<PAGE>
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ANNUAL FINANCIAL STATEMENTS
---------------------------------------
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
(INCLUDING THE FUND FOR LIFE DIVISION OF SEPARATE ACCOUNT B)
---------------------------------------
DECEMBER 31, 1996
GOLDENSELECT products are issued by Golden American Life Insurance Company
and
distributed by Directed Services, Inc.
[GOLDENSELECT Logo]
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THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
FINANCIAL STATEMENTS
DECEMBER 31, 1996
TABLE OF CONTENTS PAGE
President's Letter 3
Management's Discussion and Analysis 4
Report of Independent Auditors 6
Statement of Assets and Liabilities 7
Statement of Operations 8
Statement of Changes in Net Assets 9
Financial Highlights 10
Portfolio of Investments 11
Notes to Financial Statements 12
Separate Account B Schedule of Investments 16
2
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The GCG TRUST
An Affiliate of Equitable of Iowa Companies
Golden American Life Insurance Company
Dear Shareholder of The Fund For Life Series of the GCG Trust,
We are pleased to provide you with your 1996 Annual Report (the "Report") for
The Fund For Life Series of The GCG Trust.
1996 was another strong year for U.S. equity markets. The Fund For Life
performance reflected these economic trends as is noted in the portfolio
manager's report.
In order to protect remaining shareholders from high expense ratios, the
Manager agreed to absorb a portion of the expenses while we are considering
various options to address this problem. In addition, the Manager is no
longer taking a management fee.
If you have any questions or require any additional information, please call
our Customer Service area at
1-800-366-0066.
Sincerely,
/s/ Terry L. Kendall
Terry L. Kendall
President
The Fund For Life Series of The GCG Trust
February 21, 1997
GOLDENSELECT products are issued by Golden American Life Insurance Company
and
distributed by Directed Services, Inc.
3
1001 Jefferson Street - Suite 400 -
Wilmington, DE 19801
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THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=============================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
The investment objective of The Fund For Life Series (the "Fund") of The GCG
Trust is high total investment return (capital appreciation and current
income) consistent with prudent investment risk and a balanced investment
approach. The Fund seeks to achieve its objective by investing in shares of
other mutual funds using an allocation strategy that emphasizes mutual funds
that invest primarily in domestic equity securities (approximately 60%),
while also allocating a portion of the Fund's assets to mutual funds that
invest in international equity securities (approximately 10%), and to mutual
funds that invest primarily in debt securities rated at least investment
grade (approximately 30%).
Strong performance in the equity market and debt market contributed to the
performance of the Fund during 1996. For the year ended December 31, 1996,
the Fund had a total return of 10.57%, compared to a blended return of 14.62%
of three indices, namely the S&P 500, Morgan Stanley/Capital International
Pacific and Lehman Aggregate Bond indices. This blend covers the same time
period and is computed using the same percentage allocation of investments
held by the Fund. As indicated on the graph, the following total return of
each index for the year ended December 1996 was S&P 500 - 22.95%, Morgan
Stanley/Capital International Pacific - (8.58%) and the Lehman Aggregate Bond
Index - 3.63%.
4
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The Fund For Life Annual Report
Plot Points For The Graph
For The Period Ended December 31, 1996
The following table replaces a graph showing growth of an initial investment of
$10,000, with reinvestment of dividends and distributions in the Fund For Life
Series of The GCG Trust, the Lehman Aggregate Bond Index, the Morgan Stanley/
Capital International Pacific Index ("MSCI Index"), the S & P 500 Index and a
blended index consisting of 60% S & P 500 Index, 30% Lehman Aggregate Bond
Index and 10% MSCI Index. The graph indicates the growth from March 1, 1993
(Inception date of The Fund For Life Series Of The GCG Trust) through December
31, 1996.
