<PAGE>
July 10, 1998
Dear Policy Holder:
Short-term market expectations hurt many small cap and REIT stocks as investors
focused on larger cap stocks during the first half of 1998. Investors seemed to
prefer large, multinational industrial corporations with consistent earnings.
Cumulative Total Return Six Months Ended June 30, 1998
Russell 2000 Index +4.66%
NAREIT Equity REIT Index -5.03%
Standard & Poor's 500 Index +16.84%
Past performance does not guarantee future results. Performance quoted
above is at net asset value and assumes reinvestment of distributions.
A fortuitous fusion of robust growth, tame inflation and low unemployment in
the U.S. lifted the Dow Jones Industrial Average above the 9,000 point mark for
the first time. During the first half of 1998, the return of the Standard &
Poor's 500 Index, a barometer of large company stocks, was nearly four times
that of the Russell 2000 Index, a measure of small company stock performance, as
shown above.
At mid-year, the U.S. economy was affected by opposing forces. Domestic
demand for U.S. goods and services remains strong but exports have dropped
due to recession along the Pacific Rim.
We believe the Asian situation could have a moderating effect on some U.S.
companies' profit growth for the remainder of 1998. Still, we see pockets of
value-oriented opportunities developing - especially in the Real Estate
Investment Trust (REIT) and small cap stock markets.
The professionals who manage the investments that underlie your Travelers'
annuity employ a consistent discipline designed to help you achieve your
long-term goals. Over time, the tax-deferral features of your annuity have the
potential to help your investment dollars grow faster than they could in a
taxable account.
Thank you for your confidence in Delaware Investments.
Sincerely,
/s/ Wayne A. Stork /s/ Jeffrey J. Nick
- ---------------------- -----------------------------
Wayne A. Stork Jeffrey J. Nick
CHAIRMAN PRESIDENT AND CHIEF EXECUTIVE
<PAGE>
Small Cap Value Series
The first half of 1998 was a challenging period for both small cap stocks
and value-oriented investors. While stock prices of large companies soared to
new heights during the period, small cap stocks generally provided more modest
returns.
Growth style investing, rather than a value approach, came into vogue during
the period. Some companies' ability to meet earnings expectations began to
falter this past spring - leading to higher stock market volatility. Small Cap
Value Series provided a total return of +0.82% for the six months ended June 30,
1998.
Since winter, small company shares in the Series two largest sectors - real
estate and finance - have been negatively affected by competition, tax issues
and interest rate concerns.
Real Estate Investment Trust (REIT) stocks made up the largest share of your
Series' net assets at mid-year. REITs hit a road block this past winter when the
Clinton Administration proposed reducing tax breaks for certain REITs. We
believe the proposed legislation's long-term effect is likely to be minimal. The
fundamental factors affecting the nation's real estate market - rents, property
prices and tenant demand - are healthy at mid-year, in our opinion.
When we buy stocks, we prefer companies with a market capitalization of $400
million to $1.4 billion. From among some 2,500 small company stocks in the U.S.,
we seek to pick companies with strong positive cash flows that are undervalued.
Continuing financial problems in Asia may hamper certain large cap stocks
for the remainder of the fiscal year. However, we believe small cap companies
may hold up better because they generally depend less on exports as a share of
their revenue.
When managing your Fund's portfolio, we seek small companies whose
underlying fundamentals point to long-term growth. That is, we select stocks
that appear well positioned to provide consistent returns over several years.
Christopher S. Beck
Vice President and
Senior Portfolio Manager
2
<PAGE>
REIT Series
The Real Estate Investment Trust (REIT) market has struggled since last
winter when the Clinton Administration proposed a reduction of tax breaks
available to paired-share REITs.
REIT Series provided a total return of -1.50% from inception through June
30, 1998. This was better than our benchmark, the unmanaged NAREIT Equity Index,
whose total return was -5.03% over the same period.
Since December, the Series has focused on REITs specializing in "infill"
locations. These are cities and suburbs where development is more expensive,
complicated or where zoning laws limit construction. Such areas tend to be
attractive for well-capitalized developers because tenant demand may be high
relative to the amount of space available.
