<PAGE>
DELAWARE GROUP
- ----------------------------------------
PREMIUM FUND
- ----------------------------------------
REIT SERIES
- ----------------------------------------
SMALL CAP VALUE SERIES
- ----------------------------------------
SEMI-ANNUAL REPORT
- ----------------------------------------
JUNE 30, 1999
DELAWARE(SM)
INVESTMENTS
- -------------------
Philadelphia o London
<PAGE>
July 20, 1999
Dear Policy Holder:
During the first half of 1999, investors started paying closer attention to
less-expensive international stocks. As countries like Brazil and Japan showed
signs of turning the corner, the dominance of growth investments began to wane,
benefiting many value stocks. Regardless, international and global equity
investments delivered positive returns for the first six months of fiscal 1999.
Six-Month Returns
Ended June 30, 1999
Standard & Poor's 500 Index +12.38%
Morgan Stanley Europe, Australia, Far East (EAFE) Index +4.11%
Morgan Stanley World Index +8.69%
Performance quoted above assumes reinvestment of dividends. It is not intended
to represent the performance of any Premium Fund Series. Past performance does
not guarantee future results. The indexes are unmanaged and assume no management
fees or expenses. The Standard & Poor's 500 Index is composed of 500 large U.S.
company stocks, while the Morgan Stanley EAFE Index consists of international
equity stocks. The unmanaged Morgan Stanley World Index includes U.S. market
performance as well as international equity performance. All returns stated in
U.S. dollars. A direct investment in an unmanaged index is not possible.
The United States' Dow Jones Industrial Average closed above both the 10,000
and 11,000 marks for the first time during the first six months of our fiscal
year. While many on Wall Street heralded these milestones, it is important to
recognize that large "blue chip" companies primarily drove the run-up of these
indexes, while medium size and smaller stocks have remained on the sidelines.
Key factors, however, that led to the narrow market of the last three to four
years appeared to be changing. We believe this change has been spurred by
improved international economic growth. Anecdotal evidence and official
government statistics from virtually all corners of the globe point to economic
recovery.
Growing investor confidence in the recovery of many worldwide economies
boosted the performance of foreign commodity issues, including oil, utility and
paper companies. Rising demand from recovering world markets and the
intervention of OPEC, an intergovernmental organization working to bring
stability to the petroleum market, contributed to higher oil prices.
During the first quarter of '99, Japan's economy, the world's second largest,
grew 1.9%, reversing a trend of five consecutive quarters of contraction
(source: Bloomberg). Despite this encouraging news, we still believe the road to
economic recovery in Japan will be long and difficult. We will continue to
monitor the progress of economic recovery in Japan, while searching for select
companies that we think offer reasonably priced stocks.
In the coming months, we believe the international market will be relatively
more stable. The United Kingdom, in our opinion, offers significant promise for
investors, although we believe that the Sterling, the country's currency, is
slightly overvalued. We also continue to see value in Australia and New Zealand,
which have benefited from growing investor interest in commodity-based stocks.
After a tumultuous period like we have encountered recently, it is important
to remember that your annuity is a long-term investment that requires patience
and a long-term perspective. If your annuity is well diversified among a variety
of asset classes, you should be well positioned for whatever opportunities the
international market brings for the remainder of the year. We thank you for your
confidence in Delaware Investments.
Sincerely,
/s/ Wayne A. Stork /s/ David K. Downes
- --------------------------- ------------------------------------
Wayne A. Stork David K. Downes
Director of the Fund President and Chief Executive Officer
Chairman, Delaware Investments Delaware Investments Family of Funds
Family of Funds
1
<PAGE>
Delaware Group Premium Fund, Inc.-REIT Series
Statement of Net Assets
June 30, 1999 (Unaudited)
Number of Market
Shares Value
COMMON STOCK-95.44%
Hotels/Diversified REITs-11.81%
*Catellus Development ........... 21,700 $ 336,350
Franchise Finance .............. 9,400 206,800
Glenborough Realty Trust ....... 7,000 122,500
Starwood Hotels & Resorts Trust 13,370 408,621
---------
1,074,271
---------
Mall REITs-5.29%
General Growth Properties ...... 4,350 154,425
*Macerich ....................... 3,300 86,625
Simon Property Group ........... 9,450 239,794
---------
480,844
---------
Manufactured Housing REITs-7.94%
Chateau Communities ............ 12,060 361,046
Sun Communities ................ 10,160 360,680
---------
721,726
---------
Multifamily REITs-14.93%
Apartment Investment
& Management ................. 8,410 359,527
AvalonBay Communities .......... 10,473 387,505
Essex Property Trust ........... 9,160 324,035
Grove Property Trust ........... 22,050 286,650
---------
1,357,717
---------
Office/Industrial REITs-40.77%
Alexandria Real Estate Equities 12,170 380,312
AMB Property ................... 10,990 258,265
Cabot Industrial Trust ......... 15,000 318,750
- ----------
Top 10 stock holdings, representing 40.08% of net assets, are in bold.
