are
subject to the increased risk of an issuer’s inability to meet principal and
interest payment obligations. These securities may be subject to greater price
volatility due to such factors as specific issuer developments, interest rate
sensitivity, negative perceptions of the junk bond markets generally and less
liquidity.
◼
Option
Writing Risk—When the Fund writes
(sells) a call or put option, it receives up-front cash (the premium) at the
time of selling the option but limits its opportunity to profit from an increase
or decrease, respectively, in the market value of the reference security beyond
the exercise price of the option. In a sharp rising or falling market, the Fund
could significantly underperform the market or other portfolios without an
option writing strategy. The Fund could also experience a sudden, significant
permanent loss due to dramatic movements in the market value of a reference
security, which may far exceed the premiums received for writing the option.
Such significant losses could cause significant deteriorations in the Fund’s
NAV. The premium received from the Fund’s option strategies may not fully
protect it against market movements. Cash received from premiums will enhance
return in moderately rising or falling markets, but the Fund will continue to
bear the risk of movements in the value of the investments held in its
portfolio. The benefit from writing an option is limited to the amount of
premium received. Writing
(selling)
options is a
highly specialized activity that involves investment techniques and risks
different from those associated with investments in more traditional securities
and instruments, and there is no guarantee that writing (selling) options will
achieve their intended result. If the Investment Adviser is incorrect in its
expectation of the timing or level of fluctuation in securities prices, interest
rates, currency prices or other variables, writing (selling) options could
result in losses, which in some cases may be significant.
◼
Other
Investment Companies Risk—By
investing in other investment companies (including ETFs) indirectly, investors
will incur a proportionate share of the expenses of the other investment
companies held by the Fund (including operating costs and investment management
fees) in addition to the fees and expenses regularly borne the
Fund.
◼
REIT
Risk— Investing
in REITs involves certain unique risks in addition to those risks associated
with investing in the real estate industry in general. REITs whose underlying
properties are concentrated in a particular industry or geographic region are
also subject to risks affecting such industries and regions. The securities of
REITs involve greater risks than those associated with larger, more established
companies and may be subject to more abrupt or erratic price movements because
of interest rate changes, economic conditions and other factors. REITs may
also fail to qualify for tax free pass-through of income or may fail to maintain
their exemptions from investment company registration. Securities of such
issuers may lack sufficient market liquidity to enable the Fund to
effect sales at an advantageous time or without a substantial drop in
price.
◼
Regulatory
Risk (Volcker Rule)—Section
619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the
rules issued thereunder (also known as the “Volcker Rule”) prohibit banking
entities, such as The Goldman Sachs Group, Inc. (“Goldman”) and its affiliates,
including the Investment Adviser, from engaging in certain trading activities
involving their own capital (also known as “proprietary trading”). These
prohibitions may include certain restrictions on the extent to which Goldman
and/or its affiliates may own shares of the Fund. If Goldman or its affiliates
own 25% or more of the outstanding shares of the Fund longer than three years
from the Fund’s launch date, the Fund may be subject to these proprietary
trading restrictions, which include restrictions on the ability to purchase and
sell securities on a short term basis. As of the date of the Prospectus, Goldman
and/or its affiliates own more than 25% of the outstanding shares of the Fund.
Reducing the seed capital in the Fund to address these trading restrictions may
prevent the Fund from pursuing its investment objective, may restrict the Fund’s
activities and may prevent the Fund from retaining enough capital to engage in
certain investment strategies, which could have a negative impact on the Fund’s
performance. In addition, if Goldman or its affiliates reduce their interest in
the Fund, the Fund may be subject to transaction costs, losses and adverse tax
consequences and may be forced to liquidate prematurely, among other
things.
24
Risks
of the Fund
◼
Short Selling/Position
Risk—The Fund
may use derivatives, including options, futures and swaps, to implement short
positions, and may engage in short selling. Taking short positions and short
selling involve leverage of the Fund’s assets and presents various risks. If the
value of the instrument or market in which the Fund has taken a short position
increases, then the Fund will incur a loss equal to the increase in value from
the time that the short position was entered into plus any premiums and interest
paid to a third party. Therefore, taking short positions involves the risk that
losses may be exaggerated, potentially losing more money than the actual cost of
the investment. Also, there is the risk that the counterparty to a short
transaction may fail to honor its contract terms, causing a loss to the
Fund.
In order to
sell an instrument short, the Fund must first borrow the instrument from a
lender, such as a broker or other institution. The Fund may not always be able
to borrow an instrument at a particular time or at an acceptable price. Thus,
there is risk that the Fund may be unable to implement its investment strategy
due to the lack of available instruments or for other reasons.
After
selling a borrowed instrument, the Fund is then obligated to “cover” the short
sale by purchasing and returning the instrument to the lender on a later date.
The Fund cannot guarantee that the instrument necessary to cover a short
position will be available for purchase at the time the Fund wishes to close a
short position or, if available, that the instrument will be available at an
acceptable price. If the borrowed instrument has appreciated in value, the Fund
will be required to pay more for the replacement instrument than the amount it
received for selling the instrument short. Moreover, purchasing an instrument to
cover a short position can itself cause the price of the instrument to rise
further, thereby exacerbating the loss. The potential loss on a short sale is
unlimited because the loss increases as the price of the instrument sold short
increases and the price may rise indefinitely. To the extent the Fund uses the
proceeds it receives from a short position to take additional long positions,
the risks associated with the short position, including leverage risks, may be
heightened, because doing so increases the exposure of the Fund to the markets
and therefore could magnify changes to the Fund’s NAV. If the price of a
borrowed instrument declines before the short position is covered, the Fund may
realize a gain. The Fund’s gain on a short sale, before transaction and other
costs, is generally limited to the difference between the price at which it sold
the borrowed instrument and the price it paid to purchase the instrument to
return to the lender.
While the
Fund has an open short position, it is subject to the risk that the instrument’s
lender will terminate the loan at a time when the Fund is unable to borrow the
same instrument from another lender. If this happens, the Fund may be required
to buy the replacement instrument immediately at the instrument’s then current
market price or “buy in” by paying the lender an amount equal to the cost of
purchasing the instrument to close out the short position.
Short sales
also involve other costs. The Fund must normally repay to the lender an amount
equal to any dividends or interest that accrues while a loan is outstanding. In
addition, to borrow an instrument, the Fund may be required to pay a premium.
The Fund also will incur transaction costs in effecting short sales. The amount
of any ultimate gain for the Fund resulting from a short sale will be decreased,
and the amount of any ultimate loss will be increased, by the amount of
premiums, dividends, interest or expenses the Fund may be required to pay in
connection with the short sale.
Until the Fund replaces a
borrowed instrument, the Fund may be required to maintain short sale proceeds
with the lending broker as collateral. Moreover, the Fund will be required to
make margin payments to the lender during the term of the borrowing if the value
of the security it borrowed (and sold short) increases. Thus, short sales
involve credit exposure to the broker that executes the short sales. In the
event of the bankruptcy or other similar insolvency with respect to a broker
with whom the Fund has an open short position, the Fund may be unable to
recover, or delayed in recovering, any margin or other collateral held with or
for the lending broker.
◼
Sovereign
Default Risk—The issuer of non-U.S.
sovereign debt held by the Fund or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay the principal or
interest when due. This may result from political or social factors, the general
economic environment of a country or levels of borrowing rates, foreign debt, or
foreign currency exchange rates.
◼
Economic
Risk—The risks
associated with the general economic environment of a country. These can
encompass, among other things, low quality and growth rate of Gross Domestic
Product (“GDP”), high inflation or deflation, high government deficits as a
percentage of GDP, weak financial sector, overvalued exchange rate, and high
current account deficits as a percentage of GDP.
◼
Political
Risk—The risks
associated with the general political and social environment of a country. These
factors may include among other things government instability, poor
socioeconomic conditions, corruption, lack of law and order, lack of democratic
accountability, poor quality of the bureaucracy, internal and external conflict,
the imposition of international sanctions, and religious and ethnic tensions.
High political risk can impede the economic welfare of a country.
25
◼
Repayment
Risk—A country
may be unable to pay its external debt obligations in the immediate future.
Repayment risk factors may include but are not limited to high foreign debt as a
percentage of GDP, high borrowing rates (which may increase in market
environments where interest rates are rising), high foreign debt service as a
percentage of exports, low foreign exchange reserves as a percentage of
short-term debt or exports, and an unsustainable exchange rate
structure.
◼
Stock
Risk—Stock
prices have historically risen and fallen in periodic cycles. U.S. and
foreign stock markets have experienced periods of substantial price volatility
in the past and may do so again in the future. Stock prices may fluctuate from
time to time in response to the activities of individual companies and in
response to general market and economic conditions. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments, and the stock prices of such companies may suffer a decline in
response.
◼
Swaps
Risk—The use of
swaps is a highly specialized activity which involves investment techniques,
risk analyses and tax planning different from those associated with ordinary
portfolio securities transactions. The Fund’s transactions in swaps may be
significant. These transactions can result in sizeable realized and unrealized
capital gains and losses relative to the gains and losses from the Fund’s direct
investments in securities and short sales.
Transactions in swaps can
involve greater risks than if the Fund had invested in securities directly
since, in addition to general market risks, swaps may be leveraged and subject
to illiquidity risk, counterparty risk, credit risk and pricing risk. Regulators
also may impose limits on an entity’s or group of entities’ positions in certain
swaps. However, certain risks are reduced (but not eliminated) if the Fund
invests in cleared swaps, which are transacted through FCM and cleared through a
clearinghouse that serves as a central counterparty. Because uncleared,
bilateral swap agreements are two-party contracts and because they may have
terms of greater than seven days, these swaps may be considered to be illiquid.
Moreover, the Fund bears the risk of loss of the amount expected to be received
under a swap in the event of the default or bankruptcy of a swap counterparty.
Many swaps are complex and valued subjectively. Swaps and other derivatives may
also be subject to pricing or “basis” risk, which exists when a particular
derivative diverges from the price of corresponding cash market instruments.
Under certain market conditions it may not be economically feasible to initiate
a transaction or liquidate a position in time to avoid a loss or take advantage
of an opportunity. If a swap transaction is particularly large or if the
relevant market is illiquid, it may not be possible to initiate a transaction or
liquidate a position at an advantageous time or price, which may result in
significant losses.
The value
of swaps can be very volatile, and a variance in the degree of volatility or in
the direction of securities prices from the expectations of the Fund’s
Investment Adviser may produce significant losses in the Fund’s investments in
swaps. In addition, a perfect correlation between a swap and a security position
may be impossible to achieve. As a result, the Investment Adviser’s use of swaps
may not be effective in fulfilling the Investment Adviser’s investment
strategies and may contribute to losses that would not have been incurred
otherwise.
◼
Temporary
Investments Risk—The Fund
may invest its assets in high-quality, short-term debt obligations (including
commercial paper, certificates of deposit, bankers’ acceptances, repurchase
agreements, debt obligations backed by the full faith and credit of the U.S.
government and demand and time deposits of domestic and foreign banks and
savings and loan associations) to maintain liquidity, to meet shareholder
redemptions and for other short-term cash needs. Also, there may be times when,
in the opinion of the Investment Adviser, abnormal market or economic conditions
warrant that, for temporary defensive purposes, the Fund may invest without
limitation in short-term obligations. When the Fund’s assets are invested in
such investments, the Fund may not be achieving its investment
objective.
◼
U.S.
Government Securities Risk—The U.S.
government may not provide financial support to U.S. government agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. U.S. Government Securities issued by those agencies,
instrumentalities and sponsored enterprises, including those issued by Fannie
Mae, Freddie Mac and the Federal Home Loan Banks, are neither issued nor
guaranteed by the U.S. Treasury and, therefore, are not backed by the full faith
and credit of the United States. The maximum potential liability of the issuers
of some U.S. Government Securities held by the Fund may greatly exceed
their current resources, including any legal right to support from the U.S.
Treasury. It is possible that issuers of U.S. Government Securities will not
have the funds to meet their payment obligations in the future. Fannie Mae and
Freddie Mac have been operating under conservatorship, with the Federal Housing
Finance Agency (“FHFA”) acting as their conservator, since September 2008. The
entities are dependent upon the continued support of the U.S. Department of the
Treasury and FHFA in order to continue their business operations. These factors,
among others, could affect the future status and role of Fannie Mae and Freddie
Mac and the value of their securities and the securities which they guarantee.
Additionally, the U.S. government and its agencies and instrumentalities do not
guarantee the market values of their securities, which may
fluctuate.
26
Service
Providers
|
INVESTMENT
ADVISERS |
|
Investment
Adviser |
|
|
Goldman
Sachs Asset Management, L.P. (“GSAM”)
200
West Street
New
York, New York 10282 |
|
GSAM has been registered as
an investment adviser with the SEC since 1990 and is an indirect, wholly owned
subsidiary of The Goldman Sachs Group, Inc. and an affiliate of Goldman Sachs.
Founded in 1869, The Goldman Sachs Group, Inc. is a publicly-held financial
holding company and a leading global investment banking, securities and
investment management firm. As of September 30, 2022, GSAM, including its
investment advisory affiliates, had assets under supervision of approximately
$2.19 trillion.
Under a
Management Agreement with the Fund, the Investment Adviser, subject to the
general supervision of the Trustees, provides advice as to the Fund’s investment
transactions.
While the
Investment Adviser is ultimately responsible for the management of the Fund, it
is able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Adviser has access to the
research and certain proprietary technical models developed by Goldman Sachs
(subject to legal, internal, regulatory and Chinese Wall restrictions), and will
apply quantitative and qualitative analysis in determining the appropriate
allocations among categories of issuers and types of securities.
The
Investment Adviser also performs the following additional services for the Fund
(to the extent not performed by others pursuant to agreements with the
Fund):
◼
Supervises
all non-advisory operations of the Fund
◼
Provides
personnel to perform necessary executive, administrative and clerical services
to the Fund
◼
Arranges
for the preparation of all required tax returns, reports to shareholders,
prospectuses and statements of additional information and other reports filed
with the SEC and other regulatory authorities
◼
Maintains
the records of the Fund
◼
Provides
office space and all necessary office equipment and services
An
investment in the Fund may be negatively impacted because of the operational
risks arising from factors such as processing errors and human errors,
inadequate or failed internal or external processes, failures in systems and
technology, changes in personnel, and errors caused by third-party service
providers or trading counterparties. The use of certain investment strategies
that involve manual or additional processing, such as over-the-counter
derivatives, increases these risks. Although the Fund attempts to minimize such
failures through controls and oversight, it is not possible to identify all of
the operational risks that may affect the Fund or to develop processes and
controls that completely eliminate or mitigate the occurrence of such failures.
The Fund and its shareholders could be negatively impacted as a
result.
From time
to time, Goldman Sachs or its affiliates may invest “seed” capital in the Fund.
These investments are generally intended to enable the Fund to commence
investment operations and achieve sufficient scale. Goldman Sachs and its
affiliates may hedge the exposure of the seed capital invested in the Fund by,
among other things, taking an offsetting position in the benchmark of the
Fund.
27
|
MANAGEMENT
FEES AND OTHER EXPENSES |
As
compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and payable
monthly, at the annual rates listed below (as a percentage of the Fund’s average
daily net assets):
|
Fund |
Contractual
Management
Fee
Annual
Rate |
Average
Daily
Net
Assets |
Actual
Rate for
the
Period Ended
August
31, 2022* |
|
Strategic
Factor Allocation Fund |
0.75% |
First $2
Billion |
0.62% |
|
|
0.68% |
Next $3
Billion |
|
|
|
0.64% |
Next $3
Billion |
|
|
|
0.62% |
Over $8
Billion |
|
|
Strategic
Volatility Premium Fund |
0.50% |
First $2
Billion |
0.27% |
|
|
0.45% |
Next $3
Billion |
|
|
|
0.43% |
Next $3
Billion |
|
|
|
0.42% |
Over $8
Billion |
|
*
The
Actual Rate may not correlate to the Contractual Management Fee Annual Rate as a
result of management fee waivers that may be in effect from time to
time.
The Investment Adviser has
agreed to: (i) waive a portion of its management fee payable by the Strategic
Factor Allocation Fund in an amount equal to any management fees it earns as an
investment adviser to any of the affiliated funds in which the Fund invests,
except those management fees it earns from the Fund’s investments of cash
collateral received in connection with securities lending transactions in
affiliated funds; (ii) waive a portion of its management fee in order to
achieve an effective net management fee rate of 0.40% as an annual percentage
rate of the average daily net assets of the Strategic Volatility Premium
Fund; and (iii) reduce or limit “Other Expenses” (excluding acquired
(underlying) fund fees and expenses, transfer agency fees and expenses, taxes,
interest, brokerage fees, expenses of shareholder meetings, litigation and
indemnification, and extraordinary expenses) equal on an annualized basis to
0.164% and 0.064% of the average daily net assets of the Strategic Factor
Allocation Fund and Strategic Volatility Premium Fund, respectively, through at
least December 29, 2023, and prior to such date, the Investment Adviser may not
terminate these arrangements without the approval of the Board of Trustees. The
fee waiver and expense limitation may be modified or terminated by the
Investment Adviser at its discretion and without shareholder approval after such
date, although the Investment Adviser does not presently intend to do so. The
Fund’s “Other Expenses” may be further reduced by any custody and transfer
agency fee credits received by the Fund.
In addition
to the management fee waivers described above, the Investment Adviser may waive
a portion of its management fee from time to time, and may discontinue or modify
such waiver in the future, consistent with the terms of any fee waiver
arrangements in place.
A discussion regarding the
basis for the Board of Trustees’ approval of the Management Agreement for the
Fund is available in the Funds' annual report dated August 31, 2022.
28
Service
Providers
|
PORTFOLIO
MANAGERS |
Quantitative
Investment Strategies Team
The
individuals jointly and primarily responsible for the day-to-day management of
the Fund are listed below. The Fund’s portfolio managers’ individual
responsibilities may differ and may include, among other things, development and
maintenance of quantitative models and processes in combination with qualitative
overlay, asset allocation, risk budgeting and general oversight of research,
implementation processes and the management of the Fund’s portfolio.
|
Name
and Title |
Fund
Responsibility |
Years
Primarily
Responsible |
Five
Year Employment History |
|
Oliver
Bunn
Vice
President |
Portfolio
Manager—
Strategic
Factor Allocation
Fund
Strategic
Volatility Premium
Fund |
Since
2022
2022 |
Mr.
Bunn is head of the Quantitative Investment Strategies (QIS)
Alternatives
team within Goldman Sachs Asset Management. He
joined
Goldman Sachs in 2014. |
|
Patrick
Hartnett
Vice
President |
Portfolio
Manager—
Strategic
Factor Allocation
Fund
Strategic
Volatility Premium
Fund |
Since
2021
2021 |
Mr.
Hartnett is a portfolio manager on the Quantitative Investment
Strategies
(QIS) Alternatives team within Goldman Sachs Asset
Management.
He joined Goldman Sachs in 2019. Previously, he
worked
at Jefferies and PNC bank. |
For
information about the portfolio managers’ compensation, other accounts managed
by the portfolio managers and the portfolio managers’ ownership of securities in
the Fund, see the SAI.
|
DISTRIBUTOR
AND TRANSFER AGENT |
Goldman Sachs, 200 West
Street, New York, NY 10282, serves as the exclusive distributor (the
“Distributor”) of the Fund’s shares. Goldman Sachs, P.O.
Box 806395,
Chicago, IL 60680-4125, also serves as the Fund’s transfer agent (the “Transfer
Agent”) and, as such, performs various shareholder servicing
functions.
For its
transfer agency services, Goldman Sachs is entitled to receive a transfer agency
fee equal, on an annualized basis, to 0.04% of average daily net assets with
respect to the Funds' Institutional Shares and 0.03% of average daily net assets
with respect to the Strategic Factor Allocation Fund's Class R6
Shares.