Fundamental factors affecting the nation's real estate markets - rents,
property prices and tenant demand - benefited from robust U.S. economic growth
during the first half of 1998. Demand for building space continues to outstrip
supply in selected cities and suburbs along the Atlantic and Pacific seaboards.
REITs provide investors the opportunity to participate in larger-scale
commercial real estate without the usual challenges of direct property
investment. The Series invests in a broad range of REIT stocks nationwide. These
companies may specialize in apartment complexes, offices, malls, shopping
centers, industrial plants, self-storage centers and hotels.
The U.S. Congress is likely to review REIT tax structure over the next few
months. This may contribute to additional short-term volatility in the REIT
market. Still, we believe the real estate industry's prospects are favorable.
In our opinion, REIT Series can help diversify and temper volatility in an
equity portfolio because REITs have historically displayed performance
characteristics of both small cap stocks and investment grade bonds. REITs offer
both capital appreciation and dividend growth potential for the long-term
investor.
Babak Zenouzi
Vice President and
Senior Portfolio Manager
3
<PAGE>
Delaware Group Premium Fund, Inc.-Small Cap Value Series (formerly Value Series)
Statement of Net Assets
June 30, 1998 (Unaudited)
Number Market
of Shares Value
COMMON STOCK - 97.30%
Aerospace & Defense - 0.77%
Cordant Technologies .......................... 17,100 $ 788,738
-----------
788,738
-----------
Automobiles & Automotive Parts -3.44%
Arvin Industries .............................. 35,800 1,299,988
CLARCOR ....................................... 50,750 1,065,750
Federal Signal ................................ 47,100 1,145,119
-----------
3,510,857
-----------
Banking, Finance & Insurance - 21.57%
Arm Financial Group Class A ................... 48,400 1,070,850
*AVIS RENT-A-CAR ............................... 72,300 1,789,425
CMAC Investment ............................... 27,000 1,660,500
ENHANCE FINANCIAL
Services Group ................................ 56,000 1,890,000
Everest Reinsurance Holdings .................. 30,800 1,183,875
*Farm Family Holdings .......................... 35,000 1,362,813
*Financial Federal ............................. 56,350 1,510,884
HORACE MANN EDUCATORS ......................... 67,200 2,318,400
Keystone Financial ............................ 20,150 743,031
M & T Bank .................................... 1,725 955,650
NAC RE Group .................................. 19,000 1,014,125
North Fork Bancorporation ..................... 61,750 1,509,016
Peoples Heritage Financial Group .............. 63,100 1,492,709
SCPIE Holdings ................................ 18,500 626,688
Union Planters ................................ 26,100 1,535,006
Westamerica Bancorporation .................... 41,300 1,331,925
-----------
21,994,897
-----------
Buildings & Materials - 3.70%
Chicago Bridge and Iron ....................... 42,900 664,950
D.R. Horton ................................... 73,400 1,532,225
*Jacobs Engineering Group ...................... 48,900 1,570,913
-----------
3,768,088
-----------
Cable, Media & Publishing - 0.68%
Cadmus Communications ......................... 28,600 695,338
-----------
695,338
-----------
Chemicals - 3.51%
A. Schulman ................................... 33,500 653,250
Ferro ......................................... 28,700 726,469
Lawter International .......................... 56,500 614,438
*Scotts ........................................ 42,500 1,583,125
-----------
3,577,282
-----------
<PAGE>
Number Market
of Shares Value
COMMON STOCK (Continued)
Computers & Technology - 5.54%
Novellus Systems ................................ 20,000 $ 714,375
*Quantum ......................................... 27,200 563,550
*SCI Systems ..................................... 28,100 1,057,263
SCIENTIFIC-ATLANTA .............................. 75,400 1,913,275