Blended* Lehman* MSCI Pac* S&P 500* FFL*
-------- ------- --------- -------- -----
03/01/93 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/93 $10,932 $10,583 $12,966 $10,768 $10,842
12/31/94 $11,091 $10,275 $14,629 $10,909 $10,607
12/31/95 $14,158 $12,173 $15,036 $15,004 $12,603
12/31/96 $16,228 $12,615 $13,746 $18,447 $13,935
Average Annual Total Return For The Period Ended December 31, 1996
One Year 10.57%
3/1/93 (Inception) 9.03%
Total Return for the Fund includes reinvestment of dividends and distributions.
It does not reflect charges for the variable annuity contracts thereunder whose
proceeds are invested in the Fund. Past performance is not predicative of
future performance.
* Blended -- 60% S &P 500, 30% Lehman Aggregate Bond, 10% MSCI Pacific
Lehman -- Lehman Aggregate Bond Index
MSCI Pac -- Morgan Stanley/Capital International Index
S&P 500 -- Standard & Poor's 500 Index
FFL -- Fund For Life
5
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Trustees and Contractholders
The GCG Trust - The Fund For Life Series
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The Fund For Life Series (one of
the Series comprising The GCG Trust) as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence
with the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Fund For Life Series of
The GCG Trust at December 31, 1996 and the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 21, 1997
6
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THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=============================================================================
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
INVESTMENTS, AT VALUE (COST $170,297) (NOTES 1 AND 4) $197,431
CASH 7,328
DEFERRED ORGANIZATION EXPENSES (NOTE 1) 28,457
DIVIDENDS RECEIVABLE 240
--------
TOTAL ASSETS 233,456
--------
LIABILITIES
ACCRUED EXPENSES 3,863
PAYABLE FOR DEFERRED ORGANIZATION EXPENSES 28,457
PAYABLE FOR SHARES OF BENEFICIAL INTEREST REDEEMED 5
--------
TOTAL LIABILITIES 32,325
--------
NET ASSETS $201,131
========
NET ASSETS CONSIST OF
PAID-IN CAPITAL $139,553
UNDISTRIBUTED REALIZED GAINS ON INVESTMENT
TRANSACTIONS 31,438
NET UNREALIZED APPRECIATION OF INVESTMENT 27,134
ACCUMULATED NET INVESTMENT INCOME 3,006
--------
NET ASSETS $201,131
========
SHARES OF BENEFICIAL INTEREST OUTSTANDING, $.001
PAR VALUE 26,426
========
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING
PRICE PER SHARE $ 7.61
========
See notes to financial statements.
7
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THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=============================================================================
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
INVESTMENT INCOME
DIVIDENDS $ 6,876
---------
EXPENSES
MANAGEMENT & ADMINISTRATIVE FEES (NOTE 2) 776
AMORTIZATION OF ORGANIZATION COSTS (NOTE 2) 23,019
AUDITING FEES 2,200
FUND ACCOUNTING FEES (NOTE 2) 647
PRINTING AND MAILING 494
CUSTODY (NOTE 2) 2,975
TRUSTEES FEES AND EXPENSES (NOTE 2) 20
OTHER OPERATING EXPENSES 925
---------
TOTAL EXPENSES 31,056
FEES WAIVED AND EXPENSES REIMBURSED BY MANAGER
MANAGER (NOTE 2) (24,442)
---------
NET EXPENSES 6,614
---------
NET INVESTMENT INCOME 262
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
NET REALIZED GAIN FROM INVESTMENT TRANSACTIONS
AND CAPITAL GAIN DISTRIBUTIONS 32,582
CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS ( 9,929)
---------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS 22,653
---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 22,915
=========
See notes to financial statements.
