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Delaware Group
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Premium Fund
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ANNUAL REPORT
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DECEMBER 31, 1997
For Growth of Capital
Trend Series
DelCap Series
Value Series
For Total Return
Quantum Series
Devon Series
Decatur Total Return Series
Delaware Series
Convertible Securities Series
For International
Diversification
Emerging Markets Series
International Equity Series
Global Bond Series
For Income
Delchester Series
Strategic Income Series
Capital Reserves Series
Cash Reserve Series
<PAGE>
January 5, 1998
Dear Policy Holder:
The U.S. economy enjoyed its seventh consecutive year of expansion in 1997,
propelling the stock market to historic highs. While Europe benefited from
tighter fiscal controls, many Asian countries were negatively affected by
currency devaluations and a weak financial sector. 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%
Morgan Stanley Europe Australia Far East (EAFE) Index +2.06%
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.
Past performance does not guarantee future results. The indexes are unmanaged
and assume no management fees or expenses. A direct investment in an unmanaged
index is not possible.
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
during the fall. However, the fundamental strength of the U.S. economy allowed
many stocks to recover by year's end.
Low interest rates in the U.S. and abroad have boosted bond prices while
yields have fallen. However, overseas bond returns were weak because of a U.S.
dollar that was strong relative to foreign currencies. 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.
Overseas, we believe that economic growth could accelerate in Europe as a
result of tighter fiscal controls that are necessary for Continental Europe to
meet the guidelines for adopting a single European currency by 1999. 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, Asia's economic problems present a challenge for
both equity and fixed-income investors.
The performance of each Series of Premium Fund 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 in Premium Fund.
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
1
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FOR GROWTH OF CAPITAL
TREND SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
Fiscal 1997 was bumpy for small-cap stocks. Most small company shares
underperformed large and mid-cap stocks during the year's first half.
Small-cap stocks enjoyed strong capital appreciation in the summer, but stock
prices fell again during autumn.
Trend Series benefited from strong stock selection and finished the year
with a total return of +21.37% (capital change plus reinvestment of
dividends). We narrowly underperformed our benchmark, the Russell 2000 Growth
Index, which returned +22.36% for the same period. We replaced the NASDAQ
Industrial Index with the Russell 2000 Growth Index as the Series' benchmark
in 1997. We believe the Russell Index more closely reflects Trend Series'
portfolio holdings.
Trend Series strives to identify changes in the American marketplace and
then attempts to position the portfolio in companies we believe are likely to
profit from these trends. Our stock selection strategy employs a bottoms up
approach, meaning that we evaluate each company individually and decide
whether or not to buy it based on its merits and ability to meet changing
trends.
We added two analysts to Trend 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.
A LOOK AT THE PORTFOLIO
A successful company will generally undergo four stages of growth--1)
emerging, 2) accelerating, 3) maturing and 4) cyclical. Trend Series attempts
to invest in companies during their emerging growth phase.
Stocks in this phase generally have higher price-to-earnings ratios than
stocks in the latter phases. Though many of the small companies we invest in
are relatively unknown, we do extensive research to determine whether they are
financially sound and have strong management teams.
Our sector allocation tends to parallel that of the Russell 2000 Growth
Index. We were slightly overweight in small technology stocks, which tended to
underperform their large-cap counterparts.
In our opinion, large computer companies tended to slash prices because of
a supply glut, damaging the competitive position of less well capitalized
smaller companies. Lower profit margins did not allow some smaller computer
companies to meet earnings in 1997.
One of our more successful sectors during the year was business services.
Corporations continue to outsource non-core tasks to cut costs, and we
benefited from selecting small companies poised to fill this role.
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TREND SERIES INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. It attempts to achieve this objective by
investing primarily in small capitalization common stocks and convertible
securities of emerging and other growth-oriented companies which we believe
are responsive to changes in the marketplace and have the fundamental
characteristics to support growth.
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2
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INVESTMENT OUTLOOK
Some economists believe that 1997 was a period of speculation in stocks of
some large U.S. companies. Alan Greenspan characterized the investment
environment as "irrational exuberance," a perception we shared.
While large-cap companies may still grow in value in 1998, we believe
their capital appreciation will not be as robust as the past few years. This
may provide an opportunity for small-cap stocks to outperform.
With financial troubles in Asia, large companies may see their earnings
fall if sales decline throughout the region as anticipated. We believe small
companies may hold up better in this environment because they generally have
less international exposure.
Historically, approximately 75% of the Series' net assets have been
invested in companies in four broad sectorshealthcare, business services,
technology, and consumer goods and services. These have been and, we believe,
are likely to remain the most promising areas of economic growth as the U.S.
approaches a new millennium.
Growth of a $10,000 Investment
December 27, 1993 through
December 31, 1997
Trend Series Russell 2000 Nasdaq
Growth Index Industrial Index
12/27/93 $10,000 $10,000 $10,000
12/31/93 10,200 10,000 10,000
1/31/94 10,431 10,266 10,398
2/28/94 10,481 10,221 10,357
3/31/94 10,060 9,593 9,668
4/30/94 9,890 9,608 9,486
5/31/94 9,871 9,393 9,260
6/30/94 9,791 8,991 8,864
7/31/94 9,731 9,119 9,044
8/31/94 10,141 9,788 9,571
9/30/94 10,221 9,829 9,649
10/31/94 10,350 9,934 9,777
11/30/94 10,151 9,532 9,389
12/31/94 10,161 9,757 9,356
1/31/95 10,231 9,558 9,307
2/28/95 10,493 10,000 9,643
3/31/95 10,786 10,292 9,951
4/30/95 10,846 10,447 10,072
5/31/95 11,048 10,538 10,260
6/30/95 11,996 11,313 10,985
7/31/95 12,984 12,195 11,832
8/31/95 13,509 12,345 11,925
9/30/95 13,669 12,599 12,184
10/31/95 13,397 11,979 11,677
11/30/95 13,943 12,508 12,054
12/31/95 14,145 12,785 11,974
1/31/96 13,931 12,680 12,033
2/29/96 14,504 13,258 12,488
3/31/96 14,494 13,520 12,719
4/30/96 15,627 14,558 13,887
5/31/96 16,987 15,304 14,692
6/30/96 16,350 14,310 13,782
7/31/96 14,504 12,563 12,250
8/31/96 15,259 13,493 13,043
9/30/96 16,036 14,188 13,747
10/31/96 15,539 13,576 13,362
11/30/96 15,694 13,953 13,850
12/31/96 15,755 14,225 13,773
1/31/97 15,701 14,581 14,385
2/28/97 16,584 13,700 13,610
3/31/97 15,845 12,733 12,634
4/30/97 14,770 12,586 12,373
5/31/97 14,366 14,478 14,026
6/30/97 15,779 14,969 14,679
7/31/97 16,524 15,736 15,646
8/31/97 18,145 16,208 15,936
9/30/97 19,942 17,501 17,069
10/31/97 19,164 16,451 15,746
11/30/97 18,792 16,059 15,519
12/31/97 19,055 16,068 15,154
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TREND SERIES
AVERAGE ANNUAL TOTAL RETURNS
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LIFETIME +17.42%
THREE YEARS +23.32%
ONE YEAR +21.37%
From December 27, 1993 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 the Trend Series, NASDAQ
Industrial Index and Russell 2000 Growth Index for the period from the Series'
inception on December 27, 1993, through December 31, 1997. All dividends and
capital gains were reinvested. The Indexes are unmanaged, with no set
investment objective 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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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 mid-cap 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% (capital change plus reinvestment of
dividends) 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.
In 1997 our Investment Management 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 opinion, DelCap's more concentrated portfolio should 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 1997 sales.
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DELCAP SERIES 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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4
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INVESTMENT OUTLOOK
For 1998, we believe the investment climate appears favorable for
America's medium-size companies. In our opinion, mid-cap companies will not be
as affected by the Asian economic crises as large-cap multinational companies,
that 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' capital appreciation
over the long term.
Growth of a $10,000 Investment
July 12, 1991 through
December 31, 1997
DelCap Russell Nasdaq
Series Midcap Growth Industrial
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%
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 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.
5
<PAGE>
VALUE SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
Despite increased market volatility, Value Series achieved extraordinary
success during the past fiscal year. We are delighted to report that Value
Series provided its highest annual return since the Series began operating
four years ago.
The Series provided a robust total return of +32.91% (capital change plus
reinvestment of dividends) for the 12 months ended December 31, 1997. The
Series handily beat its benchmark--the Russell 2000 Index--which had a total
return of +22.36% for the same time period.
Under the leadership of a new portfolio manager in 1997, we reaffirmed the
Series' commitment of investing in mid- and small-cap stocks that appear to be
undervalued and built on the Series' strong long-term record.
Generally, Value Series buys stocks selling near the low end of their
historical relative valuations. Through research, we examine sales and
earnings prospects relative to competitors and measure value with yardsticks
appropriate to each industry group.
After a weak first half for small- and mid-cap stocks in 1997, the
earnings prospects of many smaller companies appeared more favorable than the
expected earnings at some large multinational companies. This development,
coupled with lower U.S. interest rates, declining inflation, and a strong
domestic economy, helped lift many small-cap stock prices.
A LOOK AT THE PORTFOLIO
We generally like to hold 70 to 90 stocks in the Value Series' portfolio,
a number we can sufficiently monitor while, at the same time, provide
diversification among various business sectors.
We typically focus on companies with market capitalizations between $100
million and $2 billion, and our value discipline dictates in which particular
companies the Series invests.
In 1997, the Series achieved success by investing in many banking,
insurance, real estate, transportation and capital goods companies. Since
relatively few technology stocks met our value investment criteria, we were
significantly underweighted in this volatile area.
The Series biggest successes in 1997 were our finance and REIT (real
estate investment trust) stocks. We selected several companies with strong
balance sheets that were acquired or otherwise involved in mergers.
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VALUE SERIES INVESTMENT OBJECTIVE
Seeks capital appreciation. It attempts to achieve this objective by investing
in stocks of small to mid-size companies whose market value appears low
relative to underlying value or earnings or growth potential. Emphasis is
placed on companies that may be temporarily out-of-favor or whose value is not
yet recognized by the market.
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6
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INVESTMENT OUTLOOK
In early December, an important gauge of future U.S. economic
activity--the Conference Board's Index of Leading Economic Indicators--rose
for the sixth month in a row. The Board, a business trade group, said it
believes the economic expansion that began in 1997 will continue in 1998.
Despite the U.S. economy's 1997 expansion, consumer price increases have
remained moderate. This suggests that the Federal Reserve Board is unlikely to
tighten monetary policy any time soon, something that bodes well for smaller
cap companies seeking to obtain attractive financing in order to expand
operations during the year ahead.
We are confident about the potential of our strong position in financial
and REIT stocks, sectors that have historically done well during periods of
economic growth and relatively low interest rates. In our opinion,
consolidation among financial firms and REITs is likely to continue in the
year ahead.
At year end, our research indicates that value opportunities are opening
up in the consumer and industrial business sectors, and we have positioned the
Series to benefit accordingly.
Growth of a $10,000 Investment
December 27, 1993 through
December 31, 1997
Value Russell
Series 2000 Index
12/27/93 $10,000 $10,000
1/31/94 10,240 10,266
2/28/94 10,269 10,221
3/31/94 10,139 9,593
4/30/94 10,178 9,608
5/31/94 10,209 9,393
6/30/94 9,979 8,991
7/31/94 10,119 9,119
8/31/94 10,369 9,788
9/30/94 10,468 9,829
10/31/94 10,359 9,934
11/30/94 10,219 9,532
12/31/94 10,288 9,757
1/31/95 10,187 9,558
2/28/95 10,453 10,000
3/31/95 10,637 10,292
4/30/95 11,178 10,477
5/31/95 11,015 10,583
6/30/95 11,178 11,313
7/31/95 11,597 12,195
8/31/95 11,904 12,345
9/30/95 12,067 12,599
10/31/95 11,750 11,979
11/30/95 12,445 12,508
12/31/95 12,741 12,785
1/31/96 12,857 12,680
2/29/96 13,061 13,258
3/31/96 13,287 13,520
4/30/96 13,621 14,558
5/31/96 13,966 15,304
6/30/96 13,858 14,310
7/31/96 12,888 12,563
8/31/96 13,179 13,493
9/30/96 13,750 14,188
10/31/96 14,008 13,576
11/30/96 14,019 13,953
12/31/96 14,870 14,225
1/31/97 15,614 14,581
2/28/97 16,074 13,700
3/31/97 16,063 12,733
4/30/97 15,832 12,586
5/31/97 16,052 14,478
6/30/97 17,326 14,969
7/31/97 18,253 15,736
8/31/97 19,388 16,208
9/30/97 20,767 17,501
10/31/97 20,129 16,451
11/30/97 20,234 16,059
12/31/97 20,756 16,068
<PAGE>
VALUE SERIES
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
LIFETIME +19.96%
THREE YEARS +26.35%
ONE YEAR +32.91%
From December 27, 1993 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 Value Series and the
Russell 2000 Index for the period from the Series' inception on December 27,
1993, 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.
7
<PAGE>
FOR TOTAL RETURN
QUANTUM SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
Quantum Series commenced operations on May 1, 1997, a time when U.S. stock
prices were recovering from the effects of the Federal Reserve Board's
decision to raise its target for short-term interest rates.
The market's correction provided us an opportunity to build a portfolio of
stocks at what we believe were attractive prices. Our quantitative computer
software selected large- and mid-cap stocks that met the Series' social
responsibility screens and growth with value strategy. Although we screen out
a number of companies, the Series is diversified among a large number of
industries.
The Series' social responsibility screen excludes companies that:
o make alcoholic beverages or tobacco products;
o are involved in the gambling industry;
o contract with the military;
o are involved with nuclear energy; or
o are believed to pollute the environment.
Between May 1, 1997 and December 31, 1997, Quantum Series provided a total
return of +28.40% (capital change plus reinvestment of dividends), beating its
benchmark, the unmanaged S&P 500 Index, which had a total return of +22.56%
for the same period. The Series benefited from good stock selection as it took
part in the U.S. stock markets' robust capital appreciation during the summer.
A LOOK AT THE PORTFOLIO
Our quantitative process begins by applying a social screen to a universe
of approximately 1,200 mid- and large-cap U.S. companies. Our screens tend to
reflect a progressive stance on long-term issues of individual and societal
health and corporate responsibility. We then use proprietary quantitative
computer software to evaluate the approximately 800 companies that remain.
Based on fundamental criteria such as low price/earnings ratios, high
dividend yields, and earnings expectations, we employ further quantitative
analysis to identify companies with attractive growth prospects that are
considered to be undervalued. In our search for companies with excellent
growth prospects that are value priced, we conduct the quantitative analysis
on a daily basis.
At year's end, we held more stocks in the finance and insurance sector
than any other industry. This positioning served the Series well as we believe
the sector is offering more innovative products and achieving increased
economies of scale through mergers acquisitions and cost cutting.
Our selections in the telecommunications sector also performed well, but
we were generally underweighted in the technology sector because many stocks
did not meet our investment criteria.
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QUANTUM SERIES INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. It attempts to achieve this objective by
investing in large and mid capitalization stocks of U.S. companies expected to
grow over time and deemed socially responsible.
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8
<PAGE>
INVESTMENT OUTLOOK
In 1998, it appears unlikely that many technology companies will meet the
fundamental criteria of the Series' quantitative investment discipline since
regional economic weakness, especially in the Pacific Rim, may affect these
companies' earnings.
We believe that demand for U.S. goods could drop in the Pacific Rim as
the region grapples with currency devaluation and recession. Earnings of
technology companies could also be affected by weaker U.S. demand.
On the other hand, the U.S. banking and financial sector appears
fundamentally sound as we start the new year. Our computer modeling suggests
financial services companies are well positioned relative to the rest of the
market. The industry generally enjoys increased economies of scale from cost
cutting and mergers.
Overall, we expect a more volatile U.S. stock market in 1998 and the
Series has been positioned with a value oriented focus in lieu of potential
increased market fluctuations.
While the primary goal of many long-term investment plans is to build
wealth over time, we believe Quantum Series can do so while advancing the
cause of social responsibility.
Growth of a $10,000 Investment
May 1, 1997 through
December 31, 1997
Quantum S&P 500
Series Index
5/1/97 $10,000 $10,000
5/31/97 10,000 10,000
6/30/97 10,296 10,448
7/31/97 11,472 11,297
8/31/97 10,917 10,647
9/30/97 11,728 11,231
10/31/97 11,470 10,856
11/30/97 11,985 11,358
12/31/97 12,840 11,553
QUANTUM SERIES
CUMULATIVE TOTAL RETURN
-----------------------
LIFETIME +28.40%
From May 1, 1997 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. [PERFORMANCE FOR THE SHORT PERIOD SINCE THE SERIES'
INCEPTION MAY NOT BE INDICATIVE OF LONGER TERM RESULTS.]
The chart above shows a $10,000 investment in both the Quantum Series and the
S&P 500 Index for the period from the Series' inception on May 1, 1997,
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 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>
DEVON SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
We are pleased to report that Devon Series provided a substantial total
return of +27.30 (capital change plus reinvestment of dividends) from May 1,
1997, when it began operating, through December 31, 1997. Our results were
achieved during a time of high U.S. stock market volatility.
The Series outdistanced the unmanaged S&P 500 Index, which had total
return of +22.56% for the same time period.
Devon Series blends traditional growth and value strategies by investing
in dividend-paying stocks of large- and mid-cap U.S. companies available at
value prices which have the potential for dividend increases and sustained
growth. We apply our investment style across a variety of sectors.
The Series favored mid-cap companies we believed to be undervalued during
this past summer. This helped Devon weather the stock market's correction in
late October and, in our opinion, leaves the Fund well-positioned for fiscal
1998.
A LOOK AT THE PORTFOLIO
Despite volatile market conditions, the last half of 1997 was a rewarding
period for investors who could uncover undervalued stocks and make them the
cornerstones of a growth and income portfolio.
The Federal Reserve Board's monetary policy effectively tamed consumer
inflation in 1997 despite an economy that has enjoyed robust growth, the
lowest unemployment rate in a generation, and an increase in the Consumer
Price Index of 1.7%--the lowest since 1986.
The positive economic environment created a wave of investor enthusiasm
that lifted the prices of many banking, finance & insurance, pharmaceutical
and capital goods companies.
In fact, banking, finance & insurance was the Series' largest industrial
sector at year end. Aside from benefiting from a strong U.S. economy, the
banking, finance & insurance sector appeared to benefit from offering new and
innovative products and from increased economies of scale caused by
restructuring.
We believe an effective restructuring of a company can increase the
company's stock price relative to earnings (P/E ratio). Often we find value in
industries that are consolidating or where competition is limited.
- -------------------------------------------------------------------------------
DEVON SERIES INVESTMENT OBJECTIVE
Seeks current income and capital appreciation. It attempts to achieve this
objective by investing primarily in income producing common stocks of large-
and midcap U.S. companies that the investment manager believes have the
potential for above-average dividend increases over time.
- -------------------------------------------------------------------------------
10
<PAGE>
OUTLOOK
As investors seek consistent earnings growth at reasonable prices, we feel
our leading positions look increasingly attractive.
Several of these positions 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 1998, we are
looking for these stocks to have higher prices relative to corporate earnings
as investors realize that old problems have been corrected.
We believe the financial crises in Asia, may restore value to stocks and
reduce speculative excesses in some sectors, notably high technology. Devon has
fortunately been underweighted in high technology relative to the S&P 500
Index.
In our opinion, increased market volatility may be on the investment
horizon in 1998, and we view this as an opportunity to purchase undervalued
and misunderstood companies that have the potential to provide superior
long-term total return.
Growth of a $10,000 Investment
May 1, 1997 through December 31, 1997
Devon S&P 500
Series Index
5/1/97 $10,000 $10,000
5/31/97 10,000 10,000
6/30/97 10,441 10,448
7/31/97 12,217 11,279
8/31/97 10,920 10,647
9/30/97 11,524 11,231
10/31/97 11,208 10,856
11/30/97 11,706 11,358
12/31/97 12,730 11,553
DEVON SERIES
CUMULATIVE TOTAL RETURN
-----------------------
LIFETIME +27.30%
From May 1, 1997 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. PERFORMANCE FOR THE SHORT PERIOD SINCE THE SERIES'
INCEPTION MAY NOT BE INDICATIVE OF LONGER TERM RESULTS.
The chart above shows a $10,000 investment in both the Devon Series and the
S&P 500 Index for the period from the Series' inception on May 1, 1997,
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>
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
Continued strong U.S. economic growth in 1997, along with low inflation,
appeared to provide 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.
- -------------------------------------------------------------------------------
DECATUR TOTAL RETURN SERIES 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.
- -------------------------------------------------------------------------------
12
<PAGE>
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 S&P 500
Total Return Index
Series
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
3/31/92 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
<PAGE>
DECATUR TOTAL RETURN SERIES
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
LIFETIME +13.45%
FIVE YEARS +19.92%
THREE YEARS +29.12%
ONE YEAR +31.00%
From July 28, 1988 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.
