<PAGE>
<PAGE>
ANNUAL FINANCIAL STATEMENTS
-------------------------
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
-------------------------
DECEMBER 31, 1998
GOLDENSELECT/r/ products are issued by Golden American Life Insurance
Company and distributed by Directed Services, Inc.,
member NASD.
[GOLDENSELECT Logo appears here]
<PAGE>
<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=======================================================================
FINANCIAL STATEMENTS
DECEMBER 31, 1998
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
<PAGE>
<PAGE>
February 26, 1999
Dear Shareholders of The Fund For Life Series of the GCG Trust,
We are pleased to provide you with your 1998 Annual Report (the
"Report") for The Fund For Life Series of The GCG Trust.
1998 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/ Myles R. Tashman
Myles R. Tashman
Secretary
GOLDENSELECT/r/ products are issued by Golden American Life Insurance
Company and distributed by Directed Services, Inc.,
member NASD
3
<PAGE>
<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 1998. For the year ended December
31, 1998, the Fund had a total return of 13.67%, compared to a blended
return of 20.07% 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,
1998 was S&P 500 Index -- 28.60%, Morgan Stanley/Capital International
Pacific Index -- 2.69% and the Lehman Aggregate Bond Index -- 8.69%.
The Fund For Life Annual Report
4
<PAGE>
<PAGE>
Plot Points For The Graph
For The Period Ended December 31, 1998
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, 1998.
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
12/31/98 $24,545 $15,034 $10,539 $31,635 $18,149
Average Annual Total Return For The Period Ended December 31, 1998
One Year 13.67%
Five Years 10.85%
3/1/93 (Inception) 10.75%
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.
5
<PAGE>
<PAGE>
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 portfolio of investments, of The Fund For Life Series
(one of the Series comprising The GCG Trust), (the Trust) as of
December 31, 1998, 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, 1998, 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, 1998, 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.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
March 8, 1999
6
<PAGE>
<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=======================================================================
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
ASSETS
INVESTMENTS, AT VALUE (COST $181,333) (NOTES 1 AND 4) $230,518
CASH 764
DIVIDENDS RECEIVABLE 232
--------
TOTAL ASSETS 231,514
--------
LIABILITIES
ACCRUED EXPENSES 4,141
--------
TOTAL LIABILITIES 4,141
--------
NET ASSETS $227,373
========
NET ASSETS CONSIST OF
PAID-IN CAPITAL $161,065
UNDISTRIBUTED REALIZED GAINS ON 10,840
INVESTMENT TRANSACTIONS
NET UNREALIZED APPRECIATION OF 49,185
INVESTMENT
ACCUMULATED NET INVESTMENT INCOME 6,283
--------
NET ASSETS $227,373
========
SHARES OF BENEFICIAL INTEREST OUTSTANDING, $.001
PAR VALUE 30,492
========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 7.45
========
See notes to financial statements.
7
<PAGE>
<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=======================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME
DIVIDENDS $ 6,118
--------
EXPENSES
MANAGEMENT & ADMINISTRATIVE FEES (NOTE 2) 633
AMORTIZATION OF ORGANIZATION COSTS (NOTE 1) 5,700
AUDITING FEES 2,500
FUND ACCOUNTING FEES (NOTE 2) 528
CUSTODY (NOTE 2) 1,620
TRUSTEES FEES AND EXPENSES (NOTE 2) 40
OTHER OPERATING EXPENSES 1,158
--------
TOTAL EXPENSES 12,179
FEES WAIVED AND EXPENSES REIMBURSED BY MANAGER (NOTE 2) (6,900)
--------
NET EXPENSES 5,279
--------
NET INVESTMENT INCOME 839
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
NET REALIZED GAIN FROM CAPITAL GAIN DISTRIBUTIONS 11,004
CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 15,703
--------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS 26,707
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 27,546
========
See notes to financial statements.
8
<PAGE>
<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=======================================================================
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 & DECEMBER 31, 1997
1998 1997
---- ----
FROM OPERATIONS
NET INVESTMENT INCOME $ 839 $ 800
NET REALIZED GAIN FROM INVESTMENT
TRANSACTIONS AND CAPITAL GAIN
DISTRIBUTIONS 11,004 18,925
NET INCREASE IN UNREALIZED APPRECIATION
OF INVESTMENTS 15,703 6,348
-------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 27,546 26,073
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME (2,600) (3,006)
NET REALIZED GAINS ON INVESTMENT
TRANSACTIONS AND CAPITAL GAIN
DISTRIBUTIONS (17,125) (31,438)
-------- --------
(19,725) (34,444)
-------- --------
FROM BENEFICIAL INTEREST TRANSACTIONS
PROCEEDS FROM SALES OF SHARES -- --
DISTRIBUTIONS REINVESTED 19,725 34,444
COST OF SHARES REDEEMED (2,098) (25,279)
-------- --------
INCREASE IN NET ASSETS DERIVED FROM
BENEFICIAL INTEREST TRANSACTIONS 17,627 (9,165)
-------- --------
NET INCREASE IN NET ASSETS 25,448 794
NET ASSETS
BEGINNING OF YEAR 201,925 201,131
-------- --------
END OF YEAR $227,373 $201,925
======== ========
UNDISTRIBUTED NET INVESTMENT INCOME $6,283 $2,600
======== ========
See notes to financial statements.
