<PAGE>
July 5, 1998
Dear Policy Holder:
U.S. and European stock markets surged during the first half of 1998, shaking
off jitters caused by economic turmoil along the Pacific Rim last winter. Asia
sought to remedy its ailing economies but investment capital bled from the
Pacific Rim. Many foreign investors sought the relative safety of U.S.
Treasuries - bolstering the domestic bond market.
Cumulative Total Return Six Months Ended June 30, 1998
Standard & Poor's 500 Index +16.84%
Morgan Stanley Europe Australia Far East Index +15.27%
Russell 2000 Index +4.66%
Lehman Brothers Government/Corporate Bond Index +4.17%
Past performance does not guarantee future results. Performance quoted above is
at net asset value and assumes reinvestment of distributions.
A fortuitous fusion of robust growth, tame inflation, and low unemployment in
the U.S. lifted the Dow Jones Industrial Average above the 9000 point mark for
the first time. Short-term market expectations hurt many small cap stocks as
investors focused on larger cap stocks. The total return of the S&P 500 was
nearly four times that of the Russell 2000 Index, as shown above.
Low interest rates and federal budget restraint powered a U.S. bond market
rally this past spring. Treasury prices rose to historic highs while yields
fell. Increased corporate profits boosted the sector's bond market as most
businesses met debt obligations.
European economic growth accelerated due to increased fiscal discipline on
the part of governments and private industry. Strong gains in the Morgan Stanley
Capital Europe Australia Far East (EAFE) Index largely resulted from Continental
Europe's economic growth prospects and reforms related to the introduction of a
common currency in 1999.
Asian stock markets languished for much of the period. A sustained rally in
Asian stocks seems unlikely over the coming months unless Japan, the main engine
of growth for the region, acts decisively to clean up its debt strapped banking
system and revives its economy.
At mid-year, the U.S. economy is buffeted by opposing forces. Domestic demand
for U.S. goods and services remains strong but exports have dropped due to the
Pacific Rim crises. We believe the Asian situation could have a moderating
effect on U.S. companies' profit growth for the remainder of the fiscal year.
We thank you for your investment in Premium Fund. We suggest you periodically
review your annuity investment options with the help of your financial adviser.
Sincerely,
/s/ Wayne A. Stork /s/ Jeffrey J. Nick
- --------------------------- -----------------------------------
Wayne A. Stork Jeffrey J. Nick
Chairman President and Chief Executive
(899)
<PAGE>
Delaware Group Premium Fund, Inc.-Trend Series
Statement of Net Assets
June 30, 1998 (Unaudited)
Number Market
of Shares Value
Common Stock - 92.90%
Aerospace & Defense - 1.86%
+AAR .................................. 52,050 $ 1,538,728
*Kellstrom Industries ................. 31,900 935,069
*LMI Aerospace ........................ 27,700 287,388
-----------
2,761,185
-----------
Banking, Finance & Insurance - 14.29%
ACE Limited .......................... 41,200 1,606,800
+Ambac Financial Group ................ 37,200 2,176,200
*Amerin ............................... 7,400 215,756
Capital Automotive ................... 126,800 1,802,937
Capital Re ........................... 26,800 1,919,550
*Capital Trust Class A ................ 65,700 632,363
Centris Group ........................ 27,300 337,838
FIRST AMERICAN (TENNESSE) ............ 95,700 4,608,553
*First Sierra Financial ............... 31,200 949,650
Indymac Mortgage Holdings ............ 83,700 1,904,175
*Profit Recovery Group ................ 74,800 2,096,737
Resource Asset Investment Trust ...... 38,100 607,219
Webster Financial .................... 29,700 987,525
Western Bancorp ...................... 31,200 1,323,075
-----------
21,168,378
-----------
Buildings & Materials - 2.55%
*Comfort Systems USA .................. 118,500 2,769,938
*J. Ray McDermott ..................... 24,400 1,012,600
-----------
3,782,538
-----------
Cable, Media, & Publishing - 9.28%
+*CHANCELLOR MEDIA CLASS A ............. 105,100 5,218,869
*Emmis Broadcasting ................... 33,000 1,582,969
*Metro Networks ....................... 21,700 933,778
+*Snyder Communications ................ 41,500 1,826,000
+TCA Cable TV ......................... 19,600 1,178,450
*The Petersen Companies Class A ....... 58,000 1,486,250
+*USA Networks ......................... 60,304 1,517,022
-----------
13,743,338
-----------
Chemicals - 1.42%
+*Mettler-Toledo International ......... 104,900 2,104,556
-----------
2,104,556
-----------
Computers & Technology - 22.84%
+*AnswerThink Consulting Group ......... 23,300 499,494
+*Aspect Development ................... 33,600 2,538,900
*Brio Technology ...................... 25,600 344,800
+*Concord Communications ............... 14,700 378,066
<PAGE>
Number Market
of Shares Value
Common Stock (Continued)
Computers & Technology (Continued)
*EMC ....................................... 68,900 $ 3,087,581
*FlexInternational Software ................ 94,000 666,812
+Henry(Jack) & Associates .................. 59,800 2,059,363
+*Hyperion Software ......................... 75,700 2,159,816
+*Inktomi ................................... 14,500 575,469
+*J.D. EDWARDS .............................. 66,100 2,838,169
+*Netgravity ................................ 7,200 94,275
+*Network Appliance ......................... 28,500 1,108,828
+*NOVA ...................................... 88,700 3,171,025
*Peerless Systems .......................... 106,100 2,214,838
+*PLATINUM TECHNOLOGY ....................... 138,295 3,954,373
*PMT Services .............................. 80,900 2,057,894
*SPR ....................................... 38,500 1,171,844
*SunGuard Data Systems ..................... 40,700 1,561,863
+*Veritas Software .......................... 51,975 2,148,841
+*Xylan ..................................... 40,200 1,197,206
-----------
33,829,457
-----------
Consumer Products - 3.79%
*Cendant ................................... 37,860 790,328
+G&K Services .............................. 40,900 1,789,375
*GEMSTAR INTERNATIONAL
GROUP LIMITED ........................... 81,300 3,030,966
-----------
5,610,669
-----------
Electronics & Electrical Equipment - 5.06%
*Applied Micro Circuits .................... 96,000 2,493,000
*Integrated Electrical Services ............ 38,600 776,825
+*Micrel .................................... 52,900 1,735,781
+*MMC Networks .............................. 23,600 751,512
+Pittston Brink's Group .................... 23,500 866,563
*Protection One ............................ 79,800 870,319
-----------
7,494,000
-----------
Environmental Services - 0.81%
*Superior Services ......................... 39,800 1,197,731
-----------
1,197,731
-----------
Food, Beverages & Tobacco - 1.09%
*The Cheesecake Factory .................... 71,700 1,622,213
-----------
1,622,213
-----------
Healthcare & Pharmaceuticals - 5.27%
+*Alternative Living Services ............... 48,300 1,304,100
+*Atria Communities ......................... 27,400 471,794
*Brookdale Living Communities .............. 75,000 1,907,813
- ------------
Top 10 stock holdings, representing 23.3% of net assets, are printed in bold
face.