13
<PAGE>
DELAWARE SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 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 change plus reinvestment of dividends), as compared
to the Series' two benchmarks--the 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 Bonds--for 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 larger 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 multinational 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 end. This is an increase of approximately 7% from
one year earlier.
- -------------------------------------------------------------------------------
DELAWARE SERIES 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.
- -------------------------------------------------------------------------------
14
<PAGE>
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 27, 1988 through
December 31, 1997
Delaware S&P 500 Lehman Brothers
Series Index Government/Corporate
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 11750 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 13248 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
<PAGE>
DELAWARE SERIES
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
LIFETIME +13.91%
FIVE YEARS +14.91%
THREE YEARS +22.86%
ONE YEAR +26.40%
From July 28, 1988 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 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.
15
<PAGE>
CONVERTIBLE SECURITIES SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
Convertible Securities Series benefited from continued strong U.S.
economic growth in 1997 as many corporations issued convertible securities to
raise capital in order to expand operations.
From its inception on May 1, 1997, through December 31, 1997, the Series
provided a total return of +16.60% (capital change plus reinvestment of
dividends)--outpacing its benchmark Merrill Lynch Convertible Index, which had
a total return of +14.40% for the same time period.
The Series invests primarily in convertible preferred stock and
convertible bonds. Both pay fixed rates of income, but because they can be
converted into common stock, they are indirectly tied to the common stock's
performance. As a result, convertible securities generally offer higher income
than common stocks and the opportunity for price appreciation when the value
of the underlying security rises.
Generally, convertible securities offer less price volatility than a
company's stock, because the majority of their total return comes in the form
of income, but more growth potential than bonds.
In a year in which both the U.S. stock and bond markets turned in strong
performances, Convertible Securities Series provided a steady stream of
current income and participated in the market's capital appreciation.
A LOOK AT THE PORTFOLIO
In selecting securities for the Series' portfolio, we seek companies
undergoing positive fundamental change that we believe will lead to
acceleration of earnings growth and substantial appreciation in the company's
underlying stock price.
We believe convertible securities provide three main benefits: 1) a steady
stream of income from fixed dividend payments, 2) less price volatility than a
company's stocks because the majority of their total return comes in the form
of income, and 3) strong capital appreciation potential because they are
typically issued by small- and mid-cap growth companies.
The Convertible Securities Series invests at least 65% of its net assets
in convertible securities with the remaining assets invested among common
stocks and bonds for diversification, which we believe can lower investment
risks.
In order to protect the Series against a downturn in any one particular
industrial sector, we further diversify the Series' investment portfolio by
investing no more than 25% of its net assets in any one particular industrial
sector.
- -------------------------------------------------------------------------------
CONVERTIBLE SECURITIES SERIES INVESTMENT OBJECTIVE Seeks a high level of total
return through a combination of capital appreciation and current income. It
seeks to achieve this objective by investing primarily in fixed-income
securities that can be converted to common stock.
- -------------------------------------------------------------------------------
16
<PAGE>
INVESTMENT OUTLOOK
Overall, many economic indicators remain positive. Despite the lowest
unemployment rate in 24 years, inflation has remained modest, just 1.7% in
1997, providing a healthy climate for financial assets.
Many industrial companies are finding ways to boost profits through new
technology, mergers and restructuring. Our investment research continues to
lead to new investment opportunities of companies offering promising
convertible securities.
Any portfolio consisting of convertible securities is subject to both
stock and bond market fluctuations. In our opinion, investors can more
effectively prepare for inevitable market volatility by utilizing a consistent
investment discipline.
We believe that Convertible Securities Series offers an element of
diversification that can help weather market volatility by combining aspects
of both stock and bond investing.
Growth of a $10,000 Investment
May 1, 1997 through December 31, 1997
Convertible Merrill Lynch
Securities Convertible
Series Securities
Series
5/1/97 $10,000 $10,000
5/31/97 10,000 10,455
6/30/97 10,349 10,788
7/31/97 11,917 11,373
8/31/97 11,126 11,377
9/30/97 11,932 11,902
10/31/97 11,932 11,663
11/30/97 11,932 11,628
12/31/97 11,660 11,719
CONVERTIBLE SECURITIES SERIES
CUMULATIVE TOTAL RETURN
-----------------------------
LIFETIME +16.60%
From May 1, 1997 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. PERFORMANCE FOR THE SHORT PERIOD SINCE THE SERIES'
INCEPTION MAY NOT BE INDICATIVE OF LONGER TERM RESULTS.
The chart above shows a $10,000 investment in the Convertible Securities
Series and the Merrill Lynch Convertible Index for the period from the Series'
inception on May 1, 1997, through December 31, 1997. All dividends and capital
gains were reinvested. The Index is unmanaged, with no set investment
objective and does not include "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.
17
<PAGE>
FOR INTERNATIONAL DIVERSIFICATION
EMERGING MARKETS SERIES
PORTFOLIO STRATEGY AND PERFORMANCE
The year 1997 was difficult for emerging markets as an economic crisis in
Southeast Asia tamed some of the "tiger economies" in the region. Weak fiscal
policies and high levels of private sector debt precipitated financial and
currency problems that had global repercussions.
Emerging Market Series began operations on May 1, 1997--just prior to the
adverse conditions in the Pacific Rim. Between May 1 and December 31, 1997,
the Series had a total return of -11.20% (capital change plus reinvestment of
dividends).
During this difficult period, the Series' benchmark Morgan Stanley
Emerging Markets Free Index had a total return of -18.63%. We believe that our
value strategy, which seeks companies with strong positive cash flows by
comparing the inflation-adjusted value of a company's income stream with its
current stock price, allowed us to preserve capital better than the Index.
Our value oriented strategy has led us to underweight Pacific Rim stocks
and focus on emerging markets in Latin America and Eastern Europe for 1998.
A LOOK AT THE PORTFOLIO
Producing almost half of the world's goods and services, emerging markets
represent just under 10% of worldwide stock market capitalization. We believe
that as equity markets grow to reflect the size of emerging markets'
economies, the potential for investment growth is considerable.
Overall, Emerging Markets Series invested in 73 stocks in 23 countries
during 1997, with Brazil being our largest single country position at year's
end (11% of net assets). By diversifying across the globe, we attempt to
reduce the risk of economic downturn in one region of the world, as happened
with Asia during fiscal 1997.
All countries represented in the Series are scrutinized for potential
currency fluctuations, accounting practices and relative political stability.
While monitoring worldwide economic conditions, we apply a value oriented
strategy to emerging markets investing which we believe can lead to long-term
capital appreciation.
During 1997, the Series focused on industries--such as telecommunications,
utilities, and banking and finance--which we believe are the pillars on which
an expanding economy is built.
- -------------------------------------------------------------------------------
EMERGING MARKET SERIES INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. It seeks to achieve this objective by
investing primarily in the stocks of companies in with emerging market
countries.
- -------------------------------------------------------------------------------
18
<PAGE>
OUTLOOK
The Pacific Rim's financial problems dragged down emerging markets across
the globe during 1997. However, we believe pockets of value have emerged in
Asia as a result of this past year's declines, and we hope to exploit them in
the coming months. We are generally optimistic about China for the long term
because internal rather than export-dependent growth is driving the nation's
economy.
In 1998, we expect to continue the Series' strong presence in Latin
America. We also expect to focus on Eastern and Mediterranean Europe,
particularly Russia, Greece and Hungary, as a source of investment
opportunities.
By continuing to emphasize stocks with low price-to-earnings ratios, we
believe we can provide a cushion during periods of short-term market
volatility and take advantage of potentially rewarding growth opportunities in
emerging markets.
Growth of a $10,000 Investment
May 1, 1997 through December 31, 1997
Emerging Morgan Stanley
Market Series Emerging
Market Free
Index
5/1/97 $10,000 $10,000
5/31/97 10,000 10,259
6/30/97 10,524 10,787
7/31/97 10,719 10,927
8/31/97 9,815 9,524
9/30/97 10,301 9,773
10/31/97 8,912 8,162
11/30/97 8,601 7,858
12/31/97 8,880 8,047
EMERGING MARKETS SERIES
CUMULATIVE TOTAL RETURN
-----------------------
LIFETIME -11.20%
From May 1, 1997 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. PERFORMANCE FOR THE SHORT PERIOD SINCE THE SERIES'
INCEPTION MAY NOT BE INDICATIVE OF LONGER TERM RESULTS.
The chart above shows a $10,000 investment in the Emerging Markets Series and
the Morgan Stanley Emerging Markets Free Index from the Series' inception on
May 1, 1997, 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. Pe
rformance 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.
19
<PAGE>
INTERNATIONAL EQUITY SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
By focusing on Western European countries, International Equity Series
provided a total return of +6.60% (capital change plus reinvestment of
dividends) for the 12 months ended December 31, 1997. This outpaced our
benchmark, the Morgan Stanley Europe Australia Far East (EAFE) Index, which
had a total return of +2.06% during the same period.
Fiscal 1997 proved a challenging year to invest overseas. Currency
devaluations that began in Thailand reverberated throughout the Pacific Rim
during the fourth quarter. Weak fiscal policies and high debt levels
negatively affected stocks of emerging markets as well as those in Japan.
Approximately 18.7% of International Equity Series' net assets were
invested in Asian countries at year end. This underweighting in Asia, as
compared to our benchmark EAFE Index, allowed us to preserve capital to a
greater degree than the Index.
International Equity Series' stock selection process begins by analyzing
countries based on three primary factors:
1) general performance of a particular country's economy, 2) political
issues, and 3) the relationship of the U.S. dollar and the local currency.
From there, we seek companies that meet the Series' strategy of investing
in value oriented stocks that appear to offer superior income and capital
appreciation potential. We believe that this investment style, known as a
dividend discount approach, can potentially reduce risk.
Through defensive currency hedging, we seek to preserve principal by
protecting the dollar value of our investments. We believe that reducing
exchange risk is an important consideration for U.S. investors.
A LOOK AT THE PORTFOLIO
International Equity Series' value oriented investment approach led us to
underweight some Pacific Rim markets such as Japan, which helped your Fund
preserve principal.
While most of our Japanese securities were selling below our average
purchase price at year end, these unrealized losses were offset by relatively
stronger market performance in Australia and New Zealand.
Our Western European stock selections also fared well as continental
Europe enacted fiscal measures to ready itself for the introduction of a
single European currency in 1999. The Series' positions in the Netherlands,
Belgium and Spain performed well. However, our value investment parameters did
not allow us to participate in the capital appreciation of markets such as
Switzerland and Denmark.
While International Equity Series does not focus on any particular
investment sector, telecommunications, utility and credit sensitive stocks,
such as banks, had the biggest impact on the Series' total return in fiscal
1997.
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INTERNATIONAL EQUITY SERIES INVESTMENT OBJECTIVE
Seeks long-term growth without undue risk to principal. It seeks to achieve
this objective by investing primarily in stocks of foreign companies providing
the potential for capital appreciation and income.
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20
<PAGE>
INVESTMENT OUTLOOK
In our opinion, there are no clear signs that Japan or the emerging "tiger
economies" of the Pacific Rim are poised for economic recovery. In 1998, we
will continue to underweight Japan and most likely minimize our exposure to
countries such as South Korea, Thailand and Indonesia.
We expect that the majority of International Equity Series' net assets
will be allocated to European countries in the year ahead. We believe European
economic growth will accelerate in 1998 if interest rates remain stable and
companies continue to restructure--a positive environment for potential
corporate earnings increases.
In our opinion, the economic environment across Continental Europe may
benefit from efforts during the past few years to tighten governmental fiscal
policies. These policies were designed to allow countries to join the European
Monetary Union (EMU) in 1999.
We are especially optimistic about economic prospects in the United
Kingdom, which is one of the few Western European countries not joining the
EMU in 1999. The U.K. has taken steps to make the Bank of England--the U.K.'s
central bank--more independent, similar to the U.S. Federal Reserve Board. We
take this as a sign that inflation there is likely to remain tame.
Investing overseas has special risks that include different accounting
policies, political standards and less stable economies. However, we believe
our value oriented approach can help reduce these risks and provide attractive
results over the long term.
Growth of A $10,000 Investment
October 29, 1992 through
December 31 1997
International Morgan Stanley
Equity Series Australia Far
East Index
10/29/92 $10,000 $10,000
12/31/92 10,030 10,146
3/31/93 10,090 11,363
6/30/93 10,150 12,505
9/30/93 10,800 13,335
12/31/93 11,630 13,450
3/31/94 11,668 13,920
6/30/94 11,809 14,631
9/30/94 12,041 14,646
12/31/94 11,930 14,496
3/31/95 12,323 14,766
6/30/95 12,500 14,873
9/30/95 13,226 15,493
12/31/95 13,599 16,121
3/31/96 14,336 16,587
6/30/96 14,864 16,849
9/30/96 15,264 16,828
12/31/96 16,323 17,096
3/31/97 16,919 16,828
6/30/97 18,600 19,025
9/30/97 18,702 18,903
12/31/97 17,403 17,435
INTERNATIONAL EQUITY SERIES
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
LIFETIME +11.30%
THREE YEARS +13.40%
ONE YEAR +6.60%
From October 29, 1992 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 the International Equity Series
and the Morgan Stanley EAFE Index from the Series' inception on October 29,
1992, 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.
21
<PAGE>
GLOBAL BOND SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
A strong U.S. dollar, and to a lesser extent the Asian economic crisis,
reduced the returns of overseas bonds during fiscal 1997, in our opinion.
For the year ending December 31, 1997, Global Bond Series furnished a
total return of +0.88% (captial change plus reinvestment of dividends),
results that were competitive with the return of the unmanaged Salomon
Brothers World Government Bond Index.
Global Bond Series strives to provide a steady stream of current income
while preserving principal. The Series invests in government and corporate
bonds throughout the globe--focusing on established countries and companies.
The Series generally selects government securities with AAA credit ratings (as
rated by Standard & Poor's) and corporate bonds with at least an A rating.
The average maturity of the Series' investments will generally be in the
five- to ten-year range, the range we believe offers attractive income
potential relative to the risk to principal from fluctuating interest rates.
A LOOK AT THE PORTFOLIO
Irresponsible government fiscal policies in some Asian nations and high
levels of public sector debt precipitated the Pacific Rim financial crisis
which caused us to be wary of the region's bonds. Consequently, we
underweighted our holdings in the region.
Better bond values could be found in Europe and "dollar-zone" markets,
that is non-Asian countries that link their currency's exchange rate to the
U.S. in dollars. Your Fund's largest weighting in foreign bonds as of year end
were Netherlands government securities.
Contributing to the attractiveness of New Zealand's bonds was the Kiwi
government's budget surplus and initiative in paying down its overall
indebtedness.
U.S. bonds are also benefiting from prudent fiscal restraint and a surge
in tax revenue. Government economists estimate that Washington may have a
budget surplus in 1998, its first surplus since the 1969 fiscal year.
A combination of a strong U.S. economy and Washington's apparent effort to
balance the Federal budget has added to the appeal of U.S. Treasury Bonds. At
year's end, just over 20% of Global Bond Series' net assets were invested in
U.S. Treasury Bonds.
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GLOBAL BOND SERIES INVESTMENT OBJECTIVE
To seek current income consistent with the preservation of principal. It
attempts to achieve this objective by investing primarily in foreign and U.S.
bonds that may also provide the potential for capital appreciation.
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22
<PAGE>
OUTLOOK
When investing in overseas bonds, Global Bond Series strives to obtain a
rate of return that is meaningfully greater than the rate of inflation in the
U.S. We also seek to preserve capital in times of weakness.
In 1997, world bond markets provided positive returns in local currency
terms. However, returns to U.S. dollar investors were eroded by an increase in
the dollar's value relative to other currencies. Consequently, overseas bonds
provided lower returns than domestic U.S. debt during fiscal 1997.
With relatively modest inflation trends in many established markets, our
outlook for overseas bonds is positive for the year ahead. However, our
optimism is tempered by the fact that the U.S. dollar may continue to be
strong, especially as Asian investors seek a safe haven from currency woes
along the Pacific Rim.
Going forward, we expect to remain underweighted in Asian Pacific Rim
bonds. We anticipate maintaining a strong weighting in Canadian and New
Zealand bonds, where yields remain attractive.
Growth of a $10,000 Investment
May 2, 1996 through December 31, 1997
Salomon Brothers
Global Bond World Gov't
Series Bond Index
5/1/96 $10,000 $10,000
5/31/96 10,010 10,002
6/30/96 10,170 10,081
7/31/96 10,341 10,274
8/31/96 10,492 10,314
9/30/96 10,674 10,357
10/31/96 10,987 10,551
11/30/96 11,220 10,690
12/31/96 11,261 10,603
1/31/97 10,988 10,320
2/28/97 11,030 10,243
3/31/97 10,914 10,165
4/30/97 10,851 10,075
5/31/97 11,083 10,349
6/30/97 11,231 10,472
7/31/97 11,152 10,391
8/31/97 11,146 10,329
9/30/97 11,456 10,522
10/31/97 11,584 10,740
11/30/97 11,487 10,661
12/31/97 11,278 10,629
GLOBAL BOND SERIES
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
LIFETIME +7.48%
ONE YEAR +0.88%
From May 2, 1996 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 the Global Bond Series and the
Salomon Brothers World Government Bond Index from the Series' inception on May
2, 1996, 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 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.
23
<PAGE>
FOR INCOME
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 Master 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
medicine a 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 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 then 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 company's ability to meet interest payments.
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DELCHESTER SERIES INVESTMENT OBJECTIVE
Seeks as high a current income as possible. It attempts to achieve its
objective which the manager believes is consistent with prudent investment
management, 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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24
<PAGE>
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, 1988 through December 31, 1997
Merrill Lynch Delchester
High Yield Bond Index Series
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%
From July 28, 1988 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 Delchester Series and
the Merrill Lynch High-Yield Master 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.
25
<PAGE>
STRATEGIC INCOME SERIES
PORTFOLIO STRATEGY AND PERFORMANCE IN 1997
The vigorous performance of the U.S. economy in 1997 presented a
double-edged sword for Strategic Income Series during its first year of
operation.
We benefited from the generally strong bond market in the U.S.; however,
the rise of the U.S. dollar in relation to foreign currencies caused a
reduction of our foreign bond returns.
Since its inception on May 1, 1997, through December 31, 1997, the Series
provided a total return of +6.20% (capital change plus reinvestment of
dividends), less than the Series' benchmark Lehman Brothers Aggregate Bond
Index which had a total return of +8.64% for the same period.
Strategic Income Series seeks to provide high current income and capital
appreciation by investing in U.S. government and investment grade corporate
bonds, higher risk, high-yield U.S. corporate bonds, and foreign government
and investment grade corporate bonds.
We allocate the Series' net assets among the three key sectors based on
thorough analysis of the economic and market conditions in each sector.
Between 20% and 60% of the Series' net assets may be invested in each sector.
The Series may also invest up to 10% of its net assets in U.S. stocks to
increase capital appreciation potential.
We believe that diversifying among various bond sectors with a small
position in common stocks can generally reduce the Series' overall risk
exposure.
A LOOK AT THE PORTFOLIO
Strategic Income Series weighs the risks and potential rewards of each
bond segment in which we invest. Among the factors we examine are interest
rate trends, changes in the U.S. economy and the inflation, political
environment, economic conditions and currency changes within the foreign
countries where we invest.
In 1997, the economic climate in the U.S. was ripe for high-yield bonds.
The default rate dropped to the lowest level since 1981 as inflation was held
in check by the Federal Reserve Board's monetary policy. Corporations have
been issuing high-yield bonds at a record pace and demand among investors was
strong.
In the U.S. investment grade portion of the Series' portfolio, we
emphasized intermediate-term, government-backed mortgage securities. We sought
to reduce mortgage prepayment risks as interest rates fell in the latter half
of the year by selecting pools of mortgages with low loan balances.
When selecting foreign bonds for the Series' portfolio, we rely on income
potential as a key measure of value and place great importance on quality
investing in foreign bonds rated "A" or better by Standard and Poor's. At year
end, 5.17% of the Series' net assets was invested in South Africa, the Series'
largest foreign country allocation, which is experiencing strong economic
growth after decades of apartheid.
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STRATEGIC INCOME SERIES INVESTMENT OBJECTIVE
To seek high current income and total return. It attempts to achieve its
objective by investing in high-yield and investment grade U.S. bonds along
with high quality international fixed-income securities.
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26
<PAGE>
INVESTMENT OUTLOOK
Returns on our foreign bonds were lowered as the dollar increased in value
relative to other currencies. In the coming year, we will strive to protect
the dollar value of our investments through defensive currency hedging if we
can do so without adversely affecting the Fund's income potential.
In the months ahead, we expect to maintain a strong weighting in the U.S.
high-yield corporate bond market because of the underlying strength of the
U.S. economy and the superior income potential offered by non-investment grade
bonds.
