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DELAWARE GROUP
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PREMIUM FUND
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AIG AND AIL
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ANNUAL REPORT
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DECEMBER 31, 1997
DELCAP SERIES
DECATUR TOTAL RETURN SERIES
DELAWARE SERIES
DELCHESTER SERIES
CAPITAL RESERVES SERIES
CASH RESERVE SERIES
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January 5, 1998
Dear Policy Holder:
The U.S. economy enjoyed its seventh year of expansion in 1997, propelling
the American stock market to historic highs. Low U.S. inflation contributed
to a strong domestic bond market.
1997 TOTAL RETURN
Standard & Poor's 500 Index +33.36%
Russell 2000 Index +22.36%
Lehman Brothers Government/Corporate Bond Index +9.56%
Performance quoted above assumes reinvestment of dividends. It is not intended
to represent the performance of any Premium Fund Series. Complete performance
information can be found following each discussion section of this report. The
above indexes are unmanaged and not available for investments.
The U.S. stock market suffered two brief corrections in 1997 one as a
result of the Federal Reserve Board modestly raising short-term interest rates
in the spring, and the other as a result of financial uncertainty in Asia.
However, the fundamental strength of the U.S. economy allowed many stocks to
recover by year's end.
Increased productivity resulting from improvements in technology and
organizational changes have helped American companies increase earnings.
Despite vigorous U.S. economic growth, the Consumer Price Index rose 1.7% the
smallest increase since 1986.
Low interest rates in the U.S. have boosted bond prices while yields have
fallen. At year-end, the difference in U.S. Treasury Bonds' short-term and
long-term interest rates, known as the yield curve, was the smallest in four
years. Adding to U.S. Treasuries' attractiveness was Washington's apparent
commitment to eliminate the Federal budget deficit.
While the U.S. is enjoying its third longest economic expansion since
World War II, U.S. companies still depend on overseas operations and/or
suppliers for a growing percentage of business. Thus, Asian financial turmoil
may present a challenge for both equity and fixed-income investors.
U.S. companies may derive lower profits from the region, resulting in a
more moderate growth rate in 1998, according to economists at the Federal
Reserve. However, these same analysts believe that domestic inflation may
remain benign as the cost of imports to the U.S. from Asia is expected to
decline.
The performance of each Series is discussed on the pages that follow.
Please keep in mind that your annuity is designed as a long-term investment
and that earnings compound tax-deferred until withdrawal. Thank you for
investing with us. We wish you a happy and prosperous year.
Sincerely,
/s/ Wayne A. Stork /s/ Jeffrey J. Nick
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Wayne A. Stork Jeffrey J. Nick
Chairman President and
Chief Executive Officer
<PAGE>
DELCAP SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
DelCap Series rebounded from weak performance during the first half of
1997 as mid cap stocks rallied during the year's latter half. We believe
investor interest in midcap equities seemed to peak during the third quarter.
As always, prudent stock selection remained critical and the Series, which
furnished a total return of +14.90% for the 1997 fiscal year, underperformed
its benchmark the Russell Midcap Growth Index which returned +22.54%. The
Russell Midcap Growth Index replaced the NASDAQ Industrial Index as the
Series' benchmark in 1997. We believe the Russell index more closely reflects
DelCap Series' investment portfolio.
We added two analysts to DelCap Series' management team in 1997. Our four
person team reaffirmed its longstanding commitment to fundamental research. We
trimmed the number of holdings and focused on stocks with a relatively high
level of liquidity.
In our view, a more concentrated DelCap Series will allow us to focus on
the most promising mid-size companies and give greater weight to companies we
believe are poised for growth.
A LOOK AT THE PORTFOLIO
DelCap Series' management seeks stocks with a consistent track record of
growth in quarterly earnings and market share.
We repositioned the Series' technology sector after earnings
disappointments from some companies pushed their share price down. We feel the
low earnings were generally the result of thinner profit margins as
competition among large cap technology companies pushed prices for products
and services lower.
The Series' retail sector has also been repositioned, and presently
consists of more companies that cater to practical consumers rather than
buyers of luxury and leisure goods.
Due to changes in the healthcare sector, we have reduced our position in
companies whose profits we believed were sensitive to federal healthcare
policy. Instead, we emphasized physician practice management and managed care
companies. In our opinion, increased competition and regulatory hurdles will
eventually weed out less efficient healthcare providers.
Our positions in the technology and consumer business sectors, in
particular, did not perform as well as our benchmark's holdings in the same
sectors. Some of our selections had slower than expected sales during the
fiscal year.
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INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. It attempts to achieve this objective by
investing in securities exhibiting the potential for significant growth.
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2
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INVESTMENT OUTLOOK
For 1998, we believe the investment climate appears favorable for America's
medium size companies. In our opinion, midcap companies will not be as
affected by the Asian economic crises as large cap multinational companies,
which derive a greater percentage of their profits from the region.
Also, some economists predict the Federal Reserve Board may lower interest
rates in 1998, which we believe would contribute to continued moderate growth
in the country's output of goods and services.
However, the single most important factor that will affect our future
results is DelCap's stock selection capability. While retaining a disciplined
investment approach, we have brought an even higher focus to the Series'
portfolio and we believe this will enhance the Series' security selection over
the long term.
Growth of a $10,000 Investment
July 12, 1991 through December 31, 1997
NASDAQ
DelCap Russell Midcap Industrial
Series Growth Index Index
7/12/91 $10,000 $10,000 $10,000
9/30/91 10,280 10,198 11,198
12/31/91 11,031 10,870 12,692
3/31/92 10,734 11,389 12,826
6/30/92 9,550 11,697 11,414
9/30/92 9,853 12,323 11,778
12/31/92 11,248 13,755 13,753
3/31/93 11,001 13,880 13,538
6/30/93 11,443 13,881 13,841
9/30/93 12,201 14,816 14,801
12/31/93 12,549 15,293 15,289
3/31/94 12,404 14,819 14,781
6/30/94 11,559 14,169 13,552
9/30/94 12,445 15,176 14,752
12/31/94 12,105 14,965 14,304
3/31/95 12,985 16,583 15,214
6/30/95 13,690 17,915 16,795
9/30/95 15,017 19,681 18,628
12/31/95 15,679 21,091 18,307
3/31/96 16,840 22,452 19,447
6/30/96 18,005 24,741 21,071
9/30/96 18,655 25,584 21,019
12/31/96 17,955 26,324 21,057
3/31/97 16,712 25,366 19,317
6/30/97 19,042 29,101 22,443
9/30/97 21,072 33,171 26,097
12/31/97 20,622 32,257 23,170
DELCAP SERIES AVERAGE
ANNUAL TOTAL RETURNS
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LIFETIME +11.83%
FIVE YEARS +12.89%
THREE YEARS +19.43%
ONE YEAR +14.90%
The Series began operating on July 12, 1991.
Returns are through December 31, 1997.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. RETURN AND SHARE PRICE WILL
FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
*The chart above shows a $10,000 investment in DelCap Series, Russell MidCap
Growth Index and Nasdaq Industrial Index for the period from the Series
inception on July 12, 1991, through December 31, 1997. All dividends and
capital gains were reinvested. The Indexes are unmanaged, with no set
investment objectives and do not include the "real world" costs of
managing a mutual fund. Earnings from a variable annuity investment
compound tax-free until withdrawal, so no adjustments were made for
income taxes. The effect of an expense limitation is included in the
chart. Performance does not reflect insurance fees related to a variable
product investment nor the deferred sales charge that would apply to
certain withdrawals of investments held for less than eight years.
Performance shown here would have been reduced if such fees were included
and the expense limitation were removed. For more information about fees,
consult your variable annuity prospectus.
3
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DECATUR TOTAL RETURN SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
Decatur Total Return Series' value discipline served investors well by
allowing the Series to actively participate in the U.S. stock market's robust
capital appreciation during 1997.
The Series provided a strong total return of +31.00% (capital change plus
reinvestment of dividends) for the year ended December 31, 1997. This compares
with the unmanaged benchmark S&P 500 Index's total return of +33.36% for the
same time period.
We invest primarily in established U.S. companies whose stocks have higher
dividend yields than the average yield of the S&P 500 Index. If a stock's
price moves above our pre-determined price target, or its yield falls below
the S&P 500 Index's average yield, we begin to sell it.
In our opinion, a stock's falling yield is a sign that the stock is fairly
priced and its future appreciation potential is not worth the possible risks.
We believe in taking calculated, prudent risks to help sensible investors
build wealth over time.
A LOOK AT THE PORTFOLIO
We believe continued strong U.S. economic growth in 1997, along with low
inflation, provided a favorable environment for many of our selections. The
robust performance of financial, drug and chemical stocks contributed to the
Series' total return in 1997.
Unfortunately, there were a few disappointments during a generally stellar
year for the stock market. Investor concern regarding operational efficiency
caused us to reduce our weightings in some cyclical sectors such as autos and
rail transportation.
While selecting companies with above average dividend yields, we focus on
firms that appear to offer solid earnings growth potential. We measure this
potential based on a company's new products, cost cutting programs,
consolidation opportunities and stock buybacks.
In 1997, we benefited from a consolidation of the financial services
industry as several of our banking selections agreed to be acquired by larger
institutions. Banking stocks continue to look attractive as we believe there
are further opportunities for industry consolidation.
Another area of opportunity was office product companies. In our opinion,
these dividend paying stocks allowed the Series to share in the potential
rewards from efforts to increase office productivity through technology with
much less price risk than buying more expensive, non-dividend paying
technology stocks.
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INVESTMENT OBJECTIVE
Seeks long-term growth by investing primarily in securities that offer the
potential for income and capital appreciation without undue risk to principal.
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4
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OUTLOOK
At the beginning of 1997, we thought that short-term market volatility would
increase, and our expectations were fully met during the past 12 months. While
many economic indicators remain positive, we believe there will be additional
volatility in 1998 as Asian countries begin to recover from currency
devaluations and fiscal policy restructuring.
In a stock market with increasing volatility, it is not enough just to find
cheap companies with attractive dividends. We are concentrating our efforts on
businesses we believe are improving in ways likely to attract the market's
attention.
Many industrial companies are finding ways to boost profits through new
technology, mergers and restructuring. In the case of the pharmaceutical
industry, our investment research continues to lead to undervalued companies
with promising product pipelines.
During 1997, we reduced the number of holdings in Decatur Total Return
Series' investment portfolio. We believe this will allow us to focus on the most
promising investment opportunities throughout the new year.
Growth of a $10,000 Investment
July 28, 1988 through December 31, 1997
Decatur Total S&P 500
Return Series Index
7/28/88 $10,000 $10,000
9/30/88 10,000 10,072
12/31/88 9,351 10,383
3/31/89 9,725 11,119
6/30/89 10,216 12,101
9/30/89 10,875 13,397
12/31/89 10,569 13,673
3/31/90 10,211 13,262
6/30/90 10,243 14,096
9/30/90 8,626 12,159
12/31/90 9,171 13,248
3/31/91 10,196 15,173
6/30/91 10,164 15,138
9/30/91 10,771 15,948
12/31/91 11,218 17,285
3/31/92 11,215 16,849
6/30/92 11,522 17,169
9/30/92 11,706 17,710
12/31/92 12,208 18,602
3/31/93 13,064 19,414
6/30/93 13,309 19,509
9/30/93 13,901 20,013
12/31/93 14,094 20,477
3/31/94 13,600 19,700
6/30/94 13,947 19,783
9/30/94 14,527 20,750
12/31/94 14,063 20,747
3/31/95 15,584 22,767
6/30/95 16,677 24,941
9/30/95 18,032 26,923
12/31/95 19,144 28,545
3/31/96 20,113 30,076
6/30/96 20,512 31,425
9/30/96 21,436 32,397
12/31/96 23,109 35,097
3/31/97 23,705 36,038
6/30/97 27,333 42,330
9/30/97 29,616 45,500
12/31/97 $32,869 $46,807
DECATUR TOTAL RETURN SERIES
AVERAGE ANNUAL TOTAL RETURNS
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LIFETIME +13.45%
FIVE YEARS +19.92%
THREE YEARS +29.12%
ONE YEAR +31.00%
The Series began operating on July 28, 1988.
Returns are through December 31, 1997.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. RETURN AND SHARE PRICE
WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
The chart above shows a $10,000 investment in both the Decatur Total Return
Series and the unmanaged S&P 500 Index for the period from the Series' inception
on July 28, 1988, through December 31, 1997. All dividends and capital gains
were reinvested. The Index is unmanaged, with no set investment objective and
does not include the "real world" costs of managing a mutual fund. Earnings from
a variable annuity investment compound tax-free until withdrawal, so no
adjustments were made for income taxes. The effect of an expense limitation is
included in the chart. Performance does not reflect insurance fees related to a
variable product investment nor the deferred sales charge that would apply to
certain withdrawals of investments held for less than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation were removed. For more information about fees, consult your variable
annuity prospectus.
5
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DELAWARE SERIES
PORTFOLIO STRATEGY AND PERFORMANCE 1997
Delaware Series benefited from its balanced approach to investing during
1997 as the stock and bond markets provided ample capital appreciation and
income opportunities.
We achieved compelling results with stocks of established companies
complemented by holdings of U.S. government and corporate bonds.
For the year ended December 31, 1997, Delaware Series rendered a total
return of 26.40% (capital appreciation with reinvestment of dividends), as
compared to the Series' two benchmarksthe S&P 500 Index and Lehman Brothers
Government Corporate Bond Index, which had total returns of +33.36% and +9.56%
respectively.
The Series' employs a growth and value oriented approach to investing in the
stocks of large and medium size companies believed to have the potential to
increase dividends. Aside from the income they provide, we favor higher yielding
stocks because dividend growth has historically been an indicator of capital
appreciation potential.
The Series bond component consists of U.S. Treasury Bondsfor their income
and unsurpassed quality along with mortgage backed securities and high quality
corporate bonds, which provide income and the potential for capital
appreciation.
We believe Delaware Series' asset allocation provides an opportunity to take
advantage of changing stock and bond market conditions, and as such, offers more
diversification than investing solely in equities.
A LOOK AT THE PORTFOLIO
For much of 1997, stocks of high profile companies tended to outperform the
rest of the equity market as investors focused on businesses with consistent
earnings and dividend growth potential.
Delaware Series was well positioned to take advantage of the market's
capital appreciation during the first three quarters of 1997. However, we
adhered to a strict value discipline that forced us to sell or reduce our
positions in some large mutinational companies beginning in September.
By redeploying assets to stocks that met our value criteria we were able to
preserve capital between August, when the stock market peaked, and October when
volatility resulted from the Asian economic crises.
The Federal Reserve Board's monetary policy effectively tamed consumer
inflation in 1997, despite the economy's robust growth. As a result, bond prices
rose and the difference between short and long-term interest rates, known as the
yield curve, was the smallest in four years.
The stock market correction in late October presented several value
opportunities, and as a result, we increased the stock component of Delaware
Series to 70.1% at 1997 year's end. This is an increase of approximately 7% from
one year earlier.
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INVESTMENT OBJECTIVE
Seeks a balance of capital appreciation, income and preservation of capital.
It attempts to achieve its objective by investing primarily in dividend paying
stocks and investment grade corporate bonds.
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6
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OUTLOOK
Despite strong capital appreciation of both stocks and bonds in 1997, we are
still finding attractive values--especially in the stocks of mid-size companies.
As investors seek consistent earnings growth from stocks selling at
reasonable prices, our leading positions look increasingly attractive. Several
of these holdings are companies which have excellent core business franchises
but still trade at what we believe are modest prices because of diversification
mistakes made several years back.