8
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THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=============================================================================
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1996
1996 1995
FROM OPERATIONS
NET INVESTMENT INCOME (LOSS) $ 262 $ ( 19,207)
NET REALIZED GAIN FROM INVESTMENT
TRANSACTIONS AND CAPITAL GAIN
DISTRIBUTIONS 32,582 82,283
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) OF INVESTMENTS ( 9,929) 105,511
--------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 22,915 168,587
DISTRIBUTIONS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME -- ( 614)
NET REALIZED GAINS ON INVESTMENT
TRANSACTIONS AND CAPITAL GAIN
GAIN DISTRIBUTIONS ( 77,446) 0
--------- ----------
( 77,446) ( 614)
FROM BENEFICIAL INTEREST TRANSACTIONS
PROCEEDS FROM SALES OF SHARES -- 7,379
DISTRIBUTIONS REINVESTED 77,446 614
COST OF SHARES REDEEMED (154,833) (1,188,903)
--------- ----------
DECREASE IN NET ASSETS DERIVED FROM
BENEFICIAL INTEREST TRANSACTIONS (77,387) (1,180,910)
--------- ----------
NET DECREASE IN NET ASSETS (131,918) (1,012,937)
NET ASSETS
BEGINNING OF YEAR 333,049 1,345,986
--------- ----------
END OF YEAR $ 201,131 $ 333,049
========= ==========
See notes to financial statements.
9
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<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD
DECEMBER DECEMBER DECEMBER MARCH 1,
31, 1996 31, 1995 31, 1994 1993* TO
DECEMBER
31, 1993
---------- ---------- ---------- ----------
PER SHARE OPERATING
PERFORMANCE
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.95 $ 9.23 $ 10.51 $ 10.00
---------- ---------- ---------- ----------
NET INVESTMENT INCOME
(LOSS) # .01 (0.24) 0.44 0.33
NET GAIN ON INVESTMENTS
- REALIZED AND UNREALIZED 0.88 1.98 (0.67) 0.51
---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.89 1.74 (0.23) 0.84
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
DISTRIBUTIONS FROM NET
INVESTMENT INCOME 0.00 0.02 0.44 0.33
DISTRIBUTIONS FROM NET
REALIZED CAPITAL GAINS 4.23 0.00 0.61 0.00
---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS 4.23 0.02 1.05 0.33
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $ 7.61 $ 10.95 $ 9.23 $ 10.51
========== ========== ========== ==========
TOTAL RETURN 10.57% 18.79% (2.15%) 8.42%**
RATIOS AND SUPPLEMENTAL DATA
TOTAL NET ASSETS, END OF
PERIOD (000'S OMITTED $ 201 $ 333 $1,346 $4,267
RATIO OF EXPENSES TO AVERAGE
NET ASSETS 2.56% 4.25% 1.84% 0.42%**
DECREASE REFLECTED IN ABOVE
EXPENSE RATIO DUE TO
WAIVERS AND/OR REIMBURSEMENTS 9.45% 0.68% -- 3.15%**
RATIO OF NET INVESTMENT
INCOME (LOSS) TO AVERAGE
NET ASSETS 0.10% (2.32%) 2.23% 4.89%**
PORTFOLIO TURNOVER RATE 6.87% 5.68% 13.06% 19.79%
* Commencement of operations
** Not annualized
# Per share data numbers have been calculated using the average share
method
See notes to financial statements.
10
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THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=============================================================================
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
NUMBER OF VALUE
INVESTMENT IN SHARES OF OPEN-END MUTUAL FUNDS SHARES (NOTE 1)
- --------------------------------------------- --------- --------
AIM CONSTELLATION FUND 762 $ 19,245
AIM WEINGARTEN FUND 1,045 19,333
THE BERGER ONE HUNDRED FUND, INC. 1,108 19,752
THE GUARDIAN PARK AVENUE FUND 526 19,922
MERRILL LYNCH PACIFIC FUND, INC., CLASS A 909 19,607
DAVIS NEW YORK VENTURE FUND, INC. 1,152 20,156
SCUDDER INCOME FUND 1,574 20,698
UNITED INCOME FUND 601 19,783
VANGUARD INVESTMENT GRADE CORPORATE BOND FUND 2,206 19,391
VANGUARD FIXED INCOME GNMA FUND 1,910 19,544
TOTAL INVESTMENTS (COST $170,297*) (NOTES 1 AND 4) 98% 197,431
OTHER ASSETS IN EXCESS OF LIABILITIES 2% 3,700
------- --------
NET ASSETS 100% $201,131
======= ========
*Aggregate cost for Federal tax purposes
See notes to financial statements.