<PAGE>
Number of Market
Shares Value
COMMON STOCK (Continued)
Office/Industrial REITs (Continued)
CarrAmerica Realty ............. 10,280 $ 257,000
Duke Realty Investments ........ 13,500 304,594
Equity Office Properties Trust . 13,690 350,806
Liberty Property Trust ......... 8,360 207,955
Prentiss Properties Trust ...... 11,880 279,180
Reckson Associates Realty ...... 14,890 349,915
SL Green Realty ................ 16,890 345,189
Spieker Properties ............. 8,115 315,471
Trizec Hahn .................... 16,700 340,263
---------
3,707,700
---------
Retail Strip Center REITs-10.94%
First Washington Realty Trust .. 10,400 243,100
JDN Realty ..................... 12,870 287,966
Kimco Realty ................... 6,000 234,750
Pan Pacific Retail Properties .. 11,790 229,168
---------
994,984
---------
Self Storage REITs-3.76%
Public Storage ................. 12,200 341,600
---------
341,600
---------
Total Common Stock
(cost $8,407,880) .............. 346,608 8,678,842
---------
REIT-1
<PAGE>
REIT Series
Statement of Net Assets (Continued)
Principal Market
Amount Value
REPURCHASE AGREEMENTS-4.88%
With Chase Manhattan 4.65% 7/1/99
(dated 6/30/99, collateralized by $77,000
U.S. Treasury Notes 5.375% due 2/15/01,
market value $78,227 and $33,000
U.S. Treasury Notes 6.125% due 12/31/01,
market value $33,245 and $38,000
U.S. Treasury Notes 6.375% due 9/30/01,
market value $39,596)........................... $148,000 $148,000
With J.P. Morgan 4.70% 7/1/99
(dated 6/30/99 collateralized by $39,000
U.S. Treasury Notes 5.50% due 1/31/03,
market value $38,912 and $27,000
U.S. Treasury Notes 5.75% due 11/30/02,
market value $26,654 and $39,000
U.S. Treasury Notes 6.25% due 8/31/02,
market value $39,717 and $43,000
U.S. Treasury Notes 6.375% due 8/15/02,
market value $44,149)........................... 146,000 146,000
Principal Market
Amount Value
REPURCHASE AGREEMENTS (Continued)
With PaineWebber 4.80% 7/1/99
(dated 6/30/99, collateralized by $39,000
U.S. Treasury Notes 5.625% due 11/30/00,
market value $38,693 and $77,000
U.S. Treasury Notes 5.75% due 11/30/02,
market value $77,081 and $36,000
U.S. Treasury Notes 7.125% due 2/29/00,
market value $37,646)........................... $150,000 $150,000
--------
Total Repurchase Agreements
(cost $444,000)................................. 444,000
--------
TOTAL MARKET VALUE OF SECURITIES-100.32% (Cost $8,851,880)....... $9,122,842
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(0.32%).......... (29,011)
--------
NET ASSETS APPLICABLE TO 970,119 SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $9.37 PER SHARE-100.00%............ $9,093,831
==========
COMPONENTS OF NET ASSETS AT JUNE 30, 1999:
Common Stock, $0.01 par value, 1,000,000,000 shares
authorized to the Fund with 50,000,000 shares
allocated to the Series....................................... $8,955,019
Undistributed net investment income.............................. 173,440
Accumulated net realized loss on investments..................... (305,590)
Net unrealized appreciation of investments....................... 270,962
----------
Total net assets................................................. $9,093,831
==========
- ----------
* Non-income producing security for the six months ended June 30, 1999.