*SpeedFam International .......................... 22,600 416,688
*Synopsys ........................................ 21,500 984,297
----------
5,649,448
----------
Electronics & Electrical Equipment - 1.28%
Kuhlman ......................................... 33,000 1,305,563
----------
1,305,563
----------
Energy - 8.02%
Nicor ........................................... 25,000 1,003,125
*Oceaneering International ....................... 81,100 1,439,525
*Offshore Logistics .............................. 22,600 403,269
*Pool Energy Services ............................ 43,300 641,381
*Seagull Energy .................................. 67,400 1,116,313
*Seitel .......................................... 68,900 1,115,319
*Swift Energy .................................... 64,870 1,033,866
Vintage Petroleum ............................... 75,600 1,426,950
----------
8,179,748
----------
Food, Beverage & Tobacco - 2.08%
*Corn Products ................................... 39,300 1,331,288
Universal Foods ................................. 35,600 789,875
----------
2,121,163
----------
Healthcare & Pharmaneuticals - 4.22%
Arrow International ............................. 35,100 970,734
*Marquette Medical Systems ....................... 54,900 1,408,528
*TRIGON HEALTHCARE ............................... 53,200 1,925,175
----------
4,304,437
----------
Industrial Machinery - 4.79%
Columbus McKinnon ............................... 44,400 1,187,700
*Global Industries Technology .................... 45,600 655,500
IDEX ............................................ 35,850 1,236,825
Regal-Beloit .................................... 40,300 1,158,625
Watts Industries ................................ 31,100 649,213
----------
4,887,863
----------
- -------------------
Top 10 stock holdings, representing 19.3% of net assets, are printed in
boldface.
4
<PAGE>
Small Cap Value Series
Statement of Net Assets (Continued)
Number Market
of Shares Value
COMMON STOCK (Continued)
Leisure, Lodging & Entertainment - 4.78%
American General Hospitality .................... 48,000 $ 1,020,000
*Hollywood Park .................................. 37,500 473,438
King World Productions .......................... 62,100 1,583,550
VIAD ............................................ 64,700 1,795,425
-----------
4,872,413
-----------
Metals & Mining - 0.78%
*Lone Star Technologies .......................... 52,300 797,575
797,575
-----------
Paper & Forest Products - 3.40%
Caraustar Industries ............................ 27,800 798,381
Chesapeake ...................................... 20,600 802,113
Glatfelter (P.H.) ............................... 57,400 907,638
Rayonier ........................................ 20,900 961,400
-----------
3,469,532
-----------
Real Estate - 12.04%
Cabot Industrial Trust .......................... 59,200 1,280,200
Chateau Communities ............................. 27,716 796,829
Duke Realty Investments ......................... 41,100 973,556
Excel Legacy .................................... 35,200 154,880
*Excel Realty Trust .............................. 38,600 1,116,988
Mack-Cali Realty ................................ 33,600 1,155,000
Pan Pacific Retail Properties.................... 59,300 1,208,238
Patriot American Hospitality .................... 55,632 1,331,691
Prentiss Properties Trust ....................... 52,500 1,276,406
Public Storage .................................. 33,000 924,000
Reckson Associates Realty ....................... 56,300 1,330,088
Reckson Service Industries ...................... 8,832 30,029
Starwood Hotels & Resorts Trust ................. 14,450 698,116
-----------
12,276,021
-----------
Number Market
of Shares Value
COMMON STOCK (Continued)
Retail - 4.38%
*BJ's Wholesale Club ............................ 35,900 $ 1,458,438
Casey's General Stores ......................... 16,600 275,456
*Sports Authority ............................... 54,700 817,081
*ZALE ........................................... 60,100 1,911,931
-----------
4,462,906
-----------
Textiles, Apparel & Furniture - 3.91%...........