11
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THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=============================================================================
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The GCG Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, (the "Act") as an open-end management company.
The Trust was organized as a Massachusetts business trust on August 3, 1988
with an unlimited number of shares of beneficial interest with a par value
of $0.001 each. At December 31, 1996, the Trust had sixteen operational
portfolios (the "Series"): The Fund For Life Series (the "Fund"), Liquid
Asset Series, Limited Maturity Bond Series, Natural Resources Series, All-
Growth Series, Real Estate Series, Fully Managed Series, Multiple
Allocation Series, Capital Appreciation Series, Rising Dividends Series,
Managed Global Series, Emerging Markets Series, Market Manager Series,
Value Equity Series, Strategic Equity Series and Small Cap Series. All of
the Series, including the Fund, are diversified, except for Managed Global
Series and Market Manager Series. The information presented in these
financial statements pertains only to the Fund. The financial information
for the other Series of the Trust is presented under separate cover.
The Fund serves as an investment medium for variable annuity contracts
offered by Golden American Life Insurance Company ("Golden American").
Prior to August 13, 1996, Golden American was a wholly owned subsidiary of
BT Variable, Inc. ("BTV"), an indirect subsidiary of Bankers Trust Company
("Bankers Trust"). On August 13, 1996, the Equitable of Iowa Companies
("Equitable") acquired all of the interest in BTV, Golden American and
Directed Services, Inc. ("DSI") from Whitewood Properties Corp., a
subsidiary of Bankers Trust.
The preparation of these financial statements in accordance with
generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities,
revenues and expenses of the Fund. Actual results could differ from these
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
Federal Income Taxes: No provision for federal income taxes has been
made since the Fund has complied and intends to continue to comply with the
provisions of the Internal Revenue Code available to regulated investment
companies and to distribute its taxable income to shareholder sufficiently
to relieve it from substantially all federal income taxes. The Fund has
reclassified amounts to reflect an increase in accumulated net investment
income of $2,744, a decrease in undistributed realized gains on investment
transactions of $1,144 and a decrease in paid-in capital of $1,600. These
represent the cumulative amounts necessary to report these balances on a
tax basis as of December 31, 1996. These reclassifications, which have no
impact on the net asset value of the Fund, are primarily attributable to
certain differences in the
12
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
Organizational Expenses: DSI, the Fund's Manager and Administrator,
paid organizational expenses of approximately $115,000 on behalf of the
Fund. The Fund reimburses DSI in equal monthly installments over a sixty
month period from the Fund's commencement of operations. The unpaid
balance as of December 31, 1996 was approximately $28,000. It is DSI's
intention to continue to receive these equal installments but not to seek
reimbursement of any unpaid balances, if any, should the Fund cease
operations.
Valuation: Investments in open-end mutual funds are valued at their
respective net asset value at the end of each day. Net asset values for
these investments are supplied by market quotation services. The net asset
values supplied by these market quotation services are calculated in
accordance with the Act. Among other things, the Act requires that mutual
funds value the securities they hold in their portfolios at their current
market value (generally the last reported sales price of the security).
Other investments of the Fund, if any, are valued at their current
market value as determined by market quotations. Securities having 60 days
or less remaining to maturity are valued at their amortized cost.
Other: Investment transactions are recorded on trade date. Dividend
income and distributions to the shareholders are recorded on the ex-
dividend date. Estimated expenses are accrued daily.
Realized gains and losses from investment transactions are recorded on
an identified cost basis which is the same basis the Fund uses for federal
income tax purposes.
