<PAGE>
DELAWARE GROUP
PREMIUM FUND
INTERNATIONAL
EQUITY SERIES
SEMI-ANNUAL REPORT
JUNE 30, 1997
(142)
SA-MEDIE [6/97] 8/97
<PAGE>
July 31, 1997
Dear Policyholder:
The first six months of International Equity Series' 1997 fiscal year was an
opportune time to be an overseas investor. Most equity markets in established
countries provided robust total returns, even after adjusting for currency
fluctuations.
Aggregate Total Return Six Months Ended June 30, 1997
International Equity Series +13.95%
Morgan Stanley Europe Australia Far East Index +10.35%
Past performance does not guarantee future results. Performance quoted above is
at net asset value and assumes reinvestment of dividends. Complete performance
information can be found in the financial section of this report.
European equity markets performed well. One of the strongest was Germany,
which is benefiting from corporate earnings growth among major export-oriented
companies such as car manufacturers. The United Kingdom and France also held up
well despite political change. In Japan, we believe skyrocketing export volume
may be a catalyst for future growth.
The following pages detail the performance and expenses of International
Equity Series. Remember that your annuity is designed to offer the powerful
advantage of international diversification and tax-deferred earnings potential
for investors willing to accept the added risks of investing overseas.
Sincerely,
/s/ Wayne A. Stork
- -----------------------------------------------
Wayne A. Stork
Chairman, President and Chief Executive Officer
Delaware Group Premium Fund, Inc.
1
<PAGE>
Delaware Group Premium Fund, Inc.-International Equity Series
Statement of Net Assets
June 30, 1997
(Unaudited)
Market
Number Value
of Shares (U.S. $)
COMMON STOCK-94.68%
Australia-10.84%
Amcor............................ 865,000 $ 5,736,023
CSR.............................. 1,224,966 4,735,365
Foster's Brewing Group........... 1,797,051 3,331,253
National Australia Bank.......... 448,327 6,408,764
-----------
20,211,405
-----------
Belgium-2.15%
Electrabel....................... 18,700 4,006,419
-----------
4,006,419
-----------
France-7.57%
Alcatel Alsthom.................. 24,015 3,007,340
Campagnie de Saint Gobain........ 28,408 4,142,320
Elf Aquitaine.................... 47,259 5,097,954
Societe Television Francaise..... 21,000 1,875,861
-----------
14,123,475
-----------
Germany-8.45%
Bayer............................ 134,600 5,185,679
Continental...................... 117,200 2,909,422
Rheinisch Westfaelisches
Kalkwerke..................... 78,000 3,353,877
Siemens.......................... 72,050 4,314,532
-----------
15,763,510
-----------
Hong Kong-2.60%
Hong Kong Electric............... 810,000 3,262,166
Wharf Holdings................... 366,000 1,587,402
-----------
4,849,568
-----------
Indonesia-1.77%
PT Bank Dagang Nasional.......... 3,974,250 2,819,769
PT Semen Gresik.................. 210,000 470,744
-----------
3,290,513
-----------
<PAGE>
Market
Number Value
of Shares (U.S. $)
COMMON STOCK(Continued)
Japan-14.16%
Amano............................ 185,000 $ 2,099,062
Eisai Co......................... 197,000 3,731,094
Hitachi.......................... 398,000 4,446,346
Kinki Coca-Cola Bottling......... 191,000 2,617,238
Koito Manufacturing.............. 272,000 2,079,616
Matsushita Electric.............. 205,000 4,133,102
Nichido Fire & Marine............ 483,000 3,524,225
West Japan Railway............... 965 3,781,672
-----------
26,412,355
-----------
Malaysia-1.97%
Oriental Holdings Berhad......... 319,200 2,401,901
Sime Darby Berhad................ 380,000 1,264,158
-----------
3,666,059
-----------
Netherlands-6.41%
Elsevier......................... 199,500 3,332,620
Koninklijke Van Ommeren.......... 60,100 2,332,376
Royal Dutch Petroleum............ 63,000 3,275,936
Unilever NV...................... 14,360 3,021,926
-----------
11,962,858
-----------
New Zealand-4.26%
Carter Holt Harvey Limited....... 1,187,800 3,078,484
Telecom Corporation
of New Zealand................ 954,784 4,871,189
-----------
7,949,673
-----------
Philippines-1.04%
Philippine Long Distance
Telephone Company ADR......... 30,100 1,933,925
-----------
1,933,925
-----------
Singapore-1.28%
Jardine Matheson Holdings
Limited....................... 336,622 2,390,016
-----------
2,390,016
-----------
South Korea-0.72%
Cho Hung Bank Limited-GDR........ 201,970 1,348,150
-----------
1,348,150
-----------
Spain-4.80%
Banco Central Hispanoamerica
S.A........................... 92,449 3,381,056
Iberdrola S.A.................... 197,800 2,496,322
Telefonica de Espana............. 106,500 3,078,368
-----------
8,955,746
-----------
Top 10 stock holdings, representing 27.7% of net assets, are in bold.