Overseas, bonds issued by certain Continental European countries look
increasingly attractive as the region moves toward stricter fiscal controls in
anticipation of the monetary union in 1999. We plan to increase our weighting
in the United Kingdom, which will not be part of the European Monetary Union
in 1999, but which is acting prudently by giving more autonomy to Britain's
central bank.
By keeping a balanced mix of domestic and overseas fixed-income
investments, we believe we have positioned Strategic Income Series to both
benefit from a rally that might occur in a given market and weather the impact
of any short-term setbacks in one sector or country.
Growth of a $10,000 Initial Investment
May 1, 1997 through December 31, 1997
Strategic Income Lehman Brothers
Series Aggregate Bond Index
5/1/97 $10,000 $10,000
5/31/97 10,000 10,095
6/30/97 10,185 10,215
7/31/97 10,466 10,491
8/31/97 10,305 10,402
9/30/97 10,524 10,556
10/31/97 10,574 10,709
11/30/97 10,574 10,755
12/31/97 10,620 10,864
STRATEGIC INCOME SERIES
LIFETIME TOTAL RETURN
-----------------------
LIFETIME 6.20%
From May 1, 1997 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. PERFORMANCE FOR THE SHORT PERIOD SINCE THE SERIES'
INCEPTION MAY NOT BE INDICATIVE OF LONGER TERM RESULTS.
The chart above shows a $10,000 investment in both the Strategic Income Series
and the Lehman Brothers Aggregate Bond Index for the period from the Series'
inception on May 1, 1997, 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.
27
<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
government and corporate bonds, provided a total return of +7.60% (capital
change plus reinvestment of dividends) 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 and Federal Reserve
Board policy.
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 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
mortgages-mortgages 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 bonds-which we
value for their superior income potential. Premium bonds depreciate in value
to $100 as they near maturity, while discount bonds tend to appreciate.
- -------------------------------------------------------------------------------
CAPITAL RESERVES SERIES INVESTMENT OBJECTIVE
Seeks a high, stable level of current income while attempting to minimize
fluctuations in principal and provide maximum liquidity. It attempts to
achieve its objective by investing in short- and intermediate-term securities.
- -------------------------------------------------------------------------------
28
<PAGE>
OUTLOOK
We believe two developments during 1997 may spur increased demand for U.S.
government securities during the upcoming year: the economic crisis along the
Pacific Rim and legislation that will 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, 1988 through December 31, 1997
Capital Reserves Lehman Brothers
Series Government/Corporate
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%
From July 28, 1988 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 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 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.
29
<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:
o add stability to an otherwise aggressive investment portfolio
o dollar-cost average into another Series
o 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.
- -------------------------------------------------------------------------------
CASH RESERVE SERIES INVESTMENT OBJECTIVE
Seeks to provide maximum current income while preserving principal and
maintaining liquidity.
- -------------------------------------------------------------------------------
30
<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' return
was 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 crisis doesn't result in the expected
economic slowdown.
In any event, we believe periods of short-term bond market volatility -
caused by a real or perceived interest rate change - represent 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, 1988 through December 31, 1997
Cash Reserve IBC Donoghue
Series Money Market 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%
From July 28, 1988 through December 31, 1997
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. YIELDS WILL FLUCTUATE
AND ARE NOT GUARANTEED. THE GOAL OF THIS MONEY MARKET INVESTMENT IS TO
MAINTAIN A CONSTANT SHARE PRICE OF $10; 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. 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
for the period from the Series' inception on July 28, 1988, through December
31, 1997. All dividends 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.
31
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-TREND SERIES (FORMERLY EMERGING GROWTH
SERIES)
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK-88.87%
AEROSPACE & DEFENSE-1.52%
AAR ..................................... 34,800 $1,348,500
*Kellstrom Industries .................... 17,900 445,263
----------
1,793,763
----------
BANKING, FINANCE & INSURANCE-4.46%
Capital Trust Class A ................... 29,800 335,250
*ESG Re Limited........................... 19,900 465,163
Financial Federal........................ 5,100 120,488
Golden State Bancorp..................... 4,500 168,188
INMC Mortgage Holdings .................. 57,400 1,345,313
*Long Beach Financial .................... 20,600 240,763
Medallion Financial ..................... 39,000 848,250
Merchants Bancshares .................... 2,500 81,875
Ocwen Asset Investment .................. 64,600 1,328,338
Peoples Heritage Financial Group ........ 7,300 337,169
----------
5,270,797
----------
BUILDINGS & MATERIALS-2.52%
*Comfort Systems USA ..................... 90,200 1,781,450
*J. Ray McDermott, S.A .................. 27,900 1,199,700
----------
2,981,150
----------
CABLE, MEDIA & PUBLISHING-5.99%
*CHANCELLOR MEDIA CLASS A ................ 40,000 2,986,250
*HSN ..................................... 33,352 1,719,712
*Metro Networks .......................... 16,500 550,688
*Princeton Video Image ................... 10,900 100,144
TCA Cable TV ............................ 15,400 713,213
*The Petersen Companies Class A .......... 44,100 1,014,300
----------
7,084,307
----------
CHEMICALS-1.48%
Koger Equity ............................ 22,100 484,819
*Mettler-Toledo International ............ 59,700 1,029,825
*Trammell Crow .......................... 9,400 242,050
----------
1,756,694
----------
COMPUTERS & TECHNOLOGY-16.03%
*ASPECT DEVELOPMENT ...................... 38,100 1,985,963
*Black Box ............................... 22,900 812,950
*Checkfree Holdings ...................... 36,000 978,750
*Concord Communications .................. 19,300 396,856
*Credit Management Solutions ............. 46,200 600,600
*EMC ..................................... 87,800 2,409,013
*Flexinternational Software .............. 59,500 937,125
- -----------
Top 10 stock holdings, representing 21.6% of net assets, are in bold.
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
COMPUTERS & TECHNOLOGY (CONTINUED)
*Hypercom ................................ 62,200 $ 878,575
*Hyperion Software ....................... 15,000 540,000
*J.D. Edwards ............................ 35,500 1,053,906
*May & Speh............................... 36,200 479,650
*NOVA..................................... 38,900 972,500
*Peerless Systems ........................ 58,100 751,669
*PLATINUM TECHNOLOGY ..................... 121,195 3,431,328
*PSW Technologies ........................ 43,700 625,456
*VERITAS SOFTWARE ........................ 41,450 2,108,766
----------
18,963,107
----------
CONSUMER PRODUCTS-1.38%
*Gemstar International Group Limited ..... 53,000 1,275,313
*Racing Champions ........................ 45,400 353,269
----------
1,628,582
----------
ELECTRONICS & ELECTRICAL EQUIPMENT-3.96%
*Micrel .................................. 33,100 937,144
*MMC Networks ............................ 500 8,500
*P-COM ................................... 27,400 479,500
Pittston Brink's Group .................. 36,600 1,473,150
*Sipex ................................... 59,100 1,791,469
----------
4,689,763
----------
ENERGY-1.80%
*Eagle Geophysical ....................... 30,600 401,625
*Patterson Energy ........................ 9,000 349,593
*Precision Drilling....................... 56,400 1,374,750
----------
2,125,968
----------
ENVIRONMENTAL SERVICES-2.60%
*Republic Industries...................... 41,220 960,942
*Superior Services ....................... 44,100 1,287,169
*Veritas DGC ............................. 20,800 821,600
----------
3,069,711
----------
FOOD, BEVERAGE & TOBACCO-2.76%
*American Italian Pasta Class A .......... 33,000 825,000
*Beringer Wine Estates Class B ........... 6,000 228,000
*Cheesecake Factory ...................... 29,800 902,381
*Scheid Vineyards Class A ................ 17,900 154,388
*ShowBiz Pizza Time ...................... 16,300 376,938
*United Natural Foods .................... 29,600 773,300
----------
3,260,007
----------
32
<PAGE>
TREND SERIES (FORMERLY EMERGING GROWTH SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
HEALTHCARE & PHARMACEUTICALS-8.42%
*Alternative Living Services.............. 36,700 $1,084,944
*American Oncology Resources ............. 64,200 1,031,213
*Cerus ................................... 37,800 841,050
*MedPartners.............................. 29,400 657,825
*Pharmerica .............................. 69,800 730,719
*Phycor .................................. 26,300 710,922
*Physician Sales & Service ............... 41,400 900,450
*PMR ..................................... 21,200 425,325
*Renal Care Group ........................ 21,350 685,869
*SUNRISE ASSISTED LIVING ................. 49,100 2,105,163
*Wesley Jessen VisionCare ................ 20,000 782,500
----------
9,955,980
----------
INDUSTRIAL MACHINERY-0.87%
*Innovative Valve Technologies ........... 5,600 112,700
*PRI Automation .......................... 22,400 648,200
*Spinnaker Industries Common ............. 7,000 151,375
*Spinnaker Industries Class A ............ 5,000 118,750
----------
1,031,025
----------
LEISURE, LODGING & ENTERTAINMENT-5.41%
*AMF Bowling ............................. 19,400 485,000
*Brookdale Living Communities ............ 16,500 280,500
*CAPSTAR HOTEL ........................... 59,500 2,041,594
*Dave & Buster's ......................... 26,600 603,487
*Equity Marketing ........................ 39,100 970,169
*Extended Stay America ................... 62,560 778,085
*Florida Panthers ........................ 52,600 907,350
Morton's Restaurant Group ............... 16,700 338,175
----------
6,404,360
----------
METALS & MINING-0.95%
*Kaynar Technologies...................... 18,700 530,613
*Metals USA .............................. 38,600 588,650
----------
1,119,263
----------
PACKAGING & CONTAINERS-0.60%
*Silgan Holdings ......................... 22,000 708,125
----------
708,125
----------
REAL ESTATE-1.27%
*Atria Communities ....................... 36,500 636,469
Mack-Cali Realty ........................ 9,000 369,000
Prentiss Properties Trust ............... 9,200 257,025
Prime Retail ............................ 16,900 239,769
----------
1,502,263
----------
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
RETAIL-11.83%
*Amazon.com .............................. 14,400 $ 868,050
Arbor Drugs.............................. 4,050 75,305
*Concepts Direct ......................... 16,800 346,500
*COST PLUS................................ 79,400 2,322,450
*Dollar Tree Stores ...................... 35,300 1,467,156
*Finish Line Class A ..................... 53,500 705,531
*Gadzooks ................................ 18,500 390,813
*General Nutrition ....................... 25,000 848,438
*Hibbett Sporting Goods................... 23,600 525,100
*Linens N Things ......................... 37,100 1,618,488
*MSC Industrial Direct Class A ........... 30,600 1,296,675
*Piercing Pagoda ......................... 20,600 583,238
*Quiksilver .............................. 10,400 299,650
Schultz Sav-O Stores ................... 25,800 406,350
*Staples ................................. 34,650 963,703
*Sunglass Hut International............... 67,300 426,934
*Wilmar Industries........................ 35,000 853,125
----------
13,997,506
----------
TELECOMMUNICATIONS-6.47%
*GeoTel Communications ................... 38,800 611,100
*ICG Communications....................... 36,000 987,750
*Nextlink Communications Class A ......... 39,200 839,125
*PageMart Wireless ....................... 46,500 372,000
*PairGain Technologies ................... 75,000 1,455,469
*Telco Systems ........................... 41,100 402,009
*TELEPORT COMMUNICATIONS GROUP ........... 54,300 2,983,101
----------
7,650,554
----------
TEXTILES, APPAREL & FURNITURE-0.52%
*Pacific Sunwear of California............ 14,000 416,500
*Sportsline USA .......................... 19,200 204,000
----------
620,500
----------
UTILITIES-1.03%
AES ..................................... 26,292 1,225,865
----------
1,225,865
----------
33
<PAGE>
TREND SERIES (FORMERLY EMERGING GROWTH SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
MISCELLANEOUS-7.00%
*CENDANT.................................. 91,660 $ 3,150,812
*Coinmach Laundry ........................ 33,300 820,013
G&K Services ............................ 8,300 348,600
Jack Henry & Associates ................. 45,500 1,256,938
Market Facts ............................ 8,400 142,800
*NFO Worldwide .......................... 45,100 944,281
*Profit Recovery Group ................... 56,900 1,020,644
*SOS Staffing Services ................... 31,300 594,700
-----------
8,278,788
-----------
TOTAL COMMON STOCK
(COST $87,398,645) 105,118,078
-----------
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS-10.63%
With Chase Manhattan 6.00%
01/02/98 (dated 12/31/97,
collateralized by $1,972,000
U.S. Treasury Notes 7.75% due
01/31/00, market value $2,113,346
and $1,589,000 U.S. Treasury Notes
7.75% due 11/30/99, market value
$1,657,882).............................. $3,695,000 $ 3,695,000
With JP Morgan Securities 6.25%
01/02/98 (dated 12/31/97,
collateralized by $1,232,000
U.S. Treasury Notes 9.00% due
05/15/98, market value $1,261,355
and $3,943,000 U.S. Treasury Notes
6.00% due 05/31/98, market
value $3,969,455)........................ 5,126,000 5,126,000
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$3,811,000 U.S. Treasury Notes
6.25% due 06/30/98, market value
$3,825,739) ............................. 3,746,000 3,746,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $12,567,000) ...................... 12,567,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 99.50%
(COST $99,965,645)........................................... $117,685,078
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.50%......... 591,012
-----------
NET ASSETS APPLICABLE TO 6,803,342 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $17.38 PER SHARE-100.00%.......... $118,276,090
============
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 ..... $98,440,064
Undistributed net investment income .......................... 108,517
Accumulated net realized gain on investments ................. 2,008,076
Net unrealized appreciation of investments.................... 17,719,433
-----------
Total net assets ............................................. $118,276,090
============
- --------------
*Non-income producing security.
See accompanying notes
34
<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
-----------
35
<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
-----------
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
-----------
<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
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS (CONTINUED)
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
37
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-VALUE SERIES
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK-90.12%
AEROSPACE & DEFENSE-0.93%
Thiokol ................................. 9,600 $ 780,000
-----------
780,000
-----------
AUTOMOBILES & AUTOMOTIVE PARTS-2.08%
Arvin Industries......................... 28,600 952,738
CLARCOR ................................. 27,000 799,875
-----------
1,752,613
-----------
BANKING, FINANCE & INSURANCE-20.36%
CapMAC Holdings ......................... 33,300 1,157,175
CMAC Investment ......................... 11,300 682,238
ENHANCE FINANCIAL
SERVICES GROUP ......................... 22,400 1,332,800
Everest Re Holdings ..................... 24,700 1,018,875
*Farm Family Holdings .................... 28,100 915,006
*FINANCIAL FEDERAL ....................... 54,250 1,281,656
Horace Mann Educators ................... 42,500 1,208,594
Keystone Financial ...................... 22,450 900,806
NAC RE Group ............................ 15,200 741,950
North Fork Bancorporation ............... 32,900 1,104,206
ONBANCorp ............................... 12,300 871,763
PMI GROUP ............................... 18,300 1,323,319
Penncorp Financial Group ................ 17,100 610,256
SCPIE Holdings .......................... 14,900 431,169
TIG Holdings ............................ 29,500 979,031
UNION PLANTERS .......................... 20,900 1,419,894
Westamerica Bancorporation .............. 11,000 1,137,125
-----------
17,115,863
-----------
BUILDINGS & MATERIALS-3.19%
Chicago Bridge and Iron ................. 43,800 711,750
D.R. Horton ............................. 71,000 1,233,625
*Jacobs Engineering Group ................ 29,000 735,875
-----------
2,681,250
-----------
CABLE, MEDIA & PUBLISHING-1.81%
Cadmus Communications ................... 27,700 574,775
Devon Group ............................. 20,300 946,488
-----------
1,521,263
-----------
CHEMICALS-3.98%
A. Schulman ............................ 32,700 825,675
Ferro .................................. 28,100 683,181
- -----------
Top 10 stock holdings, representing 16.7% of net assets, are in bold.
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
CHEMICALS (CONTINUED)
Lawter International .................... 74,100 $ 805,838
*Scotts .................................. 34,000 1,028,500
-----------
3,343,194
-----------
COMPUTERS & TECHNOLOGY-2.03%
Hutchinson Technology ................... 12,300 270,600
*KEMET ................................... 45,600 880,650
*Read-Rite ............................... 35,100 557,213
-----------
1,708,463
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT-1.86%
KUHLMAN ................................. 40,000 1,565,000
-----------
1,565,000
-----------
ENERGY-4.91%
*Belco Oil & Gas ......................... 46,100 867,256
*Offshore Logistics ...................... 30,900 666,281
*Pool Energy Services .................... 34,600 778,500
*SEACOR Smit ............................. 13,900 837,475
*Swift Energy ............................ 46,370 976,668
-----------
4,126,180
-----------
FOOD, BEVERAGE & TOBACCO-3.06%
DiMon ................................... 28,400 745,500
Schweitzer-Mauduit International ........ 33,000 1,229,250
Universal Foods ......................... 14,200 599,950
-----------
2,574,700
-----------
HEALTHCARE & PHARMACEUTICALS-3.49%
*Lincare Holdings ........................ 14,800 847,300
*Marquette Medical Systems ............... 36,300 973,294
*Trigon Healthcare ....................... 42,500 1,110,313
-----------
2,930,907
-----------
INDUSTRIAL MACHINERY-5.77%
Columbus McKinnon ....................... 35,500 865,313
*Global Industrial Technology ............ 38,000 643,625
IDEX ................................... 28,650 999,169
Regal-Beloit ............................ 30,100 889,831
TriMas .................................. 21,700 745,938
Watts Industries Class A ............... 25,000 707,813
-----------
4,851,689
-----------
LEISURE, LODGING & ENTERTAINMENT-3.88%
*Hollywood Park ......................... 37,600 827,200
KING WORLD PRODUCTIONS .................. 24,800 1,432,200
Viad .................................... 51,700 998,456
-----------
3,257,856
-----------
38
<PAGE>
VALUE SERIES
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
PAPER & FOREST PRODUCTS-3.29%
Caraustar Industries .................... 18,300 $631,350
Chesapeake .............................. 16,500 567,188
Glatfelter (P.H.) ....................... 45,900 854,888
Rayonier ................................ 16,700 710,794
-----------
2,764,220
-----------
REAL ESTATE-13.86%
AMB Property ............................ 9,700 243,713
American General Hospitality ............ 34,900 933,575
Brandywine Realty Trust ................. 41,800 1,050,225
Chateau Communities ..................... 22,116 696,648
Duke Realty Investments ................. 32,900 797,825
Excel Realty Trust ...................... 30,900 973,350
Mack-Cali Realty ....................... 26,800 1,098,800
Pan Pacific Retail Properties ........... 47,400 1,013,175
PATRIOT AMERICAN HOSPITALITY ........... 44,532 1,283,078
Prentiss Properties Trust .............. 35,400 988,988
Public Storage ......................... 26,400 775,500
Reckson Associates Realty .............. 39,200 994,700
Starwood Lodging Trust ................. 13,950 807,356
-----------
11,656,933
-----------
RETAIL-3.49%
*BJ's Wholesale Club ..................... 28,700 900,463
*Homebase ................................ 26,900 211,838
*Sports Authority ........................ 48,900 721,275
*Zales ................................... 48,000 1,104,000
-----------
2,937,576
-----------
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
TEXTILES, APPAREL & FURNITURE-3.23%
Kellwood ............................... 30,000 $900,000
Quaker Fabric .......................... 43,000 835,813
*Synthetic Industries .................... 39,200 980,000
-----------
2,715,813
-----------
TRANSPORTATION & SHIPPING-5.30%
Airborne Freight ........................ 7,900 490,788
*MESABA HOLDINGS ......................... 71,600 1,888,450
*M.S. Carriers .......................... 33,400 822,475
USFREIGHTWAYS .......................... 38,500 1,253,656
-----------
4,455,369
-----------
UTILITIES-3.16%
AMERICAN WATER WORKS .................... 47,500 1,297,344
Public Service Company of
New Mexico ............................. 26,500 627,719
Sierra Pacific Resources ................ 19,500 731,250
-----------
2,656,313
-----------
MISCELLANEOUS-0.44%
Rural/Metro ............................. 10,900 367,875
-----------
367,875
-----------
TOTAL COMMON STOCK
(COST $61,911,759) ..................... 75,763,077
-----------
39
<PAGE>
VALUE SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS-9.75%
With Chase Manhattan Bank
6.00% 01/02/98 (dated 12/31/97,
collateralized by $1,286,000
U.S. Treasury Notes 7.75% due
01/31/00, market value $1,378,796 and
$1,037,000 U.S. Treasury Notes
7.75% due 11/30/99, market
value $1,081,641) ....................... $2,411,000 $2,411,000
With JP Morgan Securities 6.25%
01/02/98 (dated 12/31/97, collateralized
by $2,573,000 U.S. Treasury Notes
6.00% due 05/31/98, market value
$2,589,764 and $804,000 U.S.