In our opinion, if inflation remains low and demand for Treasury securities
from both the U.S. and overseas remains strong, long-term interest rates have
the potential to decline in the months ahead, benefiting both stocks and bonds.
In the year ahead, we will keep a close eye on market volatility as we
strive to achieve a blend of income and capital appreciation by investing in a
balanced portfolio of stocks and bonds.
Growth of a $10,000 Investment
July 28, 1998 through December 31, 1997
Lehman Brothers
Government/
Delaware S&P 500 Corporate
Series Index Bond Index
7/28/88 $10,000 $10,000 $10,000
9/30/88 10,000 10,072 10,245
12/31/88 10,160 10,383 10,344
3/31/89 10,330 11,119 10,458
6/30/89 10,812 12,101 11,299
9/30/89 11,907 13,397 11,405
12/31/89 11,848 13,673 11,816
3/31/90 11,750 13,262 11,681
6/30/90 12,605 14,096 12,102
9/30/90 10,975 12,159 12,175
12/31/90 11,825 13,248 12,795
3/31/91 13,900 15,173 13,140
6/30/91 13,888 15,138 13,338
9/30/91 14,311 15,948 14,106
12/31/91 14,968 17,258 14,858
3/31/92 15,596 16,849 14,635
6/30/92 15,484 17,169 15,228
9/30/92 16,196 17,710 15,972
12/31/92 17,038 18,602 15,985
3/31/93 17,796 19,414 16,728
6/30/93 17,771 19,509 17,230
9/30/93 18,280 20,013 17,800
12/31/93 18,432 20,477 17,748
3/31/94 18,191 19,700 17,192
6/30/94 18,248 19,783 16,979
9/30/94 18,666 20,750 17,063
12/31/94 18,405 20,747 17,125
3/31/95 19,594 22,767 17,979
6/30/95 20,639 24,941 19,145
9/30/95 21,926 26,923 19,512
12/31/95 23,296 28,545 20,421
3/31/96 23,600 30,076 19,943
6/30/96 24,649 31,425 20,037
9/30/96 25,268 32,397 20,390
12/31/96 27,006 35,097 21,013
3/31/97 27,226 36,038 20,832
6/30/97 30,170 42,330 21,589
9/30/97 32,596 45,500 22,345
12/31/97 $34,139 $46,807 $23,064
DELAWARE SERIES
AVERAGE ANNUAL TOTAL RETURNS
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LIFETIME +13.91%
FIVE YEARS +14.91%
THREE YEARS +22.86%
ONE YEAR +26.40%
The Series began operating on July 28, 1988.
Returns are through December 31, 1997.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. RETURN AND SHARE PRICE WILL
FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The chart above shows a $10,000 investment in the Delaware Series, the S&P 500
Index and the Lehman Brothers Government/Corporate Bond Index for the period
from the Series' inception on July 28, 1988, through December 31, 1997. All
dividends and capital gains were reinvested. The Indexes are unmanaged, with no
set investment objectives and do not include the "real world" costs of managing
a mutual fund. Earnings from a variable annuity investment compound tax-free
until withdrawal, so no adjustments were made for income taxes. The effect of an
expense limitation is included in the chart. Performance does not reflect
insurance fees related to a variable product investment nor the deferred sales
charge that would apply to certain withdrawals of investments held for less than
eight years. Performance shown here would have been reduced if such fees were
included and the expense limitation were removed. For more information about
fees, consult your variable annuity prospectus.
7
<PAGE>
DELCHESTER SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
We are pleased to report that 1997 was an exceptionally rewarding year for
both the high-yield bond market and Delchester Series.
For the 12 months ended December 31, 1997, the Series provided a robust
total return of +13.63% (capital change plus reinvestment of dividends),
outperforming its benchmark Merrill Lynch High-Yield Bond Index, which provided
a +11.44% total return for the year.
In our opinion the alignment of economic factors this past year provided a
strong positive environment for high-yield bonds. The default rate of high-yield
bonds dropped to its lowest level in 16 years, demand for high yield bonds was
strong, and surging U.S. economic growth helped highly leveraged companies meet
their obligations to bondholders.
When the Federal Reserve Board raised interest rates 25 basis points (0.25%)
in March, causing a short-term market setback, high-yield bonds retained more of
their value than investment grade bonds.
We believe success in the high-yield bond market requires preventative
medicinea proactive approach to analyzing credit risk and a regular monitoring
of external factors that might affect the Series' ability to provide income and
preserve capital. Delchester Series can allow you to benefit from the
tax-deferred compounding of dividends.
A LOOK AT THE PORTFOLIO
We employ a strategy philosophy that stresses income and capital
preservation over appreciation when selecting bonds for Delchester Series'
high-risk/high-yield universe.
The Series is primarily invested in bonds rated B and BB, the two tiers
immediately below investment grade and the highest quality tiers of the
high-yield, non-investment grade bond market. During times of economic
expansion, such as the U.S. has enjoyed in 1997, the Series emphasizes bonds
rated B. Bonds rated B are lower in quality the bonds rated BB, but due to the
low default rate of high-yield bonds in a sound economy, we believe the risk
differential is justified in light of the potential for greater income and
capital appreciation.
The Series typically owns bonds from more than 100 companies representing a
variety of industries. This diversification works as a measure of risk
management by minimizing the impact that any single bond may have on the
portfolio.
As we have in the past, we generally avoided bonds of companies in sectors
such as emerging technologies and airlines where business prospects were
unclear.
We prefer large companies that issue at least $100 million worth of bonds at
any given time because this indicates a relatively high level of liquidity. We
apply fundamental research to prospective companies by examining their financial
statements, meeting with senior management and traveling to sites to determine a
companies ability to meet interest payments.
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INVESTMENT OBJECTIVE
Seeks as high a current income as possible, which the manager believes is
consistent with prudent investment management. It attempts to achieve its
objective by investing in rated and unrated corporate bonds, including higher
risk non-investment grade bonds, U.S. government securities and commercial
paper.
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8
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INVESTMENT OUTLOOK
High yield bonds have qualities of both stocks and bonds. As bonds, they
react to changes in interest rates. However, because they are closely tied to
the performance of the companies that issue them, these bonds also react to
market conditions similar to stocks.
As we enter 1998, U.S. economic growth is continuing its strong pace and
inflation remains stable. In short, this provides a sound environment for the
performance of high-yield bonds.
History, however, shows that such an economic environment cannot last
indefinitely. Therefore, we remain selective in regard to credit quality when
examining the large number of issues coming to market, and emphasize high-yield
bonds issued by U.S. companies with proven track records.
Growth of a $10,000 Investment
July 28, 1998 through December 31, 1997
Merrill Lynch
Delchester High Yield
Series Bond Index
7/28/88 $10,000 $10,000
9/30/88 10,140 10,134
12/31/88 10,334 10,374
3/31/89 10,526 10,591
6/30/89 10,877 10,972
9/30/89 10,970 10,973
12/31/89 10,811 10,814
3/31/90 10,674 10,589
6/30/90 11,015 11,045
9/30/90 10,238 10,375
12/31/90 10,043 10,343
3/31/91 11,645 11,753
6/30/91 12,391 12,477
9/30/91 13,051 13,211
12/31/91 13,811 13,920
3/31/92 14,521 14,971
6/30/92 15,017 15,510
9/30/92 15,532 16,217
12/31/92 15,666 16,448
3/31/93 16,600 17,470
6/30/93 17,190 18,167
9/30/93 17,404 18,629
12/31/93 18,230 19,274
3/31/94 18,048 19,107
6/30/94 18,002 19,040
9/30/94 17,685 19,300
12/31/94 17,707 19,398
3/31/95 18,484 20,568
6/30/95 19,281 21,873
9/30/95 19,868 22,512
12/31/95 20,452 23,260
3/31/96 20,834 23,599
6/30/96 21,150 23,923
9/30/96 22,177 24,856
12/31/96 23,063 25,834
3/31/97 23,367 26,046
6/30/97 24,473 27,283
9/30/97 25,711 28,351
12/31/97 $26,228 $29,083
DELCHESTER SERIES
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------
LIFETIME +10.77%
FIVE YEARS +10.84%
THREE YEARS +13.97%
ONE YEAR +13.63%
The Series began operating on July 28, 1988.
Returns are through December 31, 1997.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. RETURN AND SHARE PRICE WILL
FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The chart above shows a $10,000 investment in both the Delchester Series and the
Merrill Lynch High-Yield Bond Index for the period from the Series' inception on
July 28, 1988, through December 31, 1997. All dividends and capital gains were
reinvested. The Index is unmanaged, with no set investment objective and does
not include the "real world" costs of managing a mutual fund. Earnings from a
variable annuity investment compound tax-free until withdrawal, so no
adjustments were made for income taxes. The effect of an expense limitation is
included in the chart. Performance does not reflect insurance fees related to a
variable product investment nor the deferred sales charge that would apply to
certain withdrawals of investments held for less than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation were removed. For more information about fees, consult your variable
annuity prospectus.
9
<PAGE>
CAPITAL RESERVES SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
Strong U.S. economic growth, low inflation and Washington's apparent
commitment to balance the Federal budget spurred the U.S. bond market to
vigorous performance in 1997.
Capital Reserves Series, which invests in short and intermediate-term U.S.
government and corporate bonds, furnished a total return of +7.60% for the year
ended December 31, 1997.
In our opinion the wave gained momentum after mid-year as it became apparent
that the Federal Reserve Board would not have to raise interest rates. During
the year's first half, the bond market experienced wide swings in investor
sentiment amid uncertainty about inflation.
The Series aims to provide higher income than money market vehicles and
other short-term cash investments by extending the maturities of bonds in its
portfolio. These short and intermediate-term bonds can provide income
approaching that of long-term bonds, but fluctuate less in value.
At year end, the difference between interest rates on the 30 year and two
year U.S. Treasury Bonds, known as the yield curve, was just 28 basis points
(0.28%)the lowest level in more than three years.
A LOOK AT THE PORTFOLIO
Capital Reserves Series seeks to strike a balance between income and capital
preservation. We invest primarily in high quality U.S. government and, to a
lesser extent, in corporate securities. We have generally emphasized
government-backed mortgage securities because of their superior income
potential.
The Series has historically focused on the intermediate sector of the bond
market--securities with maturities between five and seven years. Longer term
bonds, in our opinion, present too many risks relative to the income they
provide.
During 1997, we added to the Series' holdings of discount mortgagesmortgages
issued when interest rates were lower. We believe this limits mortgage
prepayment risks because their interest rates are lower than current rates
giving homeowners no incentive to refinance.
We believe owning discount bonds helps balance our ownership of bonds
trading at a premium to face value. We also own some premium bondswhich we value
for their superior income potential. Premium bonds depreciate in value to $100
as they near maturity, while discount bonds tend to appreciate.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks a high, stable level of current income while attempting to minimizing
fluctuations in principal and provide maximum liquidity. It attempts to achieve
its objective by investing in short and intermediate-term securities.
- --------------------------------------------------------------------------------
10
<PAGE>
OUTLOOK
We believe two developments during 1997 may spur increased demand for U.S.
government securities during the upcoming year: the economic crises along the
Pacific Rim and legislation that is expected to balance the Federal budget for
the first time since 1969.
In our opinion, international investors will view Treasury bonds as a
relatively more stable and attractive alternative to their own country's public
and corporate debt.
If inflation remains low and demand for a declining supply of U.S.
government securities from both U.S. and overseas remains strong, interest rates
may decline in the months ahead.
Analyzing short-term interest rate fluctuations will always be a facet of
bond investing. Still, we believe it is equally important to be mindful of risk
and bond prices relative to historic measures of value, and our investment
choices in the year ahead will be guided by that philosophy.
Growth of a $10,000 Initial Investment
July 28, 1998 through December 31, 1997
Lehman Brothers
Capital Government/
Reserve Corporate
Series Bond Index
7/28/88 $10,000 $10,000
9/30/88 10,126 10,245
12/31/88 10,296 10,344
3/31/89 10,504 10,458
6/30/89 10,772 11,299
9/30/89 10,986 11,405
12/31/89 11,209 11,816
3/31/90 11,408 11,681
6/30/90 11,616 12,102
9/30/90 11,856 12,175
12/31/90 12,128 12,795
3/31/91 12,355 13,140
6/30/91 12,552 13,338
9/30/91 12,884 14,106
12/31/91 13,199 14,858
3/31/92 13,210 14,635
6/30/92 13,632 15,228
9/30/92 14,150 15,972
12/31/92 14,149 15,958
3/31/93 14,634 16,728
6/30/93 14,941 17,230
9/30/93 15,254 17,800
12/31/93 15,260 17,748
3/31/94 14,922 17,192
6/30/94 14,786 16,979
9/30/94 14,877 17,063
12/31/94 14,850 17,125
3/31/95 15,462 17,979
6/30/95 16,135 19,145
9/30/95 16,404 19,512
12/31/95 16,941 20,421
3/31/96 16,845 19,943
6/30/96 16,906 20,037
9/30/96 17,219 20,390
12/31/96 17,628 21,013
3/31/97 17,656 20,832
6/30/97 18,147 21,589
9/30/97 18,623 22,345
12/31/97 18,986 23,064
CAPITAL RESERVES SERIES
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------
LIFETIME +7.04%
FIVE YEARS +6.03%
THREE YEARS +8.50%
ONE YEAR +7.60%
The Series began operating on July 28, 1988.
Returns are through December 31, 1997.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. RETURN AND SHARE PRICE
WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
The chart above shows a $10,000 investment in both the Capital Reserves Series
and the Lehman Brothers Index for the period from the Series' inception on July
28, 1988, through December 31, 1997. All dividends and capital gains were
reinvested. The Index is unmanaged, with no set investment objective and does
not include the "real world" costs of managing a mutual fund. Earnings from a
variable annuity investment compound tax-free until withdrawal, so no
adjustments were made for income taxes. The effect of an expense limitation is
included in the chart. Performance does not reflect insurance fees related to a
variable product investment nor the deferred sales charge that would apply to
certain withdrawals of investments held for less than eight years. Performance
shown here would have been reduced if such fees were included and the expense
limitation were removed. For more information about fees, consult your variable
annuity prospectus.
11
<PAGE>
CASH RESERVE SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
Cash Reserve Series achieved its goal in 1997 of providing current income
and stability of principal. For the year ended December 31, 1997, Cash Reserve
Series provided a total return of +5.10% , with dividend distributions
reinvested.
The Series invests in a combination of high quality commercial paper
(corporate short-term debt obligations) as rated by Standard & Poor's and
Moody's Investor's Services, two independent bond rating agencies.
By investing in high quality short-term debt instruments, the Series is
designed for investors who would like to:
* add stability to an otherwise aggressive investment portfolio
* dollar-cost average into another Series
* hold money while you and your investment adviser implement an
asset allocation plan for your long-range investment objectives.
Cash Reserve Series strives to provide an income stream that can keep pace
with inflation while making preservation of principal its primary objective. The
Series also strives to maintain a net asset value (share price) of $10; however,
there is no guarantee that the Series' management will achieve this goal.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide maximum current income while preserving principal and
maintaining liquidity.
- --------------------------------------------------------------------------------
12
<PAGE>
OUTLOOK
At the beginning of 1998, U.S. economic growth remains strong and the
unemployment rate is 4.7% - the lowest in a generation. Many economists believe
such an economic environment can contribute to inflation.
However, inflation remains low as evidenced by the Consumer Price Index
rising just 1.7% in 1997, the lowest increase since 1986. The Series returns
were more than double that of inflation in 1997, and our results helped preserve
the purchasing power of your investment dollars.
In addition, a Federal Reserve Board official announced in early January
that the Federal Funds Rate (the overnight bank lending rate) may be lowered if
the Asian financial crises slows the U.S. economy more than expected. Still, the
same Federal Reserve official said the Board may see a need to raise interest
rates if the Asian crises doesn't result in the expected economic slowdown.