2
<PAGE>
Trend Series
Statement of Net Assets (Continued)
Number Market
of Shares Value
Common Stock (Continued)
Healthcare & Pharmaceuticals (Continued)
+*Coulter Pharmaceuticals ................. 14,200 $ 430,438
+*Renal Care Group ........................ 25,850 1,140,631
+*Sunrise Assisted Living ................. 74,100 2,549,503
-----------
7,804,279
-----------
Industrial Machinery - 0.13%
*Spinnaker Industries Common ............. 5,800 108,025
*Spinnaker Industries Class A ............ 4,500 87,750
-----------
195,775
-----------
Leisure, Lodging & Entertainment - 1.60%
*Dave & Buster's ......................... 51,500 1,282,672
Royal Caribbean Cruises ................. 13,700 1,089,150
-----------
2,371,822
-----------
Metals & Mining - 0.46%
*Metals USA .............................. 39,500 681,375
-----------
681,375
-----------
Paper & Forest Products - 1.91%
+CONSOLIDATED GRAPHICS ................... 47,900 2,826,100
-----------
2,826,100
-----------
Retail - 15.31%
*Barnett ................................. 52,800 1,062,600
+*Bebe Stores ............................. 24,200 316,113
+*CDnow ................................... 29,200 587,650
*CompUSA ................................. 47,100 850,744
+*Concepts Direct ......................... 22,100 327,356
*Cost Plus ............................... 76,900 2,307,000
*DOLLAR TREE STORES ...................... 69,600 2,827,500
*Hibbett Sporting Goods .................. 42,200 1,682,725
<PAGE>
Number Market
of Shares Value
Common Stock (Continued)
Retail (Continued)
*LINENS N THINGS ............... 97,500 $ 2,979,844
+*MSC Industrial Direct Class A ... 74,900 2,134,650
+*Marinemax ....................... 37,900 469,013
*Piercing Pagoda ................. 23,900 857,413
+Restoration Hardware ............ 25,000 626,563
Schultz Sav-O Stores ............ 28,000 451,500
*Sonic ........................... 24,750 552,234
+*Staples ......................... 96,475 2,794,760
+*Sunglass Hut International ...... 61,100 674,009
*Wilmar Industries ............... 46,000 1,173,000
-----------
22,674,674
-----------
Telecommunicatios - 2.71%
+*GeoTel Communications ........... 51,000 2,068,688
+*Nextlink Communications Class A . 51,500 1,948,953
-----------
4,017,641
-----------
Transportaion & Shipping - 0.55%
+*Coach USA ....................... 17,700 807,563
-----------
807,563
-----------
Utilities - 1.22%
+*AES ............................. 34,392 1,807,729
-----------
1,807,729
-----------
Miscellaneous - 0.75%
+*Neff ............................ 29,900 347,588
+*NFO Worldwide ................... 42,300 756,113
Northland Cranberries ........... 400 6,188
-----------
1,109,889
-----------
Total Common Stock
(cost $112,340,459) ............. 137,610,912
-----------
3
<PAGE>
Trend Series
Statement of Net Assets (Continued)
Principal Market
Amount Value
Repurchase Agreements - 11.01%
With Chase Manhattan 5.85%
7/01/98 (dated 6/30/98,
collateralized by $6,102,000
U.S. Treasury Notes
5.375% due 6/30/03,
market value $6,073,107).............. $5,952,000 $5,952,000
With PaineWebber 5.75%
7/01/98 (dated 6/30/98,
collateralized by $1,738,000
U.S. Treasury Notes
5.875% due 01/31/99,
market value $1,783,536 and
$3,405,000 U.S. Treasury Notes
6.00% due 08/15/99, market value
$3,496,730) .......................... 5,175,000 5,175,000
<PAGE>
Principal Market
Amount Value
Repurchase Agreements (Continued)
With J.P. Morgan Securities 5.75%
7/01/98 (dated 6/30/98,
collateralized by $190,000
U.S. Treasury Notes
5.50% due 03/31/03,
market value $192,425 and
$4,850,000 U.S. Treasury Notes
6.25% due 02/15/03, market value
$5,096,466)........................... $5,175,000 $ 5,175,000
------------
Total Repurchase Agreements
(cost $16,302,000) 16,302,000
------------
Total Market Value of Securities-103.91% (cost $128,642,459)..... $153,912,912
Liabilities Net of Receivables and Other Assets-(3.91%) .......... (5,791,176)
------------
Net Assets Applicable to 7,839,785 Shares ($0.01 par value)
Outstanding; Equivalent to $18.89 Per Share-100.00% .......... $148,121,736
============
Components of Net Assets at June 30, 1998:
Common stock, $0.01 par value, 1,000,000,000 shares
authorized to the Fund with 50,000,000 shares
allocated to the Series........................................ $117,126,761
Undistributed net investment income .............................. 12,396
Accumulated net realized gain on investments ..................... 5,712,126
Net unrealized appreciation of investments ....................... 25,270,453
------------
Total net assets.................................................. $148,121,736
============
- -------------
*Non-income producing security.