Treasury Notes 9.00% due 05/15/98,
market value $822,937) .................. 3,344,000 3,344,000
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS (CONTINUED)
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$2,486,000 U.S. Treasury Notes
6.25% due 06/30/98, market
value $2,496,000) ....................... $2,444,000 $2,444,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $8,199,000) ........................ 8,199,000
-----------
TOTAL MARKET VALUE OF SECURITIES-99.87% (COST $70,110,759).... $83,962,077
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.13% ........ 109,066
-----------
NET ASSETS APPLICABLE TO 4,692,384 SHARES($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $17.92 PER SHARE-100.00% ......... $84,071,143
===========
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 ..... $67,266,737
Undistributed net investment income .......................... 632,083
Accumulated net realized gain on investments ................. 2,321,005
Net unrealized appreciation of investments ................... 13,851,318
-----------
Total net assets ............................................. $84,071,143
===========
- ---------
* Non-income producing security.
See accompanying notes
40
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-QUANTUM SERIES
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK-94.69%
AUTOMOBILES & AUTOMOTIVE PARTS-0.20%
PACCAR ................................... 300 $ 15,769
----------
15,769
----------
BANKING & FINANCE-23.56%
Ahmanson (H.F.) & Co ..................... 1,425 95,386
AmSouth Bancorporation ................... 1,480 80,382
BankAmerica .............................. 1,635 119,355
Bank of Boston ........................... 515 48,378
Bankers Trust New York ................... 900 101,194
Bear Stearns ............................. 1,455 69,113
CHASE MANHATTAN .......................... 1,255 137,423
City National ............................ 1,325 48,942
COMERICA ................................. 1,425 128,606
EDWARDS (A.G.) ........................... 3,245 128,989
First Chicago NBD ........................ 440 36,740
First of America Bank .................... 1,343 103,540
First Union .............................. 1,570 80,463
Mellon Bank .............................. 1,625 98,516
NationsBank ............................. 850 51,691
PaineWebber Group......................... 2,370 81,913
Republic New York......................... 625 71,367
SLM Holding............................... 515 71,649
T. Rowe Price Associates.................. 1,100 69,300
TRAVELERS GROUP........................... 3,990 214,961
----------
1,837,908
----------
BUILDINGS & MATERIALS-1.17%
Masco..................................... 400 20,350
Oakwood Homes............................. 2,150 71,353
----------
91,703
----------
CABLE, MEDIA & PUBLISHING-6.37%
Dun & Bradstreet.......................... 2,780 86,006
Ennis Business Forms...................... 715 6,614
GANNETT................................... 2,070 127,952
McGraw-Hill............................... 1,400 103,600
New York Times............................ 1,550 102,494
Omnicom Group............................. 1,650 69,919
----------
496,585
----------
- ---------
Top 10 stock holdings, representing 19.3% of net assets, are in bold.
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
CHEMICALS-0.39%
International Flavors & Fragrances ....... 585 $30,128
----------
30,128
----------
COMPUTERS & TECHNOLOGY-9.88%
American Power Conversion ................ 3,525 83,498
Cadence Design Systems.................... 3,610 88,445
Compaq Computer........................... 1,940 109,489
Deluxe.................................... 1,165 40,193
EMC....................................... 870 23,871
HBO....................................... 2,040 97,856
Microsoft................................. 890 115,005
PeopleSoft................................ 1,200 46,650
Quantum................................... 2,665 53,550
Storage Technology........................ 1,520 94,145
Western Digital........................... 1,100 17,669
----------
770,371
----------
CONSUMER PRODUCTS-2.13%
Avon Products............................. 805 49,407
Clorox.................................... 1,090 86,178
Premark International..................... 1,050 30,450
----------
166,035
----------
ELECTRONICS & ELECTRICAL EQUIPMENT-1.22%
Anixter International..................... 4,420 72,930
Xerox..................................... 300 22,144
----------
95,074
----------
ENERGY-3.73%
Global Marine............................. 1,180 28,910
Helmerich & Payne......................... 390 26,471
Oryx Energy............................... 2,610 66,555
Sun....................................... 1,480 62,253
US Industries............................. 3,540 106,643
----------
290,832
----------
FOOD, BEVERAGE & TOBACCO-7.91%
Campbell Soup............................. 1,390 80,794
Coca-Cola................................. 1,140 75,953
Flowers Industries........................ 1,770 36,396
Hershey Foods............................. 810 50,169
Hormel Foods.............................. 260 8,515
International Multifoods.................. 920 26,048
41
<PAGE>
QUANTUM SERIES
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
FOOD, BEVERAGE & TOBACCO (CONTINUED)
Interstate Bakeries....................... 3,170 $118,479
Quaker Oats............................... 2,425 127,919
Ralston-Purina Group...................... 270 25,093
Universal Foods........................... 1,600 67,600
----------
616,966
----------
HEALTHCARE & PHARMACEUTICALS-6.16%
Agouron Pharmaceuticals................... 1,150 33,673
Beverly Enterprises....................... 3,150 40,950
Johnson & Johnson......................... 1,000 65,875
Lincare Holdings.......................... 795 45,514
Oxford Health Plans....................... 675 10,484
Pharmerica................................ 1,434 15,008
Phycor.................................... 3,975 107,449
SCHERING-PLOUGH........................... 2,600 161,525
----------
480,478
----------
INDUSTRIAL MACHINERY-0.49%
Deere & Co................................ 650 37,903
----------
37,903
----------
INSURANCE-7.16%
Allstate.................................. 990 89,966
Cigna..................................... 345 59,707
Marsh & McLennan.......................... 1,310 97,677
Mercury General........................... 920 50,830
Mid Ocean................................. 1,100 59,675
Old Republic International ............... 1,260 46,856
Reliance Group Holdings................... 3,470 49,014
SunAmerica................................ 2,455 104,951
----------
558,676
----------
LEISURE, LODGING & ENTERTAINMENT-0.96%
Boston Chicken............................ 805 5,170
Callaway Golf............................. 1,130 32,276
Fleetwood Enterprises..................... 290 12,307
King World Productions.................... 435 25,121
----------
558,676
----------
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
METALS & MINING-0.12%
Cleveland Cliffs Iron..................... 200 $9,163
----------
9,163
----------
PACKAGING & CONTAINERS-0.40%
Sealed Air................................ 500 30,875
----------
30,875
----------
RETAIL-9.22%
COMPUSA................................... 4,170 129,270
CVS....................................... 925 59,258
Gap....................................... 2,143 75,925
Jostens................................... 345 7,957
Pier 1 Imports............................ 4,200 95,025
Ross Stores............................... 2,630 95,831
Safeway................................... 1,330 84,123
Tiffany................................... 1,565 56,438
TJX....................................... 3,360 115,500
----------
719,327
----------
TELECOMMUNICATIONS-11.79%
Alltel.................................... 2,000 82,125
Ameritech................................. 1,425 114,713
AT&T...................................... 3,345 204,881
BellSouth................................. 1,990 112,062
PairGain Technologies..................... 1,435 27,848
SBC COMMUNICATIONS........................ 1,895 138,809
Tellabs................................... 2,000 105,562
U.S. WEST COMMUNICATIONS GROUP............ 2,970 134,021
----------
920,021
----------
TEXTILES, APPAREL & FURNITURE-0.74%
Miller (Herman)........................... 700 38,106
Tommy Hilfiger............................ 570 20,021
----------
58,127
----------
TRANSPORTATION & SHIPPING-1.09%
AMR....................................... 460 59,110
UAL....................................... 280 25,900
----------
85,010
----------
TOTAL COMMON STOCK
(COST $6,747,835)......................... 7,385,825
----------
42
<PAGE>
QUANTUM SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS-6.55%
With Chase Manhattan 6.00% 01/02/98
(dated 12/31/97, collateralized
by $80,000 U.S. Treasury Notes
7.75% due 01/31/00,
market value $85,933 and $65,000
U.S. Treasury Notes 7.75%
due 11/30/99, market value
$67,413)................................. $150,000 $150,000
With JP Morgan Securities 6.25%
01/02/98 (dated 12/31/97,
collateralized by $50,000
U.S. Treasury Notes 9.00%
due 05/15/98, market value
$51,289 and $160,000
U.S. Treasury Notes 6.00% due 05/31/98,
market value $161,406)................... 209,000 209,000
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS (CONTINUED)
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$155,000 U.S. Treasury Notes
6.25% due 06/30/98,
market value $155,562)................... $152,000 $152,000
---------
TOTAL REPURCHASE AGREEMENTS
(COST $511,000)........................... 511,000
---------
TOTAL MARKET VALUE OF SECURITIES-101.24% (COST $7,258,835)..... $7,896,825
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(1.24%)........ (96,720)
----------
NET ASSETS APPLICABLE TO 607,345 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $12.84 PER SHARE-100.00%........... $7,800,105
==========
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....... $7,011,521
Undistributed net investment income............................ 30,982
Accumulated net realized gain on investments................... 119,612
Net unrealized appreciation of investments..................... 637,990
----------
Total net assets............................................... $7,800,105
==========
See accompanying notes
43
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-DEVON SERIES
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK-89.12%
AEROSPACE & DEFENSE-0.41%
GenCorp .......................................... 2,700 $ 67,500
----------
67,500
----------
AUTOMOBILES & AUTOMOTIVE PARTS-1.44%
Danaher .......................................... 3,800 239,875
----------
239,875
----------
BANKING, FINANCE & INSURANCE-14.57%
American International Group ..................... 1,950 212,063
BB&T ............................................. 3,000 192,188
Chubb ............................................ 2,200 166,375
EQUIFAX .......................................... 9,900 350,830
FEDERAL NATIONAL MORTGAGE ........................ 6,200 353,788
Nationwide Financial Services
Class A .......................................... 4,300 155,338
PMI Group ........................................ 3,200 231,400
Provident ........................................ 6,600 254,925
SAFECO ........................................... 3,300 160,670
State Street Bank ................................ 1,600 93,100
Unum ............................................. 4,700 255,563
----------
2,426,240
----------
BUILDINGS & MATERIALS-4.60%
Foster Wheeler ................................... 5,200 140,725
MASCO ............................................ 12,300 625,761
----------
766,486
----------
CABLE, MEDIA & PUBLISHING-4.00%
Banta ............................................ 3,600 98,325
Reynolds & Reynolds Class A ...................... 5,700 105,094
WALLACE COMPUTER SERVICES ........................ 11,900 462,613
----------
666,032
----------
CHEMICALS-4.23%
Fuller (HB) ...................................... 4,200 208,950
Valspar .......................................... 7,200 229,500
W.R. Grace & Company ............................. 3,300 265,444
----------
703,894
----------
COMPUTERS & TECHNOLOGY-1.99%
Hewlett-Packard .................................. 5,300 331,250
----------
331,250
----------
CONSUMER PRODUCTS-0.31%
General Electric ................................. 700 51,363
----------
51,363
----------
Top 10 stock holdings, representing 28.8% of net assets, are in bold.
<PAGE>
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
ELECTRONICS & ELECTRICAL EQUIPMENT-5.61%
Intel ............................................ 3,800 $ 266,831
Motorola ......................................... 2,900 165,481
Rockwell International ........................... 2,900 151,525
Symbol Technologies .............................. 5,000 188,750
Teleflex ......................................... 4,300 162,325
----------
934,912
----------
ENERGY-3.39%
Compagnie Francaise de Petroleum
Total ......................................... 4,600 255,300
Kerr-McGee ....................................... 2,400 151,950
Royal Dutch Petroleum ............................ 2,900 157,144
----------
564,394
----------
ENVIRONMENTAL SERVICES-3.09%
ECOLAB ........................................... 9,300 515,567
----------
515,567
----------
FOOD, BEVERAGE & TOBACCO-8.27%
CONAGRA .......................................... 10,900 357,654
Hershey Foods .................................... 2,200 136,263
PHILIP MORRIS .................................... 8,400 380,625
Ralston-Purina Group ............................. 3,100 288,106
Universal Foods .................................. 5,100 215,475
----------
1,378,123
----------
HEALTHCARE & PHARMACEUTICALS-12.30%
AFLAC ............................................ 4,300 219,838
AMERICAN HOME PRODUCTS ........................... 6,300 481,948
Johnson & Johnson ................................ 4,500 296,438
Nationwide Health Properties ..................... 5,600 142,800
TYCO INTERNATIONAL ............................... 15,100 680,444
Zeneca Group ADR ................................. 2,100 226,800
----------
2,048,268
----------
INDUSTRIAL MACHINERY-1.59%
Sun Communities .................................. 2,200 79,063
TriMas ........................................... 5,400 185,625
----------
264,688
----------
REAL ESTATE-2.29%
Developers Diversified Realty .................... 2,100 80,325
D.R. Horton ...................................... 6,900 119,888
Highwoods Properties ............................. 2,600 96,688
Storage USA ...................................... 2,100 83,869
----------
380,770
----------
44
<PAGE>
DEVON SERIES
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
RETAIL-8.15%
Intimate Brands .............................. 10,100 $ 243,031
Lowe's Companies ............................. 3,300 157,369
May Department Stores ........................ 2,500 131,719
RITE AID ..................................... 10,000 586,875
Sherwin-Williams ............................. 8,600 238,650
----------
1,357,644
----------
TELECOMMUNICATIONS-2.31%
Alltel ....................................... 2,600 106,763
SBC Communications ........................... 3,800 278,350
----------
385,113
----------
TEXTILES, APPAREL & FURNITURE-3.90%
Hillenbrand Industries ....................... 3,900 199,631
HON Industries ............................... 5,800 341,475
Miller (Herman) .............................. 2,000 108,875
----------
649,981
----------
UTILITIES-4.54%
CIA Telecom Chile S.A ........................ 5,700 170,287
CMS Energy ................................... 3,300 145,406
Edison International ......................... 3,700 100,594
Northern Telecom Limited ..................... 1,300 115,700
PacifiCorp ................................... 8,200 223,963
----------
755,950
----------
MISCELLANEOUS-2.13%
Pentair ...................................... 3,800 136,563
Service International ........................ 5,900 217,931
----------
354,494
----------
TOTAL COMMON STOCK
(COST $13,666,578) ........................... 14,842,544
----------
<PAGE>
NUMBER MARKET
OF SHARES VALUE
CONVERTIBLE PREFERRED STOCK-0.68%
METALS & MINING-0.67%
Freeport-McMoRan Copper & Gold
5.00% ....................................... 5,200 $112,775
----------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $127,925) ............................. 112,775
----------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENTS-10.07%
With Chase Manhattan 6.00%
01/02/98 (dated 12/31/97,
collateralized by $263,000
U.S. Treasury Notes 7.75%
due 01/31/00, market value
$282,015 and $212,000 7.75%
U.S. Treasury Notes due
11/30/99, market value $221,236) ............ $ 493,000 493,000
With JP Morgan Securities 6.25%
01/02/98 (dated 12/31/97,
collateralized by $164,000 U.S. .............
Treasury Notes 9.00% due 05/15/98,
market value $168,321 and $526,000
U.S. Treasury Notes 6.00% due
05/31/98, market value $529,703) ........... 684,000 684,000
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$509,000 U.S. Treasury Notes
6.25% due 06/30/98,
market value $510,525) ...................... 500,000 500,000
----------
TOTAL REPURCHASE AGREEMENTS
(COST $1,677,000) ........................... 1,677,000
----------
<TABLE>
<CAPTION>
<S> <C>
TOTAL MARKET VALUE OF SECURITIES-99.87% (COST $15,471,503)....................... $16,632,319
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.13%............................ 21,172
-----------
NET ASSETS APPLICABLE TO 1,308,239 SHARES ($.01 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $12.73 PER SHARE-100.00%........................................... $16,653,491
===========
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 ....................................... $15,113,627
Undistributed net investment income.............................................. 105,114
Accumulated net realized gain on investments..................................... 273,934
Net unrealized appreciation of investments....................................... 1,160,816
-----------
Total net assets................................................................. $16,653,491
===========
</TABLE>
- ------------
ADR - American Depository Receipt
See accompanying notes
45
<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
-----------
46
<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
-----------
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
47
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-DELAWARE SERIES
(FORMERLY MULTIPLE STRATEGY SERIES)
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER OF MARKET
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 OF MARKET
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
-----------
48
<PAGE>
DELAWARE SERIES (FORMERLY MULTIPLE STRATEGY SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER OF MARKET
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
49
<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
50
<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
-----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
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
51
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-CONVERTIBLE SECURITIES SERIES
STATEMENT OF NET ASSETS
December 31, 1997
PRINCIPAL MARKET
AMOUNT VALUE
CONVERTIBLE BONDS-37.66%
AEROSPACE & DEFENSE-2.49%
Kellstrom Industries
5.75% 10/15/02 .......................... $ 90,000 $ 97,537
-----------
97,537
-----------
AUTOMOBILES & AUTOMOTIVE PARTS-2.76%
Tower Automotive 5.00% 8/1/04 ............. 105,000 108,150
-----------
108,150
-----------
CABLE, MEDIA & PUBLISHING-2.50%
World Color Press 6.00% 10/1/07 ........... 100,000 98,000
-----------
98,000
-----------
COMPUTERS & TECHNOLOGY-2.97%
Platinum Technology
6.25% 12/15/02 .......................... 110,000 116,463
-----------
116,463
-----------
ENERGY-2.12%
Parker Drilling 5.50% 8/1/04 .............. 77,000 83,255
-----------
83,255
-----------
HEALTHCARE & PHARMACEUTICALS-5.37%
Atria Communities
5.00% 10/15/02 .......................... 85,000 87,337
Sunrise Assisted Living
5.50% 6/15/02 ........................... 95,000 123,500
-----------
210,837
-----------
INDUSTRIAL MACHINERY-1.90%
Thermo Fibertek 4.50% 7/15/04 ............. 70,000 74,550
-----------
74,550
-----------
LEISURE, LODGING & ENTERTAINMENT-4.55%
Capstar Hotel 4.75% 10/15/04 .............. 100,000 100,500
Signature Resorts 5.75% 1/15/07 ........... 80,000 77,900
-----------
178,400
-----------
PAPER & FOREST PRODUCTS-1.98%
U.S. Office Products 5.50% 2/1/01 ......... 65,000 77,512
-----------
77,512
-----------
TELECOMMUNICATIONS-4.91%
Smartalk Teleservices
5.75% 9/15/04 ........................... 90,000 96,075
Tel-Save Holdings 5.00% 12/15/04 .......... 100,000 96,625
-----------
192,700
-----------
TRANSPORTATION & SHIPPING-1.71%
Halter Marine Group
4.50% 9/15/04 ........................... 60,000 66,900
-----------
66,900
-----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
CONVERTIBLE BONDS (CONTINUED)
MISCELLANEOUS-4.40%
COREStaff 2.94% 8/15/04 ................... $ 100,000 $ 83,625
Personnel Group of America
5.75% 7/1/04 ............................ 80,000 88,800
-----------
172,425
-----------
TOTAL CONVERTIBLE BONDS
(COST $1,407,780) ....................... 1,476,729
-----------
NUMBER
OF SHARES
COMMON STOCK-20.45%
AUTOMOBILES & AUTOMOTIVE PARTS-1.97%
Chrysler .................................. 2,200 77,413
-----------
77,413
-----------
BANKING, FINANCE & INSURANCE-2.87%
Capital Trust Class A ..................... 10,000 112,500
-----------
112,500
-----------
REAL ESTATE-15.61%
Crescent Real Estate Equities ............. 2,100 82,688
Equity Residential Properties ............. 1,500 75,844
Grove Property Trust ...................... 11,000 119,625
Lexington Corporate Properties ............ 5,800 89,538
Starwood Lodging Trust .................... 2,000 115,750
Trammell Crow ............................. 5,000 128,750
-----------
612,195
-----------
TOTAL COMMON STOCK
(COST $666,622) ......................... 802,108
-----------
CONVERTIBLE PREFERRED STOCK-27.97%
AUTOMOBILES & AUTOMOTIVE PARTS-2.51%
BTI Capital Trust 6.50% ................... 2,000 98,500
-----------
98,500
-----------
BANKING, FINANCE & INSURANCE-5.64%
American General 6.00% Series A ........... 1,000 71,000
National Australia Bank
7.875% Unit ............................. 2,500 71,094
SunAmerica $3.188 ......................... 1,700 79,156
-----------
221,250
-----------
CABLE, MEDIA & PUBLISHING-5.48%
Evergreen Media 6.00% ..................... 1,500 115,313
MetroMedia International Group
7.25% ................................... 2,200 99,550
-----------
214,863
-----------
52
<PAGE>
CONVERTIBLE SECURITIES SERIES
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES VALUE
CONVERTIBLE PREFERRED STOCK (CONTINUED)
CONSUMER PRODUCTS-2.90%
Newell Financial Trust I 5.25% ............ 2,200 $ 113,850
-----------
113,850
-----------
ENVIRONMENTAL SERVICES-1.48%
Browning-Ferris 7.25% ..................... 1,700 57,800
-----------
57,800
-----------
HEALTHCARE & PHARMACEUTICALS-1.52%
MedPartners 7.25% ......................... 2,700 59,400
-----------
59,400
-----------
LEISURE, LODGING & ENTERTAINMENT-2.18%
Houston Industries 7.00% ................. 1,500 85,594
-----------
85,594
-----------
REAL ESTATE-1.46%
Felcor Suite Hotels $1.95 Series A ........ 2,000 57,250
-----------
57,250
-----------
RETAIL-2.54%
AnnTaylor Finance Trust 8.50%............. 2,100 99,750
-----------
99,750
-----------
UTILITIES-2.26%
CalEnergy Capital Trust 6.50%............ 2,000 88,500
-----------
88,500
-----------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $1,049,383) ....................... 1,096,757
-----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS-13.08%
With Chase Manhattan 6.00%
01/02/98 (dated 12/31/97, collateralized
by $80,000 U.S. Treasury Notes 7.75%
due 01/31/00, market value $86,269
and $65,000 U.S. Treasury Notes
7.75% due 11/30/99, market value
$67,677) ................................ $ 151,000 $ 151,000
With JP Morgan Securities 6.25%
01/02/98 (dated 12/31/97, collateralized
by $50,000 U.S. Treasury Notes 9.00%
due 05/15/98, market value $51,490
and $161,000 U.S. Treasury Notes
6.00% due 05/31/98, market value
$162,038) ............................... 209,000 209,000
With PaineWebber 6.375% 01/2/98
(dated 12/31/97, collateralized by
$156,000 U.S. Treasury Notes 6.25%
due 06/30/98, market value $156,171) .... 153,000 153,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $513,000) ......................... 513,000
-----------
TOTAL MARKET VALUE OF SECURITIES-99.16%
(COST $3,636,785) ....................................... $3,888,594
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.84%...... 32,783
-----------
NET ASSETS APPLICABLE TO 336,255 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $11.66 PER SHARE-100.00%...... $3,921,377
===========
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 ................................. $3,538,050
Undistributed net investment income........................ 106,880
Accumulated net realized gain on investments............... 24,638
Net unrealized appreciation of investments................. 251,809
-----------
Total net assets........................................... $3,921,377
===========
See accompanying notes
53
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-EMERGING MARKETS SERIES
STATEMENT OF NET ASSETS
December 31, 1997
NUMBER OF MARKET
SHARES VALUE
(U.S. $)
COMMON STOCK-82.93%
ARGENTINA-3.99%
Central Puerto-Class B ................... 21,000 $ 58,811
Transportadora de Gas del sur-
Class B ................................. 21,000 47,679
YPF Sociedad Anonima ..................... 1,300 43,818
YPF Sociedad Anonima-ADR ................. 2,350 80,341
---------
230,649
---------
BRAZIL-11.23%
Aracruz Celulose-ADR ..................... 4,300 61,813
Centrais Electricas de Santa
Catarina-GDR ............................ 300 31,650
Companhia Energetica de Minas
Gerais-GDR .............................. 2,400 104,256
Companhia Paranaense de
Energia-Copel-ADR ....................... 3,392 46,428
Elevadores Atlas ......................... 5,600 67,739
GERDAU METALURGICA ....................... 3,640,000 109,260
Lojas Renner ............................. 870,000 27,284
*Rossi Residencial-GDR .................... 4,500 21,938
TELEBRAS-ADR ............................. 1,350 157,191
Usinas Siderurgicas de Minas
Gerais-ADR .............................. 3,734 21,111
---------
648,670
---------
CHILE-3.87%
Administradora de Fondos de
Pensiones Provida-ADR ................... 2,600 44,363
Banco BHIF-ADR ........................... 3,040 48,640
Cia de Telecomunicaciones de
Chile-ADR ............................... 1,910 57,061
Empresa Nacional
Electricidade-ADR ....................... 4,150 73,403
---------
223,467
---------
EGYPT-1.81%
Paints and Chemical-GDR .................. 10,000 104,250
---------
104,250
---------
GREECE-2.90%
Attica Enterprises ....................... 6,700 74,777
Hellenic Bottling Company ................ 4,000 92,807
---------
167,584
---------
- ---------
Top 10 stock holdings, representing 21.2% of net assets, are in bold.