2. MANAGEMENT AND ADMINISTRATIVE FEES, AND OTHER TRANSACTIONS WITH
AFFILIATES
In its capacity as Manager and Administrator DSI provides investment
advisory services and other services reasonably necessary for the operation
of the Fund. Management and administrative fees are paid to DSI at annual
rates of 0.10% and 0.20%, respectively, of the value of the average daily
net assets of the Fund. For the year ended December 31, 1996, the Fund
paid $258 and $518 in compensation for management and administrative
services, respectively. The Fund also reimburses DSI for certain
organizational expenses paid by DSI on behalf of the Fund. These
reimbursements are described in Note 1 to the financial statements.
DSI also provides accounting services to the Fund. For fund
accounting services, the Fund pays to DSI an annual fee of 0.25% of the
value of the average daily net assets of the Fund. For the year ended
December 31, 1996 such fees amounted to $647. Pursuant to a custodian
agreement, Bankers Trust is custodian for the Fund. Fees paid to Bankers
Trust in connection with custodian services was $2,975 for the year ended
December 31, 1996.
13
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2. MANAGEMENT AND ADMINISTRATIVE FEES, AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
During the year ended December 31, 1996, DSI voluntarily waived and/or
reimbursed the Fund $24,442 in operating expenses.
Investors in the Fund should recognize that an investment in the Fund
bears not only a proportionate share of the expenses of the Fund (including
operating costs and management fees) but also indirectly similar expenses
of the underlying mutual funds in which the Fund invests. Investors also
bear their proportionate share of any sales charges incurred by the Fund
related to the purchase of shares of the mutual fund investments. In
addition, shareholders of the Fund may indirectly bear expenses paid by a
mutual fund in which the Fund invests related to the distribution of the
mutual fund's shares.
Certain officers and trustees of the Trust are also officers and/or
directors of DSI, BTV, Golden American and Equitable.
3. SHARES OF BENEFICIAL INTEREST
The Fund has an unlimited number of $0.001 par value shares of
beneficial interest authorized. For the years ended December 31, 1996 and
1995, the Fund had the following transactions in shares of beneficial
interest. The Trust no longer accepts investments in the Fund from new
investors.
1996 1995
Shares Amount Shares Amount
Sold 0 $ 0 719 $ 7,379
Distributions Reinvested 10,817 77,446 56 614
Redeemed (14,807) (154,833) (116,153) (1,188,903)
-------- ---------- -------- ----------
Net decrease ( 3,990) $( 77,387) (115,378) $(1,180,910)
======== ========== ======== ==========
As of December 31, 1996, Golden American has an investment in the fund
of 1,831 shares with a total net asset value of $13,935 representing 6.93%
of the shares outstanding.
4. INVESTMENTS
At December 31, 1996, the gross unrealized appreciation and
depreciation were as follows:
Gross Unrealized Appreciation $ 27,134
Gross Unrealized Depreciation --
----------
Net Unrealized Appreciation $ 27,134
==========
Purchases and Sales of Investments Were As
Follows:
Cost of Purchases $ 17,491
Proceeds from Sales $ 143,860
14
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5. PLAN OF SUBSTITUTION
During 1996, the Board of Trustees instructed management to file with
the Securities and Exchange Commission ("SEC"), an application for an order
("Order") to accept the substitution of shares of the Fund for shares of
the Fully Managed Series, one of the series of the Trust. The substitution
will occur as soon as practicable after the Order is issued by the SEC.
Within five days after the substitution, Golden American will send to
owners of contracts written notice of the substitution stating that shares
of the Fund have been eliminated and that the shares of Fully Managed
Series have been substituted.
15
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GOLDEN AMERICAN LIFE INSURANCE COMPANY
THE FUND FOR LIFE DIVISION OF SEPARATE ACCOUNT B
SCHEDULE OF INVESTMENTS
December 31, 1996
(Unaudited)
Investment in The Fund For Life Series of The GCG Trust,
at Net Asset Value, 24,595 shares (cost - $206,865) $187,166
--------
16
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