+Security is partially or fully on loan.
See accompanying notes
4
<PAGE>
Delaware Group Premium Fund, Inc.-Decatur Total Return Series
Statement of Net Assets
June 30, 1998 (Unaudited)
Number Market
of Shares Value
Common Stock - 97.23%
Automobiles & Automotive Parts - 5.51%
Cooper Industries ................ 72,900 $4,004,944
Ford Motor ....................... 143,900 8,490,100
General Motors ................... 121,100 8,090,994
Tenneco .......................... 234,400 8,921,850
-----------
29,507,888
-----------
Banking, Finance & Insurance - 22.24%
+AMERICAN GENERAL ................. 158,700 11,297,456
Aon .............................. 138,625 9,738,406
BANK OF BOSTON ................... 197,200 10,969,250
BankAmerica ...................... 97,900 8,462,231
Crestar Financial ................ 146,600 7,998,863
First Chicago NBD ................ 101,800 9,022,025
+First Union ...................... 170,826 9,950,615
Fleet Financial Group ............ 72,500 6,053,750
Mellon Bank ...................... 100,700 7,011,238
+Mercantile Bancorporation ........ 120,100 6,050,038
National City .................... 83,500 5,928,500
PNC Financial Group .............. 15,400 828,713
SAFECO ........................... 124,100 5,634,916
+St. Paul ......................... 184,600 7,764,738
Summit Bancorp ................... 124,575 5,917,313
+U.S. Bancorp ..................... 151,500 6,514,500
-----------
119,142,552
-----------
Cable, Media & Publishing - 3.02%
McGRAW-HILL ..................... 198,300 16,173,844
-----------
16,173,844
-----------
Chemicals - 5.72%
duPont (E.I.) deNemours .......... 82,100 6,126,713
+Hercules ......................... 41,200 1,694,350
HOECHST ADR ...................... 250,100 12,411,213
+Imperial Chemical ADR ............ 156,600 10,100,700
PPG Industries ................... 4,500 313,031
-----------
30,646,007
-----------
Consumer Products - 3.38%
Kimberly-Clark ................... 153,800 7,055,575
+MINNESOTA MINING &
MANUFACTURING .................. 134,700 11,070,656
-----------
18,126,231
-----------
Electronics & Electrical Equipment - 4.85%
+AMP 169,500 5,826,563
Eaton ............................ 46,800 3,638,700
<PAGE>
Number Market
of Shares Value
Common Stock (Continued)
Electronics & Electrical Equipment (Continued)
Emerson Electric ..................... 170,700 $10,295,344
+Thomas & Betts ....................... 126,400 6,225,200
-----------
25,985,807
-----------
Energy - 11.20%
Atlantic Richfield ................... 129,900 10,148,438
British Petroleum ADR ................ 81,342 7,178,467
+Chevron .............................. 126,500 10,507,406
Consolidated Natural Gas ............. 134,500 7,918,688
+Enron ................................ 126,700 6,849,719
USX-Marathon Group ................... 237,100 8,135,494
+Williams ............................. 274,900 9,277,875
-----------
60,016,087
-----------
Enviromental Services - 1.52%
+Browning Ferris ...................... 233,980 8,130,805
-----------
8,130,805
-----------
Food, Beverage & Tobacco - 9.51%
BESTFOODS ........................... 238,800 13,865,325
ConAgra ............................. 302,800 9,594,975
Fortune Brands ...................... 273,900 10,528,031
Heinz (H.J.) ........................ 134,800 7,565,650
Philip Morris ....................... 239,200 9,418,500
-----------
50,972,481
-----------
Healthcare & Pharmaceuticals - 9.67%
AMERICAN HOME PRODUCTS ............... 275,200 14,241,600
BAXTER INTERNATIONAL ................. 209,600 11,279,100
+Glaxo Wellcome ADR ................... 126,000 7,536,375
Merck & Company ...................... 58,500 7,824,375
Pharmacia & Upjohn ................... 237,400 10,950,075
-----------
51,831,525
-----------
Metals & Mining - 2.32%
+Allegheny Teledyne ................... 295,500 6,759,563
+Aluminum Company of America .......... 86,300 5,690,406
-----------
12,449,969
-----------
Paper & Forest Products - 1.97%
+Union Camp ........................... 105,700 5,245,363
Weyerhaeuser ......................... 114,300 5,279,231
-----------
10,524,594
-----------
- --------------
Top 10 stock holdings, representing 23.6% of net assets, are printed in bold
face.