2
<PAGE>
Statement of Net Assets (Continued)
Market
Number Value
of Shares (U.S. $)
COMMON STOCK (Continued)
United Kingdom-26.66%
BG.............................. 700,000 $2,575,523
Bass............................ 411,000 5,015,577
Blue Circle Industries.......... 522,000 3,719,541
Boots........................... 433,200 5,073,734
British Airways................. 345,000 3,931,585
Cable & Wireless................ 556,000 5,114,253
*Centrica........................ 700,000 853,652
GKN............................. 252,000 4,340,164
Glaxo Wellcome.................. 214,470 4,436,475
Great Universal Stores.......... 323,000 3,269,499
RTZ............................. 212,100 3,695,345
Taylor Woodrow.................. 1,365,000 4,022,361
Unigate......................... 458,000 3,686,694
-----------
49,734,403
-----------
Total Common Stock
(cost $140,851,181).......... 176,598,075
-----------
Warrants-0.06%
Indonesia-0.06%
*Pt Bank Dagang Nasional
Warrants 2/14/00............. 283,875 116,761
-----------
Total Warrants (cost $0)..... 116,761
-----------
Market
Principal Value
Amount (U.S. $)
REPURCHASE AGREEMENTS-7.27%
With Chase Manhattan 5.80% 7/1/97
(dated 6/30/97, collateralized
by $4,774,000 U.S. Treasury
Notes 5.375% due 11/30/97,
market value $4,790,092)....... $4,693,000 $4,693,000
With J.P. Morgan Securities 5.80%
7/1/97 (dated 6/30/97, collater-
alized by $4,521,000 U.S. Treasury
Notes 5.125% due 4/30/98, market
value $4,537,749).............. 4,438,000 4,438,000
With PaineWebber 5.80% 7/1/97
(dated 6/30/97, collateralized by
$1,521,000 U.S. Treasury Notes
9.125% due 5/15/99, market value
$1,618,851 and $2,809,000
U.S. Treasury Notes 7.25%
due 2/15/98, market value
$2,910,028).................... 4,438,000 4,438,000
-----------
Total Repurchase Agreements
(cost $13,569,000)............. 13,569,000
-----------
<PAGE>
<TABLE>
<CAPTION>
Market
Value
(U.S. $)
<S> <C>
TOTAL MARKET VALUE OF SECURITIES (cost $ 154,420,181)-102.01%............... 190,283,836
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(2.01%)..................... (3,756,803)
------------
NET ASSETS APPLICABLE TO 11,245,867 SHARES ($.01 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $16.59 PER SHARE-100.00%.................................... $186,527,033
============
COMPONENTS OF NET ASSETS AT JUNE 30,1997:
Common stock, $.01 par value, 750,000,000 shares authorized to the fund
with 50,000,000 shares allocated to the Series............................ $146,129,964
Accumulated undistributed:
Net investment income**................................................... 4,663,173
Net realized loss on investments.......................................... (337,428)
Net unrealized appreciation of investments................................ 36,071,324
------------
Total net assets............................................................ $186,527,033
============
</TABLE>
*Non-income producing security for the period ended June 30, 1997.
**Undistributed net investment income includes net realized gain (loss) on
foreign currencies. Net realized gains on foreign currencies are included as
a component of net investment income in accordance with provisions of the
Internal Revenue Code.