*Furniture Brands International ................. 29,900 839,069
KELLWOOD ....................................... 50,900 1,819,675
*Quaker Fabric .................................. 52,500 756,328
*Synthetic Industries ........................... 39,100 570,616
-----------
3,985,688
-----------
Transportation & Shipping - 5.00%
*MESABA HOLDINGS ................................ 108,000 2,490,750
*M.S. Carriers .................................. 41,900 1,133,919
US Freightways ................................. 44,900 1,474,684
-----------
5,099,353
-----------
Utilities - 3.41%
AMERICAN WATER WORKS ........................... 59,400 1,841,400
Public Service Company of
New Mexico ..................................... 33,100 750,956
Sierra Pacific Resources ....................... 24,400 886,025
-----------
3,478,381
-----------
Total Common Stock
(cost $86,529,212) ............................. 99,225,291
-----------
5
<PAGE>
Small Cap Value Series
Statement of Net Assets (Continued)
Principal Market
Amount Value
Repurchase Agreements - 4.88%
With Chase Manhattan 5.85%
07/01/98 (dated 06/30/98,
collateralized by $1,865,000
U.S. Treasury Notes
5.375% due 06/30/03,
market value $1,855,982) .......................... $1,819,000 $1,819,000
With JP Morgan Securities 5.75%
07/01/98 (dated 06/30/98,
collateralized by $1,482,000
U.S. Treasury Notes 6.25%
due 02/15/03, market value
$1,557,514, and $58,000
U.S. Treasury Notes
5.50% due 03/31/03,
market value $58,806) ............................. $1,581,000 $1,581,000
Principal Market
Amount Value
Repurchase Agreements (Continued)
With PaineWebber 5.75%
07/01/98 (dated 06/30/98,
collateralized by $531,000
U.S. Treasury Notes 5.875%
due 01/31/99, market value
$545,060, and $1,040,000
U.S. Treasury Notes
6.00% due 08/31/99,
market value $1,068,624) .......................... $1,582,000 $ 1,582,000
------------
Total Repurchase Agreements
(cost $4,982,000) ................................. 4,982,000
------------
TOTAL MARKET VALUE OF SECURITIES - 102.18%
(cost $91,511,212)................................ $104,207,291
LIABILITIES NET OF RECEIVABLES AND OTHER
ASSETS - (2.18%).................................. (2,223,869)
------------
NET ASSETS APPLICABLE TO 5,855,329 SHARES
($0.01 par value) OUTSTANDING;
EQUIVALENT TO $17.42 PER SHARE - 100.00%........... $101,983,422
============
COMPONENTS OF NET ASSETS AT JUNE 30, 1998:
Common stock, $0.01 par value 1,000,000,000
shares authorized to the Fund
with 50,000,000 shares
allocated to the Series........................... $ 87,990,962
Undistributed net investment income................ 663,059
Accumulated net realized gain on investments....... 633,322
Net unrealized appreciation of investments......... 12,696,079
-------------
Total net assets................................... $101,983,422
============
- ---------------------
*Non-income producing security.
ADR - American Depository Receipt
See accompanying notes
6
<PAGE>
Delaware Group Premium Fund, Inc.-Reit Series
Statement of Net Assets
June 30, 1998 (Unaudited)
Number Market
of Shares Value
Common Stock - 92.65%
Hotels/Diversified Reits - 17.82%
Capital Automotive ............................. 3,500 $ 49,766
*Catellus Development .......................... 3,000 53,063
Glenborough Realty Trust ....................... 2,300 60,663
Newhall Land & Farming ......................... 1,940 54,805
Patriot American Hospitality ................... 2,100 50,269
ROUSE .......................................... 2,250 70,734
STARWOOD HOTELS &
RESORTS TRUST .................................. 2,100 101,451
--------
440,751
--------
Mall Reits - 5.30%
General Growth Properties ...................... 1,700 63,538
Simon DeBartolo Group .......................... 2,080 67,600
--------
131,138
--------
Manufactured Housing Reits - 4.50%
Chateau Communities ............................ 1,800 51,750
Sun Communities ................................ 1,800 59,625
--------
111,375
--------
Multifamily Reits - 17.34%
AVALON BAY COMMUNITIES ......................... 1,813 68,457
APARTMENT INVESTMENT &
MANAGEMENT ..................................... 1,800 71,100