5
<PAGE>
Decatur Total Return Series
Statement of Net Assets (Continued)
Number Market
of Shares Value
Common Stock (Continued)
Retail - 4.18%
MAY DEPARTMENT STORES ............. 176,200 $11,541,100
+Penney (J.C.) ..................... 149,900 10,839,644
-----------
22,380,744
-----------
Telecommunications - 7.55%
AT & T ............................ 70,400 4,021,600
Bell Atlantic ..................... 167,700 7,651,313
+Cable & Wireless ADR .............. 159,100 5,866,813
Frontier .......................... 265,300 8,356,950
GTE ............................... 145,800 8,110,125
+SBC Communications ................ 161,400 6,456,000
-----------
40,462,801
-----------
Transportation & Shipping - 0.78%
+British Airways ADR ............... 34,100 3,667,881
Norfolk Southern .................. 17,100 509,794
-----------
4,177,675
-----------
Utilities - 1.30%
+Southern .......................... 252,200 6,982,788
-----------
6,982,788
-----------
Miscellaneous - 2.51%
PITNEY BOWES ...................... 278,900 13,422,063
-----------
13,422,063
-----------
Total Common Stock
(cost $451,552,825) .............. 520,933,861
-----------
<PAGE>
Principal Market
Amount Value
Repurchase Agreements - 2.62%
With Chase Manhattan
5.85% 07/01/98 (dated 06/30/98,
collateralized by $5,260,000
U.S. Treasury Notes
5.375% due 06/30/03,
market value $5,234,897).......... $5,131,000 $ 5,131,000
With J.P. Morgan Securities
5.75% 07/01/98 (dated 06/30/98,
collateralized by $4,181,000
U.S. Treasury Notes 6.25% due
02/15/03, market value $4,393,052,
and $164,000 U.S. Treasury Notes
5.50% due 03/31/03,
market value $165,866)............ 4,460,000 4,460,000
With PaineWebber 5.75% 07/01/98
(dated 06/30/98, collateralized by
$1,498,000 U.S. Treasury Notes
5.875% due 01/31/99, market
value $1,537,372, and $2,935,000
U.S. Treasury Notes 6.00%
due 08/31/99,
market value $3,014,112).......... 4,461,000 4,461,000
-----------
Total Repurchase Agreements
(cost $14,052,000)............... 14,052,000
-----------
Total Market Value of Securities-99.85% (cost $465,604,825)....... $534,985,861
Receivables and Other Assets Net of Liabilities-0.15% ............ 803,734
------------
Net Assets Applicable to 27,704,927 Shares ($0.01 par value)
Outstanding; Equivalent to $19.34 Per Share-100.00% ............ $535,789,595
============
Components of Net Assets at June 30, 1998:
Common stock, $0.01 par value, 1,000,000,000 shares authorized
to the Fund with 50,000,000 shares allocated to the Series..... $435,529,293
Undistributed net investment income .............................. 1,914,174
Accumulated net realized gain on investments ..................... 28,965,092
Net unrealized appreciation of investments ....................... 69,381,036
------------
Total net assets ................................................. $535,789,595
============
- -------------
+Security is partially or fully on loan
ADR - American Depository Receipt
See accompanying notes
6
<PAGE>
Delaware Group Premium Fund, Inc.-Global Bond Series
Statement of Net Assets
June 30, 1998 (Unaudited)
Principal Market
Amount* Value
(U.S.$)
Bonds - 94.45%
Australia - 18.45%
Australian Government
6.75% 11/15/06 ............. A$ 1,700,000 $1,136,694
Australian Government
7.00% 04/15/00 ............. 800,000 509,773
Australian Government
10.00% 10/15/02 ............ 500,000 363,503
Federal National Mortgage
Association 5.75% 09/05/00 . 700,000 435,069
New South Wales Treasury
7.00% 02/01/00 ............. 700,000 443,585
Queensland Treasury
8.00% 08/14/01 ............. 750,000 497,649
-----------
3,386,273
-----------
Canada - 12.05%
Abbey National Treasury Service
7.00% 12/31/99 ............. C$ 550,000 382,218
Canada Government
7.50% 03/01/01 ............. 500,000 359,646
Canada Government
8.75% 12/01/05 ............. 300,000 246,898
Export-Import Bank of Japan
7.75% 10/08/02 ............. 160,000 117,322
Japan Highway 7.875% 09/27/02 . 400,000 294,158
KFW International Finance
6.50% 12/28/01 ............. 60,000 42,054
Kingdom of Norway
8.375% 01/27/03 ............ 200,000 150,826
Ontario Hydro 10.00% 03/19/01 . 300,000 228,155
Ontario Hydro 10.875% 03/29/99 550,000 389,712
-----------
2,210,989
-----------
<PAGE>
Principal Market
Amount* Value
(U.S.$)
Bonds (Continued)
Denmark - 1.77%
Kingdom of Denmark
7.00% 11/15/07 ............. Dk 500,000 $ 83,606
Kingdom of Denmark
8.00% 11/15/01 ............. 1,500,000 241,233
-----------
324,839
-----------
Germany - 20.07%
Baden Wurt L-Finance NV
5.25% 09/26/01 ............. Dem 1,000,000 567,962
Baden Wurt L-Finance NV
6.625% 08/20/03 ............ 250,000 150,805
Deutsche Pfandbriefe Hypotheken
Bank 5.625% 02/07/03 ....... 1,000,000 577,434