From time
to time, Goldman Sachs or any of its affiliates may purchase and hold shares of
the Fund. Goldman Sachs and its affiliates reserves the right to redeem at any
time some or all of the shares acquired for their own account.
|
ACTIVITIES
OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER
ACCOUNTS
MANAGED BY GOLDMAN SACHS |
The
involvement of the Investment Adviser, Goldman Sachs and their affiliates in the
management of, or their interest in, other accounts and other activities of
Goldman Sachs will present conflicts of interest with respect to the Fund and
will, under certain circumstances, limit the Fund’s investment activities.
Goldman Sachs is a worldwide, full service investment banking, broker dealer,
asset management and financial services organization and a major participant in
global financial markets that provides a wide range of financial services to a
substantial and diversified client base that includes corporations, financial
institutions, governments and individuals. As such, it acts as a broker-dealer,
investment adviser, investment banker, underwriter, research provider,
administrator, financier, adviser, market maker, trader, prime broker,
derivatives dealer, clearing agent, lender, counterparty, agent, principal,
distributor, investor or in other commercial capacities for accounts or
companies or affiliated or unaffiliated investment funds (including pooled
investment vehicles and private funds) in which one or more accounts, including
the Fund, invest. In those and other capacities, Goldman Sachs and its
affiliates advise and deal with clients and third parties in all markets and
transactions and purchase, sell, hold and recommend a broad array of
investments, including securities, derivatives, loans, commodities, currencies,
credit default swaps, indices, baskets and other financial instruments and
products for their own accounts or for the accounts of their customers and have
other direct and indirect interests in the global fixed income, currency,
commodity, equities, bank loans and other markets and the securities and issuers
in which the Fund directly and indirectly invest. Thus, it is expected that the
Fund will have multiple business relationships with and will invest in, engage
in transactions with, make voting decisions with respect to, or obtain services
from entities for which Goldman Sachs and its affiliates perform or seek to
perform investment banking or other services. The Investment Adviser and/or
certain of its affiliates are the managers of the Goldman Sachs Funds. The
Investment Adviser and its affiliates earn fees from this and other
relationships with the Fund. Although management fees paid by the Fund to the
Investment Adviser and certain other fees paid to the Investment Adviser’s
affiliates are based on asset levels, the fees are not directly contingent on
Fund performance, and the Investment Adviser and its affiliates will still
receive significant compensation from the Fund even if shareholders lose money.
29
Goldman
Sachs and its affiliates engage in proprietary trading and advise accounts and
funds which have investment objectives similar to those of the Fund and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Fund. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Fund.
The results of the Fund’s investment activities, therefore, will likely differ
from those of Goldman Sachs, its affiliates, and other accounts managed by
Goldman Sachs, and it is possible that the Fund could sustain losses during
periods in which Goldman Sachs and its affiliates and other accounts achieve
significant profits on their trading for proprietary or other accounts. In
addition, the Fund may enter into transactions in which Goldman Sachs and its
affiliates or their other clients have an adverse interest. For example, the
Fund may take a long position in a security at the same time that Goldman Sachs
and its affiliates or other accounts managed by the Investment Adviser or its
affiliates take a short position in the same security (or vice versa). These and
other transactions undertaken by Goldman Sachs, its affiliates or Goldman
Sachs-advised clients may, individually or in the aggregate, adversely impact
the Fund. Transactions by one or more Goldman Sachs-advised clients or the
Investment Adviser may have the effect of diluting or otherwise disadvantaging
the values, prices or investment strategies of the Fund. The Fund’s activities
will, under certain circumstances, be limited because of regulatory restrictions
applicable to Goldman Sachs and its affiliates, and/or their internal policies
designed to comply with such restrictions. As a global financial services firm,
Goldman Sachs and its affiliates also provide a wide range of investment banking
and financial services to issuers of securities and investors in securities.
Goldman Sachs, its affiliates and others associated with it are expected to
create markets or specialize in, have positions in and/or effect transactions
in, securities of issuers held by the Fund, and will likely also perform or seek
to perform investment banking and financial services for one or more of those
issuers. Goldman Sachs and its affiliates are expected to have business
relationships with and purchase or distribute or sell services or products from
or to distributors, consultants or others who recommend the Fund or who engage
in transactions with or for the Fund. For more information about conflicts of
interest, see the section entitled “Potential Conflicts of Interest” in the
SAI.
The Funds
will, from time to time, make brokerage and other payments to Goldman Sachs and
its affiliates in connection with the Fund’s portfolio investment transactions,
in accordance with applicable law.
Under a securities lending
program approved by the Fund's Board of Trustees, the Strategic Factor
Allocation Fund has retained an affiliate of the Investment Adviser to serve as
a securities lending agent for the Fund to the extent that the Fund engages in
the securities lending program. For these services, the lending agent would
receive a fee from the Strategic Factor Allocation Fund, including a fee based
on the returns earned on the Fund's investment of the cash received as
collateral for the loaned securities. The Board of Trustees periodically reviews
reports on portfolio securities loan transactions for which the affiliated
lending agent has acted as lending agent. In addition, the Fund may make
brokerage and other payments to Goldman Sachs and its affiliates in connection
with the Fund's portfolio investment transactions, in accordance with applicable
law.
30
Distributions
The Fund
pays distributions from its investment income and from net realized capital
gains. You may choose to have distributions paid in:
◼
Cash
◼
Additional
shares of the same class of the Fund
◼
Shares of
the same or an equivalent class of another Goldman Sachs Fund. Special
restrictions may apply. See the SAI.
You may
indicate your election on your account application. Any changes may be submitted
in writing or via telephone in some instances, to the Transfer Agent (either
directly or through your Intermediary) at any time before the record date for a
particular distribution. If you do not indicate any choice, your distributions
will be reinvested automatically in the Fund. If cash distributions are elected
with respect to the Fund’s distributions from net investment income, then cash
distributions must also be elected with respect to the net short-term capital
gains component, if any, of the Fund’s distributions.
The
election to reinvest distributions in additional shares will not affect the tax
treatment of such distributions, which will be treated as received by you and
then used to purchase the shares.
Distributions
from net investment income and distributions from net capital gains, if any, are
normally declared and paid as follows:
|
|
Investment
Income
Distributions |
Capital
Gains
Distributions |
|
Fund |
Declared
and Paid |
Declared
and Paid |
|
Strategic
Factor Allocation Fund |
Annually |
Annually |
|
Strategic
Volatility Premium Fund |
Annually |
Annually |
In addition
the Fund may occasionally make a distribution at a time when it is not normally
made. From time to time a portion of the Fund’s distributions may constitute a
return of capital for tax purposes, and/or may include amounts in excess of the
Fund’s net investment income for the period calculated in accordance with
generally accepted accounting principles (GAAP).
When you
purchase shares of the Fund, part of the NAV per share may be represented by
undistributed income and/or undistributed realized gains that have previously
been earned by the Fund. Therefore, subsequent distributions on such shares from
such income and/or realized gains may be taxable to you even if the NAV of the
shares is, as a result of the distributions, reduced below the cost of such
shares and the distributions (or portions thereof) represent a return of a
portion of the purchase price.
31
Shareholder
Guide
The
following section will provide you with answers to some of the most frequently
asked questions regarding buying and selling the Fund shares.
|
Important
Notice: |
|
Institutional
Shares of the Fund are offered exclusively to (i) clients of Goldman Sachs
Private Wealth Management (“GS
PWM”),
and (ii) Goldman Sachs, its affiliates or their respective officers,
partners, directors or employees (including retired
employees
and former partners), and any Trustee or officer of the
Trust. |
|
If
you are a client of GS PWM or the Investment Adviser, you cannot
transfer shares of the Fund to an account with another
institution
and remain invested in the Fund. Should you propose to transfer your
shares to another institution, you will be
required
to redeem your shares or maintain the shares as a client of GS PWM or as
allowed as an institutional client of the
Investment
Adviser. If you are no longer a client of GS PWM, nor an institutional
client of the Investment Adviser, you will be
required
to redeem your shares. |
|
If
you are invested in the Fund because you are (or were, at the time of
purchase) an officer, partner, director or employee of
Goldman
Sachs or its affiliates, you cannot transfer shares of the Fund to an
account other than your Fidelity brokerage account
and
remain invested in the Fund. Should you propose to transfer your shares to
a brokerage account outside of Fidelity, you will
be
required to redeem your shares, or maintain the shares in your Fidelity
brokerage account. If you are no longer an officer,
partner,
director or employee of Goldman Sachs or its affiliates (other than being
a retired employee or former partner), you will
not
be able to purchase additional shares of the
Fund. |
|
A
redemption is a taxable transaction for federal income tax purposes, and
may also be subject to state and local taxes. You
should
consult your tax adviser concerning the potential tax consequences of
investing in the Fund. None of the Trust,
Investment
Adviser or Goldman Sachs will be responsible for any loss in an investor’s
account or tax liability resulting from an
involuntary
redemption. |
|
How
to Buy Shares |
Shares
Offering
Shares of
the Fund are continuously offered through the Distributor. The Fund and the
Distributor will have the sole right to accept orders to purchase shares and
reserve the right to reject any purchase order in whole or in part.
How Can I Purchase
Shares Of The Fund?
You may
purchase shares of the Fund through certain intermediaries that have a
relationship with Goldman Sachs, including banks, trust companies, brokers,
registered investment advisers and other financial institutions
(“Intermediaries”). Certain Intermediaries have been authorized by Goldman Sachs
Trust (the “Trust”) to accept purchase, redemption or exchange orders on behalf
of the Fund for its customers (“Authorized Institutions”), and if approved by
the Fund, may designate other financial intermediaries to accept such orders.
You should contact your Intermediary to learn whether it is authorized to accept
orders on behalf of the Fund (i.e., an Authorized Institution). In order to make
an initial investment in the Fund you must furnish to your Intermediary the
information in the account application.
To open an
account, contact your Intermediary. Customers of an Intermediary will normally
give their order instructions to the Intermediary, and the Intermediary will, in
turn, place the order with the Transfer Agent. Intermediaries are responsible
for transmitting accepted orders and payments to the Transfer Agent within the
time period agreed upon by them and will set times by which orders and payments
must be received by them from their customers. The Trust, Transfer Agent,
Investment Adviser and their affiliates will not be responsible for any loss in
connection with orders that are not transmitted to the Transfer Agent by an
Intermediary on a timely basis.
The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. You should
contact your Intermediary to discuss which share class option is right for
you.
Note:
Intermediaries may receive different compensation for selling different share
classes.
The Fund
will be deemed to have received an order for purchase, redemption or exchange of
Fund shares when the order is accepted in “proper form” by the Transfer Agent
(or, if applicable, by an Authorized Institution) on a business day, and the
order will be priced at the Fund’s current NAV per share (adjusted for any
applicable sales charge) next determined after acceptance by the Transfer Agent
(or, if applicable, by an Authorized Institution). For shareholders that place
trades directly with the Fund’s Transfer Agent, proper form
32
Shareholder
Guide
generally
means that specific trade details and customer identifying information must be
received by the Transfer Agent at the time an order is submitted. Intermediaries
of the Fund may have different requirements regarding what constitutes proper
form for trade instructions. Please contact your Intermediary for more
information.
For
purchases by check, the Fund will not accept checks drawn on foreign banks,
third party checks, temporary checks, cash or cash equivalents; e.g., cashier’s
checks, official bank checks, money orders, traveler’s cheques or credit card
checks. In limited situations involving the transfer of retirement assets, the
Fund may accept cashier’s checks or official bank checks.
Class R6
Shares are generally available to the following investors who purchase shares of
the Fund through certain Intermediaries that have a contractual relationship
with Goldman Sachs, including banks, trust companies, brokers, registered
investment advisers and other financial institutions, using a plan level or
omnibus account, unless otherwise noted below.
◼
Investors
who purchase Class R6 Shares through accounts established under a fee-based
program that is sponsored and maintained by an Intermediary that has entered
into a contractual relationship with Goldman Sachs to offer such shares through
such programs (“Eligible Fee-Based Program”);
◼
Section
401(k), 403(b), 457, profit sharing, money purchase pension, tax-sheltered
annuity, defined benefit pension, nonqualified deferred compensation plans and
non-qualified pension plans or other employee benefit plans (including health
savings accounts) or SIMPLE plans that are sponsored by one or more employers
(including governmental or church employers) or employee organizations
(“Employee Benefit Plans”);
◼
Registered
investment companies or bank collective trusts investing directly with the
Transfer Agent;
◼
Institutional
investors, including companies, foundations, endowments, municipalities, trusts
and other entities, investing at least $5,000,000 directly with the Transfer
Agent; and
◼
Other
investors at the discretion of the Trust’s officers.
Class R6
Shares may not be available through certain Intermediaries. For the purposes of
Class R6 Shares eligibility, the term “Intermediary” does not include Goldman
Sachs or its affiliates and Class R6 Shares will not be available to clients of
Goldman Sachs Private Wealth Management, The Goldman Sachs Trust Company, N.A.,
The Goldman Sachs Trust Company of Delaware or The Ayco Company,
L.P.
What Is My Minimum
Investment In The Fund?
For
Institutional Shares, the minimum initial investment is $1,000,000 for
institutional investors, alone or in combination with other assets under the
management of the Investment Adviser and its affiliates, except that no initial
minimum will be imposed on (i) Employee Benefit Plans that hold their
Institutional Shares through plan-level or omnibus accounts; or (ii) investment
advisers investing for accounts for which they receive asset-based fees where
the investment adviser or its Intermediary purchases Institutional Shares
through an omnibus account. For this purpose, “institutional investors” shall
include “wrap” account sponsors (provided they have an agreement covering the
arrangement with the Distributor); corporations; qualified non-profit
organizations, charitable trusts, foundations and endowments; any state, county
or city, or any instrumentality, department, authority or agency thereof; banks,
trust companies or other depository institutions investing for their own account
or on behalf of their clients and “Employee Benefit Plans” shall include Section
401(k), 403(b), 457, profit sharing, money purchase pension, tax-sheltered
annuity, defined benefit pension, non-qualified deferred compensation plans and
non-qualified pension plans or other employee benefit plans (including health
savings accounts) or SIMPLE plans that are sponsored by one or more employers
(including governmental or church employers) or employee
organizations.
No minimum
amount is required for initial purchases in Class R6 Shares (except as provided
below) or additional investments in Institutional or Class R6
Shares.
For Class
R6 Shares, the minimum initial investment is $5,000,000 for institutional
investors, including companies, foundations, endowments, municipalities, trusts
and other entities who purchase Class R6 Shares directly with the Transfer
Agent.
The minimum
investment requirement for Institutional Shares may be waived for: (i) clients
of GS PWM, and (ii) Goldman Sachs, its affiliates or their respective officers,
partners, directors or employees (including retired employees and former
partners), and any Trustee or officer of the Trust. No minimum amount is
required for additional investments in such accounts.
What Should I Know
When I Purchase Shares Through an Intermediary?
If shares
of the Fund are held in an account maintained and serviced by your Intermediary,
all recordkeeping, transaction processing and payments of distributions relating
to your account will be performed by your Intermediary, and not by the Fund and
its Transfer Agent. Since the Fund will have no record of your transactions, you
should contact your Intermediary to purchase, redeem or exchange shares, to make
changes in or give instructions concerning your account or to obtain information
about your account. If you transfer your account with your Intermediary to
another Intermediary, the Trust will redeem your shares. The Trust will not be
responsible for any loss in an investor’s account or tax liability resulting
from a redemption.
33
Your
Intermediary may charge brokerage commissions or other fees directly to its
customer accounts in connection with their investments. You should contact your
Intermediary for information regarding such charges, as these fees, if any, may
affect the return such customers realize with respect to their
investments.
The
Investment Adviser, Distributor and/or their affiliates may make payments or
provide services to Intermediaries and other persons to promote the sale,
distribution and/or servicing of shares of the Fund and other Goldman Sachs
Funds, except that the Investment Adviser, Distributor and their affiliates do
not make such payments on behalf of Class R6 Shares. These payments are made out
of the Investment Adviser’s, Distributor’s and/or their affiliates’ own assets,
and are not an additional charge to the Fund. The payments are in addition to
the distribution and service fees described in the Prospectus. Such payments are
intended to compensate Intermediaries and other persons for, among other things:
marketing shares of the Fund and other Goldman Sachs Funds, which may consist of
payments relating to the Fund’s inclusion on preferred or recommended fund lists
or in certain sales programs sponsored by the recipients; access to the
Intermediaries’ registered representatives or salespersons, including at
conferences and other meetings; assistance in training and education of
personnel; marketing support; the provision of analytical or other data to the
Investment Adviser or its affiliates relating to sales of shares of the Fund and
other Goldman Sachs Funds; the support or purchase of technology
platforms/software; and/or other specified services intended to assist in the
distribution and marketing of the Fund and other Goldman Sachs Funds, including
provision of consultative services to the Investment Adviser or its affiliates
relating to marketing and/or sale of shares of the Fund and other Goldman Sachs
Funds. The payments may also, to the extent permitted by applicable regulations,
sponsor various trainings and educational programs. The payments by the
Investment Adviser, Distributor and/or their affiliates, which are in addition
to the fees paid for these services by the Fund, may also compensate
Intermediaries and other persons for sub-accounting, sub-transfer agency,
administrative, shareholder processing and/or recordkeeping services. These
additional payments may exceed amounts earned on these assets by the Investment
Adviser, Distributor and/or their affiliates for the performance of these or
similar services. The amount of these additional payments is normally not
expected to exceed 0.50% (annualized) of the amount sold or invested through the
recipients. In addition, certain Intermediaries may have access to certain
services from the Investment Adviser, Distributor and/or their affiliates,
including research reports, economic analysis, and portfolio analysis, portfolio
construction and similar tools and software. In certain cases, the
Intermediaries may not pay for these products or services or may only pay for a
portion of the total cost of these products or services. Please refer to the
“Payments to Others (Including Intermediaries)” section of the SAI for more
information about these and similar payments and services.
The
payments made by the Investment Adviser, Distributor and/or their affiliates and
the services provided by an Intermediary or other person may differ for
different Intermediaries and other persons. The presence of these and similar
payments, receipt of these services and the basis on which an Intermediary
compensates its registered representatives or salespersons may create an
incentive for a particular Intermediary, registered representative, salesperson
or other person to highlight, feature or recommend the Fund based, at least in
part, on the level of compensation paid. You should contact your Intermediary,
or any other person that provides services to you, for more information about
the payments it receives and any potential conflicts of interest.
You may be
required to pay a commission directly to a broker or financial intermediary for
effecting transactions in Institutional Shares. In addition to Institutional
Shares, the Fund also offers other classes of shares to investors. These other
share classes are subject to different fees and expenses (which affect
performance) and are entitled to different services than Institutional Shares.
Information regarding these other share classes is included in the Prospectus
for the applicable share class and may also be obtained from your Intermediary
or from Goldman Sachs by calling the number on the back cover of the
Prospectus.
What Else Should I
Know About Share Purchases?
The Trust
reserves the right to:
◼
Refuse to
open an account or require an Intermediary to refuse to open an account if you
fail to (i) provide a taxpayer identification number, a Social Security Number
or other government-issued identification (e.g., for an individual, a driver’s
license or passport); or (ii) certify that such number or other information is
correct (if required to do so under applicable law).
◼
Reject or
restrict any purchase or exchange order by a particular purchaser (or group of
related purchasers) for any reason in its discretion. Without limiting the
foregoing, the Trust may reject or restrict purchase and exchange orders by a
particular purchaser (or group of related purchasers) when a pattern of frequent
purchases, sales or exchanges of shares of the Fund is evident, or if purchases,
sales or exchanges are, or a subsequent redemption might be, of a size that
would disrupt the management of the Fund.
◼
Close the
Fund to new investors from time to time and reopen the Fund whenever it is
deemed appropriate by the Investment Adviser.