Camden Property Trust .......................... 2,300 68,425
Equity Residential Properties................... 1,400 66,413
Essex Property Trust ........................... 2,000 62,000
Grove Property Trust ........................... 4,400 45,925
Pennsylvania Real Estate
Investment Trust ............................... 2,100 46,594
--------
428,914
--------
Number Market
of Shares Value
Common Stock (Continued)
Office/Industrial Reits - 35.67%
AMB Property ...................................... 2,400 $ 58,800
Alexandria R.E.Equities ........................... 2,000 59,875
CABOT INDUSTRIAL TRUST ............................ 3,200 69,200
CARRAMERICA REALTY ................................ 2,500 70,938
CRESCENT REAL ESTATE EQUITIES...................... 2,240 75,320
DUKE REALTY INVESTMENTS ........................... 2,900 68,694
EQUITY OFFICE PROPERTIES TRUST .................... 2,500 70,938
First Industrial Realty ........................... 2,000 63,500
Liberty Property Trust ............................ 1,900 48,569
Parkway Properties ................................ 1,400 41,300
Prentiss Properties Trust ......................... 2,500 60,781
*Reckson Service Industries ....................... 376 1,278
Reckson Associates Realty ......................... 2,800 66,150
SL Green Realty ................................... 2,800 63,000
Spieker Properties ................................ 1,655 64,131
----------
882,474
----------
Retail Strip Center Reits - 9.39%
Developers Diversified Realty...................... 1,400 54,863
Excel Realty Trust ................................ 1,700 49,194
JDN REALTY ........................................ 2,300 73,313
Pan Pacific Retail Properties...................... 2,700 55,013
----------
232,383
----------
Self Storage Reits - 2.63%
Public Storage .................................... 2,320 64,960
----------
64,960
----------
Total Common Stock
(cost $2,335,388) ................................. $2,291,995
----------
- --------------------
Top 10 stock holdings, representing 29.9% of net assets, are printed in
boldface.
7
<PAGE>
REIT Series
Statement of Net Assets (Continued)
Principal Market
Amount Value
Repurchase Agreements - 6.75%
With Chase Manhattan 5.85%
07/01/98 (dated 06/30/98,
collateralized by $63,000
U.S. Treasury Notes
5.375% due 06/30/03,
market value $62,214) ................................ $61,000 $61,000
With JP Morgan Securities 5.75%
07/01/98 (dated 6/30/98,
collateralized by $50,000
U.S. Treasury Notes
6.25% due 02/15/03,
market value $52,209
and $2,000 U.S. Treasury Notes
5.50% due 03/31/03,
market value $1,971) ................................. 53,000 53,000
Principal Market
Amount Value
Repurchase Agreements (Continued)
With PaineWebber 5.75%
07/01/98 (dated 06/30/98,
collateralized by $35,000
U.S. Treasury Notes
6.00% due 08/15/99,
market value $35,821 and $18,000 U.S.
Treasury Notes 5.875% due 01/31/99,
market value $18,271) ................................$ 53,000 $ 53,000
----------
Total Repurchase Agreements
(cost $167,000) ..................................... 167,000
----------
Total Market Value of Securities - 99.40% (cost $2,502,387) $2,458,995
Receivables and other assets net of liabilities - 0.60%.......... 14,757
----------
Net assets applicable to 251,239 shares ($0.01 par value)
outstanding; equivalent to $9.85 per share: 100.00%............. $2,473,752
==========
Components of Net Assets at June 30, 1998:
Common stock $0.01 par value, 1,000,000,000 shares
authorized to the fund with 50,000,000 shares
allocated to the series....................................... $2,494,270
Undistributed net investment income............................. 23,224
Accumulated net realized loss on investments.................... (350)
Net unrealized depreciation of investments...................... (43,392)
---------
Total net assets................................................ $2,473,752
==========
- ----------------------
Reit: Real Estate Investment Trust
*Non-income producing security
See accompanying notes
8
<PAGE>
Delaware Group Premium Fund, Inc.