Deutschland Republic
6.50% 07/15/03 ............. 1,500,000 905,310
Deutschland Republic
6.50% 07/04/27 ............. 350,000 225,913
DSL Finance NV 6.00% 02/21/06 . 1,200,000 710,592
International Bank
Reconstruction & Development
6.125% 09/27/02 ............ 150,000 88,305
Republic of Finland
5.50% 02/09/01 ............. 800,000 456,582
-----------
3,682,903
-----------
Netherlands - 5.85%
Netherlands Government
8.25% 09/15/07 ............. Nlg 1,400,000 860,297
Netherlands Government
9.00% 05/15/00 ............. 400,000 213,360
-----------
1,073,657
-----------
7
<PAGE>
Global Bond Series
Statement of Net Assets (Continued)
Principal Market
Amount* Value
(U.S.$)
Bonds (Continued)
New Zealand - 11.89%
New Zealand Government
6.50% 02/15/00 .................. NZ$ 500,000 $ 255,740
New Zealand Government
7.00% 07/15/09 .................. 200,000 108,934
New Zealand Government
8.00% 02/15/01 .................. 750,000 396,116
New Zealand Government
8.00% 04/15/04 .................. 1,350,000 740,973
New Zealand Government
8.00% 11/15/06 .................. 1,000,000 568,030
New Zealand Government
10.00% 03/15/02 ................. 200,000 113,513
-----------
2,183,306
-----------
South Africa - 2.91%
Republic of South Africa
12.50% 01/15/02 ................. Sa 3,500,000 535,038
-----------
535,038
-----------
Sweden - 2.52%
Swedish Government
8.00% 08/15/07 .................. Sk 2,200,000 336,000
Swedish Government
9.00% 04/20/09 .................. 300,000 49,916
Swedish Government
13.00% 06/15/01 ................. 500,000 77,118
-----------
463,034
-----------
Principal Market
Amount* Value
(U.S.$)
Bonds (Continued)
United States - 18.94%
International America Development
Bank 6.325% 10/22/07 ............ $ 300,000 $ 310,688
J. Sainsbury 6.25% 03/27/02 ........ 100,000 100,500
Korea Electric Power 6.325% 12/01/03 100,000 86,000
Matsushita Electric 7.25% 08/01/02 . 200,000 207,750
Republic of Finland 7.875% 07/28/04 200,000 220,500
U.S. Treasury Bill 5.75% 09/30/99 .. 100,000 100,299
U.S. Treasury Inflation
Index Note 3.375% 01/15/07 ...... 409,504 396,707
U.S. Treasury Inflation
Index Note 3.625% 07/15/02 ...... 354,470 350,592
U.S. Treasury Inflation
Index Note 3.625% 01/15/08 ...... 250,998 248,174
U.S. Treasury Note 6.125% 07/13/00 . 300,000 303,624
U.S. Treasury Note 6.25% 02/15/07 .. 200,000 209,474
U.S. Treasury Note 6.375% 08/15/27 . 550,000 604,917
U.S. Treasury Note 7.875% 11/15/04 . 300,000 336,978
-----------
3,476,203
-----------
Total Bonds (cost $17,930,139) ..... 17,336,242
-----------
8
<PAGE>
Global Bond Series
Statement of Net Assets (Continued)
Principal Market
Amount* Value
(U.S.$)
Repurchase Agreements - 3.36%
With Chase Manhattan 5.85% 07/01/98
(dated 06/30/98, collateralized by
$231,000 U.S. Treasury Notes 5.375%
due 06/30/03, market value $229,856).. $225,000 $225,000
With J.P. Morgan Securities 5.75%
07/01/98 (dated 06/30/98, collateralized
by $7,000 U.S. Treasury Notes 5.50%
due 03/31/03, market value $7,283 and
$184,000 U.S. Treasury Notes 6.25%
due 02/15/03, market value $192,892).. 196,000 196,000
Principal Market
Amount* Value
(U.S.$)
Repurchase Agreements (Continued)
With PaineWebber 5.75% 07/01/98
(dated 06/30/98, collateralized by
$66,000 U.S. Treasury Notes 5.875%
due 01/31/99, market value $67,503 and
$129,000 U.S. Treasury Notes 6.00%
due 08/31/99, market value $132,345).. $196,000 $196,000
----------
Total Repurchase Agreements
(cost $617,000) 617,000
----------
Total Market Value of Securities-97.81% (cost $18,547,139)... $17,953,242
Receivables and Other Assets Net of Liabilities-2.19%........ 401,579
-----------
Net Assets Applicable to 1,807,324 Shares ($0.01 par value)
Outstanding; Equivalent to $10.16 Per Share-100.00%....... $18,354,821
===========
Components of Net Assets at June 30, 1998:
Common stock, $0.01 par value, 1,000,000,000 shares
authorized to the Fund with 50,000,000 shares
allocated to the Series................................... $18,874,525
Undistributed net investment income ** ...................... 158,244
Accumulated net realized loss on investments ................ (72,628)
Net unrealized depreciation on investments .................. (605,320)
-----------
Total net assets ............................................ $18,354,821
===========
- ------------
* Principal amount is stated in the currency in which each bond is denominated.
A$ - Australian Dollars Dem - German Deutsche Marks Sa - South African Rand
C$ - Canadian Dollars Nlg - Dutch Guilders Sk - Swedish Kroner
Dk - Danish Kroner NZ$ - New Zealand Dollars $ - U. S. Dollars
** Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
See accompanying notes
9
<PAGE>
Delaware Group Premium Fund, Inc.