ADR-American Depository Receipt
GDR-Global Depository Receipt
See accompanying notes
3
<PAGE>
Delaware Group Premium Fund, Inc.-International Equity Series
Statement of Operations
Six Months Ended June 30, 1997
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................. $ 269,743
Dividends............................................ 3,177,569
Foreign tax withheld................................. (250,245) $ 3,197,067
-----------
EXPENSES:
Management fees...................................... 577,074
Custodian fees....................................... 54,438
Dividend disbursing and transfer agent fees and
expenses .......................................... 4,460
Registration fees.................................... 5,675
Reports and statements to shareholders............... 7,040
Accounting fees and salaries......................... 28,586
Professional fees.................................... 4,056
Directors' fees...................................... 1,431
Taxes (other than taxes on income)................... 5,043
Other................................................ 10,076
-----------
697,879
Less expenses absorbed by Delaware International
Advisers Ltd....................................... (88,086)
-----------
609,793
-----------
NET INVESTMENT INCOME................................. 2,587,274
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain on:
Investment transactions............................. 208,785
Foreign currencies.................................. 2,445,945
-----------
Net realized gain..................................... 2,654,730
Net increase in unrealized appreciation during the
period
Investment transactions............................ 16,254,808
Foreign currencies................................. (296,104)
-----------
Net increase in unrealized appreciation............... 15,958,704
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCIES............................... 18,613,434
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $21,200,708
===========
</TABLE>
See accompanying notes
4
<PAGE>
Delaware Group Premium Fund, Inc.-International Equity Series
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year
6/30/97 Ended
(Unaudited) 12/31/96
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income................................... $ 2,587,274 $ 2,763,530
Net realized gain on investments and foreign currencies 2,654,730 1,560,830
Net increase in unrealized appreciation during the
period ............................................... 15,958,704 14,667,391
------------ ------------
Net increase in net assets resulting from operations.... 21,200,708 18,991,751
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................... (4,927,079) (2,695,399)
Net realized gain from security transactions............ -- (725,191)
------------ ------------
(4,927,079) (3,420,590)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold............................... 36,520,794 37,727,987
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on security transactions................ 4,927,079 3,420,590
------------ ------------
41,447,873 41,148,577
Cost of shares repurchased............................... (2,622,186) (6,840,060)
------------ ------------
Increase in assets derived from capital share
transactions .......................................... 38,825,687 34,308,517
------------ ------------
NET INCREASE IN NET ASSETS............................... 55,099,316 49,879,678
------------ ------------
NET ASSETS:
Beginning of period...................................... 131,427,717 81,548,039
------------ ------------
End of period............................................ $186,527,033 $131,427,717
============ ============
</TABLE>
See accompanying notes
5
<PAGE>
Financial Highlights
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
International Equity Series
-------------------------------------------------------------------------
Six Months
Ended 10/29/92(1)
6/30/97(3) Year Ended December 31, to
(Unaudited) 1996 1995 1994 1993 12/31/92
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............. $15.1100 $13.1200 $11.8400 $11.6200 $10.0300 $10.0000
Income from investment operations:
Net investment income.......................... 0.2182 0.5572 0.4194 0.2198 0.0523 0.0153
Net realized and unrealized gain from
investments and foreign currencies........... 1.8068 1.9658 1.1906 0.0802 1.5477 0.0147
-------- -------- -------- -------- -------- --------
Net increase in net assets from investment
operations .................................. 2.0250 2.5230 1.6100 0.3000 1.6000 0.0300
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income........... (0.5450) (0.4200) (0.2400) (0.0700) (0.0100) none
Distributions from net realized gain on
security transactions........................ none (0.1130) (0.0900) (0.0100) none none
-------- -------- -------- -------- -------- --------
Total dividends and distributions.............. (0.5450) (0.5330) (0.3300) (0.0800) (0.0100) none
-------- -------- -------- -------- -------- --------
Net asset value, end of period................... $16.5900 $15.1100 $13.1200 $11.8400 $11.6200 $10.0300
======== ======== ======== ======== ======== ========
Total return..................................... 13.95% 20.03% 13.98% 2.57% 15.97% 1.73%
Ratios and supplemental data:
Net assets, end of period (000's omitted)...... $186,527 $131,428 $81,548 $57,649 $16,664 $177
Ratio of expenses to average net assets........ 0.80% 0.80% 0.80% 0.80% 0.80% (2)
Ratio of expenses to average net assets prior
to expense limitation........................ 0.91% 0.91% 0.89% 1.01% 1.85% (2)
Ratio of net investment income to average net
assets ...................................... 3.38% 4.71% 3.69% 2.63% 1.85% (2)
Ratio of net investment income to average net
assets prior to expense limitation........... 3.27% 4.60% 3.60% 2.42% 0.80% (2)
Portfolio turnover............................. 6% 8% 19% 13% 9% (2)
Average commission rate paid(4)................ $0.0190 $0.0100 N/A N/A N/A N/A
</TABLE>
- ----------------
(1)Date of commencement of operations; total return has been annualized.