◼
Provide
for, modify or waive the minimum investment requirements.
◼
Modify the
manner in which shares are offered.
Shares of
the Fund are only registered for sale in the United States and certain of its
territories. Generally, shares of the Fund will only be offered or sold to “U.S.
persons” and offerings or other solicitation activities will be conducted within
the United States, in accordance with the rules and regulations of the
Securities Act.
34
Shareholder
Guide
The Fund
may allow you to purchase shares through an Intermediary with securities instead
of cash if consistent with the Fund’s investment policies and operations and
approved by the Investment Adviser.
Notwithstanding
the foregoing, the Trust and Goldman Sachs reserve the right to reject or
restrict purchase or exchange requests from any investor. The Trust and Goldman
Sachs will not be liable for any loss resulting from rejected purchase or
exchange orders.
Please be
advised that abandoned or unclaimed property laws for certain states (to which
your account may be subject) require financial organizations to transfer
(escheat) unclaimed property (including shares of the Fund) to the appropriate
state if no activity occurs in an account for a period of time specified by
state law. For IRA accounts escheated to a state under these abandoned property
laws, the escheatment will generally be treated as a taxable distribution to
you; federal and any applicable state income tax will be withheld. This may
apply to your Roth IRA as well.
Customer
Identification Program. Federal
law requires the Fund to obtain, verify and record identifying information for
certain investors which will be reviewed solely for customer identification
purposes, which may include the name, residential or business street address,
date of birth (for an individual), Social Security Number or taxpayer
identification number or other information for each investor who opens an
account directly with the Fund. Applications without the required information
may not be accepted by the Fund. Throughout the life of your account, the Fund
may request updated identifying information in accordance with its Customer
Identification Program. After accepting an application, to the extent permitted
by applicable law or their Customer Identification Program, the Fund reserves
the right to: (i) place limits on transactions in any account until the identity
of the investor is verified; (ii) refuse an investment in the Fund; or (iii)
involuntarily redeem an investor’s shares and close an account in the event that
the Fund is unable to verify an investor’s identity or is unable to obtain all
required information. The Fund and its agents will not be responsible for any
loss or tax liability in an investor’s account or any tax liability resulting
from the investor’s delay in providing all required information or from closing
an account and redeeming an investor’s shares pursuant to the Customer
Identification Program.
How Are Shares
Priced?
The price
you pay when you buy shares is the Fund’s next-determined NAV per share after
the Transfer Agent (or, if applicable, an Authorized Institution) has received
and accepted your order in proper form. The price you receive when you sell
shares is the Fund’s next-determined NAV per share after the Transfer Agent (or,
if applicable, an Authorized Institution) has received and accepted your order
in proper form. Each class generally calculates its NAV as follows:
|
NAV
= |
(Value
of Assets of the Class)
–
(Liabilities of the Class) |
|
|
Number
of Outstanding Shares of the
Class |
The Fund’s investments for
which market quotations are readily available are valued at market value on the
basis of quotations provided by pricing sources. If accurate quotations are not
readily available, if the Fund’s fund accounting agent is unable for other
reasons to facilitate pricing of individual securities or calculate the Fund’s
NAV, or if the Investment Adviser believes that such quotations do not
accurately reflect fair value, the fair value of the Fund’s investments may be
determined in good faith under valuation procedures approved by the Board of
Trustees. Thus, such pricing may be based on subjective judgments and it is
possible that the prices resulting from such valuation procedures may differ
materially from the value realized on a sale. Cases where there is no clear
indication of the value of the Fund’s investments include, among others,
situations where a security or other asset or liability does not have a price
source or a price is unavailable.
Equity
securities listed on an exchange are generally valued at the last available sale
price on the exchange on which they are principally traded. To the extent the
Fund invests in foreign equity securities, “fair value” prices will be provided
by an independent third-party pricing (fair value) service in accordance with
the fair value procedures approved by the Board of Trustees. Fair value prices
are used because many foreign markets operate at times that do not coincide with
those of the major U.S. markets. Events that could affect the values of foreign
portfolio holdings may occur between the close of the foreign market and the
time of determining the NAV, and would not otherwise be reflected in the
NAV.
Fixed
income securities are generally valued on the basis of prices (including
evaluated prices) and quotations provided by pricing services or securities
dealers. Pricing services may use matrix pricing or valuation models, which
utilize certain inputs and assumptions, including, but not limited to, yield or
price with respect to comparable fixed income securities, to determine current
value. Pricing services generally value fixed income securities assuming orderly
transactions of an institutional round lot size, but the Fund may hold or
transact in such securities in smaller odd lot sizes. Odd lots may trade at
lower prices than institutional round lots.
Investments
in other open-end registered investment companies (if any), excluding
investments in ETFs, are valued based on the NAV of those open-end registered
investment companies (which may use fair value pricing as discussed in their
prospectuses). Investments in ETFs will generally be valued at the last sale
price or official closing price on the exchange on which they are principally
traded.
35
In
addition, the Investment Adviser, consistent with its procedures and applicable
regulatory guidance, may (but need not) determine to make an adjustment to the
previous closing 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 that
could affect a large number of securities in a particular market may include,
but are not limited to: situations relating to one or more single issuers in a
market sector; significant fluctuations in U.S. or foreign markets; market
dislocations; market disruptions or unscheduled market closings; equipment
failures; natural or man made disasters or acts of God; armed conflicts;
governmental actions or other developments; as well as the same or similar
events which may affect specific issuers or the securities markets even though
not tied directly to the securities markets. Other significant events that could
relate to a single issuer may include, but are not limited to: corporate actions
such as reorganizations, mergers and buy-outs; corporate announcements,
including those relating to earnings, products and regulatory news; significant
litigation; ratings downgrades; bankruptcies; and trading limits or
suspensions.
One effect
of using an independent third-party pricing (fair value) service and fair
valuation may be to reduce stale pricing arbitrage opportunities presented by
the pricing of Fund shares. However, it involves the risk that the values used
by the Fund to price its investments may be different from those used by other
investment companies and investors to price the same investments.
Please note
the following with respect to the price at which your transactions are
processed:
◼
NAV per
share of each share class is generally calculated by the Fund’s fund accounting
agent on each business day as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) or such other times as the New
York Stock Exchange or NASDAQ market may officially close. Fund shares will
generally not be priced on any day the New York Stock Exchange is
closed.
◼
The Trust
reserves the right to reprocess purchase (including dividend reinvestments),
redemption and exchange transactions that were processed at a NAV that is
subsequently adjusted, and to recover amounts from (or distribute amounts to)
shareholders accordingly based on the official closing NAV, as
adjusted.
◼
The Trust
reserves the right to advance the time by which purchase and redemption orders
must be received for same business day credit as otherwise permitted by the
SEC.
Consistent
with industry practice, investment transactions not settling on the same day are
recorded and factored into the Fund’s NAV on the business day following trade
date (T+1). The use of T+1 accounting generally does not, but may, result in a
NAV that differs materially from the NAV that would result if all transactions
were reflected on their trade dates.
Note:
The time at which transactions and shares are priced and the time by which
orders must be received may be changed in case of an emergency or if regular
trading on the New York Stock Exchange and/or the bond market is stopped at a
time other than their regularly scheduled closing time. In the event the New
York Stock Exchange and/or the bond market does not open for business, the Trust
may, but is not required to, open the Fund for purchase, redemption and exchange
transactions if the Federal Reserve wire payment system is open. To learn
whether the Fund is open for business during this situation, please call the
appropriate phone number located on the back cover of the
Prospectus.
Foreign
securities may trade in their local markets on days the Fund is closed. As a
result, if the Fund holds a foreign security, its NAV may be impacted on days
when investors may not purchase or redeem Fund shares.
The Fund
relies on various sources to calculate its NAV. The ability of the Fund’s fund
accounting agent to calculate the NAV per share of each share class of the Fund
is subject to operational risks associated with processing or human errors,
systems or technology failures, cyber attacks and errors caused by third party
service providers, data sources, or trading counterparties. Such failures may
result in delays in the calculation of the Fund’s NAV and/or the inability to
calculate NAV over extended time periods. The Fund may be unable to recover any
losses associated with such failures. In addition, if the third party service
providers and/or data sources upon
36
Shareholder
Guide
which the
Fund directly or indirectly relies to calculate its NAV or price individual
securities are unavailable or otherwise unable to calculate the NAV correctly,
it may be necessary for alternative procedures to be utilized to price the
securities at the time of determining the Fund’s NAV.
|
Important
Notice: |
|
Shares
of the Fund are offered exclusively to (i) clients of Goldman Sachs
Private Wealth Management (“GS PWM”), and
(ii)
Goldman Sachs, its affiliates or their respective officers, partners,
directors or employees (including retired employees and
former
partners), and any Trustee or officer of the
Trust. |
|
If
you are a client of GS PWM or the Investment Adviser, you cannot
transfer shares of the Fund to an account with another
institution
and remain invested in the Fund. Should you propose to transfer your
shares to another institution, you will be
required
to redeem your shares or maintain the shares as a client of GS PWM or as
allowed as an institutional client of the
Investment
Adviser. If you are no longer a client of GS PWM, nor an institutional
client of the Investment Adviser, you will be
required
to redeem your shares. |
|
If
you are invested in the Fund because you are (or were, at the time of
purchase) an officer, partner, director or employee of
Goldman
Sachs or its affiliates, you cannot transfer shares of the Fund to an
account other than your Fidelity brokerage account
and
remain invested in the Fund. Should you propose to transfer your shares to
a brokerage account outside of Fidelity, you will
be
required to redeem your shares, or maintain the shares in your Fidelity
brokerage account. If you are no longer an officer,
partner,
director or employee of Goldman Sachs or its affiliates (other than being
a retired employee or former partner), you will
not
be able to purchase additional shares of the
Fund. |
|
A
redemption is a taxable transaction for federal income tax purposes, and
may also be subject to state and local taxes. You
should
consult your tax adviser concerning the potential tax consequences of
investing in the Fund. None of the Trust,
Investment
Adviser or Goldman Sachs will be responsible for any loss in an investor’s
account or tax liability resulting from an
involuntary
redemption. |
How Can I Sell Shares
Of The Fund?
Generally,
shares may be sold (redeemed) only through Intermediaries. Customers of an
Intermediary will give their redemption instructions to the Intermediary, and
the Intermediary will, in turn, place the order with the Transfer Agent. On any
business day the Fund is open, the Fund will generally redeem its Shares upon
request at their next-determined NAV per share after the Transfer Agent (or, if
applicable, the Authorized Institution) has received and accepted a redemption
order in proper form, as described under “How To Buy Shares—How Can I Purchase
Shares Of The Fund?” above. Redemptions may be requested by electronic trading
platform (through your Intermediary), in writing or by telephone (unless the
Intermediary opts out of the telephone redemption privilege on the account
application). You should contact your Intermediary to discuss redemptions and
redemption proceeds. The Fund may transfer redemption proceeds to an account
with your Intermediary. In the alternative, your Intermediary may request that
redemption proceeds be sent to you by check or wire (if the wire instructions
are designated in the current records of the Transfer Agent).
When Do I Need A
Medallion Signature Guarantee To Redeem Shares?
Generally,
a redemption request must be in writing and signed by an authorized person with
a Medallion signature guarantee if:
◼
You would
like the redemption proceeds sent to an address that is not your address of
record; or
◼
You would
like the redemption proceeds sent to a domestic bank account that is not
designated in the current records of the Transfer Agent.
A Medallion
signature guarantee must be obtained from a bank, brokerage firm or other
financial intermediary that is a member of an approved Medallion Guarantee
Program or that is otherwise approved by the Trust. A notary public cannot
provide a Medallion signature guarantee. The written request may be confirmed by
telephone with both the requesting party and the designated Intermediary to
verify instructions. Additional documentation may be required.
What Do I Need To
Know About Telephone Redemption Requests?
The Trust,
the Distributor and the Transfer Agent will not be liable for any loss or tax
liability you may incur in the event that the Trust accepts unauthorized
telephone redemption requests that the Trust reasonably believes to be genuine.
The Trust may accept telephone redemption instructions from any person
identifying himself or herself as the owner of an account or the owner’s
registered representative where the owner has not declined in writing to use
this service. Thus, you risk possible losses if a telephone redemption is not
authorized by you.
37
In an
effort to prevent unauthorized or fraudulent redemption and exchange requests by
telephone, Goldman Sachs and DST Asset Manager Solutions, Inc. (“DST”) each
employ reasonable procedures specified by the Trust to confirm that such
instructions are genuine. The following general policies are currently in
effect:
◼
Telephone
requests are recorded.
◼
Proceeds of
telephone redemption requests will be sent to your address of record or
authorized account designated in the current records of the Transfer Agent
(unless you provide written instructions and a Medallion signature guarantee
indicating another address or account).
◼
For the
30-day period following a change of address, telephone redemptions will only be
filled by a wire transfer to the authorized account designated in the current
records of the Transfer Agent (see immediately preceding bullet point). In order
to receive the redemption by check during this time period, the redemption
request must be in the form of a written, Medallion signature guaranteed
letter.
◼
The
telephone redemption option does not apply to shares held in an account
maintained and serviced by your Intermediary. If your Shares are held in an
account with an Intermediary, you should contact your registered representative
of record, who may make telephone redemptions on your behalf.
◼
The
telephone redemption option may be modified or terminated at any time without
prior notice.
Note:
It may be difficult to make telephone redemptions in times of unusual economic
or market conditions.
How Are Redemption
Proceeds Paid?
By
Wire: You may
arrange for your redemption proceeds to be paid as federal funds to an account
with your Intermediary or to a domestic bank account designated in the current
records of the Transfer Agent. In addition, redemption proceeds may be
transmitted through an electronic trading platform to an account with your
Intermediary. The following general policies govern wiring redemption
proceeds:
◼
Redemption
proceeds will normally be paid in federal funds, between one and two business
days (or such other times in accordance with the requirements of your
Intermediary) following receipt of a properly executed wire transfer redemption
request. In certain circumstances, however (such as unusual market conditions or
in cases of very large redemptions or excessive trading), it may take up to
seven days to pay redemption proceeds.
◼
Redemption
requests may only be postponed or suspended for longer than seven days as
permitted under Section 22(e) of the Investment Company Act of 1940 (the
“Investment Company Act”) if (i) the New York Stock Exchange is closed for
trading or trading is restricted; (ii) an emergency exists which makes the
disposal of securities owned by the Fund or the fair determination of the value
of the Fund’s net assets not reasonably practicable; or (iii) the SEC, by order
or regulation, permits the suspension of the right of redemption.
◼
If you are
selling shares you recently paid for by check or purchased by Automated Clearing
House (“ACH”), the Fund will pay you when your check or ACH has cleared, which
may take up to 15 days.
◼
If the
Federal Reserve Bank is closed on the day that the redemption proceeds would
ordinarily be wired, wiring the redemption proceeds may be delayed until the
Federal Reserve Bank reopens.
◼
To change
the bank wiring instructions designated in the current records of the Transfer
Agent, you must send written instructions signed by an authorized person
designated in the current records of the Transfer Agent. A Medallion signature
guarantee may be required if you are requesting a redemption in conjunction with
the change.
◼
None of the
Trust, the Investment Adviser or Goldman Sachs assumes any responsibility for
the performance of your bank or Intermediary in the transfer process. If a
problem with such performance arises, you should deal directly with your bank or
Intermediary.
By
Check: You may
elect to receive your redemption proceeds by check. Redemption proceeds paid by
check will normally be mailed to the address of record within two business days
(or such other times in accordance with the requirements of your Intermediary)
following receipt of a properly executed redemption request, except in certain
circumstances (such as those set forth above with respect to wire transfer
redemption requests). If you are selling shares you recently paid for by check
or ACH, the Fund will pay you when your check or ACH has cleared, which may take
up to 15 days.
What Else Do I Need
To Know About Redemptions?
The
following generally applies to redemption requests:
◼
Additional
documentation may be required when deemed appropriate by the Transfer Agent. A
redemption request will not be in proper form until such additional
documentation has been received.
◼
Intermediaries
are responsible for the timely transmittal of redemption requests by their
customers to the Transfer Agent. In order to facilitate the timely transmittal
of redemption requests, Intermediaries may set times by which they must receive
redemption requests. Intermediaries may also require additional documentation
from you.
38
Shareholder
Guide
◼
You cannot
transfer your shares to be held at another institution and should you propose to
transfer your shares to another institution, you will be required to redeem your
shares or maintain the shares as a client of GS PWM or as allowed as an
institutional client of the Investment Adviser. If you are no longer a client of
GS PWM, nor an institutional client of the Investment Adviser, you will be
required to redeem your shares. If you are invested in the Fund because you are
(or were, at the time of purchase) a member of the QIS Team, you cannot
transfer shares of the Fund to an account other than your Fidelity brokerage
account and remain invested in the Fund. Should you propose to transfer your
shares to a brokerage account outside of Fidelity, you will be required to
redeem your shares, or maintain the shares in your Fidelity brokerage
account.
The Trust
reserves the right to:
◼
Redeem your
shares in the event your Intermediary’s relationship with Goldman Sachs is
terminated or in the event that the Fund is no longer an option in your Employee
Benefit Plan or no longer available through your Eligible Fee-Based
Program.
◼
Redeem your
shares if your account balance is below the required Fund minimum. The Fund will
not redeem your shares on this basis if the value of your account falls below
the minimum account balance solely as a result of market conditions. The Fund
will give you 60 days prior written notice to allow you to purchase sufficient
additional shares of the Fund in order to avoid such redemption. Different rules
may apply to investors who have established brokerage accounts with Goldman
Sachs in accordance with the terms and conditions of their account
agreements.
◼
Redeem your
shares in the case of actual or suspected threatening conduct or actual or
suspected fraudulent, suspicious or illegal activity by you or any other
individual associated with your account.
◼
Subject to
applicable law, redeem your shares in other circumstances determined by the
Board of Trustees to be in the best interest of the Trust.
◼
Pay
redemptions by a distribution in-kind of securities (instead of cash). If you
receive redemption proceeds in-kind, you should expect to incur transaction
costs upon the disposition of those securities. In addition, if you receive
redemption proceeds inkind, you will be subject to market gains or losses upon
the disposition of those securities.
◼
Reinvest
any amounts (e.g., dividends, distributions or redemption proceeds) which you
have elected to receive by check should your check remain uncashed for more than
180 days. No interest will accrue on amounts represented by uncashed checks.
Your check will be reinvested in your account at the NAV on the day of the
reinvestment. When reinvested, those amounts are subject to the risk of loss
like any Fund investment. If you elect to receive distributions in cash and a
check remains uncashed for more than 180 days, your cash election may be changed
automatically to reinvest and your future dividend and capital gains
distributions will be reinvested in the Fund at the NAV as of the date of
payment of the distribution. This provision may not apply to certain retirement
or qualified accounts, accounts with a non-U.S. address or closed accounts. Your
participation in a systematic withdrawal program may be terminated if a check
remains uncashed.
◼
Charge an
additional fee in the event a redemption is made via wire transfer.
◼
Terminate
your account if you are (i) no longer a client of GS PWM or the Investment
Adviser, or (ii) you are invested in the Fund because you are (or were, at the
time of purchase) an employee of the Investment Adviser, and you have
transferred your shares to a brokerage account outside of Fidelity.
The Fund
typically expects to meet redemption requests by using holdings of cash or cash
equivalents and/or proceeds from the sale of portfolio holdings. In addition,
under stressed market conditions, as well as for other temporary or emergency
purposes, the Fund may distribute redemption proceeds in-kind (instead of cash),
access a line of credit or overdraft facility, or borrow through other sources
to meet redemption requests.
None of the
Trust, the Investment Adviser or Goldman Sachs will be responsible for any loss
in an investor’s account or tax liability resulting from an involuntary
redemption.
Can I Exchange My
Investment From The Fund To Another Goldman Sachs Fund?