Statements of Operations
Six Months Ended 6/30/98
(Unaudited)
<TABLE>
<CAPTION>
Trend Decatur Total Global
Series Return Series Bond Series
------ ------------- -----------
Investment Income:
<S> <C> <C> <C>
Interest ............................................... $ 370,109 $ 363,596 $ 590,712
Dividends .............................................. 192,964 5,847,831 --
------------ ------------ ------------
563,073 6,211,427 590,712
------------ ------------ ------------
Expenses:
Management fees ........................................ 493,193 1,435,536 67,154
Custodian fees ......................................... 5,983 6,654 4,850
Dividend disbursing and transfer agent fees and expenses 2,225 4,000 320
Registration fees ...................................... 4,930 33,200 842
Reports and statements to shareholders ................. 15,363 31,923 2,501
Accounting and administration .......................... 32,135 115,837 3,798
Professional fees ...................................... 5,485 26,625 6,246
Directors' fees ........................................ 1,136 3,510 272
Taxes (other than taxes on income) ..................... 4,062 22,186 --
Other .................................................. 5,399 8,792 2,732
------------ ------------ ------------
569,911 1,688,263 88,715
Less expenses absorbed by Delaware Management
Company or Delaware International Advisers Ltd. ..... (46,127) -- (15,983)
------------ ------------ ------------
Total Expenses ......................................... 523,784 1,688,263 72,732
------------ ------------ ------------
Net Investment Income .................................. 39,289 4,523,164 517,980
------------ ------------ ------------
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currencies:
Net realized gain (loss) on:
Investment transactions ............................ 6,019,563 29,122,870 (71,799)
Foreign currencies .................................. -- -- 10,271
------------ ------------ ------------
Net realized gain (loss) ............................... 6,019,563 29,122,870 (61,528)
Net change in unrealized appreciation/depreciation
on investments and foreign currencies .............. 7,551,020 7,686,692 (326,690)
------------ ------------ ------------
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currencies ............... 13,570,583 36,809,562 (388,218)
------------ ------------ ------------
Net increase in net assets
resulting from operations ........................... $ 13,609,872 $ 41,332,726 $ 129,762
============ ============ ============
</TABLE>
See accompanying notes
10
<PAGE>
Delaware Group Premium Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Six Months Ended
Ended Year 6/30/98
6/30/98 Ended Decatur Total
Trend 12/31/97 Return
Series Trend Series
(Unaudited) Series (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Increase In Net Assets
From Operations:
Net investment income .............................. $ 39,289 $ 132,509 $ 4,523,164
Net realized gain (loss) on investments
and foreign currencies .......................... 6,019,563 2,089,208 29,122,870
Net change in unrealized appreciation/depreciation
on investments and foreign currencies ........... 7,551,020 13,569,520 7,686,692
------------- ------------- -------------
Net increase in net assets resulting from operations 13,609,872 15,791,237 41,332,726
------------- ------------- -------------
Distributions to Shareholders From:
Net investment income .............................. (135,410) (204,613) (3,187,258)
Net realized gain on investment transactions ....... (2,315,513) (736,608) (23,162,228)
------------- ------------- -------------
(2,450,923) (941,221) (26,349,486)
------------- ------------- -------------
Capital Share Transactions:
Proceeds from shares sold .......................... 55,112,486 56,666,244 108,534,796
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions ........ 2,450,923 941,222 26,349,486
------------- ------------- -------------
57,563,409 57,607,466 134,884,282
Cost of shares repurchased ......................... (38,876,712) (10,604,885) (15,479,897)
------------- ------------- -------------
Increase in net assets derived from capital
share transactions .............................. 18,686,697 47,002,581 119,404,385
------------- ------------- -------------
Net Increase In Net Assets ......................... 29,845,646 61,852,597 134,387,625
------------- ------------- -------------
Net Assets:
Beginning of period ................................ 118,276,090 56,423,493 401,401,970
------------- ------------- -------------
End of period ...................................... $ 148,121,736 $ 118,276,090 $ 535,789,595
============= ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year Ended Year
Ended 6/30/98 Ended
12/31/97 Global 12/31/97
Decatur Total Bond Global
Return Series Bond
Series (Unaudited) Series
------------- ------------- -------------
<S> <C> <C> <C>
Increase In Net Assets
From Operations:
Net investment income .............................. $ 5,543,484 $ 517,980 $ 880,323
Net realized gain (loss) on investments
and foreign currencies .......................... 23,181,744 (61,528) (30,733)
Net change in unrealized appreciation/depreciation
on investments and foreign currencies ........... 40,216,861 (326,690) (543,397)
------------- ------------- -------------
Net increase in net assets resulting from operations 68,942,089 129,762 306,193
------------- ------------- -------------
Distributions to Shareholders From:
Net investment income .............................. (5,726,790) (710,028) (605,362)
Net realized gain on investment transactions ....... (14,788,457) (16,416) (83,855)
------------- ------------- -------------
(20,515,247) (726,444) (689,217)
------------- ------------- -------------
Capital Share Transactions:
Proceeds from shares sold .......................... 187,531,270 3,130,163 12,524,510
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions ........ 20,515,247 726,444 689,217
------------- ------------- -------------
208,046,517 3,856,607 13,213,727
Cost of shares repurchased ......................... (21,717,966) (1,780,700) (5,425,925)
------------- ------------- -------------
Increase in net assets derived from capital
share transactions .............................. 186,328,551 2,075,907 7,787,802
------------- ------------- -------------
Net Increase In Net Assets ......................... 234,755,393 1,479,225 7,404,778
------------- ------------- -------------
Net Assets:
Beginning of period ................................ 166,646,577 16,875,596 9,470,818
------------- ------------- -------------
End of period ...................................... $ 401,401,970 $ 18,354,821 $ 16,875,596
============= ============= =============
</TABLE>
See accompanying notes
11
<PAGE>
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Trend Series
-----------------------------------------------------------------------
Six Months 12/27/93(1)
Ended Year Ended December 31, to
6/30/98(3) 1997 1996 1995 1994 12/31/93
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $17.380 $14.560 $14.020 $10.160 $10.200 $10.000
Income from investment operations:
Net investment income .................... 0.006 0.019 0.050 0.098 0.079 none
Net realized and unrealized ..............