<PAGE>
NUMBER OF MARKET
SHARES VALUE
(U.S. $)
COMMON STOCK (CONTINUED)
HONG KONG-6.02%
*First Tractor ............................ 115,000 $ 69,395
Guangdong Kelon Electric Holding ......... 77,000 79,015
Guangshen Railway ........................ 360,000 95,259
*Shenzhen Expressway ...................... 536,000 103,778
---------
347,447
---------
HUNGARY-2.72%
*Magyar Tavkozlesi ........................ 2,280 59,280
MOL Magyar Olaj-es-GDR ................... 4,000 97,600
---------
156,880
---------
INDIA-8.84%
Gujarat Ambuja Cement-GDR ................ 3,400 24,225
INDIA FUND, (THE) ........................ 15,700 115,787
Larsen & Toubro-GDR ...................... 7,750 86,025
*Mahanagar Telecom Nigam .................. 4,175 64,504
Tata Engineering & Locomotive
Limited-GDR ............................. 12,000 100,020
VIDESH SANCHAR NIGAM LIMITED ............. 8,560 120,054
---------
510,615
---------
INDONESIA-0.40%
PT Bank Dagang Nasional .................. 171,000 10,882
PT Semen Gresik .......................... 18,000 10,555
PT United Tractors ....................... 15,500 1,832
---------
23,269
---------
ISRAEL-3.53%
Bank Hapoalim ............................ 39,300 94,291
ISRAEL CHEMICALS LIMITED ................. 81,000 109,645
---------
203,936
---------
MALAYSIA-6.49%
Leader Universal Holdings ................ 139,000 42,868
Petronas Dagangan Berhad ................. 77,000 65,305
Public Finance Berhad .................... 17,000 4,675
Resorts World Berhad ..................... 54,000 90,902
Rothmans of Pall Mall Berhad ............. 14,000 108,841
Sime Darby Berhad ........................ 65,000 62,478
---------
375,069
---------
54
<PAGE>
EMERGING MARKETS SERIES
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
(U.S. $)
COMMON STOCK (CONTINUED)
MEXICO-6.84%
ALFA de C.V.-Class A ..................... 13,300 $ 90,019
*CEMEX DE C.V.-CLASS B .................... 24,500 129,986
*Grupo Minsa-Class C ...................... 34,400 27,633
*Grupo Minsa-ADR .......................... 2,400 18,000
VITRO-ADR ................................ 9,900 129,319
---------
394,957
---------
PERU-3.06%
Banco de Credito del Peru ................ 54,717 63,652
Cementos Lima ............................ 3,335 72,672
Credicorp Limited ........................ 2,250 40,500
---------
176,824
---------
PHILIPPINES-2.18%
PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY ADR ................... 5,600 126,000
---------
126,000
---------
POLAND-1.91%
ELEKTRIM SPOLKA AKCYJNA .................. 11,400 110,281
---------
110,281
---------
RUSSIA-4.09%
Gazprom-ADR Reg. S ....................... 1,200 28,650
Gazprom-ADR .............................. 1,900 44,555
Lukoil Holding-ADR ....................... 1,000 92,000
*Mosenergo-ADR Reg. S ..................... 700 26,131
---------
*Mosenergo-ADR ............................ 1,200 44,796
---------
236,132
---------
SLOVENIA-0.51%
*Blagovno Trgovinski Cent-GDR ............. 1,925 14,726
SKB Banka GDR ............................ 800 14,600
---------
29,326
---------
SOUTH AFRICA-4.85%
Amalgamated Banks of South Africa ........ 4,000 23,015
ANGLO AMERICAN CORPORATION OF
SOUTH AFRICA LIMITED .................... 2,850 115,021
Sappi Limited ............................ 8,000 40,276
Sasol Limited ............................ 9,700 101,457
---------
279,769
---------
<PAGE>
NUMBER OF MARKET
SHARES VALUE
(U.S. $)
COMMON STOCK (CONTINUED)
SOUTH KOREA-1.14%
Cho Hung Bank-GDR ........................ 1,920 $ 2,880
Korea Electric Power-ADR ................. 2,100 23,100
Pohang Iron & Steel-ADR .................. 2,280 39,758
---------
65,738
---------
TAIWAN-2.81%
Asia Cement-GDR .......................... 6,000 71,220
Yageo-GDR ................................ 7,900 90,850
---------
162,070
---------
THAILAND-2.31%
Hana MicroElectronics Public Co
Limited ................................. 18,300 43,430
K. R. Precision Public Limited ........... 7,200 28,272
*Ruang Khao 2 Fund ........................ 553,600 50,164
Thai Reinsurance Public
Co. Limited ............................. 8,600 11,782
---------
133,648
---------
TURKEY-1.43%
*Netas-Northern Eleckrik
Telekomunikayson A.S ..................... 229,200 82,856
---------
82,856
---------
TOTAL COMMON STOCK
(COST $5,813,231) ....................... 4,789,437
---------
WARRANTS-0.01%
HONG KONG-0.01%
*Guangdong Investments Warrants ........... 4,600 629
---------
TOTAL WARRANTS (COST $0) ................ 629
---------
55
<PAGE>
EMERGING MARKETS SERIES
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
(U.S.$)
REPURCHASE AGREEMENTS-16.93%
With Chase Manhattan 6.00%
01/02/98 (dated 12/31/97, collateralized by
$153,000 U.S. Treasury Notes 7.75%
due 01/31/00, market value $164,467 and
$124,000 U.S. Treasury Notes 7.75%
due 11/30/99, market value
$129,021) ............................... $ 287,000 $ 287,000
With JP Morgan Securities 6.25% 01/02/98
(dated 12/31/97, collateralized by
$307,000 U.S. Treasury Notes 6.00%
due 05/31/98, market value $308,914 and
$96,000 U.S. Treasury Notes 9.00% due
05/15/98, market value $98,162) ......... 399,000 399,000
PRINCIPAL MARKET
AMOUNT VALUE
(U.S.$)
REPURCHASE AGREEMENTS (CONTINUED)
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$297,000 U.S. Treasury Notes
6.25% due 06/30/98,
market value $297,730) .................. $ 292,000 $ 292,000
TOTAL REPURCHASE AGREEMENTS
(COST $978,000) ......................... 978,000
---------
TOTAL MARKET VALUE OF SECURITIES-99.87%
(COST $6,791,231).......................................... $5,768,066
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.13%........ 7,718
----------
NET ASSETS APPLICABLE TO 650,377 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $ 8.88 PER SHARE-100.00%........ $5,775,784
==========
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 ................................................ $6,644,212
Undistributed net investment income **....................... 16,386
Accumulated net realized gain on investments................. 138,857
Net unrealized depreciation of investments and foreign
currencies ................................................ (1,023,671)
----------
Total net assets............................................. $5,775,784
==========
- ----------
*Non-income producing security.
**Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
- ----------
ADR--American Depository Receipt
GDR--Global Depository Receipt
See accompanying notes
56
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-INTERNATIONAL EQUITY SERIES
STATEMENT OF NET ASSETS
December 31, 1997
MARKET
NUMBER OF VALUE
SHARES (U.S. $)
COMMON STOCK-93.72%
AUSTRALIA-10.20%
+Amcor .................................... 865,000 $ 3,803,946
CSR ...................................... 1,224,966 4,149,940
FOSTER'S BREWING GROUP ................... 2,827,051 5,378,125
NATIONAL AUSTRALIA BANK .................. 448,327 6,259,382
Telstra .................................. 328,090 692,552
-----------
20,283,945
-----------
BELGIUM-3.16%
ELECTRABEL SA ............................ 27,200 6,283,973
-----------
6,283,973
-----------
FRANCE-8.23%
Alcatel Alsthom .......................... 38,015 4,828,003
Compagnie de Saint Gobain ................ 25,299 3,591,043
Elf Aquitaine ............................ 36,583 4,251,366
Societe Generale ......................... 27,108 3,690,306
-----------
16,360,718
-----------
GERMANY-9.29%
Bayer .................................... 134,600 4,994,885
Continental .............................. 117,200 2,638,833
+RHEINISCH WESTFAELISCHES
ELEKTRIC ................................ 121,000 6,491,452
Siemens .................................. 72,050 4,346,032
-----------
18,471,202
-----------
HONG KONG-3.64%
Hong Kong Electric ....................... 810,000 3,079,073
Wharf Holdings ........................... 1,900,000 4,169,194
-----------
7,248,267
-----------
JAPAN-12.70%
+Amano .................................... 185,000 1,419,311
+Eisai .................................... 287,000 4,381,681
HITACHI .................................. 728,000 5,194,217
+Kinki Coca-Cola Bottling ................. 191,000 2,036,826
Koito Manufacturing ...................... 596,000 2,377,691
Matshushita Electric Industrial .......... 290,000 4,249,493
Nichido Fire & Marine .................... 483,000 2,519,775
West Japan Railway ....................... 965 3,079,828
-----------
25,258,822
-----------
MALAYSIA-0.50%
Oriental Holdings Berhad ................. 510,720 624,782
Sime Darby Berhad ........................ 380,000 365,253
-----------
990,035
-----------
- ----------
Top 10 stock holdings, representing 29.0% of net assets, are in bold.
<PAGE>
MARKET
NUMBER OF VALUE
SHARES (U.S. $)
COMMON STOCK (CONTINUED)
NETHERLANDS-6.16%
Elsevier ................................. 199,500 $ 3,229,015
Koninklijke Van Ommeren .................. 60,100 2,016,679
Royal Dutch Petroleum .................... 63,000 3,460,104
Unilever ................................. 57,440 3,543,054
-----------
12,248,852
-----------
NEW ZEALAND-3.25%
Carter Holt Harvey Limited ............... 1,187,800 1,834,118
+Telecom Corporation of New Zealand ....... 954,784 4,628,005
-----------
6,462,123
-----------
PHILIPPINES-0.88%
Philippine Long Distance Telephone
Company ADR ............................. 77,800 1,750,500
-----------
1,750,500
-----------
SINGAPORE-0.86%
Jardine Matheson Holdings ................ 336,622 1,716,772
-----------
1,716,772
-----------
SOUTH KOREA-0.06%
Cho Hung Bank Limited GDR ................ 80,948 121,422
-----------
121,422
-----------
SPAIN-5.53%
Banco Central Hispanoamericano ........... 184,898 4,502,457
+Iberdrola SA ............................. 197,800 2,603,059
Telefonica de Espana ..................... 136,500 3,897,313
-----------
11,002,829
-----------
UNITED KINGDOM-29.26%
BASS ..................................... 411,000 6,345,562
BG ....................................... 617,647 2,791,536
Blue Circle Industry ..................... 688,236 4,038,635
BOOTS .................................... 433,200 6,309,595
BRITISH AIRWAYS .......................... 525,000 5,165,615
Cable & Wireless ......................... 556,000 4,902,017
Centrica ................................. 700,000 1,016,092
GKN ...................................... 252,000 5,183,455
GLAXO WELLCOME ........................... 214,470 5,087,188
Great Universal Stores ................... 323,000 3,995,914
Rio Tinto ................................ 412,100 4,795,699
Taylor Woodrow ........................... 1,365,000 4,019,048
Unigate .................................. 458,000 4,544,158
-----------
58,194,514
-----------
TOTAL COMMON STOCK
(COST $164,798,064) ..................... 186,393,974
-----------
57
<PAGE>
INTERNATIONAL EQUITY SERIES
STATEMENT OF NET ASSETS (CONTINUED)
MARKET
NUMBER OF VALUE
SHARES (U.S. $)
WARRANTS-0.01%
INDONESIA-0.01%
*PT Bank Dagang Nasional .................. 567,750 $ 5,265
-----------
TOTAL WARRANTS (COST $0) ................. 5,265
-----------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENTS-6.00%
With Chase Manhattan 6.00% 01/02/98
(dated 12/31/97, collateralized by
$1,872,000 U.S. Treasury Notes
7.75% due 01/31/00, market value
$2,006,561 and $1,509,000
U.S. Treasury Notes 7.75% due
11/30/99, market value $1,574,111) ...... $3,508,000 3,508,000
With JP Morgan Securities 6.25%
01/02/98 (dated 12/31/97, collateralized
by $1,169,000 U.S. Treasury Notes
9.00% due 05/15/98, market value
$1,197,620 and $3,744,000
U.S. Treasury Notes 6.00% due 05/31/98,
market value $3,768,882) ................ 4,867,000 4,867,000
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$3,618,000 U.S. Treasury Notes
6.25% due 06/30/98,
market value $3,632,427) ................ 3,557,000 3,557,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $11,932,000) ...................... 11,932,000
-----------
TOTAL MARKET VALUE OF SECURITIES-99.73% (COST $176,730,064)... $198,331,239
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.27%......... 532,022
------------
NET ASSETS APPLICABLE TO 12,815,894 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $15.52 PER SHARE-100.00%......... $198,863,261
============
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 ..................................................... $171,652,423
Undistributed net investment income**......................... 7,156,052
Accumulated net realized loss on investments.................. (1,517,754)
Net unrealized appreciation of investments and
foreign currencies ......................................... 21,572,540
------------
Total net assets.............................................. $198,863,261
============
- ----------
*Non-income producing security.
**Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
+Security is partially or fully on loan.