You may
exchange shares of the Fund at NAV at the time of exchange for certain shares of
another Goldman Sachs Fund. The exchange privilege may be materially modified or
withdrawn at any time upon 60 days written notice. You should contact your
Intermediary to arrange for exchanges of shares of the Fund for shares of
another Goldman Sachs Fund.
You should
keep in mind the following factors when making or considering an
exchange:
◼
You should
obtain and carefully read the prospectus of the Goldman Sachs Fund you are
acquiring before making an exchange.
You should
be aware that not all Goldman Sachs Funds may offer all share
classes.
◼
Currently,
the Fund does not impose any charge for exchanges, although the Fund may impose
a charge in the future.
◼
All
exchanges which represent an initial investment in a Goldman Sachs Fund must
satisfy the minimum initial investment requirement of that Fund. This
requirement may be waived at the discretion of the Trust. Exchanges into a
Goldman Sachs Fund need not meet the traditional minimum investment requirements
for that Goldman Sachs Fund if the entire balance of the original Fund account
is exchanged.
◼
Exchanges
are available only in states where exchanges may be legally made.
39
◼
It may be
difficult to make telephone exchanges in times of unusual economic or market
conditions.
◼
Goldman
Sachs and DST may use reasonable procedures described above in “How to Sell
Shares—What Do I Need To Know About Telephone Redemption Requests?” in an effort
to prevent unauthorized or fraudulent telephone exchange requests.
◼
Normally, a
telephone exchange will be made only to an identically registered
account.
◼
Exchanges
into Goldman Sachs Funds or certain share classes of Goldman Sachs Funds that
are closed to new investors may be restricted.
For federal
income tax purposes, an exchange from one Goldman Sachs Fund to another is
treated as a redemption of the shares surrendered in the exchange, on which you
may be subject to tax, followed by a purchase of shares received in the
exchange. Exchanges within Employee Benefit Plan accounts will not result in
capital gains or loss for federal or state income tax purposes. You should
consult your tax adviser concerning the tax consequences of an
exchange.
|
Shareholder
Services |
Can My Distributions
From The Fund Be Invested In Other Goldman Sachs Funds?
You may
elect to cross-reinvest distributions and capital gains distributions paid by a
Goldman Sachs Fund in shares of the same class of other Goldman Sachs
Funds.
◼
Shares will
be purchased at NAV.
◼
You may
elect cross-reinvestment into an identically registered account or a similarly
registered account provided that at least one name on the account is registered
identically.
◼
You cannot
make cross-reinvestments into a Goldman Sachs Fund unless that Fund’s minimum
initial investment requirement is met.
◼
You should
obtain and read the prospectus of the Goldman Sachs Fund into which
distributions are invested.
◼
An exchange
is considered a redemption and a purchase and therefore may be a taxable
transaction.
What Types Of Reports
Will I Be Sent Regarding My Investment?
Intermediaries
are responsible for providing any communication from the Fund to shareholders,
including but not limited to, prospectuses, prospectus supplements, proxy
materials and notices regarding the source of dividend payments under Section 19
of the Investment Company Act. They may charge additional fees not described in
the Prospectus to their customers for such services.
You will be
provided with a printed confirmation of each transaction in your account and a
monthly account statement. If your account is maintained and serviced by an
Intermediary, you will receive this information from your
Intermediary.
You will
also receive an annual shareholder report containing audited financial
statements and a semi-annual shareholder report. If you have consented to the
delivery of a single copy of shareholder reports, prospectuses and other
information to all shareholders who share the same mailing address with your
account, you may revoke your consent at any time by contacting your Intermediary
or Goldman Sachs Funds at the appropriate phone number or address found on the
back cover of the Prospectus. The Fund will begin sending individual copies to
you within 30 days after receipt of your revocation. If your account is held
through an Intermediary, please contact your Intermediary to revoke your
consent.
|
Restrictions
on Excessive Trading
Practices |
Policies
and Procedures on Excessive Trading Practices. In
accordance with the policy adopted by the Board of Trustees, the Trust
discourages frequent purchases and redemptions of Fund shares and does not
permit market timing or other excessive trading practices. Purchases and
exchanges should be made with a view to longer-term investment purposes only
that are consistent with the investment policies and practices of the Fund.
Excessive, short-term (market timing) trading practices may disrupt portfolio
management strategies, increase brokerage and administrative costs, harm Fund
performance and result in dilution in the value of Fund shares held by
longer-term shareholders. The Trust and Goldman Sachs reserve the right to
reject or restrict purchase or exchange requests from any investor. The Trust
and Goldman Sachs will not be liable for any loss resulting from rejected
purchase or exchange orders. To minimize harm to the Trust and its shareholders
(or Goldman Sachs), the Trust (or Goldman Sachs) will exercise this right if, in
the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive
trading or if an investor’s trading, in the judgment of the Trust (or Goldman
Sachs), has been or may be disruptive to the Fund. In making this judgment,
trades executed in multiple accounts under common ownership or control may be
considered together to the extent they can be identified. No waivers of the
provisions of the policy established to detect and deter market timing and other
excessive trading activity are permitted that would harm the Trust or its
shareholders or would subordinate the interests of the Trust or its shareholders
to those of Goldman Sachs or any affiliated person or associated person of
Goldman Sachs.
As a
deterrent to excessive trading, many foreign equity securities held by the Fund
are priced by an independent pricing service using fair valuation. For more
information on fair valuation, please see “How to Buy Shares—How Are Shares
Priced?”
40
Shareholder
Guide
Pursuant to
the policy adopted by the Board of Trustees of the Trust, Goldman Sachs has
developed criteria that it uses to identify trading activity that may be
excessive. Excessive trading activity in the Fund is measured by the number of
“round trip” transactions in a shareholder’s account. A “round trip” includes a
purchase or exchange into the Fund followed or preceded by a redemption or
exchange out of the same Fund. If the Fund detects that a shareholder has
completed two or more round trip transactions in the Fund within a rolling
90-day period, the Fund may reject or restrict subsequent purchase or exchange
orders by that shareholder permanently. In addition, the Fund may, in its sole
discretion, permanently reject or restrict purchase or exchange orders by a
shareholder if the Fund detects other trading activity that is deemed to be
disruptive to the management of the Fund or otherwise harmful to the Fund. For
purposes of these transaction surveillance procedures, the Fund may consider
trading activity in multiple accounts under common ownership, control, or
influence. A shareholder that has been restricted from participation in the Fund
pursuant to this policy will be allowed to apply for re-entry after one year. A
shareholder applying for re-entry must provide assurances acceptable to the Fund
that the shareholder will not engage in excessive trading activities in the
future.
Goldman
Sachs may modify its surveillance procedures and criteria from time to time
without prior notice regarding the detection of excessive trading or to address
specific circumstances. Goldman Sachs will apply the criteria in a manner that,
in Goldman Sachs’ judgment, will be uniform.
Fund shares
may be held through omnibus arrangements maintained by Intermediaries, such as
broker-dealers, investment advisers and insurance companies. In addition, Fund
shares may be held in omnibus Employee Benefit Plans, Eligible Fee-Based
Programs and other group accounts. Omnibus accounts include multiple investors
and such accounts typically provide the Fund with a net purchase or redemption
request on any given day where the purchases and redemptions of Fund shares by
the investors are netted against one another. The identity of individual
investors whose purchase and redemption orders are aggregated are ordinarily not
tracked by the Fund on a regular basis. A number of these Intermediaries may not
have the capability or may not be willing to apply the Fund’s market timing
policies. While Goldman Sachs may monitor share turnover at the omnibus account
level, the Fund’s ability to monitor and detect market timing by shareholders in
these omnibus accounts may be limited in certain circumstances, and certain of
these Intermediaries may charge the Fund a fee for providing certain shareholder
financial information requested as part of the Fund’s surveillance process. The
netting effect makes it more difficult to identify, locate and eliminate market
timing activities. In addition, those investors who engage in market timing and
other excessive trading activities may employ a variety of techniques to avoid
detection. There can be no assurance that the Fund and Goldman Sachs will be
able to identify all those who trade excessively or employ a market timing
strategy, and curtail their trading in every instance. If necessary, the Trust
may prohibit additional purchases of Fund shares by an Intermediary or by
certain customers or the Intermediary. Intermediaries may also monitor their
customers’ trading activities in the Fund. The criteria used by Intermediaries
to monitor for excessive trading may differ from the criteria used by the Fund.
If an Intermediary fails to cooperate in the implementation or enforcement of
the Trust’s excessive trading policies, the Trust may take certain actions
including terminating the relationship.
41
Taxation
As with any
investment, you should consider how your investment in the Fund will be taxed.
The tax information below is provided as general information. More tax
information is available in the SAI. You should consult your tax adviser about
the federal, state, local or foreign tax consequences of your investment in the
Fund. Except as otherwise noted, the tax information provided assumes that you
are a U.S. citizen or resident.
Unless your
investment is through an Employee Benefit Plan or other tax-advantaged account,
you should carefully consider the possible tax consequences of Fund
distributions and the sale of your Fund shares.
|
DISTRIBUTIONS |
The Fund
contemplates declaring as dividends each year all or substantially all of its
taxable income. Distributions you receive from the Fund are generally subject to
federal income tax, and may also be subject to state or local taxes. This is
true whether you reinvest your distributions in additional Fund shares or
receive them in cash. For federal tax purposes, the Fund’s distributions
attributable to net investment income and short-term capital gains of the Fund
or an Underlying Fund are taxable to you as ordinary income, while distributions
of long-term capital gains are taxable to you as long-term capital gains, no
matter how long you have owned your Fund shares.
Under
current provisions of the Code, the maximum individual rate applicable to
long-term capital gains is 15% or 20%, depending on whether the individual's
income exceeds certain threshold amounts. Fund distributions to non-corporate
shareholders attributable to dividends received by the Fund directly, or
indirectly through an Underlying Fund, from U.S. and certain foreign
corporations will generally be taxed at the preferential rate described above,
as long as certain other requirements are met. For these lower rates to apply,
the non-corporate shareholder must own their Fund shares for at least 61 days
during the 121-day period beginning 60 days before the Fund’s ex-dividend date.
The amount of the Fund’s distributions that would otherwise qualify for this
favorable tax treatment will be reduced as a result of the Fund’s or an
Underlying Fund’s securities lending activities or high portfolio turnover rate
and may also be reduced as a result of certain derivative transactions entered
into by the Fund or an Underlying Fund. The Fund's income or loss each year from
writing index call options will, generally, be treated as short-term capital
gain or loss.
Distributions
in excess of the Fund’s current and accumulated earnings and profits are treated
as a tax-free return of your investment to the extent of your basis in the
shares, and generally as capital gain thereafter. A return of capital, which for
tax purposes is treated as a return of your investment, reduces your basis in
shares, thus reducing any loss or increasing any gain on a subsequent taxable
disposition of shares. A distribution will reduce the Fund’s NAV per share and
may be taxable to you as ordinary income or capital gain even though, from an
economic standpoint, the distribution may constitute a return of
capital.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Fund
shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
The Fund’s
(or Underlying Fund’s) transactions in derivatives (such as futures contracts
and swaps) will be subject to special tax rules, the effect of which may be to
accelerate income to the Fund (or Underlying Fund), defer losses to the Fund (or
Underlying Fund), cause adjustments in the holding periods of the Fund’s (or
Underlying Fund’s) securities and convert short-term capital losses into
long-term capital losses. These rules could therefore affect the amount, timing
and character of distributions to you. The Fund’s (or Underlying Fund’s) use of
derivatives may result in the Fund realizing more short-term capital gains and
ordinary income subject to tax at ordinary income tax rates than it would if the
Fund (or Underlying Fund) did not use derivatives.
Although
distributions are generally treated as taxable to you in the year they are paid,
distributions declared in October, November or December but paid in January are
taxable as if they were paid in December.
A
percentage of the Fund’s dividends paid to corporate shareholders may be
eligible for the corporate dividends received deduction. This percentage may,
however, be reduced as a result of the Fund’s securities lending activities or
by a high portfolio turnover rate. The character and tax status of all
distributions will be available to shareholders after the close of each calendar
year.
Because of
the Fund’s practice of selling call and put options on various reference
securities, the possibility exists that an overlap between the Fund’s equity
investments and the securities referenced in such options, if substantial
enough, might cause a deferral of the Fund’s recognition of losses for tax
purposes or a reduction in the amount of the Fund’s distributions that qualify
for the favorable tax rate applicable to dividends. The Fund intends to manage
its investments in a manner designed to avoid these adverse tax results to the
extent reasonably practicable, but there is no assurance that the Fund will
accomplish this objective at all times.
42
Taxation
The Fund
(or an Underlying Fund) may be subject to foreign withholding or other foreign
taxes on income or gain from certain foreign securities. In general, the Fund
(or the applicable Underlying Fund) may deduct these taxes in computing its
taxable income.
The Fund’s
investments in Underlying Funds could affect the amount, timing and character of
distributions to shareholders, as compared to a fund that only invests directly
in stocks, securities or other investments.
If you buy
shares of the Fund before it makes a distribution, the distribution will be
taxable to you even though it may actually be a return of a portion of your
investment. This is known as “buying into a dividend.”
|
SALES
AND EXCHANGES |
Your sale
of Fund shares is a taxable transaction for federal income tax purposes, and may
also be subject to state and local taxes. For tax purposes, the exchange of your
Fund shares for shares of a different Goldman Sachs Fund is the same as a sale.
When you sell your shares, you will generally recognize a capital gain or loss
in an amount equal to the difference between your adjusted tax basis in the
shares and the amount received. Generally, this capital gain or loss is
long-term or short-term depending on whether your holding period for the shares
exceeds one year, except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term
capital gain dividends that were received on the shares. Additionally, any loss
realized on a sale, exchange or redemption of shares of the Fund may be
disallowed under “wash sale” rules to the extent the shares disposed of are
replaced with other shares of the Fund within a period of 61 days beginning 30
days before and ending 30 days after the date of disposition (such as pursuant
to a dividend reinvestment in shares of the Fund). If disallowed, the loss will
be reflected in an adjustment to the basis of the shares acquired.
|
OTHER
INFORMATION |
When you open your account,
you should provide your Social Security or taxpayer identification number on
your account application. By law, the Fund must withhold 24% of your taxable
distributions and any redemption proceeds if you do not provide your correct
Social Security or taxpayer identification number, or certify that it is
correct, or if the IRS instructs the Fund to do so.
The Fund is
required to report to you and the IRS annually on Form 1099-B not only the gross
proceeds of Fund shares you sell or redeem but also for shares purchased on or
after January 1, 2012, their cost basis. Cost
basis will be calculated using the Fund’s default method of average cost, unless
you instruct the Fund to use a different methodology. If you
would like to use the average cost method of calculation, no action is required.
To elect an alternative method, you should contact Goldman Sachs Funds at the
address or phone number on the back cover of the Prospectus. Contact your
representative at GS PWM with respect to reporting of cost basis and available
elections for your account.
You should
carefully review the cost basis information provided by the Fund and make any
additional basis, holding period or other adjustments that are required when
reporting these amounts on your federal income tax returns.
Non-U.S.
investors will generally be subject to U.S. withholding tax with respect to
dividends received from the Fund and may be subject to estate tax with respect
to their Fund shares. However, withholding is generally not required on properly
designated distributions to non-U.S. investors of long-term capital gains.
Designated distributions of certain qualified interest income and short-term
capital gains paid to non-U.S. investors are generally not subject to
withholding. Although this designation will generally be made by the Fund for
distributions of long-term and short-term capital gains, the Fund does not
anticipate making any qualified interest income designations. Therefore, all
distributions of interest income will generally be subject to withholding when
paid to non-U.S. investors. More information about U.S. taxation and non-U.S.
investors is included in the SAI.
The Fund is
required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends
made to certain non-U.S. entities that fail to comply (or be deemed compliant)
with extensive reporting and withholding requirements designed to inform the
U.S. Department of the Treasury of U.S.-owned foreign investment accounts.
Shareholders may be requested to provide additional information to enable the
Fund to determine whether withholding is required.
43
Appendix
A
Additional
Information on Fund Risks, Securities and Techniques
|
A.
General Fund Risks |
The Fund
will be subject to the risks associated with equity investments. “Equity
investments” may include common stocks, preferred stocks, interests in REITs,
convertible debt obligations, convertible preferred stocks, other investment
companies (including ETFs) and synthetic and derivative instruments (such as
swaps and futures contracts) that have economic characteristics similar to
equity securities. In general, the values of equity investments fluctuate in
response to the activities of individual companies and in response to general
market and economic conditions. Accordingly, the values of such investments may
decline over short or extended periods. The stock markets tend to be cyclical,
with periods when stock prices generally rise and periods when prices generally
decline. This volatility means that the value of your investment in the Fund may
increase or decrease. In recent years, certain stock markets have experienced
substantial price volatility. To the extent the Fund’s net assets decrease or
increase in the future due to price volatility or share redemption or purchase
activity, the Fund’s expense ratio may correspondingly increase or decrease from
the expense ratio disclosed in the Prospectus.
The Fund
will also be subject to the risks associated with fixed income securities. These
risks include interest rate risk and credit/default risk. In general, interest
rate risk involves the risk that when interest rates decline, the market value
of fixed income securities tends to increase (although many mortgage-related
securities will have less potential than other debt securities for capital
appreciation during periods of declining rates). Conversely, when interest rates
increase, the market value of fixed income securities tends to decline.
Credit/default risk involves the risk that an issuer or guarantor could default
on its obligations, and the Fund will not recover its investment.
A rising
interest rate environment could cause the value of the Fund’s fixed income
securities to decrease, and fixed income markets to experience increased
volatility in addition to heightened levels of liquidity risk. Additionally,
decreases in the value of fixed income securities could lead to increased
shareholder redemptions, which could impair the Fund’s ability to achieve its
investment objective. The risks associated with increasing rates are heightened
given that interest rates are near historic lows, but may be expected to
increase in the future with unpredictable effects on the markets and the Fund’s
investments.
The Fund
may invest in non-investment grade fixed income securities (commonly referred to
as “junk bonds”), which are rated below investment grade (or determined to be of
comparable credit quality, if not rated) at the time of purchase and are
therefore considered speculative. Because non-investment grade fixed income
securities are issued by issuers with low credit ratings, they pose a greater
risk of default than investment grade securities.
To the
extent the Fund invests in pooled investment vehicles (including investment
companies and ETFs), partnerships and REITs, the Fund will be affected by the
investment policies, practices and performances of such entities in direct
proportion to the amount of assets the Fund invests therein.
The
Investment Adviser may use derivative instruments, including futures contracts,
options on futures contracts and swap transactions, as well as other types of
derivatives. The Fund’s investments in derivative instruments, including futures
contracts, options and swaps, can be significant.
Interest
rates, fixed income securities prices, the prices of futures and other
derivatives, and currency exchange rates can be volatile, and a variance in the
degree of volatility or in the direction of the market from the Investment
Adviser’s expectations may produce significant losses in the Fund’s investments
in derivatives.
The
Investment Adviser will not consider the portfolio turnover rate a limiting
factor in making investment decisions for the Fund. A high rate of portfolio
turnover (100% or more) involves correspondingly greater expenses which must be
borne by the Fund and its shareholders, and is also likely to result in higher
short-term capital gains taxable to certain shareholders. The portfolio turnover
rate is calculated by dividing the lesser of the dollar amount of sales or
purchases of portfolio securities by the average monthly value of the Fund’s
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less.
The Fund
may, from time to time, enter into arrangements with certain brokers or other
counterparties that require the segregation of collateral. For operational, cost
or other reasons, when setting up arrangements relating to the
execution/clearing of trades, the Fund may choose to select a segregation model
which may not be the most protective option available in the case of a default
by a broker or counterparty.
