<PAGE>
<PAGE>
ANNUAL FINANCIAL STATEMENTS
-------------------------
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
-------------------------
DECEMBER 31, 1997
GOLDENSELECT/r/ products are issued by Golden American Life
Insurance Company and
distributed by Directed Services, Inc., member NASD.
[GOLDENSELECT LOGO]
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<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
2
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Dear Shareholders of The Fund For Life Series of the GCG Trust,
We are pleased to provide you with your 1997 Annual Report (the
"Report") for The Fund For Life Series of The GCG Trust.
1997 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, Directed Services, Inc., 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 18, 1998
GOLDENSELECT/r/ products are issued by Golden American Life
Insurance Company and
distributed by Directed Services, Inc., member NASD
3
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<PAGE>
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 1997. For the
year ended December 31, 1997, the Fund had a total return of
14.58%, compared to a blended return of 20.37% of three indices,
namely the Standard & Poor's 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. The
following total return of each index for the year ended December
31, 1997 was S&P 500 Index - 33.35%, Morgan Stanley/Capital
International Pacific Index - (25.34)% and the Lehman Aggregate
Bond Index - 9.65%.
4
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<PAGE>
THE FUND FOR LIFE ANNUAL SERIES
of The GCG Trust
[Performance Graph follows]
[Plot Points For The Performance Graph
For The Period Ended December 31, 1997
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, 1997.
60% S&P 500, Morgan
30% Lehman Lehman Stanley/
Aggregate Bond Aggregate Capital
10% MSCI Bond International S&P Fund For
Index Index Index 500 Life
- ---------------------------------------------------------------------------
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
12/31/97 $19,936 $13,832 $10,263 $24,600 $15,966]
____________________________________________
| |
| AVERAGE ANNUAL TOTAL RETURN |
| FOR THE PERIOD ENDED DECEMBER 31, 1997 |
| |
| 1 YEAR 14.58% |
| SINCE INCEPTION 10.15% |
|__________________________________________|
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.
<PAGE>
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Report of Ernst & Young LLP, Independent Auditors
To the Contractholders and Trustees
The GCG Trust - The Fund For Life Series
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of The Fund
For Life Series (one of the Series comprising The GCG Trust) as
of December 31, 1997, 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,
1997, 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 and financial highlights
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, 1997, 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 periods indicated therein, in conformity with
generally accepted accounting principles.
Boston, Massachusetts /s/ Ernst & Young LLP
February 20, 1998
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THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=========================================================================
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
ASSETS
INVESTMENTS, AT VALUE (COST $164,932) (NOTES 1 AND 4) $198,414
CASH 6,487
DEFERRED ORGANIZATION EXPENSES (NOTE 1) 5,700
DIVIDENDS RECEIVABLE 281
--------
TOTAL ASSETS 210,882
--------
LIABILITIES
ACCRUED EXPENSES 3,252
PAYABLE FOR SHARE OF BENEFICIAL INTEREST REDEEMED 5
PAYABLE FOR DEFERRED ORGANIZATION EXPENSES 5,700
--------
TOTAL LIABILITIES 8,957
--------
NET ASSETS $201,925
========
NET ASSETS CONSIST OF
PAID-IN CAPITAL $148,718
ACCUMULATED REALIZED GAINS ON INVESTMENT TRANSACTIONS 17,125
NET UNREALIZED APPRECIATION OF INVESTMENT 33,482
UNDISTRIBUTED NET INVESTMENT INCOME 2,600
--------
NET ASSETS $201,925
========
SHARES OF BENEFICIAL INTEREST OUTSTANDING,
$.001 PAR VALUE 27,840
========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 7.25
========
See notes to financial statements.