- ----------
ADR--American Depository Receipt
GDR--Global Depository Receipt
See accompanying notes
58
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-GLOBAL BOND SERIES
STATEMENT OF NET ASSETS
December 31, 1997
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
BONDS-93.34%
AUSTRALIA-3.11%
Queensland Treasury Global
8.00% 8/14/01 ........................... A$ 750,000 $ 524,065
-----------
524,065
-----------
CANADA-8.99%
Autobahn Schnell 8.50% 3/3/03 ............. C$ 60,000 46,801
Export-Import Bank of Japan
7.75% 10/8/02 ........................... 160,000 120,326
General Electric Capital of Canada
7.125% 2/12/04 .......................... 100,000 74,111
Government of Canada
9.00% 12/1/04 ........................... 100,000 83,818
Government of Canada
10.25% 3/15/14 .......................... 600,000 612,978
Japan Highway
7.875% 9/27/02 .......................... 400,000 302,039
KFW International Finance
6.50% 12/28/01 .......................... 60,000 43,024
Kingdom of Norway
8.375% 1/27/03 .......................... 200,000 155,217
Ontario Hydro 10.00% 3/19/01 .............. 100,000 78,964
-----------
1,517,278
-----------
DENMARK-1.91%
Kingdom of Denmark
7.00% 11/15/07 .......................... Dk 500,000 80,119
Kingdom of Denmark
8.00% 11/15/01 .......................... 1,500,000 241,779
-----------
321,898
-----------
GERMANY-14.48%
LKB Baden-Wurt L-Finance NV
5.25% 9/26/01 ........................... Dem 500,000 282,001
LKB Baden-Wurt L-Finance NV
6.625% 8/20/03 .......................... 250,000 148,714
DSL Finance NV Amsterdam
6.00% 2/21/06 ........................... 500,000 289,090
Deut Pfandbriefe Hypobk Bank
5.625% 2/7/03 ........................... 500,000 285,476
Deutschland Republic
6.50% 7/15/03 ........................... 1,500,000 896,039
International Bank Reconstruction
& Development 6.125% 9/27/02 ............ 150,000 87,728
<PAGE>
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
BONDS (CONTINUED)
GERMANY (CONTINUED)
Republic of Finland
5.50% 2/9/01 ............................ Dem 800,000 $ 455,205
-----------
2,444,253
-----------
ITALY-5.44%
Italian Government
9.50% 2/1/01 ............................ Itl 300,000,000 190,867
Italian Government
12.00% 1/1/03 ........................... 1,000,000,000 727,798
-----------
918,665
-----------
JAPAN-5.25%
Federal National Mortgage
Association 2.00% 12/20/99 .............. Jpy 70,000,000 551,469
International Bank Reconstruction
& Development 4.50% 6/20/00 ............. 20,000,000 167,536
Republic of Italy 3.50% 6/20/01 ........... 20,000,000 166,385
-----------
885,390
-----------
NETHERLANDS-9.79%
Netherlands Government
8.25% 9/15/07 ........................... Nlg 1,400,000 837,651
Netherlands Government
9.00% 5/15/00 ........................... 1,500,000 814,582
-----------
1,652,233
-----------
NEW ZEALAND-7.74%
New Zealand Government
8.00% 2/15/01 ........................... NZ$ 250,000 147,447
New Zealand Government
8.00% 4/15/04 ........................... 1,100,000 664,858
New Zealand Government
8.00% 11/15/06 .......................... 800,000 493,704
-----------
1,306,009
-----------
SPAIN-2.37%
Spanish Government
0.00% 1/31/01 ........................... Sp 30,000,000 198,267
Spanish Government
0.00% 1/31/08 ........................... 30,000,000 201,693
-----------
399,960
-----------
59
<PAGE>
GLOBAL BOND SERIES
STATEMENT OF NET ASSETS (CONTINUED)
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
BONDS (CONTINUED)
SWEDEN-2.62%
Swedish Government
8.00% 8/15/07 ........................... Sk 2,200,000 $ 318,114
Swedish Government
9.00% 4/20/09 ........................... 300,000 46,804
Swedish Government
13.00% 6/15/01 .......................... 500,000 77,402
-----------
442,320
-----------
UNITED KINGDOM-5.47%
Abbey National Treasury
8.00% 4/2/03 ............................ Gbp 200,000 343,508
Glaxo Wellcome 8.75% 12/1/05 .............. 80,000 146,146
Powergen 8.50% 7/3/06 .................... 100,000 177,734
SmithKline Beecham
8.375% 12/29/00 ......................... 150,000 255,002
-----------
922,390
-----------
UNITED STATES-26.17%
J. Sainsbury 6.25% 3/27/02 ................ $ 100,000 99,750
Korea Electric Power
6.375% 12/1/03 .......................... 100,000 74,500
<PAGE>
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
BONDS (CONTINUED)
UNITED STATES (CONTINUED)
Matsushita Electric
7.25% 8/1/02 ............................ $ 200,000 $ 207,250
Republic of Finland
7.875% 7/28/04 .......................... 200,000 219,125
U.S. Treasury Bonds
13.375% 8/15/01 ......................... 700,000 874,671
U.S. Treasury Inflation Index Notes
3.375% 1/15/07 .......................... 406,980 396,549
U.S. Treasury Notes
5.75% 9/30/99 ........................... 700,000 701,190
U.S. Treasury Notes
6.125% 7/31/00 .......................... 300,000 303,144
U.S. Treasury Notes
6.375% 8/15/27 .......................... 400,000 422,348
U.S. Treasury Notes
7.875% 11/15/04 ......................... 1,000,000 1,118,490
-----------
4,417,017
-----------
TOTAL BONDS
(COST $16,063,553) ...................... 15,751,478
-----------
60
<PAGE>
GLOBAL BOND SERIES
STATEMENT OF NET ASSETS (CONTINUED)
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
REPURCHASE AGREEMENTS-3.96%
With Chase Manhattan 6.00% 01/02/98
(dated 12/31/97, collateralized by
$105,000 U.S. Treasury Notes 7.75%
due 01/31/00, market value $112,503
and $85,000 U.S. Treasury Notes 7.75%
due 11/30/99, market value $88,257) ..... $197,000 $ 197,000
With JP Morgan Securities 6.25% 01/02/98
(dated 12/31/97, collateralized by
$65,000 U.S. Treasury Notes 9.00% due
05/15/98, market value $67,148, and
$210,000 U.S. Treasury Notes
6.00% due 05/31/98,
market value $211,313) .................. 273,000 273,000
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$203,000 U.S. Treasury Notes 6.25%
due 06/30/98, market value $203,662) .... 199,000 199,000
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $669,000) ......................... 669,000
-----------
TOTAL MARKET VALUE OF SECURITIES-97.30% (COST $16,732,553).... $16,420,478
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-2.70%......... 455,118
-----------
NET ASSETS APPLICABLE TO 1,607,409 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $10.50 PER SHARE-100.00%......... $16,875,596
===========
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 ..................................................... $16,798,618
Undistributed net investment income**......................... 340,021
Accumulated net realized gain on investments.................. 15,587
Net unrealized depreciation of investments and foreign
currencies ................................................. (278,630)
-----------
Total net assets.............................................. $16,875,596
===========
- ----------
*Principal amount is stated in the currency in which each bond is denominated.
A$--Australian Dollars Jpy--Japanese Yen
C$--Canadian Dollars Nlg--Dutch Guilders
Dk--Danish Kroner NZ$--New Zealand Dollars
Dem--German Deutsche Marks Sp--Spanish Peseta
Gbp--British Pounds Sk--Swedish Kroner
Itl--Italian Lira $--U.S. Dollars
**Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
See accompanying notes
61
<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
62
<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
63
<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
----------
64
<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
-----------
65
<PAGE>
DELCHESTER SERIES (FORMERLY HIGH YIELD SERIES)
STATEMENT OF NET ASSETS (CONTINUED)
NUMBER MARKET
OF SHARES 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
---------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
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 nts--notes sr--senior
debs--debentures pfd--preferred sub--subordinated
disc--discount pik--pay-in-kind unsec--unsecured
mtg--mortgage sec--secured
See accompanying notes
66
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-STRATEGIC INCOME SERIES
STATEMENT OF NET ASSETS
December 31, 1997
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
CORPORATE BONDS-29.33%
AEROSPACE & DEFENSE-1.23%
Atlas Air sr notes 10.75% 8/1/05 ......... $100,000 $105,750
--------
105,750
--------
AUTOMOBILES & AUTOMOTIVE PARTS-0.29%
Delco Remy International
8.625% 12/15/07.......................... 25,000 25,313
--------
25,313
--------
BANKING, FINANCE & INSURANCE-0.30%
Credit Foncier de France sr sub notes
8.00% 1/14/02............................ 25,000 26,188
--------
26,188
--------
BUILDINGS & MATERIALS-0.91%
Reliant Building sr sub notes
10.875% 5/1/04........................... 75,000 78,281
--------
78,281
--------
CABLE, MEDIA & PUBLISHING-2.53%
STC Broadcasting sr sub notes
11.00% 3/15/07........................... 150,000 162,188
Turner Broadcasting 8.375% 7/1/13 ........ 50,000 55,750
--------
217,938
--------
CHEMICALS-0.60%
Hydrochem Industrial sr sub notes
10.375% 8/1/07........................... 25,000 25,813
Precise Technology sr sub notes
11.125% 6/15/07.......................... 25,000 25,750
--------
51,563
--------
COMPUTERS & TECHNOLOGY-0.49%
Decisionone Corporate notes
9.75% 8/1/07............................. 25,000 26,063
Decisionone Holdings Units
0.00% 8/1/08............................. 25,000 16,250
--------
42,313
--------
ELECTRONICS & ELECTRICAL EQUIPMENT-0.30%
Insilco sr sub notes 10.25% 8/15/07 ...... 25,000 26,219
--------
26,219
--------
ENERGY-2.93%
Panaco 10.625% 10/1/04.................... 50,000 50,375
Transamerican Energy sr notes
11.50% 6/15/02........................... 125,000 122,813
United Refining 10.75% 6/15/07 ........... 75,000 78,938
--------
252,126
--------
<PAGE>
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
CORPORATE BONDS (CONTINUED)
FOOD, BEVERAGE & TOBACCO-3.41%
AFC Enterprises sr sub notes
10.25% 5/15/07........................... $ 15,000 $ 15,863
CFP Holdings sr notes
11.625% 1/15/04.......................... 100,000 98,750
DiGiorgio sr notes 10.00% 6/15/07 ........ 75,000 73,688
Fleming sr sub notes
10.50% 12/1/04........................... 100,000 105,000
--------
293,301
--------
HEALTHCARE & PHARMACEUTICALS-0.40%
Cardinal Health notes 6.00% 1/15/06 ...... 35,000 34,344
--------
34,344
--------
INDUSTRIAL MACHINERY-0.86%
Embotelladora Andina notes
7.00% 10/1/07............................ 50,000 48,750
Roller Bearing Company of America
sr sub notes 9.625% 6/15/07 ............. 25,000 25,188
--------
73,938
--------
LEISURE, LODGING & ENTERTAINMENT-0.31%
Hollywood Theaters sr sub notes
10.625% 8/1/07........................... 25,000 26,625
--------
26,625
--------
METALS & MINING-2.84%
Keystone Consolidated Industries
sr notes 9.625% 8/1/07................... 25,000 25,563
Westmin Resources sr notes
11.00% 3/15/07........................... 200,000 219,000
--------
244,563
--------
PACKAGING & CONTAINERS-1.48%
Stone Container sr sub notes
12.25% 4/1/02............................ 125,000 127,500
--------
127,500
--------
67
<PAGE>
STRATEGIC INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
CORPORATE BONDS (CONTINUED)
RETAIL-3.53%
Central Tractor sr notes
10.625% 4/1/07........................... $ 50,000 $ 53,000
Chief Auto Parts sr notes
10.50% 5/15/05........................... 100,000 100,250
Leslie's Poolmart sr notes
10.375% 7/15/04.......................... 25,000 25,844
Wilsons The Leather Expert sr notes
11.25% 8/15/04........................... 125,000 124,688
----------
303,782
----------
TELECOMMUNICATIONS-2.13%
Metrocall sr sub notes 10.375% 10/1/07 ... 25,000 25,500
Paging Network sr sub notes
10.125% 8/1/07........................... 150,000 157,313
----------
182,813
----------
TEXTILES, APPAREL & FURNITURE-2.39%
Anvil Knitwear sr notes
10.875% 3/15/07.......................... 200,000 205,500
----------
205,500
----------
TRANSPORTATION & SHIPPING-1.20%
Chemical Leaman sr notes
10.375% 6/15/05.......................... 50,000 52,500
Continental Airlines pass through
certificate 6.80% 1/2/09................. 50,000 50,313
----------
102,813
----------
MISCELLANEOUS-1.20%
Burke Industries sr notes
10.00% 8/15/07........................... 25,000 26,000
Drypers sr notes 10.25% 6/15/07 .......... 25,000 25,313
Huntsman sr sub notes
9.50% 7/1/07............................. 25,000 26,250
Riddell Sports sr notes
10.50% 7/15/07........................... 25,000 26,000
----------
103,563
----------
TOTAL CORPORATE BONDS
(COST $2,468,594)........................ 2,524,433
----------
<PAGE>
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
FOREIGN BONDS-24.32%
AUSTRALIA-1.45%
Queensland Treasury Global
8.00% 8/14/01......... .................. A$ 130,000 $ 90,838
Toyota Finance Australia
7.00% 12/5/01............................ 50,000 33,601
--------
124,439
--------
CANADA-2.50%
Government of Canada
10.25% 3/15/14........................... C$ 100,000 102,163
Nippon Telegraph and Telephone
10.25% 10/19/99.......................... 150,000 112,937
--------
215,100
--------
GREECE-1.74%
Hellenic Republic
11.00% 11/26/99.......................... Grd 45,000,000 149,561
--------
149,561
--------
ITALY-2.56%
Italian Government
9.50% 2/1/01............................. Itl 250,000,000 159,056
Toyota Motor Credit
7.50% 11/5/01............................ 100,000,000 60,909
--------
219,965
--------
NEW ZEALAND-3.72%
New Zealand Government
6.50% 2/15/00............................ NZ$ 40,000 22,737
New Zealand Government
8.00% 11/15/06........................... 400,000 246,852
New Zealand Government
10.00% 3/15/02........................... 80,000 50,880
--------
320,469
--------
SOUTH AFRICA-5.17%
Electricity Supply Communication
11.00% 6/1/08............................ Zar 400,000 69,336
Republic of South Africa
12.50% 1/15/02........ .................. 1,900,000 375,533
--------
444,869
--------
68
<PAGE>
STRATEGIC INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
FOREIGN BONDS (CONTINUED)
SWEDEN-2.87%
Swedish Government
8.00% 8/15/07............................ Sk 800,000 $ 115,678
Swedish Government
10.25% 5/5/00............................ 400,000 55,690
Swedish Government
10.25% 5/5/03............................ 500,000 75,936
----------
247,304
----------
UNITED KINGDOM-4.31%
DeBeers 8.25% 3/31/09..................... Gbp 50,000 86,496
Korea Electric Power
8.50% 4/28/07............................ 50,000 55,568
Northumbrian Water Group
9.25% 2/1/02............................. 40,000 70,392
United Kingdom Treasury
8.00% 6/10/03............................ 90,000 158,522
----------
370,978
----------
TOTAL FOREIGN BONDS
(COST $2,205,182)........................ 2,092,685
----------
ASSET-BACKED SECURITIES-3.79%
AFC Home Equity Loan Trust Series
1992-5 A 7.20% 2/15/08 .................. $ 76,279 77,202
CIT Group Securitization
6.00% 5/15/26............................ 25,000 24,920
Countrywide Home Equity Loan
6.95% 5/25/21............................ 50,000 50,656
First Union Residential
Securitization Tax 96-2
6.46% 9/25/11............................ 25,000 25,035
MetLife Capital Equipment Loan
Trust 6.85% 5/20/08...................... 25,000 25,553
NationsCredit Grantor Trust
6.35% 4/15/14............................ 47,656 47,790
Oakwood Mortgage Investors-97C
A3 6.65% 11/15/27........................ 25,000 25,051
World Omni Automobile Lease
Securitization 6.20% 11/25/03 ........... 50,000 49,914
----------
TOTAL ASSET-BACKED SECURITIES
(COST $322,875).......................... 326,121
----------
<PAGE>
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
COLLATERALIZED MORTGAGE
OBLIGATIONS-8.17%
Asset Securization Corp Series
96-D2 A1 6.92% 2/14/29................... $ 24,216 $ 24,897
First Union-Lehman Brothers
Commercial Mortgage
7.15% 2/18/04............................ 48,160 49,605
FNR 1993-53 H 5.75% 1/25/22 50,000 48,054
LLL 1997-LLI A1 6.79% 6/12/04 ............ 49,819 50,870
Merrill Lynch Mortgage Investors-
C1-A1 6.95% 6/18/29...................... 24,302 24,826
Morgan Stanley Capital Trust-97-C1
Class A1A 6.85% 2/15/20.................. 22,842 23,138
Mortgage Capital Funding 96-MD2 A1
6.758% 12/21/26.......................... 48,096 48,772
Nations Bank Credit Card Master
Trust 6.00% 12/15/05..................... 20,000 19,882
Nomura Asset Securities
8.17% 3/4/20............................. 21,984 23,035
Residential Accredit Loans
Series 97-QS1 A5 6.75% 2/25/27 .......... 50,000 50,078
Series 97-QS1 A8 6.75% 2/25/27 .......... 40,000 39,819
Series 97-QS4 A3 7.25% 5/25/27 .......... 25,000 25,297
Series 96-QS3 AI3 7.29% 6/25/26 ......... 65,000 65,559
Series 96-QS2 A6 7.45% 4/25/23 .......... 25,000 25,438
Series 97-QS3 A3 7.50% 6/25/12 .......... 100,180 104,375
Residential Funding Mortgage-Series
1994-S10 6.50% 3/25/09................... 30,000 30,274
Standard Credit Card Master Trust
Series A 5.95% 9/7/03.................... 50,000 49,400
--------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (COST $694,505) ............. 703,319
--------
AGENCY MORTGAGE-BACKED SECURITIES-2.93%
Federal Home Loan Mortgage
6.00% 11/1/26............................ 21,276 20,824
Federal Home Loan Mortgage
7.00% 3/1/11............................. 80,070 81,797
Federal National Mortgage Association
6.00% 1/1/05............................. 100,000 99,656
69
<PAGE>
STRATEGIC INCOME SERIES
STATEMENT OF NET ASSETS (CONTINUED)
MARKET
PRINCIPAL VALUE
AMOUNT* (U.S. $)
AGENCY MORTGAGE-BACKED
SECURITIES (CONTINUED)
Government National Mortgage
Association 6.50% 1/1/28................. $ 50,000 $ 49,406
--------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(COST $247,592).......................... 251,683
--------
U.S. TREASURY OBLIGATIONS-7.60%
U.S. Treasury Bond 6.25% 8/15/23 ......... 185,000 190,506
U.S. Treasury Note 6.125% 8/15/07 ........ 100,000 102,807
U.S. Treasury Note 6.25% 2/15/03 ......... 55,000 56,273
U.S. Treasury Note 6.25% 2/15/07 ......... 25,000 25,804
U.S. Treasury Note 6.50% 5/15/05 ......... 30,000 31,279
U.S. Treasury Note 6.50% 8/15/05 ......... 45,000 46,970
U.S. Treasury Note 6.75% 4/30/00 ......... 10,000 10,229
U.S. Treasury Note 7.25% 8/15/04 ......... 80,000 86,522
U.S. Treasury Note 7.50% 2/15/05 ......... 65,000 71,483
U.S. Treasury Note 7.875% 8/15/01 ........ 30,000 32,084
--------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $638,436).......................... 653,957
--------
REPURCHASE AGREEMENTS-23.70%
With Chase Manhattan 6.00% 01/02/98
(dated 12/31/97, collateralized by
$258,000 U.S. Treasury Notes 7.75% due
11/30/99, market value $269,124 and
$320,000 U.S. Treasury Notes
7.75% due 01/31/00,
market value $343,059)................... 600,000 600,000
With JP Morgan Securities 6.25%
01/02/98 (dated 12/31/97, collateralized
by $200,000 U.S. Treasury Notes 9.00%
due 05/15/98, market value $204,756
and $640,000 U.S. Treasury Notes
6.00% due 05/31/98,
market value $644,361)................... 832,000 832,000
With PaineWebber 6.375% 01/02/98
(dated 12/31/97, collateralized by
$619,000 U.S. Treasury Notes
6.25% due 06/30/98,
market value $621,032)................... 608,000 608,000
----------
TOTAL REPURCHASE AGREEMENTS
(COST $2,040,000)........................ 2,040,000
----------
<PAGE>
MARKET
VALUE
(U.S. $)
TOTAL MARKET VALUE OF SECURITIES-99.84% (COST $8,617,184).......... $8,592,198
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.16%.............. 13,989
----------
NET ASSETS APPLICABLE TO 810,536 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $10.62 PER SHARE-100.00%............... $8,606,187
==========
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 .............. $8,367,361
Undistributed net investment income **............................. 242,381
Accumulated net realized gain on investments....................... 22,888
Net unrealized depreciation of investments and foreign currencies.. (26,443)
----------
Total net assets................................................... $8,606,187
==========
- -------------
*Principal amount is stated in the currency in which each security is
denominated.
<TABLE>
<S> <C> <C>
A$ -- Australian Dollars Grd -- Greek Drakma Sk -- Swedish Kroner
C$ -- Canadian Dollars Itl -- Italian Lire $ -- U.S. Dollars
Gbp -- British Pounds NZ$ -- New Zealand Dollars Zar -- South Africa Rand
</TABLE>
**Undistributed net investment income includes net realized gains (losses) on
foreign currencies. Net realized gains (losses) on foreign currencies are
treated as net investment income in accordance with provisions of the
Internal Revenue Code.
Summary of Abbreviations:
sr--senior sub--subordinated
See accompanying notes
70
<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
-----------
71
<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
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
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
----------
72
<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
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
73
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.-CASH RESERVE SERIES
(FORMERLY MONEY MARKET SERIES)
STATEMENT OF NET ASSETS
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
-----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
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
----------
74
<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
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENTS (CONTINUED)
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
75
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
5/1/97* 5/1/97*
TO TO
YEAR ENDED 12/31/97 12/31/97 12/31/97
TREND DELCAP VALUE QUANTUM DEVON
SERIES SERIES SERIES SERIES SERIES
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest ............................. $ 589,014 $ 565,933 $ 254,644 $ 15,100 $ 32,725
Dividends ............................ 205,056 135,462 779,514 37,338 114,144
Foreign tax withheld ................. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
794,070 701,395 1,034,158 52,438 146,869
------------ ------------ ------------ ------------ ------------
EXPENSES:
Management fees ...................... 622,149 716,228 380,405 20,293 31,110
Custodian fees ....................... 15,511 13,891 13,204 7,496 4,449
Dividend disbursing and transfer
agent fees and expenses ............. 6,676 6,504 3,280 1,606 250
Registration fees .................... 10,776 5,627 15,831 2,517 5,133
Reports and statements to
shareholders ........................ 8,731 9,489 4,322 920 1,013
Accounting and administration ........ 39,212 49,152 26,671 1,485 2,827
Professional fees .................... 8,449 10,459 4,728 1,051 1,393
Directors' fees ...................... 1,774 2,041 1,264 268 292
Taxes (other than taxes on income) ... 5,694 6,945 3,926 326 621
Other ................................ 6,407 9,731 3,161 2,095 541
------------ ------------ ------------ ------------ ------------
725,379 830,067 456,792 38,067 47,629
------------ ------------ ------------ ------------ ------------
Less expenses absorbed by Delaware
Management Company, Inc. or
Delaware International
Advisers Ltd. ....................... (63,818) (69,320) (52,349) (16,601) (5,874)
------------ ------------ ------------ ------------ ------------
Total Expenses ....................... 661,561 760,747 404,443 21,456 41,755
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ......... 132,509 (59,352) 629,715 30,982 105,114
------------ ------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investment transactions ............ 2,089,208 9,871,869 2,326,391 119,612 273,934
Foreign currencies .................. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net realized gain (loss) ............. 2,089,208 9,871,869 2,326,391 119,612 273,934
------------ ------------ ------------ ------------ ------------
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies .......................... 13,569,520 3,608,725 10,895,658 637,990 1,160,816
------------ ------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES .......................... 15,658,728 13,480,594 13,222,049 757,602 1,434,750
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........... $ 15,791,237 $ 13,421,242 $ 13,851,764 $ 788,584 $ 1,539,864
============ ============ ============ ============ ============
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
5/1/97*
TO
YEAR ENDED 12/31/97 12/31/97
DECATUR TOTAL CONVERTIBLE
RETURN DELAWARE SECURITIES
SERIES SERIES SERIES
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ............................. $ 521,945 $ 2,288,127 $ 58,555
Dividends ............................ 6,964,542 1,214,892 63,044
Foreign tax withheld ................. -- -- --
----------- ----------- -----------
7,486,487 3,503,019 121,599
----------- ----------- -----------
EXPENSES:
Management fees ...................... 1,640,377 595,126 14,026
Custodian fees ....................... 6,492 4,299 3,400
Dividend disbursing and transfer
agent fees and expenses ............. 15,556 6,208 4,143
Registration fees .................... 54,255 998 1,710
Reports and statements to
shareholders ........................ 29,916 5,738 5,046
Accounting and administration ........ 144,388 44,184 1,049
Professional fees .................... 4,280 1,210 10,123
Directors' fees ...................... 4,603 2,069 263
Taxes (other than taxes on income) ... 22,256 3,012 1,672
Other ................................ 20,880 -- 1,431
----------- ----------- -----------
1,943,003 662,844 42,863
----------- ----------- -----------
Less expenses absorbed by Delaware
Management Company, Inc. or
Delaware International
Advisers Ltd. ....................... -- -- (28,144)
----------- ----------- -----------
Total Expenses ....................... 1,943,003 662,844 14,719
----------- ----------- -----------
NET INVESTMENT INCOME (LOSS) ......... 5,543,484 2,840,175 106,880
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investment transactions ............ 23,181,744 11,425,156 24,638
Foreign currencies .................. -- -- --
----------- ----------- -----------
Net realized gain (loss) ............. 23,181,744 11,425,156 24,638
----------- ----------- -----------
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies .......................... 40,216,861 9,349,683 251,809
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES .......................... 63,398,605 20,774,839 276,447
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ........... $68,942,089 $23,615,014 $ 383,327
=========== =========== ===========
</TABLE>
- ---------
* Date of commencement of operations.