In any event, we believe periods of short-term bond market volatilitycaused
by a real or perceived interest rate changerepresent overreactions that can
provide opportunities for higher income from money market investments without
undue risk to principal.
Growth of a $10,000 Investment
July 28, 1998 through December 31, 1997
IBC Donoghue
Cash Money
Reserve Market
Series Index
7/28/88 $10,000 $10,000
9/30/88 10,120 10,122
12/31/88 10,315 10,320
3/31/89 10,530 10,540
6/30/89 10,763 10,781
9/30/89 10,984 11,011
12/31/89 11,201 11,236
3/31/90 11,406 11,450
6/30/90 11,620 11,670
9/30/90 11,834 11,893
12/31/90 12,045 12,115
3/31/91 12,233 12,309
6/30/91 12,401 12,483
9/30/91 12,567 12,652
12/31/91 12,717 12,805
3/31/92 12,836 12,929
6/30/92 12,943 13,043
9/30/92 13,043 13,144
12/31/92 13,128 13,237
3/31/93 13,210 13,326
6/30/93 13,289 13,414
9/30/93 13,370 13,504
12/31/93 13,452 13,595
3/31/94 13,539 13,688
6/30/94 13,649 13,803
9/30/94 13,693 13,941
12/31/94 13,855 14,104
3/31/95 14,039 14,295
6/30/95 14,232 14,493
9/30/95 14,422 14,687
12/31/95 14,612 14,879
3/31/96 14,789 15,063
6/30/96 14,964 15,243
9/30/96 15,148 15,428
12/31/96 15,332 15,615
3/31/97 15,515 15,804
6/30/97 15,711 16,002
9/30/97 15,912 16,203
12/31/97 $16,248 $16,409
<PAGE>
CASH RESERVE SERIES
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------------
LIFETIME +5.28
FIVE YEARS +4.33
THREE YEARS +5.17
ONE YEAR +5.10
The Series began operating on July 28, 1988.
Returns are through December 31, 1997.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. YIELDS WILL FLUCTUATE AND
ARE NOT GUARANTEED. THE GOAL OF A MONEY MARKET INVESTMENT IS TO MAINTAIN A
CONSTANT SHARE PRICE OF $1; HOWEVER, THERE IS NO GUARANTEE THAT THIS GOAL WILL
BE MET.
The chart above shows a $10,000 investment in both the Cash Reserve Series and
the IBC/Donoghue Money Market Index for the period from the Series' inception on
July 28, 1988, through December 31, 1997. All dividends were reinvested. The
IBC/Donoghue Money Market Index is an index of money market funds based on
30-day yields. Money Market mutual funds are not FDIC insured and bear risk,
including the loss of principal invested. Earnings from a variable annuity
investment compound tax-free until withdrawal, so no adjustments were made for
income taxes. The effect of an expense limitation is included in the chart.
Performance does not reflect insurance fees related to a variable product
investment nor the deferred sales charge that would apply to certain withdrawals
of investments held for less than eight years. Performance shown here would have
been reduced if such fees were included and the expense limitation were removed.
For more information about fees, consult your variable annuity prospectus.
13
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-DELCAP SERIES (FORMERLY GROWTH SERIES)
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK-93.53%
AUTOMOBILES & AUTOMOTIVE PARTS-1.40%
*Delco Remy International Class A ............ 21,700 $ 271,250
Hertz Class A ............................... 31,800 1,279,950
----------
1,551,200
----------
BANKING, FINANCE & INSURANCE-11.75%
AMBAC ....................................... 34,500 1,587,000
Bank United ................................. 26,400 1,298,550
Beneficial .................................. 6,200 515,375
Blanch (E.W.) Holdings ...................... 50,800 1,749,425
*CIT Group Class A ........................... 42,900 1,383,525
CMAC Investment ............................. 26,100 1,575,788
Fleet Financial Group ....................... 8,500 636,969
*Golden State Bancorp ........................ 6,100 227,988
*Ocwen Financial ............................. 58,800 1,495,725
PartnerRe Limited ........................... 19,600 908,950
Peoples Heritage Financial Group ............ 10,600 489,588
*Security Capital Group Class B .............. 34,100 1,108,250
----------
12,977,133
----------
BUILDINGS & MATERIALS-0.89%
*J. Ray McDermott S.A ........................ 22,900 984,700
----------
984,700
----------
CABLE, MEDIA & PUBLISHING-2.39%
*Snyder Communications ....................... 46,300 1,689,950
*World Color Press ........................... 35,800 950,938
----------
2,640,888
----------
COMPUTERS & TECHNOLOGY-18.63%
*Acxiom ...................................... 59,000 1,128,375
*Affiliated Computer Services
Class A .................................... 37,600 989,350
*Bay Networks ................................ 39,800 1,017,388
*BISYS Group ................................. 68,200 2,276,175
*BMC SOFTWARE ................................ 36,200 2,373,363
*COMPUWARE ................................... 94,500 3,026,953
*DST Systems ................................. 11,400 486,638
*i2 Technologies ............................. 31,200 1,646,775
*Intuit ...................................... 13,500 557,719
*J.D. Edwards ................................ 32,800 973,750
- ----------
Top 10 stock holdings, representing 26.4% of net assets, are in bold.
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
COMPUTERS & TECHNOLOGY (CONTINUED)
Linear Technology ............................. 18,900 $ 1,087,931
*PLATINUM TECHNOLOGY ........................... 89,300 2,528,306
*SanDisk ....................................... 37,100 745,478
*Sterling Commerce ............................. 45,319 1,741,933
----------
20,580,134
----------
CONSUMER PRODUCTS-1.91%
*Gemstar International ......................... 50,700 1,219,969
*Henry Schein .................................. 25,200 885,150
----------
2,105,119
----------
ELECTRONICS & ELECTRICAL EQUIPMENT-0.58%
*MMC Networks .................................. 38,000 635,312
----------
635,312
----------
ENERGY-2.14%
*Global Industries Limited ..................... 79,200 1,348,875
*Marine Drilling ............................... 29,600 616,050
*Weatherford Enterra ........................... 9,200 402,500
----------
2,367,425
----------
ENVIRONMENTAL SERVICES-3.38%
*PHILIP SERVICES ............................... 161,800 2,325,875
*USA Waste Services ............................ 35,848 1,407,014
----------
3,732,889
----------
FOOD, BEVERAGE & TOBACCO-1.38%
*Foodmaker ..................................... 48,200 726,013
*General Cigar Holdings ........................ 37,500 799,219
----------
1,525,232
----------
HEALTHCARE & PHARMACEUTICALS-11.80%
*Dura Pharmaceuticals .......................... 31,300 1,443,713
*HEALTH MANAGEMENT ASSOCIATES
CLASS A ...................................... 129,918 3,280,417
*Healthsouth ................................... 55,500 1,540,125
*Interim Services .............................. 19,800 512,325
*MEDPARTNERS ................................... 111,400 2,492,575
*Orthodontic Centers of America ................ 23,400 389,025
*Phycor ........................................ 77,400 2,092,219
*Quorum Health Group ........................... 48,900 1,283,625
----------
13,034,024
----------
14
<PAGE>
DELCAP SERIES (FORMERLY GROWTH SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
LEISURE, LODGING & ENTERTAINMENT-6.94%
*Interstate Hotels ............................... 24,700 $ 866,044
*Mirage Resorts .................................. 18,400 418,600
*OUTBACK STEAKHOUSE .............................. 84,400 2,442,325
*Papa John's International ....................... 44,100 1,540,744
*Prime Hospitality ............................... 63,700 1,297,888
Royal Caribbean Cruises ......................... 20,600 1,098,238
----------
7,663,839
----------
REAL ESTATE-1.81%
*Catellus Development ............................ 2,200 44,000
*Host Marriott ................................... 26,800 525,950
Mack-Cali Realty ................................ 8,500 348,500
Starwood Lodging Trust .......................... 18,700 1,082,263
----------
2,000,713
----------
RETAIL-11.74%
*BED BATH & BEYOND ............................... 74,900 2,878,969
*CompUSA ......................................... 69,500 2,154,500
Dollar General .................................. 8,925 323,531
Fastenal ........................................ 32,600 1,253,063
*General Nutrition ............................... 22,600 766,988
*Kohl's .......................................... 20,100 1,369,313
St. John Knits .................................. 23,600 944,000
*Staples ......................................... 77,200 2,147,125
*Viking Office Products .......................... 51,600 1,133,587
----------
12,971,076
----------
TELECOMMUNICATIONS-4.84%
*CIENA ........................................... 32,100 1,966,125
*Clear Channel Communications 22,100 1,755,569
*Tellabs ......................................... 30,800 1,625,662
----------
5,347,356
----------
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
TEXTILES, APPAREL & FURNITURE-2.18%
*Jones Apparel Group ......................... 18,800 $ 808,400
*Polo Ralph Lauren Class A ................... 10,400 252,850
*Tommy Hilfiger .............................. 38,300 1,345,288
-----------
2,406,538
-----------
TRANSPORTATION & SHIPPING-0.89%
GATX ........................................ 13,300 965,081
*Knight Transportation ....................... 500 13,438
-----------
978,519
-----------
UTILITIES-2.87%
*AES ......................................... 67,894 3,165,558
-----------
3,165,558
-----------
MISCELLANEOUS-6.01%
*CENDANT ..................................... 133,950 4,604,547
*Cornell Corrections ......................... 18,900 392,175
*Personnel Group of America .................. 15,600 514,800
*Sylvan Learning Systems ..................... 28,700 1,126,475
-----------
6,637,997
-----------
TOTAL COMMON STOCK
(COST $86,245,632) ......................... 103,305,652
-----------
15
<PAGE>
DELCAP SERIES (FORMERLY GROWTH SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS-6.11%
With Chase Manhattan 6.00%
01/2/98 (dated 12/31/97,
collateralized by $854,000 U.S. .............
Treasury Notes 7.75% due
11/30/99, market value $890,615
and $1,059,000 U.S. Treasury
Notes 7.75% due 01/31/00,
market value $1,135,291) ................... $1,985,000 $1,985,000
With JP Morgan Securities 6.25%
01/2/98 (dated 12/31/97,
collateralized by $2,118,000 U.S. ...........
Treasury Notes 6.00% due 5/31/98,
market value $2,132,394 and
$662,000 U.S. Treasury Notes
9.00% due 05/15/98,
market value $677,601) ...................... 2,754,000 2,754,000
With PaineWebber 6.375% 1/2/98
(dated 12/31/97, collateralized
by $2,047,000 U.S. Treasury Notes
6.25% due 6/30/98, market value
$2,055,189) ................................. $2,012,000 $2,012,000
----------
TOTAL REPURCHASE AGREEMENTS
(COST $6,751,000) ........................... 6,751,000
----------
TOTAL MARKET VALUE OF SECURITIES-99.64% (COST $92,996,632) ..... $110,056,652
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.36% .......... 397,853
------------
NET ASSETS APPLICABLE TO 6,394,984 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $17.27 PER SHARE-100.00% ........... $110,454,505
============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common stock $.01 par value, 750,000,000 shares authorized to
the Fund with 50,000,000 shares allocated to the Series ....... $ 83,577,919
Accumulated net realized gain on investments ................... 9,816,566
Net unrealized appreciation of investments ..................... 17,060,020
------------
Total net assets ............................................... $110,454,505
============
- ----------
*Non-income producing security.
See accompanying notes
16
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-DECATUR TOTAL RETURN SERIES (FORMERLY
EQUITY/INCOME SERIES)
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK-97.42%
AEROSPACE & DEFENSE-1.04%
General Dynamics ............................. 48,500 $ 4,192,219
----------
4,192,219
----------
AUTOMOBILES & AUTOMOTIVE PARTS-2.80%
Ford Motor ................................... 143,900 7,006,131
General Motors ............................... 69,500 4,213,438
----------
11,219,569
----------
BANKING & FINANCE-18.68%
Banc One ..................................... 14,000 760,375
Bank of Boston ............................... 77,800 7,308,338
Bankers Trust New York ....................... 44,600 5,014,713
Chase Manhattan .............................. 43,500 4,763,250
CoreStates Financial ......................... 75,900 6,076,744
Crestar Financial ............................ 129,700 7,392,900
First Chicago NBD ............................ 46,600 3,891,100
Fleet Financial Group ........................ 76,500 5,732,719
Hartford Financial Services .................. 56,800 5,314,350
MELLON BANK .................................. 139,700 8,469,313
Mercantile Bancorporation .................... 105,300 6,475,950
PNC Financial Group .......................... 87,800 5,010,088
SUMMIT BANCORP ............................... 164,775 8,774,269
----------
74,984,109
----------
BUILDINGS & MATERIALS-0.88%
National City ................................ 53,800 3,537,350
----------
3,537,350
----------
CABLE, MEDIA & PUBLISHING-4.15%
Cable & Wireless ............................. 159,100 4,325,531
MCGRAW-HILL .................................. 166,500 12,321,000
----------
16,646,531
----------
CHEMICALS-6.34%
duPont (E.I.) DeNemours ...................... 95,200 5,717,950
Hercules ..................................... 103,800 5,196,488
Hoechst ...................................... 75,300 2,640,206
IMPERIAL CHEMICAL ADR ........................ 156,600 10,169,213
Rhone-Poulenc ADR ............................ 38,919 1,727,039
----------
25,450,896
----------
CONSUMER PRODUCTS-1.30%
Minnesota Mining &
Manufacturing ............................... 63,500 5,210,969
----------
5,210,969
----------
- ----------
Top 10 stock holdings, representing 24.0% of net assets, are in bold.