The
following sections provide further information on certain types of securities
and investment techniques that may be used by the Fund, including their
associated risks. Additional information is provided in the SAI, which is
available upon request. Among other things, the SAI describes certain
fundamental investment restrictions that cannot be changed without shareholder
approval. You should
44
Appendix
A
note,
however, that all investment objectives and all investment policies not
specifically designated as fundamental are non-fundamental, and may be changed
without shareholder approval. If there is a change in the Fund’s investment
objective, you should consider whether the Fund remains an appropriate
investment in light of your then current financial position and
needs.
|
B.
Other Risks of the Fund and the Underlying
Funds |
Risks
of Investing in Mid-Capitalization and Small-Capitalization Companies and
REITs. The Fund
may, to the extent consistent with its investment policies, invest in mid- and
small capitalization companies and REITs. Investments in mid- and small
capitalization companies and REITs involve greater risk and portfolio price
volatility than investments in larger capitalization stocks. Among the reasons
for the greater price volatility of these investments are the less certain
growth prospects of smaller firms and the lower degree of liquidity in the
markets for such securities. Mid- and small capitalization companies may be
thinly traded and may have to be sold at a discount from current market prices
or in small lots over an extended period of time. In addition, these securities
are subject to the risk that during certain periods the liquidity of particular
issuers or industries, or all securities in particular investment categories,
will shrink or disappear suddenly and without warning as a result of adverse
economic or market conditions, or adverse investor perceptions, whether or not
accurate. Because of the lack of sufficient market liquidity, the Fund may incur
losses because it will be required to effect sales at a disadvantageous time and
only then at a substantial drop in price. Mid- and small capitalization
companies and REITs include “unseasoned” issuers that do not have an established
financial history; often have limited product lines, markets or financial
resources; may depend on or use a few key personnel for management; and may be
susceptible to losses and risks of bankruptcy. Mid- and small capitalization
companies may be operating at a loss or have significant variations in operating
results; may be engaged in a rapidly changing business with products subject to
a substantial risk of obsolescence; may require substantial additional capital
to support their operations, to finance expansion or to maintain their
competitive position; and may have substantial borrowings or may otherwise have
a weak financial condition. In addition, these companies may face intense
competition, including competition from companies with greater financial
resources, more extensive development, manufacturing, marketing, and other
capabilities, and a larger number of qualified managerial and technical
personnel. Transaction costs for these investments are often higher than those
for larger capitalization companies. Investments in mid- and small
capitalization companies and REITs may be more difficult to price precisely than
other types of securities because of their characteristics and lower trading
volumes.
Downgraded
Securities. After its
purchase, a portfolio security may be assigned a lower rating or cease to be
rated, which may affect the market value and liquidity of the security. If this
occurs, the Fund may continue to hold the security if its investment adviser
believes it is in the best interest of the Fund and its
shareholders.
Credit/Default
Risks. Debt
securities purchased by the Fund may include securities (including zero coupon
bonds) issued by the U.S. government (and its agencies, instrumentalities and
sponsored enterprises), foreign governments, domestic and foreign corporations,
banks and other issuers. Some of these fixed income securities are described in
the next section below. Further information is provided in the SAI, which is
available upon request.
Debt
securities rated BBB- or higher by Standard & Poor’s or Baa3 or higher by
Moody’s or having a comparable credit rating by another NRSRO (or, if unrated,
determined by the Investment Adviser to be of comparable credit quality) are
considered “investment grade.” Securities rated BBB- or Baa3 are considered
medium-grade obligations with speculative characteristics, and adverse economic
conditions or changing circumstances may weaken their issuers’ capacity to pay
interest and repay principal.
The Fund
may invest in fixed income securities rated BB+ or Ba1 or below (or comparable
unrated securities) which are commonly known as “junk bonds.” Junk bonds are
considered speculative and may be questionable as to principal and interest
payments.
In some
cases, junk bonds may be highly speculative, have poor prospects for reaching
investment grade standing and be in default. As a result, investment in such
bonds will present greater speculative risks than those associated with
investment in investment grade bonds. Also, to the extent that the rating
assigned to a security in the Fund’s portfolio is downgraded by a rating
organization, the market price and liquidity of such security may be adversely
affected.
Risks
of Foreign Investments. The Fund
may make foreign investments. Foreign investments involve special risks that are
not typically associated with U.S. dollar denominated or quoted securities of
U.S. issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such investments
and changes in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e.,
weakening of the currency against the U.S. dollar) in which a portfolio security
is quoted or denominated relative to the U.S. dollar would reduce the value of
the portfolio security. In addition, if the currency in which the Fund receives
dividends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted to
U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
45
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations, entities
and/or individuals, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. International trade barriers or
economic sanctions against foreign countries, organizations, entities and/or
individuals may adversely affect the Fund’s foreign holdings or
exposures.
Brokerage
commissions, custodial services and other costs relating to investment in
international securities markets generally are more expensive than in the United
States. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have been unable to
keep pace with the volume of securities transactions, thus making it difficult
to conduct such transactions.
Foreign
issuers are not generally subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to U.S. issuers. There may be
less publicly available information about a foreign issuer than about a U.S.
issuer. In addition, there is generally less government regulation of foreign
markets, companies and securities dealers than in the United States, and the
legal remedies for investors may be more limited than the remedies available in
the United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some cases,
capital gains distributions), limitations on the removal of funds or other
assets from such countries, and risks of political or social instability or
diplomatic developments which could adversely affect investments in those
countries.
Certain
foreign investments may become less liquid in response to social, political or
market developments or adverse investor perceptions, or become illiquid after
purchase by the Fund, particularly during periods of market turmoil. Certain
foreign investments may become illiquid when, for instance, there are few, if
any, interested buyers and sellers or when dealers are unwilling to make a
market for certain securities. When the Fund holds illiquid investments, its
portfolio may be harder to value, especially in changing markets.
If the Fund
focuses it investments in one or a few countries and currencies it will subject
the Fund to greater risks than if its assets were not geographically
focused.
Investments
in foreign securities may take the form of sponsored and unsponsored American
Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). The Fund
may also invest in European Depositary Receipts (“EDRs”) or other similar
instruments representing securities of foreign issuers. ADRs, GDRs and EDRs
represent the right to receive securities of foreign issuers deposited in a bank
or other depository. ADRs and certain GDRs are traded in the United States. GDRs
may be traded in either the United States or in foreign markets. EDRs are traded
primarily outside the United States. Prices of ADRs are quoted in U.S. dollars.
EDRs and GDRs are not necessarily quoted in the same currency as the underlying
security.
Foreign
Custody Risk. The Fund
may hold such securities and cash with foreign banks, agents, and securities
depositories appointed by the Fund’s custodian (each a “Foreign Custodian”).
Some Foreign Custodians may be recently organized or new to the foreign custody
business. In some countries, Foreign Custodians may be subject to little or no
regulatory oversight over or independent evaluation of their operations.
Further, the laws of certain countries may place limitations on the Fund’s
ability to recover its assets if a Foreign Custodian enters bankruptcy.
Investments in emerging markets may be subject to even greater custody risks
than investments in more developed markets. Custody services in emerging market
countries are very often undeveloped and may be considerably less well regulated
than in more developed countries, and thus may not afford the same level of
investor protection as would apply in developed countries.
Risks
of Sovereign Debt. Investment
in sovereign debt obligations by the Fund involves risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal or interest when due in accordance with the terms of such debt,
and the Fund may have limited recourse to compel payment in the event of a
default. Periods of economic uncertainty may result in the volatility of market
prices of sovereign debt, and in turn the Fund’s NAV, to a greater extent than
the volatility inherent in debt obligations of U.S. issuers.
A sovereign
debtor’s willingness or ability to repay principal and pay interest in a timely
manner may be affected by, among other factors, its cash flow situation, the
extent of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor’s policy toward
international lenders, and the political constraint to which a sovereign debtor
may be subject.
Risks
of Emerging Countries. The Fund
may invest in securities of issuers located in emerging countries. The risks of
foreign investment are heightened when the issuer is located in an emerging
country. Emerging countries are generally located in Africa, Asia, the Middle
East, Eastern and Central Europe, and Central and South America. The Fund’s
purchase and sale of portfolio securities in certain emerging countries may be
constrained by limitations relating to daily changes in the prices of listed
securities, periodic trading
46
Appendix
A
or
settlement volume and/or limitations on aggregate holdings of foreign investors.
Such limitations may be computed based on the aggregate trading volume by or
holdings of the Fund, the Fund’s investment adviser, its affiliates and their
respective clients and other service providers. The Fund may not be able to sell
securities in circumstances where price, trading or settlement volume
limitations have been reached.
Foreign
investment in the securities markets of certain emerging countries is restricted
or controlled to varying degrees which may limit investment in such countries or
increase the administrative costs of such investments. For example, certain
Asian countries require governmental approval prior to investments by foreign
persons or limit investment by foreign persons to only a specified percentage of
an issuer’s outstanding securities or a specific class of securities which may
have less advantageous terms (including price) than securities of the issuer
available for purchase by nationals. In addition, certain countries may restrict
or prohibit investment opportunities in issuers or industries deemed important
to national interests. Such restrictions may affect the market price, liquidity
and rights of securities that may be purchased by the Fund. The repatriation of
investment income, capital or the proceeds of securities sales from certain
emerging countries is subject to restrictions such as the need for governmental
consents, which may make it difficult for the Fund to invest in such emerging
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for such repatriation. In situations
where a country restricts direct investment in securities (which may occur in
certain Asian and other countries), the Fund may invest in such countries
through other investment funds in such countries.
Many
emerging countries have experienced currency devaluations and substantial (and,
in some cases, extremely high) rates of inflation. Other emerging countries have
experienced economic recessions. These circumstances have had a negative effect
on the economies and securities markets of such emerging countries. Economies in
emerging countries generally are dependent heavily upon commodity prices and
international trade and, accordingly, have been and may continue to be affected
adversely by the economies of their trading partners, trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade.
Many
emerging countries are subject to a substantial degree of economic, political
and social instability. Governments of some emerging countries are authoritarian
in nature or have been installed or removed as a result of military coups, while
governments in other emerging countries have periodically used force to suppress
civil dissent. Disparities of wealth, the pace and success of democratization,
and ethnic, religious and racial disaffection, among other factors, have also
led to social unrest, violence and/or labor unrest in some emerging countries.
Unanticipated political or social developments may result in sudden and
significant investment losses. Investing in emerging countries involves greater
risk of loss due to expropriation, nationalization, confiscation of assets and
property or the imposition of restrictions on foreign investments and on
repatriation of capital invested. As an example, in the past some Eastern
European governments have expropriated substantial amounts of private property,
and many claims of the property owners have never been fully settled. There is
no assurance that similar expropriations will not occur in other
countries.
The Fund’s
investments in emerging countries may also be subject to withholding or other
taxes, which may be significant and may reduce the return to the Fund from an
investment in issuers in such countries.
Settlement
procedures in emerging countries are frequently less developed and reliable than
those in the United States and may involve the Fund’s delivery of securities
before receipt of payment for their sale. In addition, significant delays may
occur in certain markets in registering the transfer of securities. Settlement
or registration problems may make it more difficult for the Fund to value its
portfolio securities and could cause the Fund to miss attractive investment
opportunities, to have a portion of its assets uninvested or to incur losses due
to the failure of a counterparty to pay for securities the Fund has delivered or
the Fund’s inability to complete its contractual obligations because of theft or
other reasons.
The
creditworthiness of the local securities firms used by the Fund in emerging
countries may not be as sound as the creditworthiness of firms used in more
developed countries. As a result, the Fund may be subject to a greater risk of
loss if a securities firm defaults in the performance of its
responsibilities.
The small
size and inexperience of the securities markets in certain emerging countries
and the limited volume of trading in securities in those countries may make the
Fund’s investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
United States, Japan and most Western European countries). The Fund’s
investments in emerging countries are subject to the risk that the liquidity of
a particular investment, or investments generally, in such countries will shrink
or disappear suddenly and without warning as a result of adverse economic,
market or political conditions, or adverse investor perceptions, whether or not
accurate. Because of the lack of sufficient market liquidity, the Fund may incur
losses because it will be required to effect sales at a disadvantageous time and
then only at a substantial drop in price. Investments in emerging countries may
be more difficult to value precisely because of the characteristics discussed
above and lower trading volumes.
The Fund’s
use of foreign currency management techniques in emerging countries may be
limited. The Fund’s investment advisers anticipate that a significant portion of
the Fund’s currency exposure in emerging countries may not be covered by those
techniques.
47
Risks
of Writing Index and Related ETF Call Options. When the
Fund writes (sells) index options, or related ETF call options, it foregoes the
opportunity to benefit from an increase in the value of the respective Index or
related ETF above the exercise price (plus the premium received) of the option,
but it continues to bear the risk of a decline in the value of the respective
Index or related ETF. As the seller of the respective Indexes or related ETF
call options, the Fund receives cash (the “premium”) from the purchaser.
Depending upon the type of call option, the purchaser of an index or related ETF
call option either (i) has the right to any appreciation in the value of the
index or related ETF over a fixed price (the “exercise price”) on a certain date
in the future (the “expiration date”) or (ii) has the right to any appreciation
in the value of the index or related ETF over the exercise price at any time
prior to the expiration of the option. If the purchaser does not exercise the
option, the Fund retains the premium. If the purchaser exercises the option, the
Fund pays the purchaser the difference between the price of the index or related
ETF and the exercise price of the option. The premium, the exercise price and
the market value of the index or related ETF determine the gain or loss realized
by the Fund as the seller of the index or related ETF call option. The Fund can
also repurchase the call option prior to the expiration date, ending its
obligation. In this case, the cost of entering into closing purchase
transactions will determine the gain or loss realized by the Fund.
There is no
assurance that a liquid market will be available at all times for the Fund to
write call options or to enter into closing purchase transactions. In addition,
the premiums the Fund receive for writing call options may decrease as a result
of a number of factors, including a reduction in interest rates generally, a
decline in stock market volumes or a decrease in the price volatility of the
underlying securities. For more information see “Fund Securities and
Techniques—Options on Securities, Securities Indices and Foreign
Currencies.”
Risks
of Derivative Investments. The Fund
may invest in derivative instruments, including without limitation, options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities and forward contracts and other derivatives relating to
foreign currency transactions. Derivatives may be used for both hedging and
nonhedging purposes (that is, to seek to increase total return), although
suitable derivative instruments may not always be available to an investment
adviser for these purposes. Losses from derivative instruments can result from a
lack of correlation between changes in the value of derivative instruments and
the portfolio assets (if any) being hedged, the potential illiquidity of the
markets for derivative instruments, the failure of the counterparty to perform
its contractual obligations, or the risks related to leverage factors associated
with such transactions. Derivatives are also subject to risks arising from
margin requirements, which include the risk that the Fund will be required to
pay additional margin or set aside additional collateral to maintain open
derivative positions and the risk of loss by the Fund of margin deposits in the
event of the bankruptcy or other similar insolvency with respect to a broker or
counterparty with whom the Fund has an open derivative position. Losses may also
arise if the Fund receives cash collateral under the transactions and some or
all of that collateral is invested in the market. To the extent that cash
collateral is so invested, such collateral will be subject to market
depreciation or appreciation, and the Fund may be responsible for any loss that
might result from its investment of the counterparty’s cash collateral. If cash
collateral is not invested, the Fund may be exposed to additional risk of loss
in the event of the insolvency of its custodian holding such collateral. The use
of these management techniques also involves the risk of loss if the investment
adviser is incorrect in its expectation of the timing or level of fluctuations
in securities prices, interest rates, currency prices or other variables.
Derivative instruments may be harder to value, subject to greater volatility and
more likely subject to changes in tax treatment than other investments. For
these reasons, an investment adviser’s attempts to hedge portfolio risks through
the use of derivative instruments may not be successful, and the investment
adviser may choose not to hedge portfolio risks. Using derivatives for
nonhedging purposes presents greater risk of loss than derivatives used for
hedging purposes.
Derivative
mortgage-backed securities (such as principal-only (“POs”), interest-only
(“IOs”) or inverse floating rate securities) are particularly exposed to call
and extension risks. Small changes in mortgage prepayments can significantly
impact the cash flow and the market value of these securities. In general, the
risk of faster than anticipated prepayments adversely affects IOs, super
floaters and premium priced mortgage-backed securities. The risk of slower than
anticipated prepayments generally adversely affects POs, floating-rate
securities subject to interest rate caps, support tranches and discount priced
mortgage-backed securities. In addition, particular derivative instruments may
be leveraged such that their exposure (i.e., price sensitivity) to interest rate
and/or prepayment risk is magnified.
Some
floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject to
the risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest
rates.
Risks of
Structured Investment Vehicles. The Fund may invest in structured investment
vehicles (“SIVs”). SIVs are legal entities that are sponsored by banks,
broker-dealers or other financial firms specifically created for the purpose of
issuing particular securities or instruments. SIVs are often leveraged and
securities issued by SIVs may have differing credit preferences. Investments in
SIVs present counterparty risks, although they may be subject to a guarantee or
other financial support by the sponsoring entity. Investments in SIVs may be
more volatile, less liquid and more difficult to price accurately than other
types of investments.
48
Appendix
A
Risks
of Short Positions. The Fund
may use derivatives, including futures and swaps, to implement short positions.
If the Fund uses a derivative to implement a short position and the value of the
instrument or market in which the Fund has taken a short position increases,
then the Fund will incur a loss equal to the increase in value from the time
that the short position was entered into plus any premium and interest paid to a
counterparty. Therefore, taking short positions involves the risk that losses
may be exaggerated, potentially losing more money than the actual cost of the
investment.
The Fund
may also engage in short selling. In these transactions, the Fund sells a
security it does not own in anticipation of a decline in the market value of the
security, then must borrow the security to make delivery to the buyer. The Fund
is obligated to replace the security borrowed by purchasing it at the market
price at the time of replacement. The price at such time may be more or less
than the price at which the security was sold by the Fund, which may result in a
loss or gain, respectively. Unlike purchasing a security, where potential losses
are limited to the purchase price and there is no upside limit on potential
gain, short sales involve no cap on maximum losses, while gains are limited to
the price of the security at the time of the short sale.
The Fund
may, during the term of any short sale, withdraw the cash proceeds of such short
sale and use these cash proceeds to purchase additional securities or for any
other Fund purposes. Because cash proceeds are Fund assets which are typically
used to satisfy the collateral requirements for the short sale, the reinvestment
of these cash proceeds may require the Fund to post as collateral other
securities that it owns. If the Fund reinvests the cash proceeds, the Fund might
be required to post an amount greater than its net assets (but less than its
total assets) as collateral. For these or other reasons, the Fund might be
required to liquidate long and short positions at times that may be
disadvantageous to the Fund.
The Fund
may make short sales against the box, in which the Fund enters into a short sale
of a security which it owns or has the right to obtain at no additional
cost.
The SEC and
financial industry regulatory authorities in other countries have imposed
temporary prohibitions and restrictions on certain types of short sale
transactions. These prohibitions and restrictions, or the imposition of other
regulatory requirements on short selling in the future, could inhibit the
ability of the Investment Adviser to sell securities short on behalf of the
Fund.
Risks
of Illiquid Investments. The Fund
may not acquire any “illiquid investment” if, immediately after the acquisition,
the Fund would have invested more than 15% of its net assets in illiquid
investments that are assets. An “illiquid investment” is an investment that the
Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment. In determining
whether an investment is an illiquid investment, the Investment Adviser will
take into account actual or estimated daily transaction volume of an investment,
group of related investments or asset class and other relevant market, trading,
and investment-specific considerations. In addition, in determining the
liquidity of an investment, the Investment Adviser must determine whether
trading varying portions of a position in a particular portfolio investment or
asset class, in sizes that the Fund would reasonably anticipate trading, is
reasonably expected to significantly affect its liquidity, and if so, the Fund
must take this determination into account when classifying the liquidity of that
investment or asset class.