gain (loss) on investments ............... 1.866 3.031 1.380 3.852 (0.119) 0.200
------- ------- ------- ------- ------- -------
Total from investment operations ......... 1.872 3.050 1.430 3.950 (0.040) 0.200
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ..... (0.020) (0.050) (0.090) (0.090) none none
Distributions from net realized gain
on investment transactions ............. (0.342) (0.180) (0.800) none none none
------- ------- ------- ------- ------- -------
Total dividends and distributions ........ (0.362) (0.230) (0.890) (0.090) none none
------- ------- ------- ------- ------- -------
Net asset value, end of period .............. $18.890 $17.380 $14.560 $14.020 $10.160 $10.200
======= ======= ======= ======= ======= =======
Total return ................................ 10.98% 21.37% 11.00% 39.21% (0.39%) 2.00%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .. $148,122 $118,276 $56,423 $20,510 $7,087 $204
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 ....... 0.87% 0.88% 0.92% 0.96% 1.47% (2)
Ratio of net investment income to
average net assets ..................... 0.06% 0.16% 0.56% 1.03% 1.63% (2)
Ratio of net investment income to
average net assets prior to expense
limitation ............................. (0.01%) 0.08% 0.44% 0.87% 0.96% (2)
Portfolio turnover ....................... 145% 125% 112% 76% 59% (2)
Average Commission rate paid(4) .......... $0.0599 $0.0599 $0.0600 N/A N/A N/A
</TABLE>
- -----------
(1) Date of initial public offering; ratios have been annualized and total
return has not 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
12
<PAGE>
Financial Highlights (Continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Decatur Total Return Series
-----------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/98(1) 1997 1996 1995 1994 1993
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $18.800 $15.980 $14.830 $11.480 $12.510 $11.220
Income from investment operations:
Net investment income .................... 0.169 0.324 0.377 0.416 0.412 0.434
Net realized and unrealized gain
(loss) on investments .................. 1.548 4.216 2.398 3.574 (0.422) 1.266
------- ------- ------- ------- ------- -------
Total from investment operations ......... 1.717 4.540 2.775 3.990 (0.010) 1.700
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ..... (0.127) (0.370) (0.420) (0.430) (0.420) (0.410)
Distributions from net realized gain
on investment transactions ............. (1.050) (1.350) (1.205) (0.210) (0.600) none
------- ------- ------- ------- ------- -------
Total dividends and distributions ........ (1.177) (1.720) (1.625) (0.640) (1.020) (0.410)
------- ------- ------- ------- ------- -------
Net asset value, end of period .............. $19.340 $18.800 $15.980 $14.830 $11.480 $12.510
======= ======= ======= ======= ======= =======
Total return ................................ 9.71% 31.00% 20.72% 36.12% (0.20%) 15.45%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .. $535,790 $401,402 $166,647 $109,003 $72,725 $65,519
Ratio of expenses to average net assets .. 0.71% 0.71% 0.67% 0.69% 0.71% 0.75%
Ratio of expenses to average net assets
prior to expense limitation ............ 0.71% 0.71% 0.67% 0.69% 0.71% 0.76%
Ratio of net investment income to
average net assets ..................... 1.90% 2.02% 2.66% 3.24% 3.63% 3.95%
Ratio of net investment income to average
net assets prior to expense limitation . 1.90% 2.02% 2.66% 3.24% 3.63% 3.94%
Portfolio turnover ....................... 70% 54% 81% 85% 91% 67%
Average Commission rate paid(2) .......... $0.0600 $0.0600 $0.0600 N/A N/A N/A
</TABLE>
(1) Ratios have been annualized and total return has not been annualized.
(2) 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
13
<PAGE>
Financial Highlights (Continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Global Bond Series
Six Months Year 5/2/96(1)
Ended Ended to
6/30/98(3) 12/31/97 12/31/96
(Unaudited)
<S> <C> <C> <C>
Net asset value, beginning of period ................... $10.500 $10.960 $10.000
Income from investment operations:
Net investment income(2) ............................ 0.300 0.636 0.339
Net realized and unrealized gain (loss) on
investments and foreign currencies ................ (0.210) (0.551) 0.831
------- ------- -------
Total from investment operations .................... 0.090 0.085 1.170
------- ------- -------
Less dividends and distributions:
Dividends from net investment income ................ (0.420) (0.460) (0.210)
Distributions from net realized gain
on investment transactions ........................ (0.010) (0.085) none
------- ------- -------
Total dividends and distributions ................... (0.430) (0.545) (0.210)
------- ------- -------
Net asset value, end of period ......................... $10.160 $10.500 $10.960
======= ======= =======
Total return ........................................... 0.84% 0.88% 11.79%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............. $18,355 $16,876 $9,471
Ratio of expenses to average net assets ............. 0.82% 0.80% 0.80%
Ratio of expenses to average net assets prior
expense limitation ............................... 1.00% 1.08% 1.19%
Ratio of net investment income to average net assets. 5.83% 6.03% 6.51%
Ratio of net investment income to average net assets
prior to expense limitation ....................... 5.65% 5.75% 6.12%
Portfolio turnover .................................. 89% 97% 56%
</TABLE>
- ----------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the periods ended June 30, 1998 and December 31,
1997 was based on the average shares outstanding method.
(3) Ratios have been annualized and total return has not been annualized.
See accompanying notes
14
<PAGE>
Delaware Group Premium Fund, Inc.
Notes to Financial Statements
June 30, 1998 (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 16 series:
the Trend Series, the DelCap Series, the Small Cap Value Series (formerly the
Value Series), the Social Awareness Series (formerly the Quantum Series), the
Devon Series, the Decatur Total Return Series, the REIT Series, the Delaware
Series, the Convertible Securities Series, the Emerging Markets Series, the
International Equity Series, the Global Bond Series, the Delchester Series, the
Strategic Income Series, the Capital Reserves Series, and the Cash Reserve
Series. These financial statements and the related notes pertain to the Trend
Series, the Decatur Total Return Series, and the Global Bond 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 Series:
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 Series 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--Each 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--Each Series may invest in a pooled cash account along
with other members of the Delaware Investments Family 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 Series' 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 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 that result from fluctuations in
foreign currency exchange rates in the statement of operations. The Series do
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 report 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 Investments Family 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 Series are 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 Series' understanding of the applicable country's tax rules
and rates.
15
<PAGE>
Notes to Financial Statements (Continued)
The Trend Series will make payments from net income and net realized gain on
investment transactions, if any, once a year.
The Decatur Total Return Series and the Global Bond Series will make payments
from the Series' net investment income quarterly and distributions from net
realized gain on investment transactions, if any, following the close of the
fiscal year.