Reit - Real Estate Investment Trust
See accompanying notes
REIT-2
<PAGE>
Delaware Group Premium Fund, Inc.-
REIT Series
Statement of Operations
Six Months Ended June 30, 1999 (Unaudited)
INVESTMENT INCOME:
Dividends ............................. $ 192,659
Interest .............................. 12,045
---------
204,704
---------
EXPENSES:
Management fees ....................... 26,395
Reports and statements to shareholders 4,757
Accounting and administration ......... 1,405
Custodian fees ........................ 700
Taxes (other than taxes on income) .... 251
Dividend disbursing and transfer agent
fees and expenses .................. 202
Directors' fees ....................... 200
Registration fees ..................... 130
Professional fees ..................... 100
Other ................................. 354
---------
34,494
Less expenses absorbed or waived by
Delaware Management Company ........ (5,115)
Less expenses paid indirectly ......... (81)
---------
Total Operating Expenses .............. 29,298
---------
NET INVESTMENT INCOME ................. 175,406
---------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments ...... (129,579)
Net change in unrealized appreciation /
depreciation of investments ........ 374,361
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ..................... 244,782
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .......... $ 420,188
=========
See accompanying notes
<PAGE>
Delaware Group Premium Fund, Inc.- REIT
Series Statements of Changes in Net Assets
Six Months 5/4/98*
Ended 6/30/99 to
(Unaudited) 12/31/98
----------- -----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ................. $ 175,406 $ 132,582
Net realized loss on investments ...... (129,579) (176,011)
Net change in unrealized appreciation/
depreciation of investments ........ 374,361 (103,399)
----------- -----------
Net increase (decrease) in net assets
resulting from operations .......... 420,188 (146,828)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................. (134,548) --
----------- -----------
(134,548) --
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ............. 3,652,896 5,925,102
Net asset value of shares issued
upon reinvestment of distributions
from net investment income ......... 134,548 --
----------- -----------
3,787,444 5,925,102
----------- -----------
Cost of shares repurchased ............ (541,045) (216,482)
Increase in net assets derived from
capital share transactions ......... 3,246,399 5,708,620
----------- -----------
NET INCREASE IN NET ASSETS ............ 3,532,039 5,561,792
----------- -----------
NET ASSETS:
Beginning of period ................... 5,561,792 --
----------- -----------
End of period ......................... $ 9,093,831 $ 5,561,792
=========== ===========
- ----------
*Date of commencement of operations.
See accompanying notes
REIT-3
<PAGE>
Delaware Group Premium Fund, Inc.-REIT Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Six Months
Ended 5/4/98(1)
6/30/99(2) to
(Unaudited) 12/31/98
--------- ----------
<S> <C> <C>
Net asset value, beginning of period ...................... $ 9.100 $ 10.000
Income (loss) from investment operations:
Net investment income ..................................... 0.152 0.217
Net realized and unrealized gain (loss) on investments .... 0.118 (1.117)
--------- ----------
Total from investment operations .......................... 0.270 (0.900)
--------- ----------
Net asset value, end of period ............................ $ 9.370 $ 9.100
========= ==========
Total return .............................................. 5.25% (9.00%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................... $ 9,094 $ 5,562
Ratio of expenses to average net assets ................... 0.85% 0.85%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly ........ 1.00% 1.02%
Ratio of net investment income to average net assets ...... 5.02% 6.42%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.87% 6.25%
Portfolio turnover ........................................ 50% 39%
</TABLE>
- ----------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Ratios have been annualized and total return has not been annualized.
See accompanying notes
REIT-4
<PAGE>
Delaware Group Premium Fund, Inc.-REIT Series
Notes to Financial Statements
June 30, 1999
(Unaudited)
Delaware Group Premium Fund, Inc. (the "Fund") is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Fund is organized as a Maryland Corporation and offers 17 series:
the Aggressive Growth Series, the Capital Reserves Series, the Cash Reserve
Series, the Convertible Securities Series, the Delaware Balanced Series
(formerly the Delaware Series), the DelCap Series, the Delchester Series, the
Devon Series, the Emerging Markets Series, the Global Bond Series, the Growth
and Income Series (formerly the Decatur Total Return Series), the International
Equity Series, the REIT Series, the Small Cap Value Series, the Social Awareness
Series, the Strategic Income Series, and the Trend Series. These financial
statements and the related notes pertain to the REIT Series (the "Series"). The
shares of the Fund are sold only to separate accounts of life insurance
companies.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Series.
Security Valuation--Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Money market instruments having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
Federal Income Taxes--The Series intends to qualify as a regulated investment
company and make the requisite distributions to shareholders. Accordingly, no
provision for federal income taxes has been made in the financial statements.
Income and capital gain distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles.
Repurchase Agreements--The Series may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
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.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
The REIT Series will make payments from net investment income and net realized
gain on investments, if any, following the close of the fiscal year.
Certain expenses of the Fund are paid through "soft dollar" arrangements with
brokers. These transactions are done subject to best price and execution. The
amount of these expenses was approximately $81 for the period ended June 30,
1999. In addition, the Fund receives earnings credits from its custodian when
positive cash balances are maintained, which are used to offset custody fees.
There were no earnings credits for the six months ended June 30, 1999. The
expenses paid under the above arrangements are included in their respective
expense captions on the Statement of Operations with the corresponding expense
offset shown as "Expenses paid indirectly".