9
<PAGE>
<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 FOR THE
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
---------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.25 $ 7.61 $ 10.95 $ 9.23 $ 10.51
------- ------- ------- ------- -------
NET INVESTMENT INCOME
(LOSS) # 0.03 0.03 0.01 (0.24) 0.44
NET GAIN (LOSS) ON
INVESTMENTS -
REALIZED AND
UNREALIZED 0.88 1.09 0.88 1.98 (0.67)
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS 0.91 1.12 0.89 1.74 (0.23)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
DISTRIBUTIONS FROM
NET INVESTMENT
INCOME 0.09 0.13 0.00 0.02 0.44
DISTRIBUTIONS FROM
NET REALIZED CAPITAL
GAINS 0.62 1.35 4.23 0.00 0.61
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS 0.71 1.48 4.23 0.02 1.05
------- ------- ------- ------- -------
NET ASSET VALUE, END
OF PERIOD $ 7.45 $ 7.25 $ 7.61 $ 10.95 $ 9.23
======= ======= ======= ======= =======
TOTAL RETURN 13.67% 14.58% 10.57% 18.79% (2.15%)
RATIOS AND
SUPPLEMENTAL DATA
TOTAL NET ASSETS, END
OF PERIOD (000'S
OMITTED) $227 $202 $201 $333 $1,346
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 2.50% 2.50% 2.56% 4.25% 1.84%
DECREASE REFLECTED IN
ABOVE EXPENSE
RATIO DUE TO
WAIVERS AND/OR
REIMBURSEMENTS 3.27% 12.06% 9.45% 0.68% ---
RATIO OF NET
INVESTMENT INCOME
(LOSS) TO AVERAGE
NET ASSETS 0.40% 0.40% 0.10% (2.32%) 2.23%
PORTFOLIO TURNOVER
RATE 0.00% 8.94% 6.87% 5.68% 13.06%
# Per share data numbers have been calculated using the average
share method.
See notes to financial statements.
10
<PAGE>
<PAGE>
THE FUND FOR LIFE SERIES
OF
THE GCG TRUST
=======================================================================
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
NUMBER OF
---------
INVESTMENT IN SHARES OF OPEN-END MUTUAL FUNDS SHARES VALUE (NOTE 1)
- --------------------------------------------- ------ --------------
AIM CONSTELLATION FUND 846 $ 25,835
AIM WEINGARTEN FUND 1,305 32,400
THE GUARDIAN PARK AVENUE FUND 540 28,021
MERRILL LYNCH PACIFIC FUND, INC., CLASS A 1,129 19,915
DAVIS NEW YORK VENTURE FUND, INC. 1,048 26,215
SCUDDER INCOME FUND 1,802 23,864
UNITED INCOME FUND 3,640 27,370
VANGUARD INVESTMENT GRADE CORPORATE BOND FUND 2,596 24,114
VANGUARD FIXED INCOME GNMA FUND 2,192 22,784
--------
TOTAL INVESTMENTS (COST $181,333*)
(NOTES 1 AND 4) 101% 230,518
LIABILITIES IN EXCESS OF OTHER ASSETS (1)% (3,145)
--------- ---------
NET ASSETS 100% $227,373
======== ========
*Aggregate cost for Federal tax purposes.
See notes to financial statements.
11
<PAGE>
<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, 1998, the Trust had twenty-four operational portfolios (the
"Series"): The Fund For Life Series (the "Fund"), Liquid Asset
Series, Limited Maturity Bond Series, Hard Assets 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, Small Cap Series, Developing
World Series, Growth Opportunities Series, Mid-Cap Growth Series,
Research Series, Total Return Series, Value + Growth Series, Growth &
Income Series, and Global Fixed Income 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"), a
wholly owned subsidiary of ING Groep N.V.
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. All organization expenses have been
reimbursed as of December 31, 1998.
12
<PAGE>
<PAGE>
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 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, 1998, the Fund waived $211 and $422 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, 1998 such fees amounted to $528. Pursuant to a
custodian agreement, Bankers Trust is custodian for the Fund.
During the year ended December 31, 1998, DSI voluntarily waived
its fees and reimbursed the Fund $6,900 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
<PAGE>
<PAGE>
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,
1998 and December 31, 1997, 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.
1998 1997
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Sold 0 $ 0 0 $ 0
Distributions
Reinvested 2,935 19,725 4,705 34,444
Redeemed (284) (2,104) (3,291) (25,279)
----- ------- ------ --------
Net increase/
decrease 2,615 $17,621 1,414 $ (9,165)
===== ======= ====== ========
As of December 31, 1998, Golden American has an investment in
the fund of 2,436 shares with a total net asset value of $18,148
representing 8.0% of the shares outstanding.
4. INVESTMENTS
At December 31, 1998, the gross unrealized appreciation and
depreciation for Federal income tax purposes were as follows:
Gross Unrealized Appreciation $ 52,452
Gross Unrealized Depreciation (3,267)
--------
Net Unrealized Appreciation $ 49,185
========
Purchases and Sales of Investments Were As Follows:
Cost of Purchases $16,524
Cost of Sales $0
14
<PAGE>
<PAGE>
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 1999. 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
<PAGE>
<PAGE>