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
ELECTRONICS & ELECTRICAL EQUIPMENT-4.87%
Eaton .......................................... 49,500 $ 4,417,875
Emerson Electric ............................... 84,200 4,752,038
Thomas & Betts ................................. 126,400 5,972,400
Whirlpool ...................................... 80,100 4,405,500
----------
19,547,813
----------
ENERGY-10.53%
Atlantic Richfield ............................. 73,900 5,921,238
British Petroleum ADR .......................... 82,742 6,593,535
Chevron ........................................ 62,500 4,812,500
Consolidated Natural Gas ....................... 80,500 4,870,250
Mobil .......................................... 65,200 4,706,625
Texaco ......................................... 57,200 3,110,250
USX-Marathon Group ............................. 155,300 5,241,375
Williams ....................................... 246,900 7,005,788
----------
42,261,561
----------
ENVIRONMENTAL SERVICES-2.14%
BROWNING-FERRIS ................................ 231,780 8,575,860
----------
8,575,860
----------
FOOD, BEVERAGE & TOBACCO-9.50%
Anheuser-Busch ................................. 144,900 6,375,600
CPC INTERNATIONAL .............................. 84,800 9,137,200
Fortune Brands ................................. 162,900 6,037,481
General Mills .................................. 21,400 1,532,775
Heinz (H.J.) ................................... 107,500 5,462,344
Philip Morris .................................. 129,300 5,858,906
RJR Nabisco Holdings ........................... 99,340 3,725,250
----------
38,129,556
----------
HEALTHCARE & PHARMACEUTICALS-10.76%
AMERICAN HOME PRODUCTS ......................... 137,600 10,526,400
Bausch & Lomb .................................. 102,900 4,077,413
BAXTER INTERNATIONAL ........................... 159,400 8,039,738
Bristol-Myers Squibb ........................... 13,000 1,230,125
Glaxo Wellcome ADR ............................. 161,900 7,750,963
Merck & Company ................................ 48,700 5,174,375
Pharmacia & Upjohn ............................. 174,500 6,391,063
----------
43,190,077
----------
INSURANCE-7.08%
American General ............................... 112,300 6,071,219
AON ............................................ 138,625 8,126,891
Cigna .......................................... 34,000 5,884,125
SAFECO ......................................... 124,100 6,042,119
St. Paul ....................................... 28,000 2,297,750
----------
28,422,104
----------
17
<PAGE>
DECATUR TOTAL RETURN SERIES (FORMERLY EQUITY/INCOME SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
METALS & MINING-1.26%
Allegheny Teledyne ........................... 194,800 $ 5,040,450
-----------
5,040,450
-----------
PAPER & FOREST PRODUCTS-3.08%
Georgia-Pacific (Timber Group) ............... 38,000 862,125
Georgia-Pacific .............................. 35,300 2,144,475
Kimberly-Clark ............................... 27,900 1,375,819
Temple-Inland ................................ 56,740 2,968,211
Union Camp ................................... 93,600 5,025,150
-----------
12,375,780
-----------
RETAIL-1.93%
May Department Stores ........................ 147,200 7,755,600
-----------
7,755,600
-----------
TELECOMMUNICATIONS-5.60%
BCE .......................................... 156,700 5,220,069
Frontier ..................................... 265,300 6,383,781
GTE .......................................... 94,900 4,958,525
SBC Communications ........................... 80,700 5,911,275
-----------
22,473,650
-----------
TRANSPORTATION & SHIPPING-2.48%
Norfolk Southern ............................. 135,300 4,168,931
Union Pacific ................................ 92,800 5,794,200
-----------
9,963,131
-----------
MISCELLANEOUS-3.00%
PITNEY BOWES ................................. 134,100 12,060,619
-----------
12,060,619
-----------
TOTAL COMMON STOCK
(COST $329,343,500) .......................... 391,037,844
-----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS-3.36%
With Chase Manhattan
6.00% 01/02/98 (dated 12/31/97,
collateralized by $2,117,000
U.S. Treasury Notes 7.75% due
01/31/00, market value $2,269,068
and $1,706,000 U.S. Treasury Notes
7.75% due 11/30/99, market value
$1,780,044) ................................. $ 3,967,000 $ 3,967,000
With JP Morgan Securities 6.25% 01/02/98
(dated 12/31/97, collateralized by
$4,234,000 U.S. Treasury Notes
6.00% due 05/31/98, market value
$4,261,945 and $1,322,000
U.S. Treasury Notes 9.00%
due 05/15/98, market value
$1,354,298) ................................. 5,504,000 5,504,000
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$4,092,000 U.S. Treasury Notes
6.25% due 06/30/98, market value
$4,107,638) ................................. 4,022,000 4,022,000
----------
TOTAL REPURCHASE AGREEMENTS
(COST $13,493,000) .......................... 13,493,000
----------
TOTAL MARKET VALUE OF SECURITIES-100.78% (COST $342,836,500) .. $ 404,530,848
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.78%) ....... (3,128,874)
-------------
NET ASSETS APPLICABLE TO 21,352,870 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $18.80 PER SHARE-100.00% .......... $ 401,401,970
=============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common stock, $.01 par value, 750,000,000 shares authorized
to the Fund with 50,000,000 shares allocated to the Series ... $ 316,124,908
Undistributed net investment income ........................... 578,268
Accumulated net realized gain on investments .................. 23,004,450
Net unrealized appreciation of investments .................... 61,694,344
-------------
Total net assets .............................................. $ 401,401,970
=============
- ----------
ADR - American Depository Receipt
See accompanying notes
18
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-DELAWARE SERIES (FORMERLY MULTIPLE
STRATEGY SERIES)
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK-69.68%
AEROSPACE & DEFENSE-0.52%
GenCorp ........................................ 26,700 $ 667,500
---------
667,500
---------
AUTOMOBILES & AUTOMOTIVE PARTS-1.78%
Danaher ........................................ 36,000 2,272,500
---------
2,272,500
---------
BANKING, FINANCE & INSURANCE-11.97%
AFLAC .......................................... 14,000 715,750
American International Group ................... 11,850 1,288,688
Chubb .......................................... 13,800 1,043,625
Equifax ........................................ 63,800 2,260,913
FEDERAL NATIONAL MORTGAGE ...................... 43,400 2,476,513
Nationwide Financial Services Class A .......... 35,400 1,278,825
PMI Group ...................................... 16,400 1,185,925
Provident ...................................... 50,900 1,966,013
SAFECO ......................................... 27,200 1,324,300
UNUM ........................................... 32,200 1,750,875
---------
15,291,427
---------
BUILDINGS & MATERIALS-4.48%
Chicago Bridge and Iron ........................ 35,000 568,750
Foster Wheeler ................................. 37,000 1,001,313
MASCO .......................................... 81,600 4,151,400
---------
5,721,463
---------
CABLE, MEDIA & PUBLISHING-0.60%
Banta .......................................... 28,050 766,116
---------
766,116
---------
CHEMICALS-4.15%
Fuller (HB) .................................... 26,000 1,293,500
GRACE (W.R.) ................................... 32,000 2,574,000
Valspar ........................................ 44,700 1,424,813
---------
5,292,313
---------
COMPUTERS & TECHNOLOGY-3.90%
Hewlett-Packard ................................ 31,900 1,993,750
WALLACE COMPUTER SERVICES ...................... 76,700 2,981,713
---------
4,975,463
---------
CONSUMER PRODUCTS-0.57%
General Electric ............................... 9,900 726,413
---------
726,413
---------
ELECTRONICS & ELECTRICAL EQUIPMENT-3.23%
Intel .......................................... 18,700 1,313,091
Rockwell International ......................... 12,500 653,125
- ----------
Top 10 stock holdings, representing 24.6% of net assets, are in bold.
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
ELECTRONICS & ELECTRICAL EQUIPMENT (CONTINUED)
Symbol Technologies ................................ 29,800 $1,124,950
Teleflex ........................................... 27,400 1,034,350
---------
4,125,516
---------
ENERGY-2.50%
Kerr-McGee ......................................... 21,700 1,373,881
Royal Dutch Petroleum ADR .......................... 11,200 606,900
Total S.A.ADR ...................................... 21,858 1,213,119
---------
3,193,900
---------
FOOD, BEVERAGE & TOBACCO-5.94%
CONAGRA ............................................ 72,500 2,378,906
PHILIP MORRIS ...................................... 53,800 2,437,813
Ralston-Purina ..................................... 21,500 1,998,156
Universal Foods .................................... 18,300 773,175
---------
7,588,050
---------
HEALTHCARE & PHARMACEUTICALS-4.71%
AMERICAN HOME PRODUCTS ............................. 37,200 2,845,800
Johnson & Johnson .................................. 30,600 2,015,775
Zeneca Group ADR ................................... 10,700 1,155,600
---------
6,017,175
---------
REAL ESTATE-2.78%
D.R. Horton ........................................ 61,300 1,065,088
Developers Diversified Realty ...................... 13,800 527,850
Highwoods Properties ............................... 17,500 650,781
Nationwide Health Properties ....................... 22,600 576,300
Storage Trust Realty ............................... 3,900 102,619
Storage USA ........................................ 4,800 191,700
Sun Communities .................................... 12,000 431,250
---------
3,545,588
---------
RETAIL-6.12%
Intimate Brands .................................... 38,200 919,188
Lowe's Companies ................................... 19,800 944,213
May Department Stores .............................. 15,900 837,731
RITE AID ........................................... 59,100 3,468,431
Sherwin-Williams ................................... 59,100 1,640,025
---------
7,809,588
---------
TELECOMMUNICATIONS-2.95%
Alltel ............................................. 40,400 1,658,925
Northern Telecom Limited ........................... 7,700 685,300
SBC Communications ................................. 19,500 1,428,375
---------
3,772,600
---------
19
<PAGE>
DELAWARE SERIES (FORMERLY MULTIPLE STRATEGY SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
TEXTILES, APPAREL & FURNITURE-5.90%
ECOLAB ....................................... 66,400 $ 3,681,050
Hillenbrand Industries ....................... 28,300 1,448,606
HON Industries ............................... 27,200 1,601,400
Miller (Herman) .............................. 14,700 800,231
----------
7,531,287
----------
UTILITIES-2.24%
CIA Telecom Chile S.A. ADR ................... 34,000 1,015,750
CMS Energy ................................... 32,000 1,410,000
Edison International ......................... 16,000 435,000
----------
2,860,750
----------
MISCELLANEOUS-5.34%
Pentair ...................................... 27,600 991,875
Service International ........................ 39,400 1,455,338
TYCO INTERNATIONAL ........................... 96,900 4,366,556
----------
6,813,769
----------
TOTAL COMMON STOCK
(COST $69,810,745) .......................... 88,971,418
----------
CONVERTIBLE PREFERRED STOCK-0.36%
METALS & MINING-0.36%
Freeport-McMoRan Copper &
Gold 7.00% .................................. 21,100 457,606
----------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $542,770) ............................. 457,606
----------
PRINCIPAL
AMOUNT
ASSET-BACKED SECURITIES-4.92%
ADVANTA Series 93-1 A2
5.95% 5/25/09 ............................... $ 53,392 52,260
American Finance Home Equity
Series 94-2A1 6.95% 6/25/24 ................. 47,039 47,157
Series 92-5A 7.20% 2/15/08 .................. 82,464 83,462
Series 91-1A 8.00% 7/25/06 .................. 9,228 9,371
California Infrastructure
PG&E Series 97-1A4
6.16% 6/25/03 ............................... 640,000 641,300
CIT RV Trust Series 97-A
A5 6.25% 11/17/02 ........................... 570,000 569,733
First Union Residential
Securitization Trust Series
96-2 A2 6.46% 9/25/11 ....................... 555,000 555,780
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
ASSET-BACKED SECURITIES (CONTINUED)
IMC Home Equity Loan Trust
Series 95-3 A2 6.50% 11/25/10 ................... $ 165,759 $ 165,676
MetLife Capital Equipment
Loan Trust Series 97-A A
6.85% 5/20/08 ................................... 420,000 429,282
NationsBank Credit Card Master
Trust Series 93-2 A
6.00% 12/15/05 .................................. 370,000 367,817
NationsCredit Grantor Trust
Series 96-1 A 5.85% 9/15/11 ..................... 213,490 211,889
Series 97-2 A1 6.35% 4/15/14 .................... 381,251 382,324
Neiman Marcus Group
Series 95-1 A 7.60% 6/15/03 ..................... 400,000 412,240
Oakwood Mortgage Investors
Series 97-C A3 6.65% 11/15/27 ................... 560,000 561,137
The Money Store Home Equity Trust
Series 97-C AH5 6.59% 2/15/15 ................... 500,000 501,094
Series 97-A A9 7.235% 4/15/27 ................... 330,000 340,725
UCFC Home Equity Loan
Series 96-B1 A3 7.30% 4/15/14 ................... 460,000 465,750
World Omni Automobile Lease
Securitization Series 97-B A4
6.20% 11/25/03 .................................. 490,000 489,158
---------
TOTAL ASSET-BACKED SECURITIES
(COST $4,677,256) ............................... 6,286,155
---------
COLLATERALIZED MORTGAGE OBLIGATIONS-8.25%
Asset Securitization Corporation
Series 97-D5 A3 6.864% 2/14/41 .................. 275,000 278,695
Series 96-D2 A1 6.92% 2/14/29 ................... 368,081 378,433
Series 96-D3 A1B 7.21% 10/13/26 ................. 360,000 374,962
Series 97-D4 A1A 7.35% 4/14/29 .................. 238,199 245,457
Series 97-MD7 A3 7.843% 1/13/30 ................. 400,000 425,375
Chase Commercial Mortgage
Securities Series 96-2 C
6.90% 11/19/06 .................................. 250,000 255,156
Federal Home Loan Mortgage
Corporation - GNMA
Series 21 H 5.85% 1/25/19 ....................... 560,000 553,579
Series 29 E 6.50% 6/25/20 ....................... 535,000 539,821
Federal National Mortgage
Association Series 93 53 H
5.75% 1/25/22 ................................... 380,000 365,209
20
<PAGE>
DELAWARE SERIES (FORMERLY MULTIPLE STRATEGY SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
GE Capital Mortgage Services
Series 94-2 A3 5.40% 1/25/09 ...................... $ 288,783 $ 287,381
Lehman Large Loan Series 97-LLI A1
6.79% 6/12/04 ..................................... 443,393 452,746
Merrill Lynch Mortgage Investors
Series 97-C1 A1 6.95% 6/18/29 ..................... 218,718 223,434
Morgan Stanley Capital Trust
Series 97-C1 A1A 6.85% 2/15/20 .................... 319,781 323,928
Mortgage Capital Funding
Conti Series 96-MCI D
7.80% 4/15/06 ..................................... 300,000 316,594
Series 96-MC2 A1 6.758% 12/21/26 .................. 331,859 336,526
Series 96-MC2 C 7.224% 9/20/06 .................... 245,000 251,508
Nomura Asset Securities
Series 93-1 A1 6.68% 12/15/01 ..................... 352,397 356,306
Series 96-MD5 A3 7.64% 4/13/36 .................... 340,000 362,206
Series 95-MD3 A1A 8.17% 3/4/20 .................... 329,754 345,521
Series 97-1 A8 7.25% 2/25/12 ...................... 434,207 446,451
Prudential Home Mortgage Series
93-61 A3 6.50% 12/25/08 ........................... 440,000 444,204
Residential Accredit Loans
Series 97-QS1 A5 6.75% 2/25/27 .................... 400,000 400,625
Series 97-QS4 A3 7.25% 5/25/27 .................... 500,000 505,938
Series 96-QS3 A13 7.29% 6/25/26 ................... 200,000 201,719
Series 95-QS1 A3 7.30% 6/25/21 .................... 180,000 181,912
Series 96-QS2 A6 7.45% 4/25/23 .................... 445,000 452,787
Series 97-QS3 A3 7.50% 6/25/12 .................... 363,398 378,616
Series 97-QS3 A3 7.50% 4/25/27 .................... 445,000 451,536
Residential Funding Mortgage
Securities Series 96-S9 A10
7.25% 4/25/26 ..................................... 381,165 393,159
----------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (COST $11,899,010) .................... 10,529,784
----------
COMMERCIAL PAPER-0.39%
Goldman Sachs Group
5.70% 3/13/98 ..................................... 500,000 494,379
----------
TOTAL COMMERCIAL PAPER
(COST $494,379) ................................... 494,379
----------
CORPORATE BONDS-5.29%
ABN-AMRO Bank NV 8.25% 8/1/09 ...................... 80,000 86,800
AT&T Capital 6.83% 1/30/01 ......................... 500,000 507,500
Banco Santiago S.A. 7.00% 7/18/07 .................. 280,000 276,500
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
Chase Manhattan 6.25% 1/15/06 .................... $ 385,000 $ 380,669
Commercial Credit 6.50% 8/1/04 ................... 450,000 455,625
Continental Airlines 6.80% 1/2/09 ................ 395,000 397,469
Credit Foncier de France
8.00% 1/14/02 ................................... 370,000 387,575
Federal Express 7.65% 1/15/14 .................... 450,000 482,625
Firstar Capital 8.32% 12/15/26 ................... 260,000 285,350
Ford Motor Credit 7.00% 9/25/01 .................. 800,000 823,000