(2)The ratio of expenses and net investment income to average net assets and
portfolio turnover have been omitted as management believes that such ratios
are not meaningful due to the limited net assets of this Series.
(3)Ratios have been annualized and total return has not been annualized.
(4)Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged.
See accompanying notes
6
<PAGE>
Delaware Group Premium Fund, Inc.-International Equity Series
Notes to Financial Statements
June 30, 1997
(Unaudited)
Delaware Group Premium Fund, Inc. (The "Fund"), is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Fund is organized as a Maryland Corporation and offers 15 series:
the Decatur Total Return Series, the Delchester Series, the Capital Reserves
Series, the Cash Reserves Series, the Delcap Series, the Delaware Series, the
International Equity Series, the Value Series, the Trend Series, the Global Bond
Series, the Strategic Income Series, the Devon Series, the Emerging Markets
Series, the Convertible Securities Series, and the Quantum Series (the
"Series"). The shares of the Fund are sold only to separate accounts of life
insurance companies.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund:
Security Valuation-Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Securities listed on a foreign exchange are
valued at the last quoted sales price before the Fund is valued. Long-term debt
securities are valued by an independent pricing service and such prices are
believed to reflect the fair value of such securities. Money market instruments
having less than 60 days to maturity are valued at amortized cost which
approximates market value. Other securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Directors.
Federal Income Taxes-The Series intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
Repurchase Agreements-The Series may invest in a pooled cash account along with
other members of the Delaware Group of Funds. The aggregate daily balance of the
pooled cash account is invested in repurchase agreements secured by obligations
of the U.S. Government. The respective collateral is held by the custodian bank
until the maturity of the respective repurchase agreements. Each repurchase
agreement is at least 100% collateralized. However, in the event of default or
bankruptcy by the counterparty to the agreement, realization of the collateral
may be subject to legal proceedings.
Foreign Currency Transactions-Transactions denominated in foreign currencies are
recorded in the Series records at the current prevailing exchange rates. The
value of all assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at the exchange rate of such currencies against the
U.S. dollar as of 3:00 PM EST. Transaction gains or losses resulting from
changes in exchange rates during the reporting period or upon settlement of the
foreign currency transaction are reported in operations for the current period.
It is not practical to isolate that portion of both realized and unrealized
gains and losses on investments in equity securities in the statement of
operations that result from fluctuations in foreign currency exchange rates. The
Series does isolate that portion of gains and losses on investments in debt
securities which are due to changes in the foreign exchange rate from that which
are due to changes in market prices of debt securities. The Series reports
certain foreign currency related transactions as components of realized gains
for financial reporting purposes, whereas such components are treated as
ordinary income (loss) for federal income tax purposes.
Other-Expenses common to all Funds within the Delaware Group of Funds are
allocated amongst the funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale of
investment securities are those of the specific securities sold. Dividend income
is recorded on the ex-dividend date and interest income is recorded on the
accrual basis. Foreign dividends are also recorded on the ex-dividend date or as
soon after the ex-dividend date that the Fund is aware of such dividends, net of
all non-rebatable tax withholdings. Original issue discounts are accreted to
interest income over the lives of the respective securities. Withholding taxes
on foreign dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates. The Fund declares
and pays dividends from net investment income and capital gains annually.
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of the Fund's average daily net
assets.
7
<PAGE>
Notes to Financial Statements (Continued)
Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. Investment Management and Other Transactions with Affiliates In accordance
with the terms of the Investment Management Agreement, the Series pays Delaware
International Advisers Ltd. ("DIAL"), the Investment Manager of the Series, an
annual fee which is calculated daily at the rate of 0.75% on the average daily
net assets of the Series less the fees paid to the unaffiliated directors. At
June 30, 1997, the International Equity Series had a liability for Investment
Management fees and other expenses payable to DIAL and its affiliates for
$111,415.
DIAL has elected to waive that portion if any of the management fee and
reimburse the Series to the extent that annual operating expenses exclusive of
taxes, interest, brokerage commissions and extraordinary expenses, exceed 0.80%
of average daily net assets of the Series through June 30, 1997 and 0.95% of
average daily net assets through December 31, 1997. Total expenses absorbed by
DIAL for the six months ended June 30, 1997 were $88,086.