Statements of Operations
(Unaudited)
Six Months 5/1/98*
Ended 6/30/98 to 6/30/98
Small Cap REIT
Value Series Series
INVESTMENT INCOME:
Dividends ....................................... 855,292 21,598
Interest ........................................ $ 197,527 $ 4,410
----------- -----------
1,052,819 26,008
----------- -----------
Expenses:
Management fees ................................. 355,367 2,505
Custodian fees .................................. 5,367 64
Dividend disbursing and transfer agent fees
and expenses.................................... 1,150 10
Registration fees ............................... 7,099 200
Reports and statements to shareholders .......... 4,500 158
Accounting and administration ................... 22,948 145
Professional fees ............................... 4,752 158
Directors' fees ................................. 863 50
Taxes (other than taxes on income) .............. 3,709 125
Other ........................................... 2,357 53
----------- -----------
408,112 3,468
Less expenses absorbed by Delaware
Management Company .............................. (24,654) (684)
----------- -----------
Total Expenses .................................. 383,458 2,784
----------- -----------
Net Investment Income ........................... 669,361 23,224
----------- -----------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain (loss) on investment
transactions ................................... 653,062 (350)
Net change in unrealized appreciation/
depreciation on investments ..................... (1,155,239) (43,392)
----------- -----------
Net Realized and Unrealized Loss
on Investments .................................. (502,177) (43,742)
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... $ 167,184 ($ 20,518)
=========== ==========
- -----------------------
* Date of commencement of operations.
See accompanying notes
9
<PAGE>
Delaware Group Premium Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended 6/30/98 Year Ended 5/1/98*
Small Cap 12/31/97 to 6/30/98
Value Small Cap REIT
Series Value Series
(Unaudited) Series (Unaudited)
------------ ----------- -----------
<S> <C> <C> <C>
Increase (DECREASE) In Net Assets
From Operations:
Net investment income ............................ $ 669,361 $ 629,715 $ 23,224
Net realized gain (loss) on investments .......... 653,062 2,326,391 (350)
Net change in unrealized appreciation/
depreciation on investments ...................... (1,155,239) 10,895,658 (43,392)
------------ ----------- ----------
Net increase (decrease) in net assets
resulting from operations ........................ 167,184 13,851,764 (20,518)
------------ ----------- ----------
Distributions to Shareholders From:
Net investment income ............................ (638,385) (197,794) --
Net realized gain on investment transactions ..... (2,340,745) (1,672,255) --
------------ ----------- ----------
(2,979,130) (1,870,049) --
------------ ----------- ----------
Capital Share Transactions:
Proceeds from shares sold ........................ 22,803,910 49,431,262 2,494,414
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions ......... 2,979,130 1,870,049 --
------------ ----------- ----------
25,783,040 51,301,311 2,494,414
Cost of shares repurchased ....................... (5,058,815) (2,894,623) (144)
------------ ----------- ----------
Increase in net assets derived from capital
share transactions ............................... 20,724,225 48,406,688 2,494,270
------------ ----------- ----------
Net Increase In Net Assets ....................... 17,912,279 60,388,403 2,473,752
------------ ----------- ----------
Net Assets:
Beginning of period .............................. 84,071,143 23,682,740 --
------------ ----------- ----------
End of period .................................... $101,983,422 $84,071,143 $2,473,752
============ =========== ==========
</TABLE>
- -------------------------
* Date of commencement of operations.