Health and Retirement Properties
6.75% 12/18/02 .................................. 400,000 400,000
Norfolk Southern 6.70% 5/1/00 .................... 350,000 354,375
Summit Bank 6.75% 6/15/03 ........................ 320,000 324,800
Travelers Property Casualty
6.75% 4/15/01 ................................... 775,000 788,562
U.S. Bancorp 8.125% 5/15/02 ...................... 430,000 458,487
U.S. West Capital Funding
6.20% 11/30/00 .................................. 340,000 340,000
---------
TOTAL CORPORATE BONDS
(COST $6,584,669) ............................... 6,749,337
---------
MORTGAGE-BACKED SECURITIES-3.80%
Federal Home Loan Mortgage
Corporation 6.00% 3/1/11 ....................... 221,146 218,796
Federal Home Loan Mortgage
Corporation 7.00% 10/1/17 ....................... 81,562 82,505
Federal Home Loan Mortgage
Corporation 7.50% 5/1/09 ....................... 49,897 50,442
Federal Home Loan Mortgage
Corporation 8.50% 9/1/08 to 6/1/14 .............. 149,252 155,928
Federal National Mortgage
Association 6.50% 1/1/12 to 2/1/26 .............. 1,100,785 1,096,737
Federal National Mortgage Association
8.00% 1/1/10 to 9/1/16 .......................... 365,462 378,735
Federal National Mortgage Association
9.50% 6/1/19 to 5/1/22 .......................... 428,630 465,856
Government National Mortgage Association
6.50% 12/15/23 to 1/1/28 ....................... 691,322 683,540
Government National Mortgage Association
8.50% 8/15/21 to 11/15/21 ....................... 613,644 651,051
21
<PAGE>
DELAWARE SERIES (FORMERLY MULTIPLE STRATEGY SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES (CONTINUED)
Government National Mortgage
Association
9.00% 6/15/21 to 11/15/21 ..................... $ 984,668 $1,066,842
----------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $4,747,459) ............................. 4,850,432
----------
MUNICIPAL BONDS-0.30%
Philadelphia Pennsylvania Industrial
Development Authority Revenue
Series 97 6.49% 6/15/04 ....................... 382,445 384,477
----------
TOTAL MUNICIPAL BONDS
(COST $382,445) ............................... 384,477
----------
U.S. TREASURY OBLIGATIONS-3.71%
U.S. Treasury Bonds
6.625% 2/15/27 ................................ 460,000 499,307
U.S. Treasury Bonds
7.50% 11/15/16 ................................ 700,000 817,565
U.S. Treasury Bonds
7.50% 11/15/24 ................................ 1,955,000 2,340,721
U.S. Treasury Notes
5.875% 3/31/99 ................................ 750,000 752,190
U.S. Treasury Notes
6.125% 8/15/07 ................................ 325,000 334,123
----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $4,338,507) ............................. 4,743,906
----------
REPURCHASE AGREEMENTS-4.02%
With Chase Manhattan 6.00%
1/02/98 (dated 12/31/97,
collateralized by $805,000
U.S. Treasury Notes 7.75%
due 01/31/00, market value $862,357
and $649,000 U.S. Treasury Notes
7.75% due 11/30/99, market value
$676,504) ..................................... $1,508,000 $1,508,000
With JP Morgan Securities 6.25%
01/02/98 (dated 12/31/97,
collateralized by $503,000
U.S. Treasury Notes 9.00% due
05/15/98, market value $514,700
and $1,609,000 U.S. Treasury Notes
6.00% due 05/31/98, market value
$1,619,747) ................................... 2,091,000 2,091,000
With PaineWebber 6.375% 1/02/98
(dated 12/31/97, collateralized by
$1,555,000 U.S. Treasury Notes
6.25% due 06/30/98, market value
$1,561,103) ................................... 1,529,000 1,529,000
----------
TOTAL REPURCHASE AGREEMENTS
(COST $5,128,000) ............................. 5,128,000
----------
TOTAL MARKET VALUE OF SECURITIES-100.72% (COST $108,605,240) ... $ 128,595,494
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.72%) ........ (920,150)
-------------
NET ASSETS APPLICABLE TO 6,702,135 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $19.05 PER SHARE-100.00% ........... $ 127,675,344
=============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common stock, $.01 par value, 750,000,000 shares authorized to
the Fund with 50,000,000 shares allocated to the Series ....... $ 94,178,473
Undistributed net investment income ............................ 2,103,972
Accumulated net realized gain on investments ................... 11,402,645
Net unrealized appreciation of investments ..................... 19,990,254
-------------
Total net assets ............................................... $ 127,675,344
=============
- ----------
ADR - American Depository Receipt
See accompanying notes
22
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-DELCHESTER SERIES (FORMERLY HIGH YIELD SERIES)
STATEMENT OF NET ASSETS
December 31, 1997
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS-85.18%
AEROSPACE & DEFENSE-2.62%
Atlas Air sr nts 10.75% 8/1/05 ................. $1,700,000 $1,797,750
Derlan Manufacturing sr nts
10.00% 1/15/07 ................................ 150,000 156,750
Federal Data sr sub nts
10.125% 8/1/05 ................................ 550,000 558,250
Roller Bearing sr sub nts
9.625% 6/15/07 ................................ 75,000 75,563
---------
2,588,313
---------
AUTOMOBILES & AUTOMOTIVE PARTS-3.53%
ADV Accessory/AAS Cap sr sub nts
9.75% 10/1/07 ................................. 400,000 395,000
CSK Auto sr sub nts 11.00% 11/1/06 ............. 500,000 545,000
Delco Remy International sr sub nts
10.625% 8/1/06 ................................ 250,000 270,625
Exide Corp sr nts 10.75% 12/15/02 .............. 100,000 105,875
Motors and Gears sr sub nts
10.75% 11/15/06 ............................... 700,000 745,500
Ryder Transportation sr sub nts
10.00% 12/1/06 ................................ 275,000 276,375
Speedy Muffler King sr sub nts
10.875% 10/1/06 ............................... 550,000 349,250
Stanadyne Automobile sr sub nts
10.25% 12/15/07 ............................... 800,000 800,000
---------
3,487,625
---------
BANKING, FINANCE & INSURANCE-0.10%
Western Financial Bank sr disc nts
8.875% 8/1/07 ................................. 100,000 96,750
---------
96,750
---------
BUILDINGS & MATERIALS-5.88%
American Architectural sr nts
11.75% 12/1/07 ................................ 500,000 502,500
American Builders and Contractors
sr sub nts 10.625% 5/15/07 .................... 325,000 338,406
Atrium sr sub nts 10.50% 11/15/06 .............. 600,000 629,250
Clark Materials Handling sr sub nts
10.75% 11/15/06 ............................... 500,000 532,500
Collins & Aikman Floorcover sr sub nts
10.00% 1/15/07 ................................ 750,000 780,000
Kevco sr sub nts 10.375% 12/1/07 ............... 400,000 409,000
Nortek sr nts 9.25% 3/15/07 .................... 500,000 511,250
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
BUILDINGS & MATERIALS (CONTINUED)
Reliant Building sr sub nts
10.875% 5/1/04 ................................ $ 750,000 $ 782,813
Safelite Glass sr nts
9.875% 12/15/06 ............................... 500,000 548,750
Williams Scotsman sr sub nts
9.875% 6/1/07 ................................. 750,000 776,250
---------
5,810,719
---------
CABLE, MEDIA & PUBLISHING-6.60%
Adelphia Communications sr debs
11.875% 9/15/04 ............................... 400,000 437,000
American Banknote sr sub nts
11.25% 12/1/07 ................................ 500,000 501,875
Fox Kids Worldwide sr disc nts
0.00%/10.25% 11/1/07 .......................... 1,200,000 714,000
Frontiervision Holdings sr disc nts
11.875% 9/15/07 ............................... 650,000 479,375
Intermedia Capital Partners sr nts
11.25% 8/1/06 ................................. 500,000 556,250
Knology Holdings sr sub nts
14.25% 10/15/07 ............................... 100,000 550,000
Lamar Advertising sr sub nts
9.625% 12/1/06 ................................ 500,000 540,000
Marcus Cable sr disc nts
0.00%/14.25% 12/15/05 ......................... 800,000 694,000
Northland Cable Television sr sub nts
10.25% 11/15/07 ............................... 750,000 792,188
Pegasus sr nts 9.625% 10/15/05 ................. 250,000 256,875
Rogers Cablesystems sr sub nts
11.00% 12/1/15 ................................ 270,000 313,200
STC Broadcasting sr sub nts
11.00% 3/15/07 ................................ 400,000 432,500
Sullivan Graphics sr sub nts
12.75% 8/1/05 ................................. 250,000 255,000
---------
6,522,263
---------
CHEMICALS-3.44%
Harris Chemical sr sub nts
10.75% 10/15/03 ............................... 150,000 160,500
Huntsman sr sub nts 9.50% 7/1/07 ............... 400,000 420,000
Koppers Industries sr sub nts
9.875% 12/1/07 ................................ 500,000 515,000
Laroche Industries sr sub nts
9.50% 9/15/07 ................................. 1,000,000 992,500
23
<PAGE>
DELCHESTER SERIES (FORMERLY HIGH YIELD SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
CHEMICALS (CONTINUED)
PCI Chemicals Canada sr nts
9.25% 10/15/07 ................................ $ 175,000 $ 175,219
Sterling Chemical Holdings sr disc nts
0.00%/13.50% 8/15/08 .......................... 1,275,000 865,406
Texas Petrochemical sr sub nts
11.125% 7/1/06 ................................ 250,000 273,437
---------
3,402,062
---------
COMPUTERS & TECHNOLOGY-0.86%
Cellnet Data Systems sr sub nts
0.00%/14.00% 10/1/07 .......................... 100,000 515,000
Decisionone sr sub nts 9.75% 8/1/07 ............ 325,000 338,813
---------
853,813
---------
CONSUMER PRODUCTS-7.01%
Calmar sr sub nts 11.50% 8/15/05 ............... 500,000 533,750
Coleman Escrow 1st priority disc nts
0.00% 5/15/01 ................................. 1,000,000 665,000
Coleman Escrow 2nd priority disc nts
0.00% 5/15/01 ................................. 575,000 346,437
Desa International sr sub nts
9.875% 12/15/07 ............................... 200,000 205,500
Drypers sr nts 10.25% 6/15/07 .................. 500,000 506,250
French Fragrances sr nts
10.375% 5/15/07 ............................... 1,000,000 1,055,000
Precise Technology sr sub nts
11.125% 6/15/07 ............................... 75,000 77,250
Prime Succession Acquisition sr sub nts
10.75% 8/15/04 ................................ 200,000 220,000
Revlon Worldwide sr disc nts
0.00% 3/15/01 ................................. 600,000 414,000
Riddell Sports sr unsec nts
10.50% 7/15/07 ................................ 400,000 416,000
Shop Vac sr sub nts 10.625% 9/1/03 ............. 500,000 544,375
Standard Commercial sr nts
8.875% 8/1/05 ................................. 1,000,000 1,008,750
William Carter sr sub nts
10.375% 12/1/06 ............................... 600,000 634,500
Zeta Consumer Products sr nts
11.25% 11/30/07 ............................... 300,000 306,000
---------
6,932,812
---------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
ELECTRONICS & ELECTRICAL EQUIPMENT-0.89%
Communications Instruments sr sub nts
10.00% 9/15/04 .................................. $ 250,000 $ 255,000
IMO Industries sr sub nts
11.75% 5/1/06 ................................... 500,000 553,750
International Logistics sr nts
9.75% 10/15/07 .................................. 75,000 74,625
---------
883,375
---------
ENERGY-5.00%
Gothic Energy sr nts 12.25% 9/1/04 ............... 100,000 105,250
Mariner Energy sr sub nts
10.50% 8/1/06 ................................... 500,000 526,250
Panaco sr nts 10.625% 10/1/04 425,000 428,188
Rutherford-Moran Oil sr sub nts
10.75% 10/1/04 .................................. 750,000 763,125
Statia Terminals 1st mtg nts
11.75% 11/15/03 ................................. 250,000 264,687
TransAmerican Energy
sr nts 11.50% 6/15/02 ........................... 250,000 245,625
sr disc nts 0.00%/13.00% 6/15/02 ................ 1,000,000 800,000
Transamerica Refining units
16.00% 6/30/03 .................................. 1,000,000 1,020,000
United Refining sr unsec nts
10.75% 6/15/07 .................................. 750,000 789,375
---------
4,942,500
---------
ENVIRONMENTAL SERVICES-0.29%
Hydrochem Industrial sr sub nts
10.375% 8/1/07 .................................. 275,000 283,938
---------
283,938
---------
FOOD, BEVERAGE & TOBACCO-4.96%
Ameriking sr nts 10.75% 12/1/06 .................. 450,000 472,500
Ameriserv Food sr nts
10.125% 7/15/07 ................................. 750,000 787,500
B & G Foods sr sub nts
9.625% 8/1/07 ................................... 500,000 505,000
Core-Mark sr sub nts
11.375% 9/15/03 ................................. 200,000 212,000
Del Monte Foods sr disc nts
0.00%/12.50% 12/15/07 ........................... 1,400,000 808,500
DiGiorgio sr nts 10.00% 6/15/07 .................. 775,000 761,437
Electronic Retailing Systems sr disc nts
13.25% 2/1/04 ................................... 500,000 340,000
24
<PAGE>
DELCHESTER SERIES (FORMERLY HIGH YIELD SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
FOOD, BEVERAGE & TOBACCO (CONTINUED)
International Home Foods sr sub nts
10.375% 11/1/06 ............................... $ 125,000 $ 137,500
SC International Services sr sub nts
9.25% 9/1/07 .................................. 250,000 258,125
Windy Hill Pet Food sr sub nts
9.75% 5/15/07 ................................. 600,000 625,500
---------
4,908,062
---------
HEALTHCARE & PHARMACEUTICALS-0.94%
Alliance Imaging sr sub nts
9.625% 12/15/05 ............................... 400,000 407,000
Dynacare sr nts 10.75% 1/15/06 ................. 500,000 526,250
---------
933,250
---------
INDUSTRIAL MACHINERY-2.77%
AEP Industries sr sub nts
9.875% 11/15/07 ............................... 200,000 206,000
Cambridge Industries sr sub nts
10.25% 7/15/07 ................................ 800,000 835,000
Hawk sr nts 10.25% 12/1/03 ..................... 630,000 674,100
Safety Components International
sr sub nts 10.125% 7/15/07 .................... 600,000 620,250
Trench Electric sr sub nts
10.25% 12/15/07 ............................... 400,000 407,500
---------
2,742,850
---------
LEISURE, LODGING & ENTERTAINMENT-4.44%
American Skiing sr sub nts
12.00% 7/15/06 ................................ 300,000 331,500
Booth Creek Ski Holdings sr nts
12.50% 3/15/07 ................................ 600,000 589,500
Casino America sr nts 12.50% 8/1/03 ............ 650,000 705,250
Hollywood Casino sr nts
12.75% 11/1/03 ................................ 600,000 642,000
Station Casinos sr sub nts
9.75% 4/15/07 ................................. 575,000 600,875
Town Sports International sr nts
9.75% 10/15/04 ................................ 325,000 328,250
Trump Atlantic City 1st mtg nts
11.25% 5/1/06 ................................. 500,000 485,000
Venetian Casino mtg nts
12.25% 11/15/04 ............................... 700,000 703,500
---------
4,385,875
---------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
METALS & MINING-2.32%
AK Steel sr nts 10.75% 4/1/04 ................... $ 750,000 $ 802,500
Commonwealth Aluminum sr sub nts
10.75% 10/1/06 .................................. 200,000 214,750
Gulf States Steel 1st mtg nts
13.50% 4/15/03 .................................. 250,000 257,500
Metallurg sr nts 11.00% 12/1/07 .................. 300,000 309,750
Westmin Resources sr nts
11.00% 3/15/07 .................................. 650,000 711,750
---------
2,296,250
---------
PACKAGING & CONTAINERS-2.25%
Gaylord Container sr nts
9.75% 6/15/07 ................................... 550,000 537,625
Riverwood International sr sub nts
10.875% 4/1/08 .................................. 800,000 772,000
Silgan Holdings debs pik
13.25% 7/15/06 .................................. 532,000 605,815
Stone Container sr sub nts
12.25% 4/1/02 ................................... 300,000 306,000
---------
2,221,440
---------
PAPER & FOREST PRODUCTS-3.18%
Fibermark sr nts 9.375% 10/15/06 ................. 400,000 416,000
Four M sr nts 12.00% 6/1/06 ...................... 1,000,000 1,067,500
MAXXAM Group
sr sec nts 11.25% 8/1/03 ....................... 950,000 1,009,375
sr sec nts 12.00% 8/1/03 ....................... 600,000 651,750
---------
3,144,625
---------
RETAIL-5.50%
Carrols sr nts 11.50% 8/15/03 200,000 213,000
Central Tractor sr nts
10.625% 4/1/07 .................................. 140,000 148,400
Chief Auto Parts sr sub nts
10.50% 5/15/05 .................................. 900,000 902,250
Fleming sr sub nts 10.50% 12/1/04 ................ 1,750,000 1,837,500
Jitney-Jungle Stores sr sub nts
10.375% 9/15/07 ................................. 1,300,000 1,348,750
Leslie's Poolmart sr nts
10.375% 7/15/04 ................................. 500,000 516,875
Petro Stopping Centers sr nts
10.50% 2/1/07 ................................... 350,000 371,875
Shoppers Food Warehouse sr nts
9.75% 6/15/04 ................................... 100,000 102,500
---------
5,441,150
---------
25
<PAGE>
DELCHESTER SERIES (FORMERLY HIGH YIELD SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS-16.77%
Adelphia Communications sr nts pik
9.50% 2/15/04 ............................... $ 340,437 $ 348,947
Arch Communications sr disc nts
0.00%/10.875% 3/15/08 ....................... 1,000,000 620,000
BTI Telecom sr nts 10.50% 9/15/07 ............ 1,500,000 1,537,500
Comcast Cellular sr nts 9.50% 5/1/07 ......... 1,000,000 1,047,500
EchoStar Communications sr sec nts
12.50% 7/1/02 ............................... 1,000,000 1,092,500
GST USA sr disc nts
0.00%/13.875% 12/15/05 ...................... 1,000,000 765,000
Galaxy Telecommunication L.P. ................