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Series
pays Delaware Management Company ("DMC"), the Investment Manager of the Series,
an annual fee which is calculated daily at the rate of 0.75% on the first $500
million, 0.70% on the next $500 million, 0.65% on the next $1,500 million, and
0.60% on the average daily net assets in excess of $2,500 million. Lincoln
Investment Management, Inc., an affiliate of DMC, receives 30% of the advisory
fee paid to DMC for acting as a sub-adviser to the Series.
<PAGE>
DMC has elected to waive that portion, if any, of the annual management fee
payable to the extent necessary to ensure that annual operating expenses
exclusive of taxes, interest, brokerage commissions and extraordinary expenses
do not exceed 0.85% of average daily net assets of the Series through October
31, 1999.
The Series has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent and accounting services. The
Series pays DSC a monthly fee based on the number of shareholder accounts,
shareholder transactions and average net assets, subject to certain minimums.
REIT-5
<PAGE>
REIT Series
Notes to Financial Statements (Continued)
At June 30,1999, the Series had liabilities payable to affiliates as follows:
Dividend disbursing Other
Investment transfer agent, expenses
management accounting fees payable
fee payable to and other expenses to DMC
DMC payable to DSC and affiliates
-------------- ------------------ --------------
$4,067 $308 $621
Certain officers of DMC and DSC are officers, directors and/or employees of the
Fund. These officers, directors and employees are paid no compensation by the
Fund.
3. Investments
During the six months ended June 30, 1999, the Series made purchases and sales
of investment securities other than U.S. government securities and temporary
cash investments as follows:
Purchases....... $4,929,851
Sales .......... $1,633,904
At June 30, 1999, the aggregate cost of securities and unrealized appreciation
(depreciation) for federal income tax purposes for the Series were as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ ------------
$8,851,880 $349,666 ($78,704) $270,962
4. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
Shares issued upon
reinvestment of
distributions from net
investment income
and net realized gain Shares Net
Shares sold on investments repurchased increase
----------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Period ended June 30, 1999 .............. 403,313 15,718 (60,312) 358,719
Period ended December 31, 1998*.......... 636,299 -- (24,899) 611,400
</TABLE>
- ----------
**The REIT Series commenced operations on 5/4/98.
REIT-6
<PAGE>
Delaware Group Premium Fund Inc.-REIT Series
Proxy Results
(Unaudited)
For the six months ended June 30, 1999, Delaware Premium Fund, Inc. - REIT
Series shareholders voted on the following proposals at the annual meeting of
shareholders on March 17, 1999 or as adjourned. The description of each proposal
and number of shares voted are as follows:
1. To elect the Delaware Group Premium Fund, Inc. Board of Directors.
Shares Shares Voted
Voted Withheld
For Authority Abstain
------- --------- -------
Jeffrey J. Nick................ 441,885 8,883 0
Walter P. Babich............... 443,738 7,030 0
John H. Durham................. 443,738 7,030 0
Anthony D. Knerr............... 443,738 7,030 0
Ann R. Leven................... 443,738 7,030 0
Thomas F. Madison.............. 443,738 7,030 0
Charles E. Peck................ 443,738 7,030 0
Wayne A. Stork................. 441,885 8,883 0
Jan L. Yeomans................. 444,287 6,481 0
2. To approve standardized fundamental investment restrictions (proposal)
involves separate votes on seven sub-proposals 3A-3G).
2A. To adopt a new fundamental investment restriction concerning concentration
of the investments in the same industry.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
384,388 20,790 45,590
2B. To adopt a new fundamental investment restriction concerning borrowing money
and issuing senior securities.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
414,136 22,775 13,857
2C. To adopt a new fundamental investment restriction concerning underwriting.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
381,475 23,344 45,949
2D. To adopt a new fundamental investment restriction concerning investments in
real estate.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
381,898 22,956 45,915
2D. To adopt a new fundamental investment restriction concerning investments in
commodities.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
410,855 24,809 15,105
2F. To adopt a new fundamental investment restriction concerning lending by the
Fund.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
385,838 53,587 11,343
2G. To reclassify all current fundamental investment restrictions as
non-fundamental.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
413,059 22,256 15,454
3. To approve a new investment management agreement with Delaware Management
Company.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
412,199 21,855 16,715
<PAGE>
4. To approve a new Sub-Advisory Agreement.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
419,899 20,980 9,889
5. To ratify the selection of Ernst & Young LLP, as the independent auditors for
Delaware Group Premium Fund, Inc.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
438,772 4,010 7,986
6. To approve the restructuring of Delware Group Premium Fund, Inc. from a
Maryland Corporation into a Delaware Business Trust.