Investments
purchased by the Fund that are liquid at the time of purchase may subsequently
become illiquid. If one or more investments in the Fund’s portfolio become
illiquid, the Fund may exceed the 15% limitation in illiquid investments. In the
event that changes in the portfolio or other external events cause the Fund to
exceed this limit, the Fund must take steps to bring its illiquid investments
that are assets to or below 15% of its net assets within a reasonable period of
time. This requirement would not force the Fund to liquidate any portfolio
instrument where the Fund would suffer a loss on the sale of that
instrument.
In cases
where no clear indication of the value of the Fund’s portfolio instruments is
available, the portfolio securities will be valued at their fair value according
to the valuation procedures approved by the Board of Trustees. These cases
include, among others, situations where a security or other asset or liability
does not have a price source, or the secondary markets on which an investment
has previously been traded are no longer viable, due to its lack of liquidity.
For more information on fair valuation, please see “How To Buy Shares—How Are
Shares Priced?”
Temporary
Investment Risks. The Fund
may, for temporary defensive purposes (and to the extent it is permitted to
invest in the following), invest up to 100% of its total assets in:
◼
U.S.
Government Securities
◼
Commercial
paper rated at least A-2 by Standard & Poor’s; P-2 by Moody’s or having a
comparable credit rating by another NRSRO (or, if unrated, determined by the
Investment Adviser to be of comparable credit quality)
◼
Certificates
of deposit
◼
Bankers’
acceptances
◼
Repurchase
agreements
◼
Non-convertible
preferred stocks and non-convertible corporate bonds with a remaining maturity
of less than one year ETFs
◼
Other
investment companies
◼
Cash
items
49
When the
Fund’s assets are invested in such instruments, the Fund may not be achieving
its investment objective.
|
C.
Investment Securities and
Techniques |
This
section provides further information on certain types of securities and
investment techniques that may be used by the Fund, including its associated
risks.
The Fund
may purchase other types of securities or instruments similar to those described
in this section if otherwise consistent with the Fund’s investment objective and
policies. Further information is provided in the SAI, which is available upon
request.
The
Investment Adviser is subject to registration and regulation as a “commodity
pool operator” (“CPO”) under the Commodity Exchange Act (“CEA”) with respect to
its service as investment adviser to the Fund.
U.S.
Government Securities. The Fund
may invest in U.S. Government Securities. U.S. Government Securities include
U.S. Treasury obligations and obligations issued or guaranteed by U.S.
government agencies, instrumentalities or sponsored enterprises. U.S. Government
Securities may be supported by (i) the full faith and credit of the U.S.
Treasury; (ii) the right of the issuer to borrow from the U.S. Treasury; (iii)
the discretionary authority of the U.S. government to purchase certain
obligations of the issuer; or (iv) only the credit of the issuer. U.S.
Government Securities also include Treasury receipts, zero coupon bonds and
other stripped U.S. Government Securities, where the interest and principal
components are traded independently. U.S. Government Securities may also include
Treasury inflation-protected securities whose principal value is periodically
adjusted according to the rate of inflation.
U.S.
Treasury Obligations include, among other things, the separately traded
principal and interest components of securities guaranteed or issued by the U.S.
Treasury if such components are traded independently under the Separate Trading
of Registered Interest and Principal of Securities program
(“STRIPS”).
U.S.
Government Securities are deemed to include (i) securities for which the payment
of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (ii)
participations in loans made to foreign governments or their agencies that are
so guaranteed. Certain of these participations may be regarded as
illiquid.
U.S.
Treasury Obligations have historically involved little risk of loss of principal
if held to maturity. However, no assurance can be given that the U.S. government
will be able or willing to repay the principal or interest when due or provide
financial support to U.S. government agencies, authorities, instrumentalities or
sponsored enterprises that issue U.S. Government Securities if it is not
obligated to do so by law.
Custodial
Receipts and Trust Certificates. The Fund
may invest in custodial receipts and trust certificates representing interests
in securities held by a custodian or trustee. The securities so held may include
U.S. Government Securities, Municipal Securities or other types of securities in
which the Fund may invest. The custodial receipts or trust certificates may
evidence ownership of future interest payments, principal payments or both on
the underlying securities, or, in some cases, the payment obligation of a third
party that has entered into an interest rate swap or other arrangement with the
custodian or trustee. For certain securities laws purposes, custodial receipts
and trust certificates may not be considered obligations of the U.S. government
or other issuer of the securities held by the custodian or trustee. If for tax
purposes the Fund is not considered to be the owner of the underlying securities
held in the custodial or trust account, the Fund may suffer adverse tax
consequences. As a holder of custodial receipts and trust certificates, the Fund
will bear its proportionate share of the fees and expenses charged to the
custodial account or trust. The Fund may also invest in separately issued
interests in custodial receipts and trust certificates.
Mortgage-Backed
Securities. The Fund
may invest in securities that represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real property
(“Mortgage-Backed Securities”). Mortgage-Backed Securities can be backed by
either fixed rate mortgage loans or adjustable rate mortgage loans, and may be
issued by either a governmental or non-governmental entity. The value of some
Mortgage-Backed Securities may be particularly sensitive to changes in
prevailing interest rates. The value of these securities may also fluctuate in
response to the market’s perception of the creditworthiness of the issuers.
Early repayment of principal on Mortgage-Backed or asset-backed Securities may
expose the Fund to the risk of earning a lower rate of return upon reinvestment
of principal.
The Fund
may invest in privately-issued mortgage pass-through securities that represent
interests in pools of mortgage loans that are issued by trusts formed by
originators of and institutional investors in mortgage loans (or represent
interests in custodial arrangements administered by such institutions). These
originators and institutions include commercial banks, savings and loans
associations, credit unions, savings banks, mortgage bankers, insurance
companies, investment banks or special purpose subsidiaries of the foregoing.
The pools underlying privately-issued mortgage pass-through securities consist
of mortgage loans secured by mortgages or deeds of trust creating a first lien
on commercial, residential, residential multi-family and mixed residential/
commercial properties. These mortgage-backed securities typically do not have
the same credit standing as U.S. government guaranteed mortgage-backed
securities.
50
Appendix
A
Privately-issued
mortgage pass-through securities generally offer a higher yield than similar
securities issued by a government entity because of the absence of any direct or
indirect government or agency payment guarantees. However, timely payment of
interest and principal on mortgage loans in these pools may be supported by
various other forms of insurance or guarantees, including individual loan, pool
and hazard insurance, subordination and letters of credit. Such insurance and
guarantees may be issued by private insurers, banks and mortgage poolers. There
is no guarantee that private guarantors or insurers, if any, will meet their
obligations. Mortgage-backed securities without insurance or guarantees may also
be purchased by the Fund if they have the required rating from an NRSRO.
Mortgage-backed securities issued by private organizations may not be readily
marketable, may be more difficult to value accurately, and may be more volatile
than similar securities issued by a government entity.
Mortgage-backed
securities may include multiple class securities, including collateralized
mortgage obligations (“CMOs”) and Real Estate Mortgage Investment Conduit
(“REMIC”) pass-through or participation certificates. A REMIC is a CMO that
qualifies for special tax treatment under the Code and invests in certain
mortgages principally secured by interests in real property and other permitted
investments. CMOs provide an investor with a specified interest in the cash flow
from a pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs
are issued in multiple classes each with a specified fixed or floating interest
rate and a final scheduled distribution date. In many cases, payments of
principal are applied to the CMO classes in the order of their respective stated
maturities, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in
full.
Sometimes,
however, CMO classes are “parallel pay,” i.e., payments
of principal are made to two or more classes concurrently. In some cases, CMOs
may have the characteristics of a stripped mortgage-backed security whose price
can be highly volatile. CMOs may exhibit more or less price volatility and
interest rate risk than other types of Mortgage-Backed Securities, and under
certain interest rate and payment scenarios, the Fund may fail to recoup fully
its investment in certain of these securities regardless of their credit
quality.
Mortgage-Backed
Securities also include stripped Mortgage-Backed Securities (“SMBS”), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives substantially all of
the interest payments and the other that receives substantially all of the
principal payments from a pool of mortgage loans. The market value of SMBS
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all or
most of the interest from mortgage loans are generally higher than prevailing
market yields on other Mortgage-Backed Securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped. Throughout 2008, the market for
mortgage-backed securities began experiencing substantially, often dramatically,
lower valuations and greatly reduced liquidity. Markets for other asset-backed
securities have also been affected. These instruments are increasingly subject
to liquidity constraints, price volatility, credit downgrades and unexpected
increases in default rates and, therefore, may be more difficult to value and
more difficult to dispose of than previously. These events may have an adverse
effect on the Fund to the extent they invest in mortgage-backed or other fixed
income securities or instruments affected by the volatility in the fixed income
markets.
Asset-Backed
and Receivables-Backed Securities. The Fund
may invest in asset-backed and receivables-backed securities whose principal and
interest payments are collateralized by pools of assets such as auto loans,
credit card receivables, leases, mortgages, installment contracts and personal
property. Asset-backed securities may also include home equity line of credit
loans and other second-lien mortgages. Asset-backed and receivables-backed
securities are often subject to more rapid repayment than their stated maturity
date would indicate as a result of the pass-through of prepayments of principal
on the underlying loans. During periods of declining interest rates, prepayment
of loans underlying asset-backed and receivables-backed securities can be
expected to accelerate. Accordingly, the Fund’s ability to maintain positions in
such securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time. In addition, securities that are backed by credit card,
automobile and similar types of receivables generally do not have the benefit of
a security interest in collateral that is comparable in quality to mortgage
assets. Some asset-backed securities have only a subordinated claim or security
interest in collateral. If the issuer of an asset-backed security defaults on
its payment obligation, there is the possibility that, in some cases, the Fund
will be unable to possess and sell the underlying collateral and that the Fund’s
recoveries on repossessed collateral may not be available to support payments on
the securities. In the event of a default, the Fund may suffer a loss if it
cannot sell collateral quickly and receive the amount it is owed. The value of
some asset-backed securities may be particularly sensitive to changes in the
prevailing interest rates. There is no guarantee that private guarantors or
insurers of an asset-backed security, if any, will meet their obligation.
Asset-backed securities may also be subject to increased volatility and may
become illiquid and more difficult to value even where there is no default or
threat of default due to the market’s perception of the creditworthiness of the
issuer and market conditions impacting asset-backed securities more
generally.
51
Municipal
Securities. The Fund
may invest in securities and instruments issued by state and local government
issuers (“Municipal Securities”). Municipal Securities in which the Fund may
invest consist of bonds, notes, commercial paper and other instruments
(including participation interests in such securities) issued by or on behalf of
the states, territories and possessions of the United States (including the
District of Columbia) and their political subdivisions, agencies or
instrumentalities. Such securities may pay fixed, variable or floating rates of
interest.
Municipal
Securities include both “general” and “revenue” bonds and may be issued to
obtain funds for various purposes. General obligations are secured by the
issuer’s pledge of its full faith, credit and taxing power. Revenue obligations
are payable only from the revenues derived from a particular facility or class
of facilities. Such securities may pay fixed, variable or floating rates of
interest.
Municipal
Securities are often issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other purposes for which Municipal Securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities. Municipal Securities in which the Fund may invest include private
activity bonds, pre-refunded Municipal Securities and auction rate securities.
Dividends paid by the Fund based on investments in private activity bonds will
be subject to alternative minimum tax.
The
obligations of the issuer to pay the principal of and interest on a Municipal
Security are subject to the provisions of bankruptcy, insolvency and other laws
affecting the rights and remedies of creditors, such as the Federal Bankruptcy
Act, and laws, if any, that may be enacted by Congress or state legislatures
extending the time for payment of principal or interest or imposing other
constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due the principal of or interest on a
municipal security may be materially affected.
In
addition, Municipal Securities include municipal leases, certificates of
participation and “moral obligation” bonds. A municipal lease is an obligation
issued by a state or local government to acquire equipment or facilities.
Certificates of participation represent interests in municipal leases or other
instruments, such as installment purchase agreements. Moral obligation bonds are
supported by a moral commitment but not a legal obligation of a state or local
government. Municipal leases, certificates of participation and moral obligation
bonds frequently involve special risks not normally associated with general
obligation or revenue bonds. In particular, these instruments permit
governmental issuers to acquire property and equipment without meeting
constitutional and statutory requirements for the issuance of debt. If, however,
the governmental issuer does not periodically appropriate money to enable it to
meet its payment obligations under these instruments, it cannot be legally
compelled to do so. If a default occurs, it is likely that the Fund would be
unable to obtain another acceptable source of payment. Some municipal leases,
certificates of participation and moral obligation bonds may be illiquid.
Municipalities continue to experience difficulties in the current economic and
political environment.
Municipal
Securities may also be in the form of a tender option bond, which is a Municipal
Security (generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term, tax-exempt rates. The bond is typically
issued with the agreement of a third party, such as a bank, broker-dealer or
other financial institution, which grants the security holders the option, at
periodic intervals, to tender their securities to the institution. After payment
of a fee to the financial institution that provides this option, the security
holder effectively holds a demand obligation that bears interest at the
prevailing short-term, tax-exempt rate. An institution may not be obligated to
accept tendered bonds in the event of certain defaults or a significant
downgrading in the credit rating assigned to the issuer of the bond. The tender
option will be taken into account in determining the maturity of the tender
option bonds and the Fund’s duration. There is risk that the Fund will not be
considered the owner of a tender option bond for federal income tax purposes,
and thus will not be entitled to treat such interest as exempt from federal
income tax. Certain tender option bonds may be illiquid.
Municipal
Securities may be backed by letters of credit or other forms of credit
enhancement issued by domestic or foreign banks or by other financial
institutions. The deterioration of the credit quality of these banks and
financial institutions could, therefore, cause a loss to the Fund. Letters of
credit and other obligations of foreign banks and financial institutions may
involve risks in addition to those of domestic obligations because of less
publicly available financial and other information, less securities regulation,
potential imposition of foreign withholding and other taxes, war, expropriation
or other adverse governmental actions. Foreign banks and their foreign branches
are not regulated by U.S. banking authorities, and are generally not bound by
the accounting, auditing and financial reporting standards applicable to U.S.
banks.
The Fund
may invest in Municipal Securities issued by municipalities, including U.S.
territories, commonwealths and possessions, that may be, or may become, subject
to significant financial difficulties. Factors contributing to such difficulties
may include: lower property tax collections as a result of lower home values,
lower sales tax revenue as a result of reduced consumer spending, lower income
tax revenue as a result of higher unemployment rates, and budgetary constraints
of local, state and federal governments upon which issuers of municipal
securities may be relying for funding. Such securities may be considered below
investment grade or may be subject to future credit downgrades due to concerns
over potential default, insolvency or bankruptcy on the part of their issuers or
any
52
Appendix
A
credit
support provider. During the recent economic downturn, several municipalities
have, in fact, filed for bankruptcy protection or have indicated that they may
seek bankruptcy protection in the future. A credit downgrade or other adverse
news about an issuer or any credit support provider could impact the market
value and liquidity of the securities and consequently could negatively affect
the performance of the Fund.
Brady
Bonds and Similar Instruments. The Fund
may invest in debt obligations commonly referred to as “Brady Bonds.” Brady
Bonds are created through the exchange of existing commercial bank loans to
foreign borrowers for new obligations in connection with debt restructurings
under a plan introduced by former U.S. Secretary of the Treasury, Nicholas F.
Brady (the “Brady Plan”).
Brady Bonds
involve various risk factors including the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds. There can be no assurance that Brady Bonds in which the Fund may invest
will not be subject to restructuring arrangements or to requests for new credit,
which may cause the Fund to suffer a loss of interest or principal on its
holdings.
In
addition, the Fund may invest in other interests issued by entities organized
and operated for the purpose of restructuring the investment characteristics of
instruments issued by emerging country issuers. These types of restructuring
involve the deposit with or purchase by an entity of specific instruments and
the issuance by that entity of one or more classes of securities backed by, or
representing interests in, the underlying instruments. Certain issuers of such
structured securities may be deemed to be “investment companies” as defined in
the Investment Company Act. As a result, the Fund’s investment in such
securities may be limited by certain investment restrictions contained in the
Investment Company Act.
Corporate
Debt Obligations; Bank Obligations; Trust Preferred Securities; Convertible
Securities. The Fund
may invest in corporate debt obligations, trust preferred securities and
convertible securities. Corporate debt obligations include bonds, notes,
debentures, commercial paper and other obligations of U.S. or foreign
corporations to pay interest and repay principal. In addition, the Fund may
invest in obligations issued or guaranteed by U.S. or foreign banks. Bank
obligations, including without limitation, time deposits, bankers’ acceptances
and certificates of deposit, may be general obligations of the parent bank or
may be limited to the issuing branch by the terms of the specific obligations or
by governmental regulations. Banks are subject to extensive but different
governmental regulations which may limit both the amount and types of loans
which may be made and interest rates which may be charged. In addition, the
profitability of the banking industry is largely dependent upon the availability
and cost of funds for the purpose of financing lending operations under
prevailing money market conditions. General economic conditions as well as
exposure to credit losses arising from possible financial difficulties of
borrowers play an important part in the operation of this industry. A trust
preferred security is a long dated bond (for example, 30 years) with preferred
features. The preferred features are that payment of interest can be deferred
for a specified period without initiating a default event. The securities are
generally senior in claim to standard preferred stock but junior to other
bondholders. The Fund may also invest in other short-term obligations issued or
guaranteed by U.S. corporations, non-U.S. corporations or other
entities.
Convertible
securities are preferred stock or debt obligations that are convertible into
common stock. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. Convertible
securities have both equity and fixed income risk characteristics. Like all
fixed income securities, the value of convertible securities is susceptible to
the risk of market losses attributable to changes in interest rates. Generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. However, when
the market price of the common stock underlying a convertible security exceeds
the conversion price of the convertible security, the convertible security tends
to reflect the market price of the underlying common stock. As the market price
of the underlying common stock declines, the convertible security, like a fixed
income security, tends to trade increasingly on a yield basis, and thus may not
decline in price to the same extent as the underlying common stock.
Zero
Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation
Bonds. The Fund
may invest in zero coupon, deferred interest, pay-in-kind and capital
appreciation bonds. These bonds are issued at a discount from their face value
because interest payments are typically postponed until maturity. Pay-in-kind
securities are securities that have interest payable by the delivery of
additional securities. The market prices of these securities generally are more
volatile than the market prices of interest-bearing securities and are likely to
respond to a greater degree to changes in interest rates than interest-bearing
securities having similar maturities and credit quality.
Duration. The
duration of the Fund approximates its price sensitivity to changes in interest
rates. For example, suppose that interest rates in one day fall by one percent
which, in turn, causes yields on every bond in the market to fall by the same
amount. In this example, the price of a bond with a duration of three years may
be expected to rise approximately three percent and the price of a bond with a
five year duration may be expected to rise approximately five percent. The
converse is also true. Suppose interest rates in one day rise by one percent
which, in turn, causes yields on every bond in the market to rise by the same
amount. In this second example, the price of a bond with a duration of three
years may be expected to fall approximately three percent and the price of a
bond with a five year duration may be expected to fall approximately five
percent. The longer the duration of a bond, the more sensitive the bond’s price
is to changes in interest rates. Maturity measures the time until final payment
is due; it takes no account of the pattern of a
53
security’s
cash flows over time. In calculating maturity, the Fund may determine the
maturity of a variable or floating rate obligation according to its interest
rate reset date, or the date principal can be recovered on demand, rather than
the date of ultimate maturity. Similarly, to the extent that a fixed income
obligation has a call, refunding, or redemption provision, the date on which the
instrument is expected to be called, refunded or redeemed may be considered to
be its maturity date. There is no guarantee that the expected call, refund or
redemption will occur, and the Fund’s average maturity may lengthen beyond the
investment adviser’s expectations should the expected call, refund or redemption
not occur. In computing portfolio duration, the Fund will estimate the duration
of obligations that are subject to prepayment or redemption by the issuer,
taking into account the influence of interest rates on prepayments and coupon
flows. This method of computing duration is known as “option-adjusted” duration.