sr sub nts 12.375% 10/1/05 .................. 500,000 551,250
Highwaymaster Communications
sr nts 13.75% 9/15/05 ....................... 900,000 918,000
Iridium LLC/Capital sr nts
11.25% 7/15/05 .............................. 500,000 495,000
Jacor Communications unsec
sr sub nts 9.75% 12/15/06 ................... 500,000 538,750
MGC Communications sr nts
13.00% 10/1/04 .............................. 300,000 301,500
McCaw International units
0.00%/13.00% 4/15/07 ........................ 300,000 178,500
Metrocall unsec sr sub nts
10.375% 10/1/07 ............................. 1,475,000 1,504,500
Metronet Communications sr disc nts
10.75% 11/1/07 .............................. 400,000 245,000
Nextel Communications
sr disc nts 0.00%/9.75% 8/15/04 ............. 1,000,000 890,000
sr disc nts 0.00%/10.65% 9/15/07 ............ 1,650,000 1,045,687
Paging Network sr sub nts
10.125% 8/1/07 .............................. 450,000 471,937
RCN sr nts 10.00% 10/15/07 ................... 200,000 206,500
RCN sr disc nts 0.00% 10/15/07 ............... 2,750,000 1,732,500
Telegroup sr disc nts
0.00%/10.50% 11/1/04 ........................ 125,000 97,500
TELEX Communications sr sub nts
10.50% 5/1/07 ............................... 1,000,000 987,500
Teligent sr nts 11.50% 12/1/07 ............... 1,000,000 1,005,000
----------
16,580,571
----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
TEXTILES, APPAREL & FURNITURE-1.88%
Anvil Knitwear sr nts
10.875% 3/15/07 ............................. $ 1,000,000 $ 1,027,500
J Crew Group debs 0.00% 10/15/08 ............. 175,000 82,031
J Crew Operating sr sub nts
10.375% 10/15/07 ............................ 500,000 438,750
Scovill Fasteners sr nts
11.25% 11/30/07 ............................. 300,000 307,500
---------
1,855,781
---------
TRANSPORTATION & SHIPPING-1.76%
Chemical Leaman sr nts
10.375% 6/15/05 ............................. 500,000 525,000
Equimar Shipholdings 1st priority
ship mtg nts 9.875% 7/1/07 .................. 200,000 189,500
Navigator Gas Transport
nts 10.50% 6/30/07 .......................... 400,000 427,000
units 12.00% 6/30/07 ........................ 400,000 450,000
Pegasus Shipping Hellas sr mtg nts
11.875% 11/15/04 ............................ 150,000 148,313
---------
1,739,813
---------
MISCELLANEOUS-2.19%
Burke Industries sr nts
10.00% 8/15/07 .............................. 500,000 520,000
Coinmach sr nts 11.75% 11/15/05 .............. 150,000 166,125
Comforce Operating sr nts
12.00% 12/1/07 .............................. 450,000 456,750
Perry-Judd sr sub nts
10.625% 12/15/07 ............................ 500,000 515,000
Spinnaker Industries sr nts
10.75% 10/15/06 ............................. 500,000 513,125
---------
2,171,000
---------
TOTAL CORPORATE BONDS
(COST $81,914,325) .......................... 84,224,837
---------
26
<PAGE>
DELCHESTER SERIES (FORMERLY HIGH YIELD SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
PREFERRED STOCK-1.85%
American Communication
Services pik ................................. 650 $ 679,250
Echostar Communications pik ................... 150 157,875
El Paso Electric pik .......................... 6,250 693,750
Pegasus Communications unit pik
12.75% 1/1/02 ................................ 2,500 278,750
*Terex-Appreciation Rights ..................... 800 14,400
---------
TOTAL PREFERRED STOCK
(COST $1,688,935) ............................ 1,824,025
---------
CONVERTIBLE PREFERRED STOCK-0.25%
Pantry Pride $14.875 cv pfd ................... 2,500 250,313
---------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $262,500) .............................. 250,313
---------
WARRANTS-0.01%
*Electronic Retailing System
warrants ..................................... 500 10,000
*Highway Master warrants ....................... 800 960
---------
TOTAL WARRANTS
(COST $21,475) ............................... 10,960
---------
REPURCHASE AGREEMENTS-10.84%
With Chase Manhattan 6.00% 01/02/98
(dated 12/31/97, collateralized by
$1,681,000 U.S. Treasury Notes 7.75%
due 01/31/00, market value $1,802,238
and $1,355,000 U.S. Treasury Notes
7.75% due 11/30/99, market value
$1,413,824) .................................. $ 3,151,000 $ 3,151,000
With JP Morgan Securities 6.25% 01/02/98
(dated 12/31/97, collateralized by
$1,051,000 U.S. Treasury Notes 9.00%
due 05/15/98, market value
$1,075,670 and $3,363,000
U.S. Treasury Notes 6.00% due 05/31/98,
market value $3,385,108) ..................... 4,371,000 4,371,000
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$3,250,000 U.S. Treasury Notes
6.25% due 06/30/98,
market value $3,262,548) ..................... 3,195,000 3,195,000
---------
TOTAL REPURCHASE AGREEMENTS
(COST $10,717,000) ........................... 10,717,000
TOTAL MARKET VALUE OF SECURITIES-98.13% (COST $94,604,235) ...... $97,027,135
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-1.87% ........... 1,847,747
-----------
NET ASSETS APPLICABLE TO 10,394,599 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $9.51 PER SHARE-100.00% ............. $98,874,882
===========
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common stock, $.01 par value, 750,000,000 shares authorized to
the Fund with 50,000,000 shares allocated to the Series ........ $96,342,329
Undistributed net investment income ............................. 75,868
Accumulated net realized gain on investments .................... 33,785
Net unrealized appreciation of investments ...................... 2,422,900
-----------
Total net assets ................................................ $98,874,882
===========
- ----------
* Non-income producing security.
Summary of Abbreviations:
cv-convertible nt-snotes sr-senior
debs-debentures pfd-preferred sub-subordinated
disc-discount pik-pay-in-kind un-secunsecured
mtg-mortgage sec-secured
See accompanying notes
27
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-CAPITAL RESERVES SERIES
STATEMENT OF NET ASSETS
December 31, 1997
PRINCIPAL MARKET
AMOUNT VALUE
ASSET-BACKED SECURITIES-13.63%
ADVANTA Series 93-1A2
5.95% 5/25/09 ................................... $ 40,044 $ 39,195
American Finance Home Equity
Series 94-2A 6.95% 6/25/24 ...................... 166,206 166,621
Series 91-1A 8.00% 7/25/06 ...................... 26,057 26,461
First Union Residential Securitization
Trust Series 96-2 A2 6.46% 9/25/11 ............... 615,000 615,865
IMC Home Equity Loan Trust Series
95-3 A2 6.50% 11/25/10 .......................... 198,911 198,811
MetLife Capital Equipment Loan Trust
Series 97-A A 6.85% 5/20/08 ..................... 410,000 419,061
NationsCredit Grantor Trust
Series 96-1 A 5.85% 9/15/11 ..................... 201,630 200,118
Series 97-2 A1 6.35% 4/15/14 .................... 338,361 339,312
The Money Store Home Equity Trust
Series 97-C AH5 6.59% 2/15/15 ................... 500,000 501,094
Series 97-A A9 7.235% 4/15/27 ................... 385,000 397,513
UCFC Home Equity Loan Series
96-B1 A3 7.30% 4/15/14 .......................... 625,000 632,813
World Omni Automobile Lease
Securitization Series 97-B A4
6.20% 11/25/03 .................................. 440,000 439,244
---------
TOTAL ASSET-BACKED SECURITIES
(COST $3,943,676) ............................... 3,976,108
---------
COLLATERALIZED MORTGAGE OBLIGATIONS-38.97%
Asset Securitization Corporation
Series 97-D5 A3 6.864% 2/14/41 .................. 320,000 324,300
Series 96-D2 A1 6.92% 2/14/29 629,612 647,320
Series 96-D3 A1B 7.21% 10/13/26 ................. 400,000 416,625
Series 97-D4 A1A 7.35% 4/14/29 .................. 366,460 377,626
California Infrastructure PG&E
Series 97-1 A4 6.16% 6/25/03 .................... 555,000 556,126
CIT RV Trust Series 97-A A5
6.25% 11/17/02 .................................. 510,000 509,761
Federal Home Loan Mortgage
Corporation Series 29-E
6.50% 6/25/20 ................................... 475,000 479,280
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
COLLATERALIZED MORTGAGE
OBLIGATIONS (CONTINUED)
Federal National Mortgage Association
Series 93-53H 5.75% 1/25/22 ................. $ 335,000 $ 321,960
GE Capital Mortgage Services Series
94-2 A3 5.40% 1/25/09 ....................... 253,073 251,845
Lehman Large Loan Series 97-LLI A1
6.79% 6/12/04 ............................... 433,429 442,572
Merrill Lynch Mortgage Investors
Series 97-C1 A1 6.95% 6/18/29 ............... 252,741 258,190
Mortgage Capital Funding
Conti Series 96-MCI D
7.80% 4/15/06 ............................... 360,000 379,913
Series 96-MC2 A1 6.758% 12/21/26 ............ 379,955 385,297
Series 96-MC2 C 7.224% 9/20/06 .............. 275,000 282,305
NationsBank Credit Card Master Trust
Series 93-2 A 6.00% 12/15/05 ................ 370,000 367,817
Nomura Asset Securities
Series 93-1 A1 6.68% 12/15/01 ............... 352,397 356,306
Series 96-MD5 A3 7.64% 4/13/36 .............. 460,000 490,044
Series 95-MD3 A1A 8.17% 3/4/20 .............. 461,656 483,729
Prudential Home Mortgage Series
93-61 A3 6.50% 12/25/08 ..................... 465,000 469,443
Residential Accredit Loans
Series 97-QS1 A5 6.75% 2/25/27 .............. 400,000 400,625
Series 97-QS4 A3 7.25% 5/25/27 .............. 680,000 688,075
Series 96-QS3 AI3 7.29% 6/25/26 ............. 225,000 226,934
Series 95-QS1 A3 7.30% 6/25/21 .............. 220,000 222,338
Series 96-QS2 A6 7.45% 4/25/23 .............. 540,000 549,450
Series 97-QS3 A3 7.50% 6/25/12 .............. 540,187 562,806
Series 96-A4 A5 7.50% 4/25/27 ............... 540,000 547,931
Residential Funding Mortgage
Securities Series 96-S9 A10
7.25% 4/25/26 ............................... 361,618 372,997
----------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (COST $11,176,974) .............. 11,371,615
----------
28
<PAGE>
CAPITAL RESERVES SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES-14.17%
Federal Home Loan Mortgage
Corporation 7.00% 10/1/17 ....................... $ 143,461 $ 145,120
Federal Home Loan Mortgage
Corporation 7.50% 5/1/09 ........................ 87,319 88,274
Federal Home Loan Mortgage
Corporation 8.50% 9/1/08 to 6/1/14 .............. 238,449 248,908
Federal National Mortgage Association
6.50% 1/1/12 .................................... 450,000 449,718
Federal National Mortgage Association
8.00% 1/1/10 to 9/1/16 .......................... 613,491 635,682
Federal National Mortgage Association
9.00% 10/1/06 ................................... 250,549 261,510
Federal National Mortgage Association
9.50% 11/1/21 to 5/1/22 ......................... 485,121 529,871
Government National Mortgage
Association 6.50%
12/15/23 to 1/15/24 ............................. 379,402 376,675
Government National Mortgage
Association 9.00%
6/15/21 to 11/15/21 ............................. 1,118,560 1,212,023
Government National Mortgage
Association 12.00%
6/20/14 to 2/20/16 .............................. 163,037 186,262
---------
TOTAL MORTGAGE-BACKED SECURITIES
(COST $4,064,525) ............................... 4,134,043
---------
CORPORATE BONDS-17.66%
AT&T Capital 6.83% 1/30/01 ....................... 545,000 553,175
Banco Santiago S.A. 7.00% 7/18/07 ................ 270,000 266,625
Continental Airlines 6.80% 1/2/09 ................ 450,000 452,813
Credit Foncier de France
8.00% 1/14/02 ................................... 340,000 356,150
Firstar Capital 8.32% 12/15/26 ................... 315,000 345,713
Ford Motor Credit 7.00% 9/25/01 .................. 850,000 874,438
CORPORATE BONDS (CONTINUED)
Great Western Financial
8.206% 2/1/27 ................................... $ 500,000 $ 530,625
Health and Retirement Properties
6.75% 12/18/02 .................................. 360,000 360,000
Norfolk Southern 6.70% 5/1/00 450,000 455,625
Summit Bank 6.75% 6/15/03 ........................ 430,000 436,450
U.S. West Capital Funding
6.20% 11/30/00 .................................. 520,000 520,000
---------
TOTAL CORPORATE BONDS
(COST $5,006,454) ............................... 5,151,614
---------
U.S. TREASURY OBLIGATIONS-13.14%
U.S. Treasury Notes 5.875% 4/30/98 ............... 1,480,000 1,482,338
U.S. Treasury Notes 5.875% 3/31/99 ............... 1,650,000 1,654,818
U.S. Treasury Notes 6.00% 9/30/98 ................ 155,000 155,485
U.S. Treasury Notes 6.125% 8/15/07 ............... 275,000 282,718
U.S. Treasury Notes 6.375% 1/15/00 ............... 180,000 182,644
U.S. Treasury Notes 6.375% 8/15/02 ............... 75,000 76,964
---------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $3,826,598) ............................... 3,834,967
---------
MUNICIPAL BONDS-1.28%
Philadelphia, Pennsylvania Authority
For Industrial Development Series
97 A 6.488% 6/15/04 ............................. 372,884 374,865
---------
TOTAL MUNICIPAL BONDS
(COST $372,884) ................................. 374,865
---------
29
<PAGE>
CAPITAL RESERVES SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS-1.85%
With Chase Manhattan 6.00% 01/02/98
(dated 12/31/97, collateralized by
$85,000 U.S. Treasury Notes 7.75%
due 01/31/00, market value $90,978
and $68,000 U.S. Treasury Notes
7.75% due 11/30/99,
market value $71,371) ........................... $159,000 $159,000
With JP Morgan Securities 6.25% 01/02/98
(dated 12/31/97, collateralized by
$53,000 U.S. Treasury Notes 9.00%
due 05/15/98, market value $54,300 and
$170,000 U.S. Treasury Notes
6.00% due 05/31/98,
market value $170,882) .......................... 221,000 221,000
REPURCHASE AGREEMENTS (CONTINUED)
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$164,000 U.S. Treasury Notes
6.25% due 06/30/98,
market value $164,695) .......................... $161,000 $161,000
--------
TOTAL REPURCHASE AGREEMENTS
(COST $541,000) ................................. 541,000
--------
TOTAL MARKET VALUE OF SECURITIES (COST $28,932,111)-100.70% ... $ 29,384,212
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.70%) ....... (207,380)
------------
NET ASSETS APPLICABLE TO 2,979,589 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $9.79 PER SHARE-100.00% ........... $ 29,176,832
============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common stock, $ .01 par value, 750,000,000 shares authorized
to the Fund with 50,000,000 shares allocated to the Series ... $ 30,300,386
Accumulated net realized loss on investments .................. (1,575,655)
Net unrealized appreciation of investments .................... 452,101
------------
Total net assets .............................................. $ 29,176,832
============
See accompanying notes
30
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-CASH RESERVE SERIES
(FORMERLY MONEY MARKET SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
December 31, 1997
PRINCIPAL MARKET
AMOUNT VALUE
COMMERCIAL PAPER-63.92%
FINANCIAL SERVICES-40.45%
ABN-AMRO North American Financial,