Shares Shares
Voted Voted
For Against Abstain
------- ------- -------
411,315 21,403 18,051
REIT-7
<PAGE>
Delaware Group Premium Fund, Inc.-Small Cap Value Series
Statement of Net Assets
June 30, 1999 (Unaudited)
Number Market
of Shares Value
COMMON STOCK-94.92%
Aerospace & Defense-0.66%
Cordant Technologies .................... 15,000 $ 677,812
----------
677,812
----------
Automobiles & Automotive Parts-7.93%
Arvin Industries ........................ 37,500 1,420,312
Borg-Wagner Automotive .................. 41,408 2,277,440
CLARCOR ................................. 52,750 1,012,140
Federal Signal .......................... 68,900 1,459,819
Harsco .................................. 25,300 809,600
Smith (A.O.) ............................ 43,450 1,200,306
----------
8,179,617
----------
Banking, Finance & Insurance-14.71%
*Avis Rent-A-Car ......................... 61,400 1,788,275
Enhance Financial Services Group ........ 66,200 1,307,450
Everest Re Holdings ..................... 32,400 1,057,050
*Farm Family Holdings .................... 29,300 1,001,694
*Financial Federal ....................... 49,950 1,098,900
Horace Mann Educators ................... 71,600 1,946,625
Liberty Financial Companies ............. 28,800 835,200
North Fork Bancorporation ............... 83,650 1,782,790
Peoples Heritage Financial Group ........ 100,800 1,899,450
Radian Group ............................ 18,000 878,625
Westamerica Bancorporation .............. 43,000 1,568,156
----------
15,164,215
----------
Buildings & Materials-4.16%
D.R. Horton ............................. 85,300 1,418,112
*Griffon ................................. 81,800 639,062
*Jacobs Engineering Group ................ 50,800 1,930,400
*Toll Brothers ........................... 14,200 304,413
----------
4,291,987
----------
Cable, Media & Publishing-1.22%
*World Color Press ....................... 45,900 1,262,250
----------
1,262,250
----------
Chemicals-5.46%
Crompton & Knowles ...................... 43,900 858,794
Hanna (M.A.) ............................ 60,100 987,894
OM Group ................................ 31,300 1,079,850
*Scotts .................................. 56,700 2,700,337
----------
5,626,875
----------
Computers & Technology-4.12%
*Etec Systems ............................ 33,200 1,099,750
*Metamor Worldwide ....................... 17,200 412,800
*Metro Information Services .............. 26,800 443,875
*Synopsys ................................ 41,500 2,288,984
----------
4,245,409
----------
Energy-6.97%
*BJ Services ............................. 25,600 753,600
Nicor ................................... 44,300 1,686,169
NUI ..................................... 26,900 669,138
*Ocean Energy ............................ 77,600 746,900
*Oceaneering International ............... 71,100 1,146,487
- ----------
Top 10 stock holdings, representing 22.16% of net assets, are in bold.
<PAGE>
Number Market
of Shares Value
COMMON STOCK (Continued)
Energy (Continued)
*Santa Fe Snyder ........................... 81,400 $ 620,675
Valero Energy ............................. 36,000 771,750
*Weatherford International ................. 21,500 787,437
----------
7,182,156
----------
Food, Beverage & Tobacco-4.81%
Corn Products ............................. 45,400 1,381,862
*Suiza Foods ............................... 33,200 1,390,250
Universal Foods ........................... 103,500 2,186,437
----------
4,958,549
----------
Healthcare & Pharmaceuticals-2.22%
*Trigon Healthcare ......................... 62,900 2,287,988
----------
2,287,988
----------
Industrial Machinery-6.24%
Columbus McKinnon ......................... 37,900 900,125
Hussmann International .................... 59,900 992,094
IDEX ...................................... 37,850 1,244,319
Milacron .................................. 57,700 1,067,450
Regal-Beloit .............................. 42,600 1,006,425
Varian Medical Systems .................... 48,600 1,227,150
----------
6,437,563
----------
Metals & Mining-2.91%
*Bethlehem Steel ........................... 78,900 606,544
LTV ....................................... 93,400 624,613
*Mueller Industries ........................ 33,300 1,130,119
Watts Industries .......................... 33,100 635,106
----------
2,996,382
----------
Paper & Forest Products-2.46%
Caraustar Industries ...................... 32,600 802,775
Chesapeake ................................ 16,900 632,694
Rayonier .................................. 22,200 1,105,837
----------
2,541,306
----------