See accompanying notes
10
<PAGE>
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Small Cap Value Series REIT Series
-------------------------------------------------------------------------- -----------
Six Months 12/27/93(1) 5/1/98(1)
Ended Year Ended December 31, to to
6/30/98(3) 1997 1996 1995 1994 12/31/93 6/30/98
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $17.920 $14.500 $12.470 $10.290 $10.210 $10.000 $10.000
Income from investment operations:
Net investment income.................... 0.114 0.122 0.112 0.192 0.148 none 0.092
Net realized and unrealized
gain (loss) on investments............... 0.016 4.338 2.548 2.208 (0.068) 0.210 (0.242)
-------- ------- ------- ------- ------- ------- -------
Total from investment operations......... 0.130 4.460 2.660 2.400 0.080 0.210 (0.150)
-------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income..... (0.135) (0.110) (0.180) (0.150) none none none
Distributions from net realized gain
on investment transactions.............. (0.495) (0.930) (0.450) (0.070) none none none
-------- ------- ------- ------- ------- ------- -------
Total dividends and distributions........ (0.630) (1.040) (0.630) (0.220) none none none
-------- ------- ------- ------- ------- ------- -------
Net asset value, end of period........... $17.420 $17.920 $14.500 $12.470 $10.290 $10.210 $ 9.850
======== ======= ======= ======= ======= ======= =======
Total return............................. 0.82% 32.91% 22.55% 23.85% 0.78% 2.10% (1.50%)
Ratios and supplemental data:
Net assets, end of period (000 omitted).. $101,983 $84,071 $23,683 $11,929 $6,291 $210 $2,474
Ratio of expenses to average net assets.. 0.82% 0.80% 0.80% 0.80% 0.80% (2) 0.83%
Ratio of expenses to average net
assets prior to expense limitation...... 0.87% 0.90% 0.99% 0.96% 1.41% (2) 1.03%
Ratio of net investment income to
average net assets....................... 1.42% 1.24% 1.28% 2.13% 2.62% (2) 6.94%
Ratio of net investment income to average
net assets prior to expense limitation.. 1.37% 1.14% 1.09% 1.97% 2.01% (2) 6.74%
Portfolio turnover....................... 41% 41% 84% 71% 26% (2) 2%
Average Commission rate paid(4).......... $0.0600 $0.0600 $0.0600 N/A N/A N/A $0.0423
</TABLE>
- ---------------------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) The ratio of expenses and net investment income to average net assets and
portfolio turnover have been omitted as management believes that such ratios
are not meaningful due to the limited net assets of this Series.
(3) Ratios have been annualized and total return has not been annualized.
(4) Completed 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
11
<PAGE>
Delaware Group Premium Fund, Inc.
Notes to Financial Statements
June 30, 1998 (Unaudited)
Delaware Group Premium Fund, Inc. (The "Fund"), is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Fund is organized as a Maryland Corporation and offers 16 series:
the Trend Series, the DelCap Series, the Small Cap Value Series (formerly the
Value Series), the Social Awareness Series (formerly the Quantum Series), the
Devon Series, the Decatur Total Return Series, the REIT Series, the Delaware
Series, the Convertible Securities Series, the Emerging Markets Series, the
International Equity Series, the Global Bond Series, the Delchester Series, the
Strategic Income Series, the Capital Reserves Series and the Cash Reserve
Series. These financial statements and the related notes pertain to the Small
Cap Value Series and the REIT 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 Investments Family of Funds. The aggregate
daily balance of the pooled cash account is invested in repurchase agreements
secured by obligations of the U.S. government. The respective collateral is held
by the Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Foreign dividends are also recorded on the
ex-dividend date or as soon after the ex-dividend date that the Series are aware
of such dividends, net of all non-rebatable tax withholdings. Original issue
discounts are accreted to interest income over the lives of the respective
securities. Withholding taxes on foreign dividends have been provided for in
accordance with the Series' understanding of the applicable country's tax rules
and rates.
12
<PAGE>
Notes to Financial Statements (Continued)
The Small Cap Value Series and the REIT Series will make payments from net
income and net realized gain on investment transactions, if any, once a year.
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of each Series' average daily
net assets.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. Investment Management and Other Transactions with Affiliates In accordance
with the terms of the Investment Management Agreement, each Series pays Delaware
Management Company, ("DMC") the investment manager of each Series an annual fee
which is calculated daily based on the net assets of each Series.
Lincoln Investment Manager, Inc., an affiliate of DMC, receives 30% of the
advisory fee paid to DMC for acting as a sub-advisor to the REIT Series.
DMC has elected to waive their fees and reimburse each Series to the extent that
annual operating expenses exclusive of taxes, interest, brokerage commissions
and extraordinary expenses do not exceed the following percentages of net assets
through October 31, 1998.