The Series has engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing and transfer agent for the Series.
Effective August 19, 1996, the Series also engaged DSC to provide accounting
services for the Series. Previously, fund personnel provided this service and
the related costs were recorded in salaries and other expense categories in the
statement of operations. For the six months ended June 30, 1997, the Fund
expensed $4,460 for dividend disbursing and transfer agent services and $22,169
for accounting services. At June 30, 1997, the Fund had a liability for such
fees and other expenses payable to DSC for $6,495.
Certain officers of Delaware Management Company ("DMC"), DIAL and DSC are
officers, directors and/or employees of the Fund. These officers, directors and
employees are paid no compensation by the Fund.
3. Investments
During the six months ended June 30, 1997, the International Equity Series made
purchases of $41,116,855 and sales of $4,674,299 of investment securities, other
than U.S. government securities and temporary cash investments.
At June 30, 1997, the aggregate cost of securities for federal income tax
purposes was $154,420,181.
At June 30, 1997, unrealized appreciation for federal income tax purposes
aggregated $35,863,655 of which $37,448,655 related to unrealized appreciation
of securities and $1,585,000 related to unrealized depreciation of securities.
For federal income tax purposes, the Fund had accumulated capital losses at
December 31, 1996 of $522,832. The capital loss carryforward expires in 2004.
4. Capital Stock
Transactions in capital stock shares were as follows:
Six Months
Ended Year Ended
6/30/97 12/31/96
Shares sold.................................... 2,382,575 2,717,039
Shares issued upon reinvestment of dividends
from net investment income and distributions
of realized gains from security transactions.. 342,396 265,574
--------- ---------
2,724,971 2,982,613
Shares repurchased............................. (175,944) (503,590)
--------- ---------
Net Increase (decrease)........................ 2,549,027 2,479,023
========= =========
8
<PAGE>
Notes to Financial Statements (Continued)
5. Foreign Exchange Contracts
The Series will generally enter into forward foreign currency contracts as a way
of managing foreign exchange rate risk. A fund may enter into these contracts to
fix the U.S. dollar value of a security that it has agreed to buy or sell for
the period between the date the trade was entered into and the date the security
is delivered and paid for. A fund may also use these contracts to hedge the U.S.
dollar value of securities it already owns denominated in foreign currencies.
Forward foreign currency contracts are valued at the mean between the bid and
asked prices of the contracts and are marked-to-market daily. Interpolated
values are derived when the settlement date of the contract is an interim date
for which quotations are not available. The change in market value is recorded
by the Series as an unrealized gain or loss. When the contract is closed, the
Series records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Series securities, but it does establish a rate of
exchange that can be achieved in the future. Although forward foreign currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, they also limit any potential gain that might result should the value
of the currency increase. In addition, the Series could be exposed to risks if
the counterparties to the contracts are unable to meet the terms of their
contracts.
The following forward foreign currency contracts were outstanding at June 30,
1997:
<TABLE>
<CAPTION>
Contracts to In Exchange Contract Settlement Unrealized
Deliver For Value Date Appreciation
------------ ----------- -------- ---------- ------------
<S> <C> <C> <C> <C>
11,800,593 Dutch Guilders $6,090,000 6,024,035 7/31/97 $ 65,965
35,401,170 French Francs 5,194,281 5,148,774 7/31/97 45,507
6,157,061 New Zealand Dollars 4,273,000 4,184,438 7/31/97 88,562
--------
$200,034
========
Contracts to In Exchange Contract Settlement Unrealized
Receive For Value Date Depreciation
------------ ----------- -------- ---------- ------------
1,024,321 British Pounds $1,708,978 1,705,341 7/1/97 ($3,637)
97,722 British Pounds 154,697 154,366 7/2/97 (331)
78,150 British Pounds 130,339 130,104 7/3/97 (235)
--------
($4,203)
========
</TABLE>
6. Concentrations of Credit Risk
Some countries in which the Series may invest require governmental approval for
the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. Consequently, acquisition and disposition of securities by the Fund may
be inhibited. In addition, a significant proportion of the aggregate market
value of equity securities listed on the major securities exchanges in emerging
markets are held by a smaller number of investors. This may limit the number of
shares available for acquisition or disposition of the Series.
9
<PAGE>
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