Real Estate-9.26%
Cabot Industrial Trust .................... 61,100 1,298,375
Chateau Communities ....................... 24,215 724,936
Duke-Weeks Realty ......................... 47,300 1,067,206
Kilroy Realty ............................. 35,900 872,819
MeriStar Hospitality ...................... 46,345 1,039,866
New Plan Excel Realty Trust ............... 45,480 818,640
Pan Pacific Retail Properties ............. 56,700 1,102,106
Prentiss Properties Trust ................. 53,000 1,245,500
Reckson Associates Realty ................. 58,800 1,381,800
----------
9,551,248
----------
Retail-7.70%
*BJ's Wholesale Club ....................... 80,800 2,429,050
Casey's General Stores .................... 78,700 1,178,041
Pier 1 Imports ............................ 129,300 1,454,625
*Zale ...................................... 72,000 2,880,000
----------
7,941,716
----------
Telecommunications-0.70%
*Brightpoint ............................... 119,400 727,594
----------
727,594
----------
Small Cap Value-1
<PAGE>
Small Cap Value Series
Statement of Net Assets (Continued)
Number Market
of Shares Value
COMMON STOCK (Continued)
Textiles, Apparel & Furniture-6.63%
*Furniture Brands International .......... 56,900 $1,586,088
HON Industries .......................... 65,900 1,923,456
Kellwood ................................ 54,000 1,464,750
Springs Industries-Class A .............. 19,300 841,963
Wolverine World Wide .................... 72,600 1,016,400
----------
6,832,657
----------
Transportation & Shipping-4.18%
Alexander & Baldwin ..................... 34,600 767,688
*Mesaba Holdings ......................... 61,500 782,203
*M.S. Carriers ........................... 41,400 1,227,769
USFreightways ........................... 33,200 1,528,238
----------
4,305,898
----------
Utilities-1.50%
California Water Service Group .......... 23,800 621,775
Sierra Pacific Resources ................ 25,300 920,288
----------
1,542,063
----------
Miscellaneous-1.08%
*Modis Professional Services ............. 81,300 1,117,875
----------
1,117,875
----------
Total Common Stock
(cost $88,304,985) ..................... 97,871,160
----------
Principal Market
Amount Value
REPURCHASE AGREEMENTS-5.00%
With Chase Manhattan 4.65% 7/1/99
(dated 6/30/99, collateralized by $894,000
U.S. Treasury Notes 6.375% due 2/15/01,
market value $907,710 and $447,000
U.S. Treasury Notes 6.375% due 9/30/01,
market value $459,454 and $383,000
U.S. Treasury Notes 6.125% due 12/31/01
market value $385,764) ......................... $1,710,000 $1,710,000
With J.P. Morgan Securities 4.70%
7/1/99 (dated 6/30/99, collateralized
by $494,000 U.S. Treasury Notes 6.375%
due 8/15/02, market value $512,290
and $447,000 U.S. Treasury Notes
6.25% due 8/31/02, market value
$460,863 and $309,000 U.S. Treasury
Notes 5.75% due 11/30/02, market value
$309,282 and $447,000 U.S Treasury
Notes 5.50% due 1/31/03,
market value $451,520) ......................... 1,699,000 1,699,000
With PaineWebber 4.80% 7/1/99
(dated 6/30/99, collateralized by
$422,000 U.S. Treasury Notes 7.125%
due 2/29/00, market value $436,826
and $447,000 U.S. Treasury Notes
5.625% due 11/30/00, market value
$448,981 and $894,000 U.S. Treasury
Notes 5.75% due 11/30/02,
market value $894,421) ......................... 1,743,000 1,743,000
----------
Total Repurchase Agreements
(cost $5,152,000) .............................. 5,152,000
----------
<PAGE>
<TABLE>
<S> <C>
TOTAL MARKET VALUE OF SECURITIES-99.92% (cost $93,456,985) .......................... $103,023,160
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.08% ............................... 78,678
------------
NET ASSETS APPLICABLE TO 6,160,046 SHARES ($0.01, PAR VALUE) OUTSTANDING;
EQUIVALENT TO $16.74 PER SHARE-100.00% ........................................... $103,101,838
============
COMPONENTS OF NET ASSETS AT JUNE 30, 1999:
Common Stock, $0.01 par value, 1,000,000,000 shares authorized to the Fund with
50,000,000 shares allocated to the Series ........................................ $ 92,856,763
Undistributed net investment income ................................................. 502,333
Accumulated net realized gain on investments ........................................ 176,567
Net unrealized appreciation of investments .......................................... 9,566,175
------------
Total net assets .................................................................... $103,101,838
============
</TABLE>
- ----------
*Non-income producing security for the period ended June 30, 1999.