The management fee rates, waiver rates and total expenses absorbed by DMC for
the period ended June 30, 1998 are as follows:
Management fee Waiver as
as a percentage a percentage
of average daily of average daily Expenses
net assets net assets absorbed
(per annum) (per annum) by DMC
----------- ----------- ------
Small Cap Value Series..... 0.75% 0.85%** $24,655
REIT Series................ 0.75%* 0.85% 684
* Assets up to $500 million: 0.75% of average daily net assets
Assets over $500 million - $1,000 million: 0.70% of average daily net assets
Assets over $1,000 million - $2,500 million: 0.65% of average daily net
assets
Assets over $2,500 million: 0.60% of average daily net assets
** Prior to May 1, 1998 the expense limitation was 0.80%.
13
<PAGE>
Notes to Financial Statements (Continued)
The Fund has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to serve as dividend disbursing agent, transfer agent and accounting
services agent for each Series.
The amounts expensed for each Series were as follows:
Dividend disbursing,
transfer agent fees Accounting
and other expenses fees
------------------ ----------
Small Cap Value Series......... $1,150 $18,667
REIT Series.................... 10 130
On June 30, 1998, the Series had payables to affiliates as follows:
Dividend disbursing Other
Investment transfer agent fees, expenses
Management accounting fees, payable
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates
-------------- -------------- --------------
Small Cap Value Series.. $283,345 $3,872 $1,800
REIT Series............. 1,821 85 16
Certain officers of DMC and DSC are officers, directors and/or employees of the
Fund. These officers, directors and employees are paid no compensation by the
Fund.
3. Investments
During the period ended June 30, 1998, the Series made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments for each Series as follows:
Purchases Sales
--------- -----
Small Cap Value Series......... $40,469,121 $17,834,021
REIT Series.................... 2,343,088 8,200
14
<PAGE>
Notes to Financial Statements (Continued)
At June 30, 1998, the aggregate cost of securities and unrealized appreciation
(depreciation) for federal income tax purposes for each Series were as follows:
<TABLE>
<CAPTION>
Aggregate Aggregate Net unrealized
Cost of unrealized unrealized appreciation
Investments appreciation depreciation (depreciation)
----------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Small Cap Value Series......... $91,512,761 $15,540,182 ($2,845,652) $12,694,530
REIT Series.................... 2,502,387 18,828 (62,220) (43,392)
</TABLE>
4. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
Shares issued upon
reinvestment of dividends
from net investment
income and
net realized gains on Shares Net
Shares sold investment transactions repurchased increase
----------- ----------------------- ----------- --------
<S> <C> <C> <C> <C>
Period ended June 30, 1998*:
Small Cap Value Series......... 1,279,881 175,656 (292,592) 1,162,945
REIT Series.................... 251,254 -- (15) 251,239
Period ended December 31, 1997:
Small Cap Value Series......... 3,108,967 135,708 (185,778) 3,058,897
</TABLE>
*The REIT Series commenced operations on 5/1/98.
5. Credit and Market Risk
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.
15
<PAGE>
This Semi Annual Report is for the Information of Small Cap Value Series and
REIT Series Shareholders, but it may be used with prospective investors when
preceded or accompanied by a current Prospectus for Premium Fund, which set
forth details about charges, expenses, investment objectives and operating
policies of the Fund. You should read each prospectus carefully before you
invest. Summary investment results are documented in the Fund's current
Statement of Additional Information. The figures in this report represent past
results which are not a guarantee of future results. The return and principal
value of an investment in the Fund will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost.
Investment Manager
Delaware Management Company
Philadelphia, PA
Subadviser
Lincoln Investment Management
Fort Wayne, IN
www.delawarefunds.com
This report must be preceded or accompanied by current Small Cap Value Series
and REIT Series prospectuses and the Delaware Investments Performance Update for
the most recently completed calendar quarter.
DELAWARE
INVESTMENTS
- -----------
Philadelphia [ ] London
Be sure to consult your financial adviser when
making investments. Mutual funds can be a valuable
part of your financial plan; however, shares of
the Fund are not FDIC or NCUSIF insured, are not
guaranteed by any bank or any credit union, and
involve investment risk, including the possible
loss of the principal. Shares of the Fund are not
bank or credit union deposits.
Copy Rights Delaware Distributors, L.P.
Printed in the USA
on recycled paper
(933)
SA-MEDTRAV[6/98]PP8/98