See accompanying notes
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
5/1/97*
to
12/31/97 Year Ended 12/31/97
Emerging International Global
Markets Equity Bond Delchester
Series Series Series Series
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest .............................. $ 24,558 $ 719,010 $ 998,998 $ 7,850,954
Dividends ............................. 48,933 5,175,035 -- 202,569
Foreign tax withheld .................. (3,657) (440,598) (2,231) --
------------ ------------ ------------ ------------
69,834 5,453,447 996,767 8,053,523
------------ ------------ ------------ ------------
EXPENSES:
Management fees ....................... 36,327 1,304,340 109,310 483,877
Custodian fees ........................ 21,442 86,403 5,903 188
Dividend disbursing and transfer
agent fees and expenses .............. 570 9,906 2,859 4,089
Registration fees ..................... 3,291 21,145 4,430 4,021
Reports and statements to
shareholders ......................... 2,578 22,040 5,244 11,125
Accounting and administration ......... 1,649 83,593 8,193 38,311
Professional fees ..................... 2,674 10,154 15,473 12,140
Directors' fees ....................... 277 3,269 657 1,796
Taxes (other than taxes on income) .... 311 11,685 4,100 3,303
Other ................................. 2,199 20,491 1,509 7,551
------------ ------------ ------------ ------------
71,318 1,573,026 157,678 566,401
------------ ------------ ------------ ------------
Less expenses absorbed by Delaware
Management Company, Inc. or
Delaware International
Advisers Ltd. ........................ (27,740) (96,663) (41,234) --
------------ ------------ ------------ ------------
Total Expenses ........................ 43,578 1,476,363 116,444 566,401
------------ ------------ ------------ ------------
NET INVESTMENT INCOME ................. 26,256 3,977,084 880,323 7,487,122
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investment transactions ............ 138,857 (971,541) 15,739 3,130,833
Foreign currencies .................. (9,870) 3,549,014 (46,472) --
------------ ------------ ------------ ------------
Net realized gain (loss) .............. 128,987 2,577,473 (30,733) 3,130,833
------------ ------------ ------------ ------------
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies ........................... (1,023,671) 1,459,920 (543,397) (168,776)
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN
CURRENCIES ........................... (894,684) 4,037,393 (574,130) 2,962,057
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............ ($ 868,428) $ 8,014,477 $ 306,193 $ 10,449,179
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5/1/97*
to
12/31/97 Year Ended 12/31/97
Strategic Capital Cash
Income Reserves Reserve
Series Series Series
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest .............................. $ 272,170 $ 1,968,780 $ 1,688,409
Dividends ............................. -- -- --
Foreign tax withheld .................. -- -- --
------------ ------------ ------------
272,170 1,968,780 1,688,409
------------ ------------ ------------
EXPENSES:
Management fees ....................... 21,320 166,300 149,023
Custodian fees ........................ 6,779 11,602 9,279
Dividend disbursing and transfer
agent fees and expenses .............. 250 3,044 2,110
Registration fees ..................... 4,241 1,150 2,779
Reports and statements to
shareholders ......................... 2,245 2,828 3,385
Accounting and administration ......... 1,826 13,121 14,208
Professional fees ..................... 1,850 5,922 4,597
Directors' fees ....................... 278 990 1,024
Taxes (other than taxes on income) .... 363 973 2,385
Other ................................. 1,091 2,157 2,867
------------ ------------ ------------
40,243 208,087 191,657
------------ ------------ ------------
Less expenses absorbed by Delaware
Management Company, Inc. or
Delaware International
Advisers Ltd. ........................ (14,049) -- --
------------ ------------ ------------
Total Expenses ........................ 26,194 208,087 191,657
------------ ------------ ------------
NET INVESTMENT INCOME ................. 245,976 1,760,693 1,496,752
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investment transactions ............ 22,888 47,064 --
Foreign currencies .................. (3,595) -- --
------------ ------------ ------------
Net realized gain (loss) .............. 19,293 47,064 --
------------ ------------ ------------
Net change in unrealized
appreciation/depreciation
of investments and foreign
currencies ........................... (26,443) 237,399 --
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN
CURRENCIES ........................... (7,150) 284,463 --
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............ $ 238,826 $ 2,045,156 $ 1,496,752
============ ============ ============
</TABLE>
- ----------
* Date of commencement of operations.
See accompanying notes
77
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<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
TREND TREND DELCAP DELCAP VALUE VALUE
SERIES SERIES SERIES SERIES SERIES SERIES
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income (loss) ......... $ 132,509 $ 185,659 ($ 59,352) ($ 71,762) $ 629,715 $ 200,524
Net realized gain on investments
and foreign currencies ............. 2,089,208 661,923 9,871,869 4,627,563 2,326,391 1,671,243
Net change in unrealized appreciation/
depreciation on investments and
foreign currencies ................. 13,569,520 1,635,650 3,608,725 3,704,225 10,895,658 1,737,511
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations .......... 15,791,237 2,483,232 13,421,242 8,260,026 13,851,764 3,609,278
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ................ (204,613) (131,779) -- (270,847) (197,794) (182,035)
Net realized gain on investment
transactions ....................... (736,608) (1,171,368) (4,513,513) (4,585,059) (1,672,255) (455,088)
------------- ------------- ------------- ------------- ------------- -------------
(941,221) (1,303,147) (4,513,513) (4,855,906) (1,870,049) (637,123)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ............ 56,666,244 49,046,522 28,573,142 24,165,659 49,431,262 10,317,936
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on investment transactions ..... 941,222 1,303,147 4,513,513 4,855,906 1,870,049 637,123
------------- ------------- ------------- ------------- ------------- -------------
57,607,466 50,349,669 33,086,655 29,021,565 51,301,311 10,955,059
Cost of shares repurchased ........... (10,604,885) (15,615,925) (11,440,355) (10,647,798) (2,894,623) (2,173,784)
------------- ------------- ------------- ------------- ------------- -------------
Increase in net assets derived
from capital share transactions .... 47,002,581 34,733,744 21,646,300 18,373,767 48,406,688 8,781,275
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS............ 61,852,597 35,913,829 30,554,029 21,777,887 60,388,403 11,753,430
NET ASSETS:
Beginning of period .................. 56,423,493 20,509,664 79,900,476 58,122,589 23,682,740 11,929,310
------------- ------------- ------------- ------------- ------------- -------------
End of period ........................ $ 118,276,090 $ 56,423,493 $ 110,454,505 $ 79,900,476 $ 84,071,143 $ 23,682,740
============= ============= ============= ============= ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR
ENDED
5/1/97* 5/1/97* 12/31/97
TO TO DECATUR
12/31/97 12/31/97 TOTAL
QUANTUM DEVON RETURN
SERIES SERIES SERIES
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income (loss) ......... $ 30,982 $ 105,114 $ 5,543,484
Net realized gain on investments
and foreign currencies ............. 119,612 273,934 23,181,744
Net change in unrealized appreciation/
depreciation on investments and
foreign currencies ................. 637,990 1,160,816 40,216,861
------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations .......... 788,584 1,539,864 68,942,089
------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ................ -- -- (5,726,790)
Net realized gain on investment
transactions ....................... -- -- (14,788,457)
------------- ------------- -------------
-- -- (20,515,247)
------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ............ 8,018,354 16,373,026 187,531,270
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on investment transactions ..... -- -- 20,515,247
------------- ------------- -------------
8,018,354 16,373,026 208,046,517
Cost of shares repurchased ........... (1,006,833) (1,259,399) (21,717,966)
------------- ------------- -------------
Increase in net assets derived
from capital share transactions .... 7,011,521 15,113,627 186,328,551
------------- ------------- -------------
NET INCREASE IN NET ASSETS............ 7,800,105 16,653,491 234,755,393
NET ASSETS:
Beginning of period .................. -- -- 166,646,577
------------- ------------- -------------
End of period ........................ $ 7,800,105 $ 16,653,491 $ 401,401,970
============= ============= =============
</TABLE>
- ------------
* Date of commencement of operations.
See accompanying notes
78
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
YEAR
ENDED 5/1/97* 5/1/97*
12/31/96 YEAR YEAR TO TO
DECATUR ENDED ENDED 12/31/97 12/31/97
TOTAL 12/31/97 12/31/96 CONVERTIBLE EMERGING
RETURN DELAWARE DELAWARE SECURITIES MARKETS
SERIES SERIES SERIES SERIES SERIES
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ................. $ 3,405,801 $ 2,840,175 $ 2,396,290 $ 106,880 $ 26,256
Net realized gain (loss) on investments
and foreign currencies ............... 14,743,863 11,425,156 4,893,415 24,638 128,987
Net change in unrealized appreciation/
depreciation on investments and
foreign currencies ................... 6,445,954 9,349,683 2,885,535 251,809 (1,023,671)
------------- ------------- ------------- ------------ -------------
Net increase (decrease) in net assets
resulting from operations ............ 24,595,618 23,615,014 10,175,240 383,327 (868,428)
------------- ------------- ------------- ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................. (3,496,319) (2,590,776) (2,087,278) -- --
Net realized gain on investment
transactions ......................... (8,895,014) (4,899,878) (2,685,289) -- --
------------- ------------- ------------- ------------ -------------
(12,391,333) (7,490,654) (4,772,567) -- --
------------- ------------- ------------- ------------ -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ............. 52,083,590 36,224,621 10,105,572 3,639,322 7,423,878
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on investment transactions ...... 12,391,313 7,490,655 4,772,567 -- --
------------- ------------- ------------- ------------ -------------
64,474,903 43,715,276 14,878,139 3,639,322 7,423,878
Cost of shares repurchased ............ (19,036,067) (7,566,399) (8,093,881) (101,272) (779,666)
------------- ------------- ------------- ------------ -------------
Increase in net assets derived from
capital hare transactions ............ 45,438,836 36,148,877 6,784,258 3,538,050 6,644,212
------------- ------------- ------------- ------------ -------------
NET INCREASE IN NET ASSETS ............ 57,643,121 52,273,237 12,186,931 3,921,377 5,775,784
------------- ------------- ------------- ------------ -------------
NET ASSETS:
Beginning of period ................... 109,003,456 75,402,107 63,215,176 -- --
------------- ------------- ------------- ------------ -------------
End of period ......................... $ 166,646,577 $ 127,675,344 $ 75,402,107 $ 3,921,377 5,775,784
============= ============= ============= ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED YEAR
12/31/97 12/31/96 ENDED
INTER- INTER- 12/31/97
NATIONAL NATIONAL GLOBAL
EQUITY EQUITY BOND
SERIES SERIES SERIES
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ................. $ 3,977,084 $ 2,763,530 $ 880,323
Net realized gain (loss) on investments
and foreign currencies ............... 2,577,473 1,560,830 (30,733)
Net change in unrealized appreciation/
depreciation on investments and
foreign currencies ................... 1,459,920 14,667,391 (543,397)
------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ............ 8,014,477 18,991,751 306,193
------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................. (4,927,079) (2,695,399) (605,362)
Net realized gain on investment
transactions ......................... -- (725,191) (83,855)
------------- ------------- -------------
(4,927,079) (3,420,590) (689,217)
------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ............. 70,066,962 37,727,987 12,524,510
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on investment transactions ...... 4,927,079 3,420,590 689,217
------------- ------------- -------------
74,994,041 41,148,577 13,213,727
Cost of shares repurchased ............ (10,645,895) (6,840,060) (5,425,925)
------------- ------------- -------------
Increase in net assets derived from
capital hare transactions ............ 64,348,146 34,308,517 7,787,802
------------- ------------- -------------
NET INCREASE IN NET ASSETS ............ 67,435,544 49,879,678 7,404,778
------------- ------------- -------------
NET ASSETS:
Beginning of period ................... 131,427,717 81,548,039 9,470,818
------------- ------------- -------------
End of period ......................... $ 198,863,261 $ 131,427,717 $ 16,875,596
============= ============= =============
</TABLE>
- ----------
* Date of commencement of operations.
See accompanying notes
79
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
5/2/96* 5/1/97* YEAR
TO YEAR YEAR TO ENDED
12/31/96 ENDED ENDED 12/31/97 12/31/97
GLOBAL 12/31/97 12/31/96 STRATEGIC CAPITAL
BOND DELCHESTER DELCHESTER INCOME RESERVES
SERIES SERIES SERIES SERIES SERIES
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income .............................. $ 231,186 $ 7,487,122 $ 5,569,157 $ 245,976 $ 1,760,693
Net realized gain (loss) on investments
and foreign currencies ............................ 83,530 3,130,833 684,792 19,293 47,064
Net change in unrealized appreciation/
depreciation on investments and foreign currencies. 264,767 (168,776) 953,156 (26,443) 237,399
------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations ......................... 579,483 10,449,179 7,207,105 238,826 2,045,156
------------ ------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................. (119,481) (7,411,254) (5,569,157) -- (1,761,161)
Net realized gain on investment transactions ....... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
(119,481) (7,411,254) (5,569,157) -- (1,761,161)
------------ ------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .......................... 9,137,415 32,766,122 17,364,098 9,406,419 6,092,500
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions .......... 119,481 7,413,795 5,569,157 -- 1,762,129
------------ ------------ ------------ ------------ ------------
9,256,896 40,179,917 22,933,255 9,406,419 7,854,629
Cost of shares repurchased ......................... (246,080) (12,007,637) (13,511,480) (1,039,058) (6,729,405)
------------ ------------ ------------ ------------ ------------
Increase in net assets derived from capital
share transactions ................................ 9,010,816 28,172,280 9,421,775 8,367,361 1,125,224
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS .............. 9,470,818 31,210,205 11,059,723 8,606,187 1,409,219
------------ ------------ ------------ ------------ ------------
NET ASSETS:
Beginning of period ................................ -- 67,664,677 56,604,954 -- 27,767,613
------------ ------------ ------------ ------------ ------------
End of period ...................................... $ 9,470,818 $ 98,874,882 $ 67,664,677 $ 8,606,187 $ 29,176,832
============ ============== ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/96 12/31/97 12/31/96
CAPITAL CASH CASH
RESERVES RESERVE RESERVE
SERIES SERIES SERIES
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income .............................. $ 1,772,824 $ 1,496,752 $ 1,073,967
Net realized gain (loss) on investments
and foreign currencies ............................ (292,042) -- --
Net change in unrealized appreciation/
depreciation on investments and foreign currencies. (383,633) -- --
------------ ------------ ------------
Net increase in net assets
resulting from operations ......................... 1,097,149 1,496,752 1,073,967
------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................. (1,772,356) (1,496,752) (1,073,967)
Net realized gain on investment transactions ....... -- -- --
------------ ------------ ------------
(1,772,356) (1,496,752) (1,073,967)
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .......................... 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 .......... 1,772,356 1,497,151 1,073,758
------------ ------------ ------------
6,880,786 84,934,175 58,600,411
Cost of shares repurchased ......................... (6,372,705) (80,701,553) (48,460,039)
------------ ------------ ------------
Increase in net assets derived from capital
share transactions ................................ 508,081 4,232,622 10,140,372
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS .............. (167,126) 4,232,622 10,140,372
------------ ------------ ------------
NET ASSETS:
Beginning of period ................................ 27,934,739 26,478,554 16,338,182
------------ ------------ ------------
End of period ...................................... $ 27,767,613 $ 30,711,176 $ 26,478,554
============ ============ ============
</TABLE>
- ----------
* Date of commencement of operations.
See accompanying notes
80
<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>
TREND SERIES
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31, 12/27/93(1)
to
1997 1996 1995 1994 12/31/93
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................... $14.560 $14.020 $10.160 $10.200 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................................. 0.019 0.050 0.098 0.079 none
Net realized and unrealized gain (loss) on investments . 3.031 1.380 3.852 (0.119) 0.200
------- ------- ------- ------- -------
Total from investment operations ....................... 3.050 1.430 3.950 (0.040) 0.200
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ................... (0.050) (0.090) (0.090) none none
Distributions from net realized gain on investment
transactions .......................................... (0.180) (0.800) none none none
------- ------- ------- ------- -------
Total dividends and distributions ...................... (0.230) (0.890) (0.090) none none
------- ------- ------- ------- -------
Net asset value, end of period ......................... $17.380 $14.560 $14.020 $10.160 $10.200
======= ======= ======= ======= =======
Total return ........................................... 21.37% 11.00% 39.21% (0.39%) 2.00%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................ $118,276 $56,423 $20,510 $7,087 $204
Ratio of expenses to average net assets ................ 0.80% 0.80% 0.80% 0.80% (2)
Ratio of expenses to average net assets prior to expense
limitation ............................................ 0.88% 0.92% 0.96% 1.47% (2)
Ratio of net investment income to average net assets ... 0.16% 0.56% 1.03% 1.63% (2)
Ratio of net investment income to average net assets
prior to expense limitation ............................ 0.08% 0.44% 0.87% 0.96% (2)
Portfolio turnover ..................................... 125% 112% 76% 59% (2)
Average commission rate paid(3)......................... $0.0599 $0.0600 N/A N/A N/A
</TABLE>
- ------------------------
(1) Date of initial public offering; 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) 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
81
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
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
82
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
VALUE SERIES
-----------------------------------------------------------------
12/27/93(1)
YEAR ENDED DECEMBER 31, TO
1997 1996 1995 1994 12/31/93
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $14.500 $12.470 $10.290 $10.210 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)1 ............................. 0.122 0.112 0.192 0.148 none
Net realized and unrealized gain (loss) on investments .... 4.338 2.548 2.208 (0.068) 0.210
------- ------- ------- ------- -------
Total from investment operations .......................... 4.460 2.660 2.400 0.080 0.210
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ...................... (0.110) (0.180) (0.150) none none
Distributions from net realized gain on investment
transactions ............................................. (0.930) (0.450) (0.070) none none
------- ------- ------- ------- -------
Total dividends and distributions ......................... (1.040) (0.630) (0.220) none none
------- ------- ------- ------- -------
Net asset value, end of period ............................ $17.920 $14.500 $12.470 $10.290 $10.210
======= ======= ======= ======= =======
Total return .............................................. 32.91% 22.55% 23.85% 0.78% 2.10%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................... $84,071 $23,683 $11,929 $6,291 $210
Ratio of expenses to average net assets ................... 0.80% 0.80% 0.80% 0.80% (2)
Ratio of expenses to average net assets prior to expense
limitation ............................................... 0.90% 0.99% 0.96% 1.41% (2)
Ratio of net investment income (loss) to average net assets 1.24% 1.28% 2.13% 2.62% (2)
Ratio of net investment income (loss) to average net assets
prior to expense limitation .............................. 1.14% 1.09% 1.97% 2.01% (2)
Portfolio turnover ........................................ 41% 84% 71% 26% (2)
Average commission rate paid(3) ........................... $0.0600 $0.0600 N/A N/A N/A
</TABLE>
- -------------
(1) Date of initial public offering; 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) 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
83
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout the period
was as follows:
<TABLE>
<CAPTION>
QUANTUM SERIES DEVON SERIES
-------------- ------------
5/1/97(1) 5/1/97(1)
TO TO
12/31/97 12/31/97
<S> <C> <C>
Net asset value, beginning of period...... $10.000 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.051 0.080
Net realized and unrealized gain on investments 2.789 2.650
------- -------
Total from investment operations.......... 2.840 2.730
------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income...... none none
Distributions from net realized gain on investment
transactions............................. none none
------- -------
Total dividends and distributions......... none none
------- -------
Net asset value, end of period............ $12.840 $12.730
======= =======
Total return.............................. 28.40% 27.30%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted)... $7,800 $16,653
Ratio of expenses to average net assets... 0.80% 0.80%
Ratio of expenses to average net assets prior to expense
limitation............................... 1.40% 0.91%
Ratio of net investment income to average net assets 1.13% 2.01%
Ratio of net investment income to average net assets
prior to expense limitation.............. 0.53% 1.90%
Portfolio turnover........................ 52% 80%
Average commission rate paid(2)........... $0.0334 $0.0568
</TABLE>
- -------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was
a commission charged.