The investment adviser of the Fund may use futures contracts, options on futures
contracts and swaps to manage the Fund’s target duration. The Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise
noted.
The
investment adviser may use derivative instruments, among other things, to manage
the duration of the Fund’s investment portfolio. These derivative instruments
include financial futures contracts and swap transactions, as well as other
types of derivatives, and can be used to shorten and lengthen the duration of
the Fund. The Fund’s investments in derivative instruments, including financial
futures contracts and swaps, can be significant. These transactions can result
in sizeable realized and unrealized capital gains. Short-term and long-term
realized capital gains distributions paid by the Fund are taxable to its
shareholders.
Interest
rates, fixed income securities prices, the prices of futures and other
derivatives, and currency exchange rates can be volatile, and a variance in the
degree of volatility or in the direction of the market from the Fund’s
investment adviser’s expectations may produce significant losses in the Fund’s
investments in derivatives. In addition, a perfect correlation between a
derivatives position and a fixed income security position is generally
impossible to achieve. As a result, the Investment Adviser’s use of derivatives
may not be effective in fulfilling the Investment Adviser’s investment
strategies and may contribute to losses that would not have been incurred
otherwise.
Financial futures contracts
used by the Fund include may interest rate futures contracts including, among
others, Eurodollar futures contracts. Further information is included in the
Prospectus regarding futures contracts, swaps and other derivative instruments
used by the Fund, including information on the risks presented by these
instruments and other purposes for which they may be used by the
Fund.
Floating
and Variable Rate Obligations. The Fund
may purchase floating and variable rate obligations. The value of these
obligations is generally more stable than that of a fixed rate obligation in
response to changes in interest rate levels. The issuers or financial
intermediaries providing demand features may support their ability to purchase
the obligations by obtaining credit with liquidity supports. These may include
lines of credit, which are conditional commitments to lend, and letters of
credit, which will ordinarily be irrevocable both of which may be issued by
domestic banks or foreign banks. The Fund may purchase variable or floating rate
obligations from the issuers or may purchase certificates of participation, a
type of floating or variable rate obligation, which are interests in a pool of
debt obligations held by a bank or other financial institutions.
For
floating and variable rate obligations, there may be a lag between an actual
change in the underlying interest rate benchmark and the reset time for an
interest payment of such an obligation, which could harm or benefit the Fund,
depending on the interest rate environment or other circumstances. In a rising
interest rate environment, for example, a floating or variable rate obligation
that does not reset immediately would prevent the Fund from taking full
advantage of rising interest rates in a timely manner. However, in a declining
interest rate environment, the Fund may benefit from a lag due to an
obligation’s interest rate payment not being immediately impacted by a decline
in interest rates.
Certain floating and
variable rate obligations have an interest rate floor feature, which prevents
the interest rate payable by the security from dropping below a specified level
as compared to a reference interest rate (the “reference rate”), such as LIBOR
or SOFR. Such a floor protects the Fund from losses resulting from a decrease in
the reference rate below the specified level. However, if the reference rate is
below the floor, there will be a lag between a rise in the reference rate and a
rise in the interest rate payable by the obligation, and the Fund may not
benefit from increasing interest rates for a significant amount of
time.
At the end of 2021, certain
LIBORs were discontinued, but the most widely used LIBORs may continue to be
provided on a representative basis until June 30, 2023. The unavailability or
replacement of LIBOR may affect the value, liquidity or return on certain Fund
investments and may result in costs incurred in connection with closing out
positions and entering into new trades. Any pricing adjustments to the Fund’s
investments resulting from a substitute reference rate may adversely affect the
Fund’s performance and/or NAV.
SOFR is a measure of the
cost of borrowing cash overnight, collateralized by the U.S. Treasury
securities, and is based on directly observable U.S. Treasury-backed repurchase
transactions.
54
Appendix
A
Foreign
Currency Transactions. The Fund
may, to the extent consistent with their investment policies, purchase or sell
foreign currencies on a cash basis or through forward contracts. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract. The Fund may engage in
foreign currency transactions for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, the Fund may enter into foreign currency transactions to seek a closer
correlation between the Fund’s overall currency exposures and the currency
exposures of the Fund’s performance benchmark. The Fund may also enter into such
transactions to seek to increase total return, which presents additional
risk.
The Fund
may also engage in cross-hedging by using forward contracts in a currency
different from that in which the hedged security is denominated or quoted. The
Fund may hold foreign currency received in connection with investments in
foreign securities when, in the judgment of the investment adviser, it would be
beneficial to convert such currency into U.S. dollars at a later date
(e.g., the
investment adviser may anticipate the foreign currency to appreciate against the
U.S. dollar).
The Fund
may, from time to time, engage in non-deliverable forward transactions to manage
currency risk or to gain exposure to a currency without purchasing securities
denominated in that currency. A non-deliverable forward is a transaction that
represents an agreement between the Fund and a counterparty (usually a
commercial bank) to pay the other party the amount that it would cost based on
current market rates as of the termination date to buy or sell a specified
(notional) amount of a particular currency at an agreed upon foreign exchange
rate on an agreed upon future date. If the counterparty defaults, the Fund will
have contractual remedies pursuant to the agreement related to the transaction,
but the Fund may be delayed or prevented from obtaining payments owed to it
pursuant to non-deliverable forward transactions. Such non-deliverable forward
transactions will be settled in cash.
Currency
exchange rates may fluctuate significantly over short periods of time, causing,
along with other factors, the Fund’s NAV to fluctuate. Currency exchange rates
also can be affected unpredictably by the intervention of U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad.
Certain
forward foreign currency exchange contracts and other currency transactions are
not exchange traded or cleared. The market in such forward foreign currency
exchange contracts, currency swaps and other privately negotiated currency
instruments offers less protection against defaults by the other party to such
instruments than is available for currency instruments traded on an exchange.
Such contracts are subject to the risk that the counterparty to the contract
will default on its obligations. Because these contracts are not guaranteed by
an exchange or clearinghouse, a default on a contract would deprive the Fund of
unrealized profits, transaction costs, or the benefits of a currency hedge, or
could force the Fund to cover its purchase or sale commitments, if any, at the
current market price.
The Fund is
not required to post cash collateral with its counterparties in certain foreign
currency transactions. Accordingly, the Fund may remain more fully invested (and
more of its assets may be subject to investment and market risk) than if it were
required to post cash collateral with its counterparties (which is the case with
certain transactions). Where the Fund’s counterparties are not required to post
cash collateral with the Fund, the Fund will be subject to additional
counterparty risk.
Non-Investment
Grade Fixed Income Securities.
Non-investment grade fixed income securities and unrated securities of
comparable credit quality (commonly referred to as “junk bonds”) are considered
speculative. In some cases, these obligations may be highly speculative and have
poor prospects for reaching investment grade standing. Non-investment grade
fixed income securities are subject to the increased risk of an issuer’s
inability to meet principal and interest obligations. These securities, also
referred to as high yield securities, may be subject to greater price volatility
due to such factors as specific issuer developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less
liquidity.
Non-investment
grade fixed income securities are often issued in connection with a corporate
reorganization or restructuring or as part of a merger, acquisition, takeover or
similar event. They are also issued by less established companies seeking to
expand. Such issuers are often highly leveraged and generally less able than
more established or less leveraged entities to make scheduled payments of
principal and interest in the event of adverse developments or business
conditions. Non-investment grade securities are also issued by governmental
bodies that may have difficulty in making all scheduled interest and principal
payments.
The market
value of non-investment grade fixed income securities tends to reflect
individual corporate or municipal developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, the Fund’s ability to achieve its
investment objectives may depend to a greater extent on the investment adviser’s
judgment concerning the creditworthiness of issuers than funds which invest in
higher-rated securities. Issuers of non-investment grade fixed income securities
may not be able to make use of other methods of financing and their ability to
service debt obligations may be affected more adversely than issuers of
higher-rated securities by economic downturns, specific corporate or financial
developments or the issuer’s inability to meet specific projected business
forecasts. Negative publicity about the junk bond market and investor
perceptions regarding lower rated securities, whether or not based on
fundamental analysis, may depress the prices for such securities.
55
A holder’s
risk of loss from default is significantly greater for non-investment grade
fixed income securities than is the case for holders of other debt securities
because such non-investment grade securities are generally unsecured and are
often subordinated to the rights of other creditors of the issuers of such
securities. Investment by the Fund in defaulted securities poses additional risk
of loss should nonpayment of principal and interest continue in respect of such
securities. Even if such securities are held to maturity, recovery by the Fund
of its initial investment and any anticipated income or appreciation is
uncertain.
The
secondary market for non-investment grade fixed income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as, and is more volatile than, the secondary market for higher-rated
securities. In addition, market trading volume for high yield fixed income
securities is generally lower and the secondary market for such securities could
shrink or disappear suddenly and without warning as a result of adverse market
or economic conditions, independent of any specific adverse changes in the
condition of a particular issuer. The lack of sufficient market liquidity may
cause the Fund to incur losses because it will be required to effect sales at a
disadvantageous time and then only at a substantial drop in price. These factors
may have an adverse effect on the market price and the Fund’s ability to dispose
of particular portfolio investments. A less liquid secondary market also may
make it more difficult for the Fund to obtain precise valuations of the high
yield securities in its portfolio.
Credit
ratings issued by credit rating agencies are designed to evaluate the safety of
principal and interest payments of rated securities. They do not, however,
evaluate the market value risk of non-investment grade securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the conditions of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality.
Preferred
Stock, Warrants and Stock Purchase Rights. The Fund
may invest in preferred stock, warrants and stock purchase rights (or “rights”).
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer’s earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations, may
not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default or other non-compliance by the issuer of the
preferred stock.
Warrants
and other rights are options to buy a stated number of shares of common stock at
a specified price at any time during the life of the warrant or right. The
holders of warrants and rights have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer.
REITs. The Fund
may invest in REITs from time to time. REITS are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon the
ability of the REITs’ managers, and are subject to heavy cash flow dependency,
default by borrowers and the qualification of the REITs under applicable
regulatory requirements for favorable federal income tax treatment. REITs are
also subject to risks generally associated with investments in real estate
including possible declines in the value of real estate, general and local
economic conditions, environmental problems and changes in interest rates. To
the extent that assets underlying a REIT are concentrated geographically, by
property type or in certain other respects, these risks may be heightened. An
investment in REITs by the Fund involves certain unique risks in addition to
those risks associated with investing in the real estate industry in general.
REITs whose underlying properties are concentrated in a particular industry or
geographic region are also subject to risks affecting such industries and
regions. The securities of REITs involve greater risks than those associated
with larger, more established companies and may be subject to more abrupt or
erratic price movements because of interest rate changes, economic conditions
and other factors. Securities of such issuers may lack sufficient market
liquidity to enable the Fund to effect sales at an advantageous time or without
a substantial drop in price. The Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
Other
Investment Companies. The Fund may invest in
securities of other investment companies, including ETFs and money market funds,
subject to statutory limitations prescribed by the Investment Company Act or
rules, regulations or exemptive relief thereunder. These statutory limitations
include in certain circumstances a prohibition on acquiring more than 3% of the
voting shares of any other investment company, and a prohibition on investing
more than 5% of total assets in securities of any one investment company or more
than 10% of total assets in securities of all investment companies.
Subject to applicable law
and/or pursuant to an exemptive order obtained from the SEC or under an
exemptive rule adopted by the SEC, the Fund may invest in certain other
investment companies (including ETFs and money market funds) and business
development companies beyond the statutory limits described above or otherwise
provided that certain conditions are met. Some of those investment companies may
be funds for which the Investment Adviser or any of its affiliates serves as
investment adviser, administrator or distributor.
Additionally, to the extent
that any Fund serves as an “acquired fund” to another Goldman Sachs Fund or
unaffiliated investment company, the Fund’s ability to invest in other
investment companies and private funds may be limited and, under these
circumstances, the Fund’s investments in other investment companies and private
funds will be consistent with applicable law and/or exemptive rules
56
Appendix
A
adopted by or exemptive
orders obtained from the SEC. For example, to the extent the Fund serves as an
acquired fund in a fund of funds arrangement in reliance on Rule 12d1-4 under
the Investment Company Act, the Fund would be prohibited from purchasing or
otherwise acquiring the securities of an investment company or private fund if,
after such purchase or acquisition, the aggregate value of the Fund’s
investments in such investment companies and private funds would exceed 10% of
the value of the Fund’s total assets, subject to limited exceptions (including
for investments in money market funds).
The use of
ETFs is generally intended to help the Fund match the total return of the
particular market segments or indices represented by those ETFs, although that
may not be the result. Most ETFs are passively managed investment companies
whose shares are purchased and sold on a securities exchange. An ETF generally
represents a portfolio of securities designed to track a particular market
segment or index. An investment in an ETF generally presents the same primary
risks as an investment in a conventional fund (i.e., one that
is not exchange-traded) that has the same investment objectives, strategies and
policies. In addition, an ETF may fail to accurately track the market segment or
index that underlies its investment objective. The price of an ETF can
fluctuate, and the Fund could lose money investing in an ETF. Moreover, ETFs are
subject to the following risks that do not apply to conventional funds: (i) the
market price of the ETF’s shares may trade at a premium or a discount to their
NAV; (ii) an active trading market for an ETF’s shares may not develop or be
maintained; and (iii) there is no assurance that the requirements of the
exchange necessary to maintain the listing of an ETF will continue to be met or
remain unchanged.
The Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies, in addition to the fees and
expenses borne by the Fund. Although the Fund does not expect to do so in the
foreseeable future, the Fund is authorized to invest substantially all of its
assets in a single open-end investment company or series thereof that has
substantially the same investment objective, policies and fundamental
restrictions as the Fund.
Unseasoned
Companies. The Fund
may invest in companies which (together with their predecessors) have operated
less than three years. The securities of such companies may have limited
liquidity, which can result in their being priced higher or lower than might
otherwise be the case. In addition, investments in unseasoned companies are more
speculative and entail greater risk than do investments in companies with an
established operating record.
Options
on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument during
the option period. A call option gives the purchaser of the option the right to
buy, and the writer (seller) of the option the obligation to sell, the
underlying instrument during the option period. The Fund may write (sell) call
and put options and purchase put and call options on any securities in which the
Fund may invest or on any securities index consisting of securities in which it
may invest. The Fund may also, to the extent consistent with their investment
policies, purchase and sell (write) put and call options on foreign
currencies.
The writing
and purchase of options is a highly specialized activity which involves special
investment risks. Options may be used for either hedging or cross-hedging
purposes, or to seek to increase total return (which presents additional risk).
The successful use of options depends in part on the ability of an investment
adviser to anticipate future price fluctuations and the degree of correlation
between the options and securities (or currency) markets. If an investment
adviser is incorrect in its expectation of changes in market prices or
determination of the correlation between the instruments or indices on which
options are written and purchased and the instruments in the Fund’s investment
portfolio, the Fund may incur losses that it would not otherwise incur. The use
of options can also increase the Fund’s transaction costs. Options written or
purchased by the Fund may be traded on either U.S. or foreign exchanges or
over-the-counter. Foreign and over-the-counter options will present greater
possibility of loss because of their greater illiquidity and credit
risks.
Yield
Curve Options. The Fund
may enter into options on the yield “spread” or differential between two
securities. Such transactions are referred to as “yield curve” options. In
contrast to other types of options, a yield curve option is based on the
difference between the yields of designated securities rather than the prices of
the individual securities, and is settled through cash payments. Accordingly, a
yield curve option is profitable to the holder if this differential widens (in
the case of a call) or narrows (in the case of a put), regardless of whether the
yields of the underlying securities increase or decrease.
The trading
of yield curve options is subject to all of the risks associated with the
trading of other types of options. In addition, however, such options present a
risk of loss even if the yield of one of the underlying securities remains
constant, or if the spread moves in a direction or to an extent which was not
anticipated.
Futures
Contracts and Options and Swaps on Futures Contracts. Futures
contracts are standardized, exchange-traded contracts that provide for the sale
or purchase of a specified financial instrument or currency at a future time at
a specified price. An option on a futures contract gives the purchaser the right
(and the writer of the option the obligation) to assume a position in a futures
contract at a specified exercise price within a specified period of time. A swap
on a futures contract provides an investor with the ability to gain economic
exposure to a particular futures market. A futures contract may be based on
particular securities, foreign currencies, securities indices and other
financial instruments and indices. The Fund may engage in futures transactions
on U.S. and foreign exchanges.
57
The Fund
may, to the extent consistent with their investment policies, purchase and sell
futures contracts, purchase and write call and put options on futures contracts,
and enter into swaps on futures contracts, in order to seek to increase total
return or to hedge against changes in interest rates, securities prices or
currency exchange rates, or to otherwise manage its term structure, sector
selection and duration in accordance with its investment objective and policies.
The Fund may also enter into closing purchase and sale transactions with respect
to such contracts and options.
Futures
contracts and related options and swaps present the following risks:
◼
While the
Fund may benefit from the use of futures and options and swaps on futures,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance than if the Fund had not
entered into any futures contracts, options transactions or swaps.
◼
Because
perfect correlation between a futures position and a portfolio position that is
intended to be protected is impossible to achieve, the desired protection may
not be obtained and the Fund may be exposed to additional risk of
loss.
◼
The loss
incurred by the Fund in entering into futures contracts and in writing call
options and entering into swaps on futures is potentially unlimited and may
exceed the amount of the premium received.
◼
Futures
markets are highly volatile and the use of futures may increase the volatility
of the Fund’s NAV.
◼
As a result
of the low margin deposits normally required in futures trading, a relatively
small price movement in a futures contract may result in substantial losses to
the Fund.
◼
Futures
contracts and options and swaps on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
◼
Foreign
exchanges may not provide the same protection as U.S. exchanges.
Interest
Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps, Index Swaps, Total
Return Swaps, Equity Swaps, Excess Return Swaps, Options on Swaps and Interest
Rate Caps, Floors and Collars. To the
extent consistent with their investment policies, the Fund may enter into some
or all of the following swap transactions and option agreements, including
interest rate caps, floors and collars. Interest rate swaps involve the exchange
by the Fund with another party of their respective commitments to pay or receive
interest, such as an exchange of fixed-rate payments for floating rate payments.
Mortgage swaps are similar to interest rate swaps in that they represent
commitments to pay and receive interest. The notional principal amount, however,
is tied to a reference pool or pools of mortgages. Credit swaps involve the
receipt of floating or fixed rate payments in exchange for assuming potential
credit losses on an underlying security or pool of securities. Credit swaps give
one party to a transaction (the buyer of the credit swap) the right to dispose
of or acquire an asset (or group of assets or exposure to the performance of an
index), or the right to receive a payment from the other party, upon the
occurrence of specified credit events. Currency swaps involve the exchange of
the parties’ respective rights to make or receive payments in specified
currencies. Total return swaps give a party the right to receive the
appreciation in the value of a specified security, index or other instrument in
return for a fee paid to the counterparty, which will typically be based on
agreed upon interest rate. If the underlying asset in a total return swap
declines in value over the term of the swap, the party may also be required to
pay the dollar value of that decline to the counterparty. Equity swaps allow the
parties to a swap agreement to exchange the dividend income or other components
of return on an equity investment (for example, a group of equity securities or
an index) for another payment stream. An equity swap may be used by the Fund to
invest in a market without owning or taking physical custody of securities in
circumstances in which direct investment may be restricted for legal reasons or
is otherwise deemed impractical or disadvantageous.
The Fund
may also purchase and write (sell) options contracts on swaps, commonly referred
to as swaptions. A swaption is an option to enter into a swap agreement. Like
other types of options, the buyer of a swaption pays a non-refundable premium
for the option and obtains the right, but not the obligation, to enter into an
underlying swap or to modify the terms of an existing swap on agreed-upon terms.