See accompanying notes
Small Cap Value-2
<PAGE>
Delaware Group Premium Fund, Inc.-
Small Cap Value Series
Statement of Operations
For the Six Months Ended June 30, 1999
(Unaudited)
INVESTMENT INCOME:
Dividends ............................................... $ 789,441
Interest ................................................ 128,207
-----------
917,648
-----------
EXPENSES:
Management fees ......................................... 366,243
Accounting and administration ........................... 19,056
Professional fees ....................................... 6,050
Reports and statements to shareholders .................. 3,750
Registration fees ....................................... 2,750
Custodian fees .......................................... 2,591
Taxes (other than taxes on income) ...................... 1,980
Dividend disbursing and transfer agent
fees and expenses .................................... 1,400
Directors' fees ......................................... 1,313
Other ................................................... 7,668
-----------
412,801
Less expenses paid indirectly ........................... (1,124)
-----------
Total expenses .......................................... 411,677
-----------
NET INVESTMENT INCOME ................................... 505,971
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments ........................ 1,511,718
Net change in unrealized appreciation /
depreciation of investments .......................... 1,301,135
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS .................................. 2,812,853
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................ $ 3,318,824
===========
See accompanying notes
<PAGE>
Delaware Group Premium Fund, Inc.-
Small Cap Value Series
Statements of Changes in Net Assets
Six Months Year
Ended 6/30/99 Ended
(Unaudited) 12/31/98
----------- --------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income .................... $ 505,971 $ 1,245,041
Net realized gain (loss) on investments .. 1,511,718 (827,096)
Net change in unrealized appreciation /
depreciation of investments ........... 1,301,135 (5,586,278)
------------- -------------
Net increase (decrease) in net assets
resulting from operations ............. 3,318,824 (5,168,333)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................... (1,227,218) (638,385)
Net realized gain on investments ......... (503,474) (2,340,745)
------------- -------------
(1,730,692) (2,979,130)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ................ 8,489,139 34,478,733
Net asset value of shares issued upon
reinvestment of distributions from net
investment income and net realized
gain on investments ................... 1,730,692 2,979,130
------------- -------------
10,219,831 37,457,863
Cost of shares repurchased ............... (12,695,549) (9,392,119)
------------- -------------
Increase (Decrease) in net assets derived
from capital share transactions ....... (2,475,718) 28,065,744
------------- -------------
NET INCREASE (DECREASE)
IN NET ASSETS ......................... (887,586) 19,918,281
------------- -------------
NET ASSETS:
Beginning of period ...................... 103,989,424 84,071,143
------------- -------------
End of period ............................ $ 103,101,838 $ 103,989,424
============= =============
See accompanying notes
Small Cap Value-3
<PAGE>
Delaware Group Premium Fund, Inc.-Small Cap Value Series
Financial Highlights
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Six Months
Ended 6/30/99 Year Ended December 31,
(Unaudited)(1) 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $16.450 $17.920 $14.500 $12.470 $10.290 $10.210
Income (loss) from investment operations:
Net investment income ..................................... 0.083 0.196 0.122 0.112 0.192 0.148
Net realized and unrealized gain (loss) on investments .... 0.482 (1.036) 4.338 2.548 2.208 (0.068)
------- ------- ------- ------- ------- -------
Total from investment operations .......................... 0.565 (0.840) 4.460 2.660 2.400 0.080
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ...................... (0.195) (0.135) (0.110) (0.180) (0.150) none
Distributions from net realized gain on investments ....... (0.080) (0.495) (0.930) (0.450) (0.070) none
------- ------- ------- ------- ------- -------
Total dividends and distributions ......................... (0.275) (0.630) (1.040) (0.630) (0.220) none
------- ------- ------- ------- ------- -------
Net asset value, end of period ............................ $16.740 $16.450 $17.920 $14.500 $12.470 $10.290
======= ======= ======= ======= ======= =======
Total return .............................................. 3.69% (4.79%) 32.91% 22.55% 23.85% 0.78%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................... $103,101 $103,989 $84,071 $23,683 $11,929 $6,291
Ratio of expenses to average net assets ................... 0.85% 0.83% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.85% 0.85% 0.90% 0.99% 0.96% 1.41%
Ratio of net investment income to average net assets ...... 1.04% 1.32% 1.24% 1.28% 2.13% 2.62%
Ratio of net investment income to average net
assets prior to expense limitation and expenses
paid indirectly ........................................ 1.04% 1.30% 1.14% 1.09% 1.97% 2.01%
Portfolio turnover ........................................ 49% 45% 41% 84% 71% 26%
</TABLE>
- ----------
(1)Ratios have been annualized and total return has not been annualized.