Chicago 5.64% 03/20/98 ........................ $ 1,000,000 $ 987,780
Banc One Funding 5.82% 01/15/98 ................ 1,000,000 997,737
Corporate Asset Funding
5.78% 02/13/98 ................................ 1,000,000 993,096
General Electric Capital
5.70% 01/14/98 ................................ 1,020,000 1,017,900
Lloyds Bank 5.64% 05/04/98 ..................... 1,000,000 980,730
MetLife Funding 5.58% 01/12/98 ................. 1,000,000 998,295
New York Life Capital
5.58% 02/20/98 ................................ 1,000,000 992,250
Siemens Capital 5.63% 01/16/98 ................. 1,000,000 997,654
Stanford University 5.49% 04/07/98 ............. 900,000 886,824
Stanford University 5.62% 05/18/98 ............. 600,000 587,168
USAA Capital 5.63% 02/12/98 .................... 1,000,000 993,327
Westdeutsche Landesbank
Girozentrale 5.95% 01/08/98 ................... 1,000,000 998,843
Western Australian Treasury
5.69% 03/03/98 ................................ 1,000,000 990,359
----------
12,421,963
----------
INDUSTRIAL-10.63%
Campbell Soup 5.50% 05/11/98 ................... 1,000,000 980,139
Dupont E.I. De Nemours
5.54% 05/06/98 ................................ 450,000 441,344
Golden Peanut 5.53% 01/16/98 ................... 600,000 598,617
Hershey Foods 5.53% 01/16/98 ................... 1,000,000 997,696
Walt Disney 5.61% 03/27/98 ..................... 250,000 246,689
----------
3,264,485
----------
MORTGAGE BANKERS & BROKERS-12.84%
Bear Stearns 5.75% 02/25/98 .................... 1,000,000 991,215
CS First Boston 5.60% 02/13/98 ................. 1,000,000 993,311
Goldman Sachs Group
5.62% 08/04/98 ................................ 1,000,000 966,436
Morgan Stanley Dean Witter Discover
5.67% 02/18/98 ................................ 1,000,000 992,440
----------
3,943,402
----------
TOTAL COMMERCIAL PAPER ......................... 19,629,850
----------
YANKEE CERTIFICATES OF DEPOSIT-1.63%
ABN-AMRO North American Financial,
Chicago 6.03% 06/11/98 ........................ $ 500,000 $ 500,019
----------
TOTAL YANKEE CERTIFICATES
OF DEPOSIT .................................... 500,019
----------
FLOATING RATE NOTES*-16.28%
Federal Farm Credit Bank Medium
Term Note 5.55% 02/20/98 ..................... 1,000,000 999,920
Federal Home Loan Bank
5.755% 10/23/98 ............................... 500,000 500,000
Key Bank New York 6.24% 10/02/98 ............... 1,000,000 1,000,404
Merrill Lynch 6.21% 04/06/98 ................... 1,500,000 1,500,000
Student Loan Marketing Association
Medium Term Note 5.775% 11/12/98 .............. 1,000,000 1,000,000
----------
TOTAL FLOATING RATE NOTES ...................... 5,000,324
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS-1.12%
Federal National Mortgage Association
Discount Note 5.48% 04/06/98 .................. 350,000 344,939
----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS ................................... 344,939
----------
MISCELLANEOUS INVESTMENTS-1.63%
Northern Trust-Bank Note
5.96% 06/17/98 ................................ 500,000 499,912
----------
TOTAL MISCELLANEOUS INVESTMENTS ................ 499,912
----------
31
<PAGE>
CASH RESERVE SERIES (FORMERLY MONEY MARKET SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS-15.35%
With Chase Manhattan 6.00% 01/02/98
(dated 12/31/97, collateralized by
$739,000 U.S. Treasury Notes 7.75%
due 01/31/00, market value $792,568
and $596,000 U.S. Treasury Notes
7.75% due 11/30/99,
market value $621,755) .......................... $1,385,000 $1,385,000
With JP Morgan Securities 6.25% 01/02/98
(dated 12/31/97, collateralized by
$462,000 U.S. Treasury Notes 9.00%
due 05/15/98, market value $473,046
and $1,479,000 U.S. Treasury Notes
6.00% due 05/31/98,
market value $1,488,664) ........................ 1,923,000 1,923,000
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$1,429,000 U.S. Treasury Notes
6.25% due 06/30/98,
market value $1,434,766 ......................... $1,405,000 $1,405,000
---------
TOTAL REPURCHASE AGREEMENTS ...................... 4,713,000
---------
TOTAL MARKET VALUE OF SECURITIES-99.93% (COST $30,688,044)** .... $30,688,044
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.07% ........... 23,132
-----------
NET ASSETS APPLICABLE TO 3,071,118 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $10.00 PER SHARE-100.00% ............ $30,711,176
===========
- ----------
*Floating Rate Notes - The interest rate shown is the rate as of December 31,
1997 and the maturity shown is the longer of the next interest readjustment
date or the date the principal amount shown can be recovered through demand.
**Also the cost for federal income tax purposes.
See accompanying notes
32
<PAGE>
Delaware Group Premium Fund, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED 12/31/97
DECATUR TOTAL CAPITAL CASH
DELCAP RETURN DELAWARE DELCHESTER RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest....................... $565,933 $521,945 $2,288,127 $7,850,954 $1,968,780 $1,688,409
Dividends...................... 135,462 6,964,542 1,214,892 202,569 -- --
Foreign tax withheld........... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------
701,395 7,486,487 3,503,019 8,053,523 1,968,780 1,688,409
----------- ----------- ----------- ----------- ----------- ----------
EXPENSES:
Management fees................ 716,228 1,640,377 595,126 483,877 166,300 149,023
Custodian fees................. 13,891 6,492 4,299 188 11,602 9,279
Dividend disbursing and
transfer agent fees and
expenses...................... 6,504 15,556 6,208 4,089 3,044 2,110
Registration fees.............. 5,627 54,255 998 4,021 1,150 2,779
Reports and statements to
shareholders ................. 9,489 29,916 5,738 11,125 2,828 3,385
Accounting and administration.. 49,152 144,388 44,184 38,311 13,121 14,208
Professional fees.............. 10,459 4,280 1,210 12,140 5,922 4,597
Directors' fees................ 2,041 4,603 2,069 1,796 990 1,024
Taxes (other than taxes on
income) ...................... 6,945 22,256 3,012 3,303 973 2,385
Other.......................... 9,731 20,880 -- 7,551 2,157 2,867
----------- ----------- ----------- ----------- ----------- ----------
830,067 1,943,003 662,844 566,401 208,087 191,657
----------- ----------- ----------- ----------- ----------- ----------
Less expenses absorbed by
Delaware Management
Company, Inc.................. (69,320) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------
Total Expenses................. 760,747 1,943,003 662,844 566,401 208,087 191,657
----------- ----------- ----------- ----------- ----------- ----------
NET INVESTMENT INCOME (LOSS)... (59,352) 5,543,484 2,840,175 7,487,122 1,760,693 1,496,752
----------- ----------- ----------- ----------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on
Investment transactions...... 9,871,869 23,181,744 11,425,156 3,130,833 47,064 --
Net change in unrealized
appreciation/depreciation
of investments................ 3,608,725 40,216,861 9,349,683 (168,776) 237,399 --
----------- ----------- ----------- ----------- ----------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS ... 13,480,594 63,398,605 20,774,839 2,962,057 284,463 --
----------- ----------- ----------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................... $13,421,242 $68,942,089 $23,615,014 $10,449,179 $10,449,179 $1,469,752
=========== =========== =========== =========== =========== ==========
</TABLE>
See accompanying notes
33
<PAGE>
Delaware Group Premium Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
YEAR YEAR 12/31/97 12/31/96 YEAR YEAR
ENDED ENDED DECATUR DECATUR ENDED ENDED
12/31/97 12/31/96 TOTAL TOTAL 12/31/97 12/31/96
DELCAP DELCAP RETURN RETURN DELAWARE DELAWARE
SERIES SERIES SERIES SERIES SERIES SERIES
------------ ------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ........... ($59,352) ($71,762) $5,543,484 $3,405,801 $2,840,175 $2,396,290
Net realized gain on investments ....... 9,871,869 4,627,563 23,181,744 14,743,863 11,425,156 4,893,415
Net change in unrealized appreciation/
depreciation on investments ........... 3,608,725 3,704,225 40,216,861 6,445,954 9,349,683 2,885,535
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ............. 13,421,242 8,260,026 68,942,089 24,595,618 23,615,014 10,175,240
------------ ------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income .................. -- (270,847) (5,726,790) (3,496,319) (2,590,776) (2,087,278)
Net realized gain on investment
transactions .......................... (4,513,513) (4,585,059) (14,788,457) (8,895,014) (4,899,878) (2,685,289)
------------ ------------ ------------ ------------ ------------ ------------
(4,513,513) (4,855,906) (20,515,247) (12,391,333) (7,490,654) (4,772,567)
------------ ------------ ------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .............. 28,573,142 24,165,659 187,531,270 52,083,590 36,224,621 10,105,572
Net asset value of shares
issued upon reinvestment of
dividends from net investment
income and net realized gain
on investment transactions ............ 4,513,513 4,855,906 20,515,247 12,391,313 7,490,655 4,772,567
------------ ------------ ------------ ------------ ------------ ------------
33,086,655 29,021,565 208,046,517 64,474,903 43,715,276 14,878,139
Cost of shares repurchased ............. (11,440,355) (10,647,798) (21,717,966) (19,036,067) (7,566,399) (8,093,881)
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets derived
from capital share transactions ....... 21,646,300 18,373,767 186,328,551 45,438,836 36,148,877 6,784,258
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS ............. 30,554,029 21,777,887 234,755,393 57,643,121 52,273,237 12,186,931
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period .................... 79,900,476 58,122,589 166,646,577 109,003,456 75,402,107 63,215,176
------------ ------------ ------------ ------------ ------------ ------------
End of period .......................... $110,454,505 $79,900,476 $401,401,970 $166,646,577 $127,675,344 $75,402,107
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes
34
<PAGE>
Delaware Group Premium Fund, Inc.
Statements of Changes in Net Assets (Continued)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
YEAR YEAR ENDED ENDED ENDED ENDED
ENDED ENDED 12/31/97 12/31/96 12/31/97 12/31/96
12/31/97 12/31/96 CAPITAL CAPITAL CASH CASH
DELCHESTER DELCHESTER RESERVES RESERVES RESERVE RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income.......... $7,487,122 $5,569,157 $1,760,693 $1,772,824 $1,496,752 $1,073,967
Net realized gain (loss) on investments ............ 3,130,833 684,792 47,064 (292,042) -- --
Net change in unrealized appreciation/
depreciation on investments ....................... (168,776) 953,156 237,399 (383,633) -- --
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations ......................... 10,449,179 7,207,105 2,045,156 1,097,149 1,496,752 1,073,967
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................. (7,411,254) (5,569,157) (1,761,161) (1,772,356) (1,496,752) (1,073,967)
Net realized gain on investment transactions ....... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
(7,411,254) (5,569,157) (1,761,161) (1,772,356) (1,496,752) (1,073,967)
---------- ---------- ---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .......................... 32,766,122 17,364,098 6,092,500 5,108,430 83,437,024 57,526,653
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions .......... 7,413,795 5,569,157 1,762,129 1,772,356 1,497,151 1,073,758
---------- ---------- ---------- ---------- ---------- ----------
40,179,917 22,933,255 7,854,629 6,880,786 84,934,175 58,600,411
Cost of shares repurchased .........................(12,007,637) (13,511,480) (6,729,405) (6,372,705) (80,701,553) (48,460,039)
---------- ---------- ---------- ---------- ---------- ----------
Increase in net assets derived from capital
share transactions ................................ 28,172,280 9,421,775 1,125,224 508,081 4,232,622 10,140,372
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS .............. 31,210,205 11,059,723 1,409,219 (167,126) 4,232,622 10,140,372
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS:
Beginning of period ................................ 67,664,677 56,604,954 27,767,613 27,934,739 26,478,554 16,338,182
---------- ---------- ---------- ---------- ---------- ----------
End of period ......................................$98,874,882 $67,664,677 $29,176,832 $27,767,613 $30,711,176 $26,478,554
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes
35
<PAGE>
Delaware Group Premium Fund, Inc.
FINANCIAL HIGHLIGHTS
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
DELCAP SERIES
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $ 15.890 $15.130 $11.750 $12.240 $11.120
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)(1) .............................. (0.010) (0.015) 0.072 0.069 0.056
Net realized and unrealized gain (loss) on investments ....... 2.260 2.030 3.378 (0.499) 1.214
------- ------- ------- ------- -------
Total from investment operations ............................. 2.250 2.015 3.450 (0.430) 1.270
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ......................... none (0.070) (0.070) (0.060) (0.020)
Distributions from net realized gain on investment
transactions ................................................ (0.870) (1.185) none none (0.130)
------- ------- ------- ------- -------
Total dividends and distributions ............................ (0.870) (1.255) (0.070) (0.060) (0.150)
------- ------- ------- ------- -------
Net asset value, end of period ................................ $17.270 $15.890 $15.130 $11.750 $12.240
======= ======= ======= ======= =======
Total return .................................................. 14.90% 14.46% 29.53% (3.54%) 11.56%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ...................... $110,455 $79,900 $58,123 $39,344 $33,180
Ratio of expenses to average net assets ...................... 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets prior to expense
limitation .................................................. 0.87% 0.82% 0.85% 0.88% 1.00%
Ratio of net investment income (loss) to average net assets .. (0.06%) (0.11%) 0.61% 0.64% 0.67%
Ratio of net investment income (loss) to average net assets
prior to expense limitation ................................. (0.13%) (0.13%) 0.56% 0.56% 0.47%
Portfolio turnover ........................................... 134% 85% 73% 43% 57%
Average commission rate paid(2) .............................. $ 0.0600 $0.0600 N/A N/A N/A
</TABLE>
- -------------
(1) Per share information for the period ended December 31, 1997 was based on
the average shares outstanding method.