The seller of a swaption, in exchange for the premium, becomes obligated (if the
option is exercised) to enter into or modify an underlying swap on agreed-upon
terms, which generally entails a greater risk of loss than the Fund incurs in
buying a swaption. The purchase of an interest rate cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined interest rate, to
receive payment of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling the interest rate floor. An interest rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates.
The Fund
may enter into the transactions described above for hedging purposes or to seek
to increase total return. As an example, when the Fund is the buyer of a credit
default swap (commonly known as buying protection), it may make periodic
payments to the seller of the credit default swap to obtain protection against a
credit default on a specified underlying asset (or group of assets). If a
default occurs, the seller of the credit default swap may be required to pay the
Fund the notional amount of the credit default swap on a specified security (or
group of securities). On the other hand, when the Fund is a seller of a credit
default swap, in addition to the credit exposure the Fund has on the other
assets held in its portfolio, the Fund is also subject to the credit exposure on
the notional amount of
58
Appendix
A
the swap
since, in the event of a credit default, the Fund may be required to pay the
notional amount of the credit default swap on a specified security (or group of
securities) to the buyer of the credit default swap. The Fund will be the seller
of a credit default swap only when the credit of the underlying asset is deemed
by its investment adviser to meet the Fund’s minimum credit criteria at the time
the swap is first entered into.
The use of
interest rate, mortgage, credit, currency, index, total return and equity swaps,
options on swaps, and interest rate caps, floors and collars, is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If an
investment adviser is incorrect in its forecasts of market values, interest
rates and currency exchange rates or in its evaluation of the creditworthiness
of swap counterparties and issuers of the underlying assets, the investment
performance of the Fund would be less favorable than it would have been if these
investment techniques were not used.
Currently,
certain standardized swap transactions are subject to mandatory central clearing
and exchange trading. Although central clearing and exchange trading is expected
to decrease counterparty risk and increase liquidity compared to bilaterally
negotiated swaps, central clearing and exchange trading does not eliminate
counterparty risk or illiquidity risk entirely. Depending on the size of the
Fund and other factors, the margin required under the rules of a clearinghouse
and by a clearing member may be in excess of the collateral required to be
posted by the Fund to support its obligations under a similar bilateral,
uncleared swap. However, certain applicable regulators have adopted rules
imposing certain margin requirements, including minimums, on uncleared swaps
which may result in the Fund and its counterparties posting higher amounts for
uncleared swaps.
Structured
Securities and Inverse Floaters. The Fund
may invest in structured securities. Structured securities are securities whose
value is determined by reference to changes in the value of specific currencies,
securities, interest rates, commodities, indices or other financial indicators
(the “Reference”) or the relative change in two or more References. Investments
in structured securities may provide exposure to certain securities or markets
in situations where regulatory or other restrictions prevent direct investments
in such issuers or markets.
The
interest rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in the
interest rates or the value of the security at maturity may be a multiple of
changes in the value of the Reference, effectively leveraging the Fund’s
investments so that small changes in the value of the Reference may result in
disproportionate gains or losses to the Fund. Consequently, structured
securities may present a greater degree of market risk than many types of
securities and may be more volatile, less liquid and more difficult to price
accurately than less complex securities. Structured securities are also subject
to the risk that the issuer of the structured securities may fail to perform its
contractual obligations. Certain issuers of structured products may be deemed to
be investment companies as defined in the Investment Company Act. As a result,
the Fund’s investments in structured securities may be subject to the limits
applicable to investments in other investment companies.
Structured
securities are considered hybrid instruments because they are derivative
instruments the value of which depends on, or is derived from or linked to, the
value of an underlying asset, interest rate index or commodity. Commodity-linked
notes are hybrid instruments because the principal and/or interest payments on
those notes is linked to the value of the individual commodities, futures
contracts or the performance of one or more commodity indices.
Structured
securities include, but are not limited to, equity linked notes. An equity
linked note is a note whose performance is tied to a single stock, a stock index
or a basket of stocks. Equity linked notes combine the principal protection
normally associated with fixed income investments with the potential for capital
appreciation normally associated with equity investments. Upon the maturity of
the note, the holder generally receives a return of principal based on the
capital appreciation of the linked securities. Depending on the terms of the
note, equity linked notes may also have a “cap” or “floor” on the maximum
principal amount to be repaid to holders, irrespective of the performance of the
underlying linked securities. For example, a note may guarantee the repayment of
the original principal amount invested (even if the underlying linked securities
have negative performance during the note’s term), but may cap the maximum
payment at maturity at a certain percentage of the issuance price or the return
of the underlying linked securities. Alternatively, the note may not guarantee a
full return on the original principal, but may offer a greater participation in
any capital appreciation of the underlying linked securities. The terms of an
equity linked note may also provide for periodic interest payments to holders at
either a fixed or floating rate. The secondary market for equity linked notes
may be limited, and the lack of liquidity in the secondary market may make these
securities difficult to dispose of and to value. Equity linked notes will be
considered equity securities for purposes of the Fund’s investment objective and
policies.
Structured
securities may also include inverse floating rate debt securities (“inverse
floaters”). The interest rate on inverse floaters resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.
59
Structured
securities may also include credit linked notes. Credit linked notes are
securities with embedded credit default swaps. An investor holding a credit
linked note generally receives a fixed or floating coupon and the note’s par
value upon maturity, unless the referred credit defaults or declares bankruptcy,
in which case the investor receives the amount recovered. In effect, investors
holding credit linked notes receive a higher yield in exchange for assuming the
risk of a specified credit event.
When-Issued
Securities and Forward Commitments. The Fund
may purchase when-issued securities and make contracts to purchase or sell
securities for a fixed price at a future date beyond customary settlement time.
When-issued securities are securities that have been authorized, but not yet
issued. When-issued securities are purchased in order to secure what is
considered to be an advantageous price or yield to the Fund at the time of
entering into the transaction. A forward commitment involves the entering into a
contract to purchase or sell securities for a fixed price at a future date
beyond the customary settlement period.
The purchase of securities
on a when-issued or forward commitment basis involves a risk of loss if the
value of the security to be purchased declines before the settlement date.
Conversely, the sale of securities on a forward commitment basis involves the
risk that the value of the securities sold may increase before the settlement
date. Although the Fund will generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its
portfolio, the Fund may dispose of when-issued securities or forward commitments
prior to settlement if its investment adviser deems it appropriate.
Repurchase
Agreements. Repurchase
agreements involve the purchase of securities subject to the seller’s agreement
to repurchase them at a mutually agreed upon date and price. The Fund may enter
into repurchase agreements with counterparties approved by the Investment
Adviser pursuant to procedures approved by the Board of Trustees that furnish
collateral at least equal in value or market price to the amount of their
repurchase obligation. The collateral may consist of any type of security in
which the Fund is eligible to invest directly or, any type of security,
including non-investment grade securities, provided the repurchase agreement
counterparty satisfies those minimum credit quality requirements. Repurchase
agreements involving obligations other than U.S. Government Securities may be
subject to additional risks.
If the
other party or “seller” defaults, the Fund might suffer a loss to the extent
that the proceeds from the sale of the underlying securities and other
collateral held by the Fund are less than the repurchase price and the costs
associated with delay and enforcement of the repurchase agreement. In addition,
in the event of bankruptcy of the seller, the Fund could suffer additional
losses if a court determines that the Fund’s interest in the collateral is not
enforceable.
Lending
of Fund Securities. The Fund
may engage in securities lending. Securities lending involves the lending of
securities owned by the Fund to financial institutions such as certain
broker-dealers, including, as permitted by the SEC, Goldman Sachs. The borrowers
are required to secure their loans continuously with cash, cash equivalents,
U.S. Government Securities or letters of credit in an amount at least equal to
the market value of the securities loaned. Cash collateral may be invested by
the Fund in short-term investments, including registered and unregistered
investment pools managed by the Investment Adviser or its affiliates and from
which the Investment Adviser or its affiliates may receive fees. To the extent
that cash collateral is so invested, such collateral will be subject to market
depreciation or appreciation, and the Fund will be responsible for any loss that
might result from its investment of the borrowers’ collateral. If an investment
adviser determines to make securities loans, the value of the securities loaned
may not exceed 33 1∕3% of the
value of the total assets of the Fund (including the loan collateral). Loan
collateral (including any investment of the collateral) is not subject to the
percentage limitations or non-fundamental investment policies applicable to the
Fund regarding investments in fixed income securities and cash
equivalents.
The Fund
may lend its securities to increase its income. The Fund may, however,
experience delay in the recovery of its securities or incur a loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Fund or its agent or becomes insolvent.
Short
Sales Against-the-Box. The Fund
may make short sales against-the-box. A short sale against-the-box means that at
all times when a short position is open the Fund will own an equal amount of
securities sold short, or securities convertible into or exchangeable for,
without the payment of any further consideration, an equal amount of the
securities of the same issuer as the securities sold short.
Mortgage
Dollar Rolls. The Fund
may enter into “mortgage dollar rolls.” In mortgage dollar rolls, the Fund and
sells securities for delivery in the current month and simultaneously contracts
with the same counterparty to repurchase substantially similar (same type,
coupon and maturity) but not identical securities on a specified future date.
During the roll period, the Fund loses the right to receive principal and
interest paid on the securities sold. However, the Fund benefits to the extent
of any difference between (i) the price received for the securities sold and
(ii) the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the benefits
of a mortgage dollar roll exceed the income, capital appreciation and gain or
loss due to mortgage prepayments that would have been realized on the securities
sold as part of the roll, the use of this technique will diminish the Fund’s
performance.
Successful
use of mortgage dollar rolls depends upon an investment adviser’s ability to
predict correctly interest rates and mortgage prepayments. If the investment
adviser is incorrect in its prediction, the Fund may experience a loss. The Fund
does not currently intend to enter into mortgage dollar rolls for financing and
do not treat them as borrowings.
60
Appendix
A
Borrowings. The Fund
can borrow money from banks and other financial institutions in amounts not
exceeding one-third of their total assets (including the amount borrowed or
received) for temporary or emergency purposes.
Borrowings
involve leveraging. If the securities held by the Fund decline in value while
these transactions are outstanding, the NAV of the Fund’s outstanding shares
will decline in value by proportionately more than the decline in value of
securities.
Reverse
Repurchase Agreements. The Fund
may borrow money by entering into transactions called reverse repurchase
agreements. Under these arrangements, the Fund will sell portfolio securities to
dealers in U.S. Government Securities or members of the Federal Reserve System,
with an agreement to repurchase the security on an agreed date, price and
interest payment. In the case of the Fund, these reverse repurchase agreements
may involve foreign government securities. Reverse repurchase agreements involve
the possible risk that the value of portfolio securities the Fund relinquishes
may decline below the price the Fund must pay when the transaction closes.
Borrowings may magnify the potential for gain or loss on amounts invested
resulting in an increase in the speculative character of the Fund’s outstanding
shares.
Equity
Investments. After its
purchase, a portfolio investment (such as a convertible debt obligation) may
convert to an equity security. Alternatively, the Fund may acquire equity
securities in connection with a restructuring event related to one or more of
its investments. If this occurs, the Fund may continue to hold the investment if
the Investment Adviser believes it is in the best interest of the Fund and its
shareholders.
61
Appendix
B
Financial
Highlights
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the past five years (or less if the Fund has
been in operation for less than five years). Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund’s financial statements, is included in the Fund’s annual report
(available upon request).
|
|
Goldman
Sachs Strategic Factor Allocation Fund | ||||
|
|
Institutional
Shares | ||||
|
|
Year
Ended August 31, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Per
Share Data | |||||
|
Net
asset value, beginning of year |
$12.76 |
$11.98 |
$11.06 |
$11.26 |
$10.96 |
|
Net
investment income (loss)(a) |
(0.01) |
(0.08) |
0.03 |
0.11 |
0.06 |
|
Net
realized and unrealized gain (loss) |
(0.67) |
1.77 |
1.18 |
0.30 |
0.50 |
|
Total
from investment operations |
(0.68) |
1.69 |
1.21 |
0.41 |
0.56 |
|
Distributions
to shareholders from net investment income |
— |
— |
(0.15) |
— |
(0.01) |
|
Distributions
to shareholders from net realized gains |
(1.58) |
(0.91) |
(0.14) |
(0.61) |
(0.25) |
|
Total
distributions |
(1.58) |
(0.91) |
(0.29) |
(0.61) |
(0.26) |
|
Net
asset value, end of year |
$10.50 |
$12.76 |
$11.98 |
$11.06 |
$11.26 |
|
Total
return(b) |
(6.47)% |
15.01% |
11.11% |
4.15% |
5.18% |
|
Net
assets, end of year (in 000s) |
$12,455 |
$3,960 |
$3,013 |
$5,424 |
$20,035 |
|
Ratio
of net expenses to average net assets |
0.69% |
0.69% |
0.69% |
0.72% |
0.71% |
|
Ratio
of total expenses to average net assets |
0.81% |
0.82% |
0.82% |
0.82% |
0.80% |
|
Ratio
of net investment income (loss) to average net
assets |
(0.10)% |
(0.67)% |
0.26% |
1.05% |
0.59% |
|
Portfolio
turnover rate(c) |
—%(d) |
—%(d) |
—%(d) |
962% |
725% |
(a)
Calculated
based on the average shares outstanding methodology.
(b)
Assumes
investment at the NAV at the beginning of the year, reinvestment of all
dividends and distributions, a complete redemption of the investment at the NAV
at the end of the year and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into account.
Returns do not reflect the impact of taxes to shareholders relating to Fund
distributions or the redemption of Fund shares.
(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)
There
were no long-term transactions for the year ended August 31, 2022, August 31,
2021 and August 31, 2020, respectively.
62
Appendix
B
|
|
Goldman
Sachs Strategic Factor Allocation Fund | ||||
|
|
Class
R6 Shares | ||||
|
|
Year
Ended August 31, |
Period
Ended
August
31, 2018(a)
| |||
|
|
2022 |
2021 |
2020 |
2019 | |
|
Per
Share Data | |||||
|
Net
asset value, beginning of period |
$12.63 |
$11.87 |
$10.96 |
$11.26 |
$11.10 |
|
Net
investment income (loss)(b) |
(0.03) |
(0.08) |
0.02 |
0.12 |
0.04 |
|
Net
realized and unrealized gain (loss) |
(0.63) |
1.75 |
1.19 |
0.28 |
0.12 |
|
Total
from investment operations |
(0.66) |
1.67 |
1.21 |
0.40 |
0.16 |
|
Distributions
to shareholders from net investment income |
— |
— |
(0.16) |
(0.09) |
— |
|
Distributions
to shareholders from net realized gains |
(1.58) |
(0.91) |
(0.14) |
(0.61) |
— |
|
Total
distributions |
(1.58) |
(0.91) |
(0.30) |
(0.70) |
— |
|
Net
asset value, end of period |
$10.39 |
$12.63 |
$11.87 |
$10.96 |
$11.26 |
|
Total
return(c) |
(6.37)% |
15.08% |
11.12% |
4.14% |
1.44% |
|
Net
assets, end of period (in 000s) |
$13 |
$14 |
$12 |
$11 |
$10 |
|
Ratio
of net expenses to average net assets |
0.65% |
0.66% |
0.66% |
0.68% |
0.69%(d) |
|
Ratio
of total expenses to average net assets |
0.77% |
0.78% |
0.80% |
0.80% |
0.79%(d) |
|
Ratio
of net investment income (loss) to average net
assets |
(0.28)% |
(0.64)% |
0.15% |
1.08% |
0.58%(d) |
|
Portfolio
turnover rate(e) |
—%(f) |
—%(f) |
—%(f) |
962% |
725% |
(a)
Commenced
operations on December 29, 2017.
(b)
Calculated
based on the average shares outstanding methodology.
(c)
Assumes
investment at the NAV at the beginning of the period, reinvestment of all
distributions, a complete redemption of the investment at the NAV at the end of
the period and no sales or redemption charges (if any). Total returns would be
reduced if a sales or redemption charge was taken into account. Returns do not
reflect the impact of taxes to shareholders relating to Fund distributions or
the redemption of Fund shares. Total returns for periods less than one full year
are not annualized.
(d)
Annualized.
(e)
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.
(f)
There
were no long-term transactions for the year ended August 31, 2022, August 31,
2021 and August 31, 2020, respectively.
63
|
|
Goldman
Sachs Strategic Volatility
Premium
Fund | |
|
|
Institutional
Shares | |
|
|
Year
Ended
August
31, 2022 |
Period
Ended
August
31, 2021(a)
|
|
Per
Share Data | ||
|
Net
asset value, beginning of period |
$10.10 |
$10.00 |
|
Net
investment income (loss)(b) |
—(c) |
(0.02) |
|
Net
realized and unrealized gain (loss) |
(0.40) |
0.12 |
|
Total
from investment operations |
(0.40) |
0.10 |
|
Distributions
to shareholders from net realized gains |
(0.04) |
— |
|
Net
asset value, end of period |
$9.66 |
$10.10 |
|
Total
return(d) |
(4.09)% |
1.00% |
|
Net
assets, end of period (in 000s) |
$306 |
$350 |
|
Ratio
of net expenses to average net assets |
0.38% |
0.38%(e) |
|
Ratio
of total expenses to average net assets |
0.62% |
0.91%(e) |
|
Ratio
of net investment income (loss) to average net
assets |
(0.02)% |
(0.36)%(e) |
|
Portfolio
turnover rate(f) |
—%(g) |
—%(g) |
(a)
Commenced
operations on March 29, 2021.
(b)
Calculated
based on the average shares outstanding methodology.
(c)
Amount
is less than $0.005 per share.
(d)
Assumes
investment at the NAV at the beginning of the period, reinvestment of all
dividends and distributions, a complete redemption of the investment at the NAV
at the end of the period and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into account.
Returns do not reflect the impact of taxes to shareholders relating to Fund
distributions or the redemption of Fund shares. Total returns for periods less
than one full year are not annualized.
(e)
Annualized.
(f)
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.
(g)
There
were no long-term transactions for the year ended August 31, 2022 and period
ended August 31, 2021.
64
Strategic
Factor Funds Prospectus
|
FOR
MORE INFORMATION |
Annual/Semi-annual
Report
Additional
information about the Funds’ investments is available in the Funds’ annual and
semi-annual reports to shareholders. In the Funds’ annual reports, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Funds’ performance during the last fiscal
year.
Statement of
Additional Information
Additional
information about the Funds and their policies is also available in the Funds’
SAI. The SAI is incorporated by reference into the Prospectus (i.e., is
legally considered part of the Prospectus).
The Funds’
annual and semi-annual reports (when available) and the SAI are available free
upon request by calling Goldman Sachs at 1-800-621-2550. You can also access and
download the annual and semi-annual reports (when available) and the SAI at the
Funds’ website: www.gsamfunds.com/mutualfunds.
From time
to time, certain announcements and other information regarding the Funds may be
found at
http://www.gsamfunds.com/announcements-ind for individual investors, or
http://www.gsamfunds.com/announcements for advisers.
http://www.gsamfunds.com/announcements-ind for individual investors, or
http://www.gsamfunds.com/announcements for advisers.
To obtain
other information and for shareholder inquiries:
|
|
Institutional
& Class R6 |
|
|
◼ By
telephone: |
1-800-621-2550 |
|
|
◼ By
mail: |
Goldman
Sachs Funds
P.O.
Box 806395
Chicago,
IL 60680-4125 |
|
|
◼ On
the Internet: |
SEC
EDGAR database – http://www.sec.gov |
|
Other
information about the Funds is available on the EDGAR Database on the SEC’s
internet site at http://www.sec.gov. You may
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected].
The
Fund's investment company registration number is 811-05349.
GSAM® is a registered service mark of Goldman Sachs & Co. LLC.
GSAM® is a registered service mark of Goldman Sachs & Co. LLC.
STRATPRO-22