See accompanying notes
84
<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
85
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
DELAWARE RETURN 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
86
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout the period
was as follows:
<TABLE>
<CAPTION>
CONVERTIBLE SECURITIES SERIES EMERGING MARKETS SERIES
------------------------------ -----------------------
5/1/97(1) 5/1/97(1)
TO TO
12/31/97 12/31/97
<S> <C> <C>
Net asset value, beginning of period ...................... $10.000 $10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) .................................. 0.318 0.060
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................... 1.342 (1.180)
------- -------
Total from investment operations .......................... 1.660 (1.120)
------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ...................... none none
Distributions from net realized gain on investment
transactions ............................................. none none
------- -------
Total dividends and distributions ......................... none none
------- -------
Net asset value, end of period ............................ $11.660 $ 8.880
======= =======
Total return .............................................. 16.60% (11.20%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................... $3,921 $5,776
Ratio of expenses to average net assets ................... 0.80% 1.50%
Ratio of expenses to average net assets prior to expense
limitation ............................................... 2.30% 2.45%
Ratio of net investment income to average net assets 5.68% 0.89%
Ratio of net investment income (loss) to average net assets
prior to expense limitation ............................... 4.18% (0.06%)
Portfolio turnover ........................................ 209% 48%
Average commission rate paid(3) ........................... $0.0597 $0.0036
</TABLE>
- ------------
(1) Date of initial public offering; ratios and portfolio turnover have been
annualized and total return has not been annualized.
(2) Per share information for the Emerging Markets Series for the period ended
December 31, 1997 was based on the average shares outstanding method.
(3) 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
87
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SERIES
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................... $15.110 $13.120 $11.840 $11.620 $10.030
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(1) ............................... 0.359 0.557 0.419 0.220 0.052
Net realized and unrealized gain on investments
and foreign currencies ................................ 0.596 1.966 1.191 0.080 1.548
------- ------- ------- ------- -------
Total from investment operations ....................... 0.955 2.523 1.610 0.300 1.600
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ................... (0.545) (0.420) (0.240) (0.070) (0.010)
Distributions from net realized gain on investment
transactions ......................................... none (0.113) (0.090) (0.010) none
------- ------- ------- ------- -------
Total dividends and distributions ...................... (0.545) (0.533) (0.330) (0.080) (0.010)
------- ------- ------- ------- -------
Net asset value, end of period ......................... $15.520 $15.110 $13.120 $11.840 $11.620
======= ======= ======= ======= =======
Total return ........................................... 6.60% 20.03% 13.98% 2.57% 15.97%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................ $198,863 $131,428 $81,548 $57,649 $16,664
Ratio of expenses to average net assets ................ 0.85% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets prior to expense
limitation ............................................ 0.90% 0.91% 0.89% 1.01% 1.85%
Ratio of net investment income to average net assets 2.28% 4.71% 3.69% 2.63% 1.85%
Ratio of net investment income to average net assets
prior to expense limitation ........................... 2.23% 4.60% 3.60% 2.42% 0.80%
Portfolio turnover ..................................... 7% 8% 19% 13% 9%
Average commission rate paid(2) ........................ $0.0150 $0.0100 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
88
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
GLOBAL BOND SERIES
--------------------
YEAR 5/2/96(1)
ENDED TO
12/31/97 12/31/96
<S> <C> <C>
Net asset value, beginning of period ................... $ 10.960 $ 10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) ............................... 0.636 0.339
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................ (0.551) 0.831
--------- ---------
Total from investment operations ....................... 0.085 1.170
--------- ---------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ................... (0.460) (0.210)
Distributions from net realized gain on investment
transactions .......................................... (0.085) none
--------- ---------
Total dividends and distributions ...................... (0.545) (0.210)
--------- ---------
Net asset value, end of period ......................... $ 10.500 $ 10.960
========= =========
Total return ........................................... 0.88% 11.79%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................ $ 16,876 $ 9,471
Ratio of expenses to average net assets ................ 0.80% 0.80%
Ratio of expenses to average net assets prior to expense
limitation ............................................ 1.08% 1.19%
Ratio of net investment income to average net assets ... 6.03% 6.51%
Ratio of net investment income to average net assets
prior to expense limitation ............................ 5.75% 6.12%
Portfolio turnover ..................................... 97% 56%
</TABLE>
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the period ended December 31, 1997 was based on
the average shares outstanding method.
See accompanying notes
89
<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
90
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Series outstanding throughout the period
was as follows:
STRATEGIC INCOME SERIES
-----------------------
5/1/97(1)
TO
12/31/97
Net asset value, beginning of period ................... $ 10.000
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(2) ............................... 0.523
Net realized and unrealized gain on investments
and foreign currencies ................................ 0.097
--------
Total from investment operations ....................... 0.620
--------
LESS DIVIDENDS AND DISTRIBUTIONS:
Dividends from net investment income ................... none
Distributions from net realized gain on investment
transactions .......................................... none
--------
Total dividends and distributions ...................... none
--------
Net asset value, end of period ......................... $ 10.620
========
Total return ........................................... 6.20%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) ................ $ 8,606
Ratio of expenses to average net assets ................ 0.80%
Ratio of expenses to average net assets prior to expense
limitation ............................................ 1.23%
Ratio of net investment income to average net assets ... 7.44%
Ratio of net investment income to average net assets
prior to expense limitation ........................... 7.01%
Portfolio turnover ..................................... 70%
- ----------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the period ended December 31, 1997 was based on
the average shares outstanding method.
See accompanying notes
91
<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
92
<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
93
<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 (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.
FOREIGN CURRENCY TRANSACTIONS--Transactions denominated in foreign currencies
are recorded at the current prevailing exchange rates. The value of all assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the exchange rate of such currencies against the U.S. dollar as of
3:00 PM EST. Transaction gains or losses resulting from changes in exchange
rates during the reporting period or upon settlement of the foreign currency
transaction are reported in operations for the current period. It is not
practical to isolate that portion of both realized and unrealized gains and
losses on investments in equity securities that result from fluctuations in
foreign currency exchange rates in the statement of operations. The Series do
isolate that portion of gains and losses on investments in debt securities
which are due to changes in the foreign exchange rate from that which are due
to changes in market prices of debt securities. The Series report certain
foreign currency related transactions as components of realized gains for
financial reporting purposes, whereas such components are treated as ordinary
income (loss) for federal income tax purposes.
OTHER--Expenses common to all funds within the Delaware 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 Strategic Income 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.
94
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Global Bond Series declares and pays dividends from net investment income
monthly. Short-term capital gains distributions, if any, may be paid with the
dividend. Distributions from net realized gain on investment transactions
normally will be distributed following the close of the fiscal year.
The Quantum Series, the Devon Series, the Decatur Total Return Series, the
Delaware Series and the Convertible Securities 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, the International Equity Series, the Value Series and the
Emerging Markets Series will make payments from net income and net realized
gain on investment transactions, if any, once a year.
The Trend Series will make payments from net investment income and net
realized gain on investment transactions if any, twice a year.
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>
Trend Series........................ $0.020 $0.342
DelCap Series....................... -- 1.595
Value Series........................ 0.135 0.495
Quantum Series...................... 0.050 0.185
Devon Series........................ 0.080 0.205
Decatur Total Return Series......... 0.027 1.050
Delaware Series..................... 0.300 1.600
Convertible Securities Series....... 0.305 0.070
Emerging Markets Series............. 0.030 0.220
International Equity Series......... 0.565 --
Global Bond Series.................. 0.240 0.010
Delchester Series................... -- 0.003
Strategic Income Series............. 0.270 0.025
</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 except the Emerging Markets Series, the International Equity Series,
and the Global Bond Series, and Delaware International Advisers Ltd. ("DIAL"),
the investment manager of the Emerging Markets Series, the International
Equity Series, and the Global Bond Series, an annual fee which is calculated
daily based on the net assets of each Series, less the fees paid to the
unaffiliated directors for the DelCap Series, the Decatur Total Return Series,
the Delaware Series, the International Equity Series, the Delchester Series,
the Capital Reserves Series, and the Cash Reserve Series. The management fees
for the Trend Series, the Value Series, the Quantum Series, the Devon Series,
the Convertible Securities
95
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Series, the Emerging Markets Series, the Global Bond Series, and the Strategic
Income Series are calculated daily based on the net assets of each Series
without consideration of amounts paid to unaffiliated directors.
DMC and DIAL have elected to waive their fees and reimburse each Series to the
extent that annual operating expenses exclusive of taxes, interest, brokerage
commissions and extraordinary expenses, exceed 0.80% of average daily net
assets for each Series, except the Emerging Markets Series and the
International Equity Series, through April 30, 1998. DIAL has elected to waive
their fee and reimburse the Series to the extent that annual operating
expenses exclusive of taxes, interest, brokerage commissions and extraordinary
expenses exceed 1.50% of average daily net assets through April 30, 1998, for
the Emerging Markets Series and for the International Equity Series 0.95% of
average daily net assets through April 30, 1998. The management fee rates and
total expenses absorbed by DMC and DIAL for the period ended December 31, 1997
are as follows:
<TABLE>
<CAPTION>
TREND DELCAP VALUE QUANTUM DEVON RETURN DELAWARE SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------- ------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fee as a
percentage of average
daily net assets
(per annum)....... 0.75% 0.75% 0.75% 0.75% 0.60% 0.60% 0.60% 0.75%
Expenses absorbed by
DMC or DIAL....... $63,818 $69,320 $52,349 $16,601 $5,874 -- -- 28,144
</TABLE>
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GLOBAL STRATEGIC CAPITAL CASH
MARKETS EQUITY BOND DELCHESTER INCOME RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management fee as a
percentage of average
daily net assets
(per annum)....... 1.25% 0.75% 0.75% 0.60% 0.65% 0.60% 0.50%
Expenses absorbed by
DMC or DIAL....... $27,740 $96,663 $41,234 -- $14,049 -- --
</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>
TREND DELCAP VALUE QUANTUM DEVON RETURN DELAWARE SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------- ------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend disbursing,
transfer agent fees
and other expenses $6,676 $6,504 $3,280 $1,606 $250 $15,556 $6,208 $4,143
Accounting fees... 29,549 33,873 18,406 1,038 1,991 100,991 33,156 715
</TABLE>
96
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GLOBAL STRATEGIC CAPITAL CASH
MARKETS EQUITY BOND DELCHESTER INCOME RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend disbursing,
transfer agent fees
and other expenses $570 $9,906 $2,859 $4,089 $250 $3,044 $2,110
Accounting fees... 1,121 55,457 5,855 28,638 1,257 9,752 10,506
</TABLE>
On December 31, 1997, the Series had payables to affiliates as follows:
<TABLE>
<CAPTION>
TREND DELCAP VALUE QUANTUM DEVON RETURN DELAWARE SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------- ------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment management
fee payable to DMC
or DIAL........... $60,863 $55,897 $45,924 $3,692 $15,890 $167,750 $51,995 --
Dividend disbursing,
transfer agent
fees, accounting fees
and other expenses
payable to DSC.... 3,242 2,566 2,572 2,637 2,797 8,679 3,294 --
Other expenses
payable to DMC
and affiliates.... -- -- -- 1,543 2,782 -- -- --
</TABLE>
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GLOBAL STRATEGIC CAPITAL CASH
MARKETS EQUITY BOND DELCHESTER INCOME RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------- ------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment management
fee payable to DMC
or DIAL........... $5,666 $121,828 $13,536 $32,863 $7,271 $14,391 $12,898
Dividend disbursing,
transfer agent
fees, accounting fees
and other expenses
payable to DSC.... 1,634 657 601 2,471 1,800 546 726
Other expenses
payable to DMC
and affiliates.... 1,626 -- -- -- 1,895 -- --
</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.
97
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 CONVERTIBLE
TREND DELCAP VALUE QUANTUM DEVON RETURN DELAWARE SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------- ------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchases....... $137,636,291 $137,747,934 $59,814,882 $8,114,178 $17,785,483 $308,651,192 $81,184,253 $6,525,781
Sales........... 89,280,942 113,326,396 18,943,005 1,485,955 4,264,915 143,593,723 52,492,215 3,427,348
</TABLE>
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GLOBAL STRATEGIC CAPITAL CASH
MARKETS EQUITY BOND DELCHESTER INCOME RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------- ------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Purchases....... $6,958,462 $73,496,202 $16,158,811 $107,570,324 $7,300,170 $19,977,154 --
Sales........... 1,286,405 11,926,438 10,237,435 89,717,349 1,380,101 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 CONVERTIBLE
TREND DELCAP VALUE QUANTUM DEVON RETURN DELAWARE SECURITIES
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------- ------- --------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of Investments $100,269,822 $93,030,092 $70,115,340 $7,261,745 $15,475,480 $342,934,347 $108,625,672 $3,636,785
Aggregate unrealized
appreciation.... 20,699,122 19,296,541 15,253,385 812,858 1,352,710 64,516,484 20,917,810 289,208
Aggregate unrealized
depreciation.... (3,283,866) (2,269,981) (1,406,648) (177,778) (195,871) (2,919,987) (947,988) (37,399)
Net unrealized
appreciation
(depreciation).. 17,415,256 17,026,560 13,846,737 635,080 1,156,839 61,596,497 19,969,822 251,809
</TABLE>
<TABLE>
<CAPTION>
EMERGING INTERNATIONAL GLOBAL STRATEGIC CAPITAL CASH
MARKETS EQUITY BOND DELCHESTER INCOME RESERVES RESERVE
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- --------- -------- ------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost of Investments $6,791,231 $176,730,064 $16,732,553 $94,604,235 $8,617,184 $28,932,231 $30,688,044
Aggregate unrealized
appreciation.... 211,654 34,909,840 173,553 2,956,113 109,127 483,148 --
Aggregate unrealized
depreciation.... (1,234,819) (13,308,665) (485,628) (533,213) (134,113) (31,167) --
Net unrealized
appreciation
(depreciation).. (1,023,165) 21,601,175 (312,075) 2,422,900 (24,986) 451,981 --
</TABLE>
98
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For federal income tax purposes, the Fund had accumulated capital losses at
December 31, 1997 for each Series as follows:
<TABLE>
<CAPTION>
YEAR OF YEAR OF YEAR OF YEAR OF
EXPIRATION EXPIRATION EXPIRATION EXPIRATION
2002 2003 2004 2005
------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
International Equity Series.... $522,833 $971,541
Capital Reserves Series........ 1,281,450 292,208
</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>
Year ended December 31, 1997*:
Trend Series................... 3,548,538 63,254 (682,630) 2,929,162
DelCap Series.................. 1,806,689 296,551 (737,831) 1,365,409
Value Series................... 3,108,967 135,708 (185,778) 3,058,897
Quantum Series................. 695,631 -- (88,286) 607,345
Devon Series................... 1,418,088 -- (109,849) 1,308,239
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
Convertible Securities Series.. 344,954 -- (8,699) 336,255
Emerging Markets Series........ 727,021 -- (76,644) 650,377
International Equity Series.... 4,451,284 342,396 (674,626) 4,119,054
Global Bond Series............. 1,188,335 65,554 (510,926) 742,963
Delchester Series.............. 3,508,373 793,870 (1,287,419) 3,014,824
Strategic Income Series........ 909,478 -- (98,942) 810,536
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>
- ---------------------
* The Quantum Series, the Devon Series, the Convertible Securities Series,
the Emerging Markets Series, and the Strategic Income Series commenced
operations on 5/1/97.
99
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<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**:
Trend Series................... 3,395,485 101,808 (1,086,091) 2,411,202
DelCap Series.................. 1,535,822 347,595 (694,724) 1,188,693
Value Series................... 795,391 54,501 (172,909) 676,983
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
International Equity Series.... 2,717,039 265,574 (503,590) 2,479,023
Global Bond Series............. 876,461 11,182 (23,197) 864,446
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>
- --------------------
**The Global Bond Series commenced operations on 5/2/96.
5. FOREIGN EXCHANGE CONTRACTS
A Series will generally enter into forward foreign currency contracts as a way
of managing foreign exchange rate risk. A Series may enter into these
contracts to fix the U.S. dollar value of a security that it has agreed to buy
or sell for the period between the date the trade was entered into and the
date the security is delivered and paid for. A Series may also use these
contracts to hedge the U.S. dollar value of securities it already owns
denominated in foreign currencies.
Forward foreign currency contracts are valued at the mean between the bid and
asked prices of the contracts and are marked-to-market daily. Interpolated
values are derived when the settlement date of the contract is an interim date
for which quotations are not available. The change in market value is recorded
as an unrealized gain or loss. When the contract is closed, a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed is recorded.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. Although forward foreign currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, they also limit any potential gain that might result should the
value of the currency increase. In addition, a Series could be exposed to
risks if the counterparties to the contracts are unable to meet the terms of
their contracts.
The following forward currency contracts were outstanding at December 31,
1997:
<TABLE>
<CAPTION>
CONTRACT SETTLEMENT UNREALIZED
CONTRACTS TO DELIVER IN EXCHANGE FOR VALUE DATE APPRECIATION
---------------------- --------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Global Bond Series............. (2,884,000) Deutsche Marks $1,648,565 $1,608,662 2/27/98 $39,903
</TABLE>
100
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. MARKET AND CREDIT RISKS
Some countries in which the Series may invest require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller,
less liquid and more volatile than the major securities markets in the United
States. Consequently, acquisition and disposition of securities by the Series
may be inhibited. In addition, a significant proportion of the aggregate
market value of equity securities listed on the major securities exchanges in
emerging markets are held by a smaller number of investors. This may limit the
number of shares available for acquisition or disposition by the Series.
The Delchester Series, Strategic Income Series and Convertible Securities
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.
With the exception of Convertible Securities Series, each Series may invest up
to 10% of its total assets in illiquid securities which may include securities
with contractual restrictions on resale, securities exempt from registration
under Rule 144A of the Securities Act of 1933, as amended, and other
securities which may not be readily marketable. The Convertible Securities
series may invest up to 15% in such securities. The relative illiquidity of
some of these securities may adversely affect the Series' ability to dispose
of such securities in a timely manner and at a fair price when it is necessary
to liquidate such securities.
7. SECURITIES LENDING
Securities on loan are required at all times to be secured by collateral at
least equal to 102% of the market value of securities issued in the U.S. and
105% of the market value of securities issued outside of the U.S. However, in
the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings. In the event that the borrower fails to return loaned securities,
and cash collateral being maintained by the borrower is insufficient to cover
the value of loaned securities and provided such collateral insufficiency is
not the result of investment losses, the lending agent has agreed to pay the
amount of the shortfall to the Series or, at the option of the lending agent,
replace the loaned securities. The market value of securities on loan to
brokers and the related cash collateral received at December 31, 1997 for the
Series was as follows:
MARKET VALUE OF CASH
SECURITIES ON LOAN COLLATERAL
-------------------- -----------
International Equity Series.... $15,712,135 $16,809,366
101
<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 Delaware Group
Premium Fund, Inc. (comprised of, respectively, Trend Series, DelCap Series,
Value Series, Quantum Series, Devon Series, Decatur Total Return Series,
Delaware Series, Convertible Securities Series, Emerging Markets Series,
International Equity Series, Global Bond Series, Delchester Series, Strategic
Income Series, Capital Reserves Series, and Cash Reserve Series) as of
December 31, 1997, and the related statements of operations for the period
then ended, and the statements of changes in net assets and the financial
highlights for each of the periods indicated therein. 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 correspondence
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 respective Series of Delaware Group Premium Fund, Inc. at December 31,
1997, the results of their operations for the period then ended, and the
changes in their net assets and their financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 4, 1998
102