(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
36
<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
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 15.980 $ 14.830 $ 11.480 $ 12.510 $11.220
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.324 0.377 0.416 0.412 0.434
Net realized and unrealized gain (loss) on
investments ............................................ 4.216 2.398 3.574 (0.422) 1.266
-------- -------- -------- -------- -------
Total from investment operations ........................ 4.540 2.775 3.990 (0.010) 1.700
-------- -------- -------- -------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income .................... (0.370) (0.420) (0.430) (0.420) (0.410)
Distributions from net realized gain on investment
transactions ........................................... (1.350) (1.205) (0.210) (0.600) none
-------- -------- -------- -------- -------
Total dividends and distributions ........................ (1.720) (1.625) (0.640) (1.020) (0.410)
-------- -------- -------- -------- -------
Net asset value, end of period ........................... $ 18.800 $ 15.980 $ 14.830 $ 11.480 $12.510
======== ======== ======== ======== =======
Total return ............................................. 31.00% 20.72% 36.12% (0.20%) 15.45%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................. $401,402 $166,647 $109,003 $ 72,725 $65,519
Ratio of expenses to average net assets ................. 0.71% 0.67% 0.69% 0.71% 0.75%
Ratio of expenses to average net assets prior to expense
limitation ............................................. 0.71% 0.67% 0.69% 0.71% 0.76%
Ratio of net investment income to average net assets .... 2.02% 2.66% 3.24% 3.63% 3.95%
Ratio of net investment income to average net assets
prior to expense limitation ............................ 2.02% 2.66% 3.24% 3.63% 3.94%
Portfolio turnover ...................................... 54% 81% 85% 91% 67%
Average commission rate paid(1).......................... $ 0.0600 $ 0.0600 N/A N/A N/A
</TABLE>
(1) 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
37
<PAGE>
Financial Highlights (Continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
DELAWARE SERIES
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 16.640 $15.500 $12.680 $13.330 $13.550
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.435 0.530 0.509 0.437 0.328
Net realized and unrealized gain (loss) on
investments.............................. 3.575 1.765 2.761 (0.447) 0.692
-------- ------- ------- ------- -------
Total from investment operations.......... 4.010 2.295 3.270 (0.010) 1.020
-------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income...... (0.530) (0.500) (0.450) (0.340) (0.460)
Distributions from net realized gain on
investment transactions.................. (1.070) (0.655) none (0.300) (0.780)
-------- ------- ------- ------- -------
Total dividends and distributions......... (1.600) (1.155) (0.450) (0.640) (1.240)
-------- ------- ------- ------- -------
Net asset value, end of period.............. $ 19.050 $16.640 $15.500 $12.680 $13.330
======== ======= ======= ======= =======
Total return................................ 26.40% 15.91% 26.58% (0.15%) 8.18%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted)... $127,675 $75,402 $63,215 $47,731 $37,235
Ratio of expenses to average net assets... 0.67% 0.68% 0.69% 0.70% 0.80%
Ratio of expenses to average net assets
prior to expense limitation.............. 0.67% 0.68% 0.69% 0.70% 0.89%
Ratio of net investment income to average
net assets............................... 2.85% 3.56% 3.75% 3.71% 3.33%
Ratio of net investment income to average
net assets prior to expense limitation... 2.85% 3.56% 3.75% 3.71% 3.24%
Portfolio turnover........................ 67% 92% 106% 140% 162%
Average commission rate paid(1)........... $ 0.0600 $0.0600 N/A N/A N/A
</TABLE>
- ----------------
(1)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
38
<PAGE>
Financial Highlights (Continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
DELCHESTER SERIES
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $9.170 $8.940 $8.540 $9.770 $9.290
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ..................................... 0.863 0.853 0.872 0.962 0.976
Net realized and unrealized gain (loss) on investments .... 0.332 0.230 0.400 (1.230) 0.480
------ ------ ------ ------ ------
Total from investment operations .......................... 1.195 1.083 1.272 (0.268) 1.456
------ ------ ------ ------ ------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ...................... (0.855) (0.853) (0.872) (0.962) (0.976)
Distributions from net realized gain on investment
transactions ............................................. none none none none none
------ ------ ------ ------ ------
Total dividends and distributions ......................... (0.855) (0.853) (0.872) (0.962) (0.976)
------ ------ ------ ------ ------
Net asset value, end of period ............................. $9.510 $9.170 $8.940 $8.540 $9.770
====== ====== ====== ====== ======
Total return ............................................... 13.63% 12.79% 15.50% (2.87%) 16.36%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................... $98,875 $67,665 $56,605 $43,686 $34,915
Ratio of expenses to average net assets ................... 0.70% 0.70% 0.69% 0.72% 0.80%
Ratio of expenses to average net assets prior to expense
limitation ............................................... 0.70% 0.70% 0.69% 0.72% 0.82%
Ratio of net investment income to average net assets ...... 9.24% 9.54% 9.87% 10.56% 10.05%
Ratio of net investment income to average net assets
prior to expense limitation .............................. 9.24% 9.54% 9.87% 10.56% 10.03%
Portfolio turnover ........................................ 121% 93% 74% 47% 43%
</TABLE>
See accompanying notes
39
<PAGE>
Financial Highlights (Continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
CAPITAL RESERVES SERIES
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $9.690 $9.930 $9.300 $10.260 $10.200
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.613 0.623 0.643 0.636 0.636
Net realized and unrealized gain (loss)
on investments ......................... 0.100 (0.240) 0.630 (0.905) 0.145
------- ------- ------- ------- -------
Total from investment operations......... 0.713 0.383 1.273 (0.269) 0.781
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income..... (0.613) (0.623) (0.643) (0.636) (0.636)
Distributions from net realized gain
on investment transactions.............. none none none (0.055) (0.085)
------- ------- ------- ------- -------
Total dividends and distributions........ (0.613) (0.623) (0.643) (0.691) (0.721)
------- ------- ------- ------- -------
Net asset value, end of period............ $9.790 $9.690 $9.930 $9.300 $10.260
======= ======= ======= ======= =======
Total return.............................. 7.60% 4.05% 14.08% (2.68%) 7.85%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted).. $29,177 $27,768 $27,935 $25,975 $24,173
Ratio of expenses to average net assets.. 0.75% 0.72% 0.71% 0.74% 0.80%
Ratio of expenses to average net assets
prior to expense limitation............. 0.75% 0.72% 0.71% 0.74% 0.85%
Ratio of net investment income to average
net assets ............................. 6.31% 6.43% 6.64% 6.57% 6.20%
Ratio of net investment income to average
net assets prior to expense limitation.. 6.31% 6.43% 6.64% 6.57% 6.15%
Portfolio turnover....................... 120% 122% 145% 219% 198%
</TABLE>
See accompanying notes
40
<PAGE>
Financial Highlights (Continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
CASH RESERVE SERIES
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $10.000 $10.000 $10.000 $10.000 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................................... 0.497 0.482 0.535 0.361 0.245
Net realized and unrealized gain (loss) on investments ... none none none none none
------- ------- ------- ------- -------
Total from investment operations ......................... 0.497 0.482 0.535 0.361 0.245
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ..................... (0.497) (0.482) (0.535) (0.361) (0.245)
Distributions from net realized gain on investment
transactions ............................................ none none none none none
------- ------- ------- ------- -------
Total dividends and distributions ........................ (0.497) (0.482) (0.535) (0.361) (0.245)
------- ------- ------- ------- -------
Net asset value, end of period ............................ $10.000 $10.000 $10.000 $10.000 $10.000
======= ======= ======= ======= =======
Total return .............................................. 5.10% 4.93% 5.48% 3.68% 2.48%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) .................. $30,711 $26,479 $16,338 $20,125 $10,245
Ratio of expenses to average net assets .................. 0.64% 0.61% 0.62% 0.66% 0.80%
Ratio of expenses to average net assets prior to expense
limitation .............................................. 0.64% 0.61% 0.62% 0.66% 0.86%
Ratio of net investment income to average net assets ..... 4.98% 4.82% 5.35% 3.79% 2.44%
Ratio of net investment income to average net assets
prior to expense limitation ............................. 4.98% 4.82% 5.35% 3.79% 2.38%
</TABLE>
See accompanying notes
41
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 Trend Series, the DelCap Series, the Value Series, the Quantum Series, the
Devon Series, the Decatur Total Return 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 DelCap Series, the
Decatur Total Return Series, the Delaware Series, the Delchester Series, the
Capital Reserves Series, and the Cash Reserve 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 qualify or 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 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
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.
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 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.
The Delchester Series, the Capital Reserves Series and the Cash Reserve Series
declare dividends daily from net investment income and pay such dividends
monthly. Distributions from net realized gain on investment transactions, if
any, normally will be distributed following the close of the fiscal year.
The Decatur Total Return Series and the Delaware 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.
The DelCap Series will make payments from net income and net realized gain on
investment transactions, if any, once a year.
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Dividends from net investment income and distributions from net realized gain on
investment transactions were declared on January 28, 1998, payable on January
29, 1998, to shareholders of record January 27, 1998, were as follows:
<TABLE>
<CAPTION>
Distributions per share
Dividends per share from net realized gain
from net investment income on investment transactions
<S> <C> <C>
DelCap Series........................... $ -- $1.595
Decatur Total Return Series............. 0.027 1.050
Delaware Series......................... 0.300 1.600
Delchester Series....................... -- 0.003
</TABLE>
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, Inc. ("DMC") the investment manager of each
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 DelCap Series,
the Decatur Total Return Series, the Delaware Series, the Delchester Series, the
Capital Reserves Series, and the Cash Reserve Series.
DMC has elected to waive its fees and reimburse each 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 for each
Series through April 30, 1998. The management fee rates and total expenses
absorbed by DMC for the period ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECATUR
TOTAL CAPITAL CASH
DELCAP RETURN DELAWARE DELCHESTER RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES
------ -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Management fee as a percentage of average
daily net assets (per annum) ......................... 0.75% 0.60% 0.60% 0.60% 0.60% 0.50%
Expenses absorbed by DMC................................ $69,320 -- -- -- -- --
</TABLE>
The Series 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:
<TABLE>
<CAPTION>
DECATUR
TOTAL CAPITAL CASH
DELCAP RETURN DELAWARE DELCHESTER RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES
------ -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Dividend disbursing, transfer agent fees
and other expenses .................................... $6,504 $15,556 $6,208 $4,089 $3,044 $2,110
Accounting fees ........................................ 33,873 100,991 33,156 28,638 9,752 10,506
</TABLE>
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On December 31, 1997, the Series had payables to affiliates as follows:
<TABLE>
<CAPTION>
DECATUR
TOTAL CAPITAL CASH
DELCAP RETURN DELAWARE DELCHESTER RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES
------ -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment management fee payable to DMC $55,897 $167,750 $51,995 $32,863 $14,391 $12,898
Dividend disbursing, transfer agent fees,
accounting fees and other
expenses payable to DSC .............................. 2,566 8,679 3,294 2,471 546 726
Other expenses payable to DMC and affiliates ........... -- -- -- -- -- --
</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 Series.
3. INVESTMENTS
During the period ended December 31, 1997, each Series made purchases and sales
of investment securities other than U.S. government securities and temporary
cash investments for each Series as follows:
<TABLE>
<CAPTION>
DECATUR
TOTAL CAPITAL CASH
DELCAP RETURN DELAWARE DELCHESTER RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES
------ -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Purchases ..................................... $137,747,934 $308,651,192 $81,184,253 $107,570,324 $19,977,154 $ --
Sales ......................................... 113,326,396 143,593,723 52,492,215 89,717,349 19,401,516 19,977,154
</TABLE>
At December 31, 1997, the aggregate cost of securities and unrealized
appreciation (depreciation) for federal income tax purposes for each Series were
as follows:
<TABLE>
<CAPTION>
DECATUR
TOTAL CAPITAL CASH
DELCAP RETURN DELAWARE DELCHESTER RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES
------ -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Cost of Investments ........................... $93,030,092 $342,934,347 $108,625,672 $94,604,235 $28,932,231 $30,688,044
Aggregate unrealized appreciation ............. 19,296,541 64,516,484 20,917,810 2,956,113 483,148 --
Aggregate unrealized depreciation ............. (2,269,981) (2,919,987) (947,988) (533,213) (31,167) --
Net unrealized appreciation (depreciation) .... 17,026,560 61,596,497 19,969,822 2,422,900 451,981 --
</TABLE>
For federal income tax purposes, the Fund had accumulated capital losses at
December 31, 1997 for each Series as follows:
YEAR OF YEAR OF
EXPIRATION EXPIRATION
2002 2004
---------- ----------
Capital Reserves Series ........................ $1,281,450 $292,208
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
Year ended December 31, 1997:
DelCap Series .......................... 1,806,689 296,551 (737,831) 1,365,409
Decatur Total Return Series ............ 10,893,570 1,321,652 (1,289,152) 10,926,070
Delaware Series ........................ 2,134,206 483,216 (447,850) 2,169,572
Delchester Series ...................... 3,508,373 793,870 (1,287,419) 3,014,824
Capital Reserves Series ................ 627,274 181,652 (694,053) 114,873
Cash Reserve Series .................... 8,343,717 149,715 (8,070,169) 423,263
</TABLE>
<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>
Year ended December 31, 1996:
DelCap Series .......................... 1,535,822 347,595 (694,724) 1,188,693
Decatur Total Return Series ............ 3,486,920 899,233 (1,307,916) 3,078,237
Delaware Series ........................ 650,944 326,621 (524,572) 452,993
Delchester Series ...................... 1,940,624 621,618 (1,513,036) 1,049,206
Capital Reserves Series ................ 526,966 182,839 (658,016) 51,789
Cash Reserve Series .................... 5,752,665 107,376 (4,846,004) 1,014,037
</TABLE>
5. MARKET AND CREDIT RISKS
The Delchester Series may invest in high-yield fixed income securities which
carry ratings of BB or lower by S&P and/or Ba or lower by Moody's. Investments
in these higher yielding securities may be accompanied by a greater degree of
credit risk than higher rated securities. Additionally, lower rated securities
may be more susceptible to adverse economic and competitive industry conditions
than investment grade securities.
The Capital Reserves Series and the Delaware Series may invest in securities
whose value is derived from an underlying pool of mortgages or consumer loans.
Prepayment of these loans may shorten the stated maturity of the respective
obligation and may result in a loss of premium, if any has been paid.
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.
45
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc.
We have audited the accompanying statements of net assets of DelCap Series,
Decatur Total Return Series, Delaware Series, Delchester Series, Capital
Reserves Series, and Cash Reserve Series of Delaware Group Premium Fund, Inc. as
of December 31, 1997, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspo ndence with the custodian
and brokers. 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 each
of the aforementioned Series of Delaware Group Premium Fund, Inc. at December
31, 1997, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and
their financial highlights for each of the five years in the period then ended,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 4, 1998
46