7
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<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=========================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
INVESTMENT INCOME
DIVIDENDS $ 5,752
---------
EXPENSES
MANAGEMENT & ADMINISTRATIVE FEES (NOTE 2) 594
AMORTIZATION OF ORGANIZATION COSTS (NOTE 1) 22,796
AUDITING FEES 2,000
FUND ACCOUNTING FEES (NOTE 2) 495
CUSTODY (NOTE 2) 1,755
TRUSTEES FEES AND EXPENSES (NOTE 2) 40
OTHER OPERATING EXPENSES 1,157
---------
TOTAL EXPENSES 28,837
FEES WAIVED AND EXPENSES REIMBURSED BY MANAGER (NOTE 2) (23,885)
---------
NET EXPENSES 4,952
---------
NET INVESTMENT INCOME 800
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
NET REALIZED GAIN FROM INVESTMENT TRANSACTIONS 7,041
NET REALIZED GAIN FROM CAPITAL GAIN DISTRIBUTIONS 11,884
CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 6,348
---------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS 25,273
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $26,073
=========
See notes to financial statements.
8
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<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=========================================================================
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31
1997 1996
---- ----
FROM OPERATIONS
NET INVESTMENT INCOME $ 800 $ 262
NET REALIZED GAIN FROM INVESTMENT
TRANSACTIONS AND CAPITAL GAIN
DISTRIBUTIONS 18,925 32,582
INCREASE (DECREASE) IN UNREALIZED
APPRECIATION (DEPRECIATION) OF
INVESTMENTS 6,348 ( 9,929)
---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 26,073 22,915
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME (3,006) --
NET REALIZED GAINS ON INVESTMENT
TRANSACTIONS AND CAPITAL GAIN
DISTRIBUTIONS (31,438) (77,446)
---------- ----------
(34,444) (77,446)
---------- ----------
FROM BENEFICIAL INTEREST TRANSACTIONS
PROCEEDS FROM SALES OF SHARES -- --
DISTRIBUTIONS REINVESTED 34,444 77,446
COST OF SHARES REDEEMED (25,279) (154,833)
---------- ----------
INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM BENEFICIAL INTEREST
TRANSACTIONS 9,165 (77,387)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS 794 (131,918)
NET ASSETS
BEGINNING OF YEAR 201,131 333,049
---------- ----------
END OF YEAR $201,925 $201,131
========== ==========
UNDISTRIBUTED NET INVESTMENT INCOME $2,600 $3,006
====== ======
See notes to financial statements.
9
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<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=========================================================================
FINANCIAL HIGHLIGHTS
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93*
---------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.61 $ 10.95 $ 9.23 $ 10.51 $ 10.00
------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS) # 0.03 0.01 (0.24) 0.44 0.33
NET GAIN ON INVESTMENTS -
REALIZED AND
UNREALIZED 1.09 0.88 1.98 (0.67) 0.51
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS 1.12 0.89 1.74 (0.23) 0.84
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
DISTRIBUTIONS FROM NET
INVESTMENT INCOME 0.13 0.00 0.02 0.44 0.33
DISTRIBUTIONS FROM NET
REALIZED CAPITAL GAINS 1.35 4.23 0.00 0.61 0.00
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS 1.48 4.23 0.02 1.05 0.33
------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD $ 7.25 $ 7.61 $ 10.95 $ 9.23 $ 10.51
======= ======= ======= ======= =======
TOTAL RETURN 14.58% 10.57% 18.79% (2.15%) 8.42%**
RATIOS AND SUPPLEMENTAL
DATA
TOTAL NET ASSETS, END
OF PERIOD (000'S
OMITTED) $202 $201 $333 $1,346 $4,267
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 2.50% 2.56% 4.25% 1.84% 0.42%**
DECREASE REFLECTED IN
ABOVE EXPENSE RATIO
DUE TO WAIVERS AND/OR
REIMBURSEMENTS 12.06% 9.45% 0.68% --- 3.15%**
RATIO OF NET INVESTMENT
INCOME (LOSS) TO
AVERAGE NET ASSETS 0.40% 0.10% (2.32%) 2.23% 4.89%**
PORTFOLIO TURNOVER RATE 8.94% 6.87% 5.68% 13.06% 19.79%