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of each Series' average daily
net assets.
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, each Series
pays Delaware Management Company ("DMC") the investment manager of each Series
except the Global Bond Series, and Delaware International Advisers Ltd.
("DIAL"), the investment manager of the Global Bond Series, an annual fee which
is calculated daily based on the net assets of each Series, less the fees paid
to the unaffiliated directors for the Decatur Total Return Series. The
management fee for the Trend Series and the Global Bond Series are calculated
daily on the net assets of each Series without consideration of amounts paid to
unaffiliated directors.
DMC and DIAL have elected to waive their fees and reimburse each Series to the
extent that annual operating expenses exclusive of taxes, interest, brokerage
commissions and extraordinary expenses do not exceed the following percentages
of net assets through October 31, 1998.
The management fee rates, waiver rates and total expenses absorbed by DMC and
DIAL for the period ended June 30, 1998 are as follows:
Management fee Waiver as
as a percentage a percentage Expenses
of average daily of average daily absorbed
net assets net assets by DMC
(per annum) (per annum) or DIAL
---------------- ---------------- --------
Trend Series ................ 0.75% 0.85%* $46,127
Decatur Total Return Series . 0.60% 0.80% --
Global Bond Series .......... 0.75% 0.85%* 15,983
- --------------
*Prior to May 1, 1998 the expense limitations were 0.80%.
16
<PAGE>
Notes to Financial Statements (Continued)
The Fund has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to serve as dividend disbursing agent, transfer agent and accounting
services agent for the Series.
The amounts expensed for each Series were as follows:
Dividend disbursing,
transfer agent fees Accounting
and other expenses fees
------------------ ----
Trend Series ....................... $2,225 $25,920
Decatur Total Return Series ........ 4,000 94,466
Global Bond Series ................. 320 3,531
On June 30, 1998, the Series had payables to affiliates as follows:
<TABLE>
<CAPTION>
Dividend disbursing, Other
Investment transfer agent fees, expenses
Management accounting fees, payable
fee payable to and other expenses to DMC
DMC or DIAL payable to DSC and affiliates
----------- -------------- --------------
<S> <C> <C> <C>
Trend Series .................. $387,761 $4,990 $2,367
Decatur Total Return Series ... 162,687 18,940 8,447
Global Bond Series ............ 44,082 748 337
</TABLE>
Certain officers of DMC, DSC and DDLP 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 period ended June 30, 1998, the Series made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments for each Series as follows:
Purchases Sales
--------- -----
Trend Series .................. $105,021,010 $86,075,182
Decatur Total Return Series ... 254,854,815 161,768,361
Global Bond Series ............ 8,235,679 4,648,933
During the period ended June 30, 1998 the Series made purchases and sales of
U.S. government securities for each Series as follows:
Purchases Sales
--------- -----
Global Bond Series ............ $1,392,985 $2,776,859
17
<PAGE>
Notes to Financial Statements (Continued)
At June 30, 1998, the aggregate cost of securities and unrealized appreciation
(depreciation) for federal income tax purposes for each Series were as follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Net unrealized
Cost of unrealized unrealized appreciation
Investments appreciation depreciation (depreciation)
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Trend Series ................... $128,699,342 $27,202,026 ($1,988,456) $25,213,570
Decatur Total Return Series .... 466,343,728 78,205,354 (9,563,221) 68,642,133
Global Bond Series ............. 18,547,139 204,225 (798,122) (593,897)
</TABLE>
4. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
Shares issued upon
reinvestment of dividends
from net investment
income and
net realized gains on Shares Net
Shares sold investment transactions repurchased increase
----------- ----------------------- ----------- --------
<S> <C> <C> <C> <C>
Period ended June 30, 1998:
Trend Series .................. 3,048,709 147,114 (2,159,380) 1,036,443
Decatur Total Return Series ... 5,669,424 1,479,672 (797,039) 6,352,057
Global Bond Series ............ 301,243 70,279 (171,607) 199,915
Period ended December 31, 1997:
Trend Series .................. 3,548,538 63,254 (682,630) 2,929,162
Decatur Total Return Series ... 10,893,570 1,321,652 (1,289,152) 10,926,070
Global Bond Series ............ 1,188,335 65,554 (510,926) 742,963
</TABLE>
5. Foreign Exchange Contracts
A Series will generally enter into forward foreign currency contracts as a way
of managing foreign exchange rate risk. A Series 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 Series 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
as an unrealized gain or loss. When the contract is closed, 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 is recorded.
The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the 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, a Series could be exposed to risks if the
counterparties to the contracts are unable to meet the terms of their contracts.
18
<PAGE>
Notes to Financial Statements (Continued)
6. Credit and Market Risk
Some countries in which the Global Bond 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 Series
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.
Each Series may invest up to 10% of its total assets in illiquid securities
which may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of some of these securities may adversely affect the Series' ability
to dispose of such securities in a timely manner and at a fair price when it is
necessary to liquidate such securities.
7. Securities Lending
Securities on loan are required at all times to be secured by collateral at
least equal to 102% of the market value of securities issued in the U.S. and
105% of the market value of securities issued outside of the U.S. However, in
the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings. In the event that the borrower fails to return loaned securities,
and cash collateral being maintained by the borrower is insufficient to cover
the value of loaned securities and provided such collateral insufficiency is not
the result of investment losses, the lending agent has agreed to pay the amount
of the shortfall to the Series or, at the option of the lending agent, replace
the loaned securities. The market value of securities on loan to brokers and the
related collateral received at June 30, 1998 for each Series was as follows:
Market Value of
Securities on Loan Collateral
------------------ ----------
Trend Series .................. $31,830,105 $32,606,804
Decatur Total Return Series ... 52,843,000 53,906,220
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