* The Fund For Life Series commenced operations on March 1, 1993
** 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, 1997
NUMBER OF
---------
INVESTMENT IN SHARES OF OPEN-END MUTUAL FUNDS SHARES VALUE (NOTE 1)
- --------------------------------------------- ------ --------------
AIM CONSTELLATION FUND 824 $ 21,731
AIM WEINGARTEN FUND 1,224 24,351
THE GUARDIAN PARK AVENUE FUND 501 23,101
MERRILL LYNCH PACIFIC FUND, INC., CLASS A 1,082 18,362
DAVIS NEW YORK VENTURE FUND, INC. 1,023 22,850
SCUDDER INCOME FUND 1,671 22,508
UNITED INCOME FUND 581 22,068
VANGUARD INVESTMENT GRADE CORPORATE BOND FUND 2,384 22,073
VANGUARD FIXED INCOME GNMA FUND 2,049 21,372
----- --------
TOTAL INVESTMENTS (COST $164,932*)
(NOTES 1 AND 4) 98% 198,414
LIABILITIES IN EXCESS OF OTHER ASSETS 2% 3,511
----- --------
NET ASSETS 100% $201,925
===== ========
*Aggregate cost for Federal tax purposes
See notes to financial statements.
11
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<PAGE>
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, 1997, the Trust had
seventeen operational portfolios (the "Series"): The Fund For
Life Series (the "Fund"), Liquid Asset Series, Limited Maturity
Bond Series, Hard Assets Series, Managed Global 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 Hard Assets
Series, 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"), a wholly owned subsidiary of the Equitable
of Iowa Companies, Inc. ("Equitable of Iowa") and Equitable
Life Insurance Company of Iowa, an affiliated company.
Equitable of Iowa became an indirect wholly owned subsidiary of
ING Groep, N.V. ("ING") on October 24, 1997.
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.
Organizational Expenses: Directed Services, Inc.,
("DSI"), an indirect wholly owned subsidiary of ING, is the
Fund's Manager and Administrator. DSI 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, 1997 was approximately
$5,700. 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.
12
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1997, the
Fund waived $198 and $396 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, 1997 such fees amounted to
$495. Pursuant to a custodian agreement, Bankers Trust is
custodian for the Fund.
During the year ended December 31, 1997, DSI voluntarily
waived its fees and reimbursed the Fund $23,885 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.
13
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2. MANAGEMENT AND ADMINISTRATIVE FEES, AND OTHER TRANSACTIONS
WITH AFFILIATES (CONTINUED)
Certain officers and trustees of the Trust are also officers
and/or directors of DSI, Golden American and other Equitable of
Iowa companies.
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, 1997 and December 31, 1996, the Fund had the
following transactions in shares of beneficial interest.
Except for reinvested distributions, the Trust no longer
accepts investments in the Fund from new investors.
1997 1996
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Sold 0 $ 0 0 $ 0
Distributions Reinvested 4,705 34,444 10,817 77,446
Redeemed (3,291) (25,279) (14,807) (154,833)
------ --------- ------- ---------
Net increase/decrease 1,414 $ 9,165 ( 3,990) $( 77,387)
====== ========= ======= =========
As of December 31, 1997, Golden American has an investment
in the fund of 2,202 shares with a total net asset value of
$15,965 representing 7.9% of the shares outstanding.
4. INVESTMENTS
At December 31, 1997, the gross unrealized appreciation
and depreciation for Federal income tax purposes were as
follows:
Gross Unrealized Appreciation $ 37,476
Gross Unrealized Depreciation (3,994)
--------
Net Unrealized Appreciation $ 33,482
========
Purchases and Sales of Investments Were As
Follows:
Cost of Purchases $17,634
Cost of Sales $22,999
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 Trust plans to file the
formal application in 1998. 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