See accompanying notes
Small Cap Value-4
<PAGE>
Delaware Group Premium Fund, Inc.-Small Cap Value Series
Notes to Financial Statements
June 30, 1999
(Unaudited)
Delaware Group Premium Fund, Inc. (the "Fund") is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Fund is organized as a Maryland Corporation and offers 17 series:
the Aggressive Growth Series, the Capital Reserves Series, the Cash Reserve
Series, the Convertible Securities Series, the Delaware Balanced Series
(formerly the Delaware Series), the DelCap Series, the Delchester Series, the
Devon Series, the Emerging Markets Series, the Global Bond Series, the Growth
and Income Series (formerly the Decatur Total Return Series), the International
Equity Series, the REIT Series, the Small Cap Value Series, the Social Awareness
Series, the Strategic Income Series, and the Trend Series. These financial
statements and the related notes pertain to the Small Cap Value 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. Money market instruments having less than 60
days to maturity are valued at amortized cost, which approximates market value.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
Federal Income Taxes--The Series intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles.
Repurchase Agreements--The Series may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Series' custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
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.
Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
<PAGE>
The Small Cap Value Series will make payments from net investment income and net
realized gain on investments, if any, once a year.
Certain expenses of the Fund are paid through "soft dollar" arrangements with
brokers. These transactions are done subject to best price and execution. The
amount of these expenses was approximately $1,124 for the period ended June 30,
1999. In addition, the Fund receives earnings credits from its custodian when
positive cash balances are maintained, which are used to offset custody fees.
These credits were $0 for the period ended June 30, 1999. The expenses paid
under the above arrangements are included in their respective expense captions
on the Statement of Operations with the corresponding expense offset shown as
"Expenses paid indirectly".
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Series
pays Delaware Management Company ("DMC"), the Investment Manager of the Series,
an annual fee which is calculated at the following rates: 0.75% on first $500
million of average daily net assets of the Series, 0.70% on the next $500
million, 0.65% on the next $1,500 million and 0.60% on the average daily net
assets over $2,500 million. These rates became effective May 1, 1999. The old
management fee was calculated at the rate of 0.75% on the average daily net
assets of the Series.
DMC has elected to waive that portion, if any, of the annual management fee
payable to the extent necessary to ensure that annual operating expenses
exclusive of taxes, interest, brokerage commissions and extraordinary expenses
do not exceed 0.85% of average daily net assets of the Series through October
31, 1999.
The Series has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent and accounting services. The
Series pays DSC a monthly fee based on the number of shareholder accounts,
shareholder transactions and average net assets, subject to certain minimums.
Small Cap Value-5
<PAGE>
Small Cap Value Series
Notes to Financial Statements (Continued)
On June 30, 1999, the Series had liabilities payable to affiliates as follows:
Dividend disbursing
Investment transfer agent,
management accounting fees
fee payable to and other expenses
DMC payable to DSC
-------------- ------------------
$72,985 $3,408
Certain officers of DMC and DSC are officers, directors and/or employees of the
Fund. These officers, directors and employees are paid no compensation by the
Fund.
3. Investments
During the period ended June 30, 1999, the Series made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments as follows:
Purchases ....................................... $22,723,729
Sales ........................................... $25,784,150
The cost of investments for federal income tax purposes approximates cost for
book purposes. At June 30, 1999, the aggregate cost of securities and unrealized
appreciation (depreciation) for federal income tax purposes for the Series were
as follows:
Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
----------- ------------ ------------ ------------
$93,456,985 $13,255,356 ($3,659,169) $9,566,175
For federal income tax purposes, the Series had accumulated capital losses at
December 31, 1998 as follows:
Year of
expiration
2006
----------
$807,647
4. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
Shares issued upon
reinvestment of distributions
from net investment
income and net realized Shares Net
Shares sold gain on investments repurchased decrease
----------- ----------------------------- ----------- --------
<S> <C> <C> <C> <C>
Period ended June 30, 1999 ...................... 543,769 118,948 (822,801) (160,084)
Year ended December 31, 1998 .................... 2,030,407 175,656 (578,317) 1,627,746
</TABLE>
Small Cap Value-6
<PAGE>
Delaware Group Premium Fund, Inc.-Small Cap Value Series
Proxy Results
(Unaudited)
For the six months ended June 30, 1999, Delaware Premium Fund, Inc. - Small Cap
Value Series shareholders voted on the following proposals at the annual meeting
of shareholders on March 17, 1999 or as adjourned. The description of each
proposal and number of shares voted are as follows:
1. To elect the Delaware Group Premium Fund, Inc. Board of Directors.
Shares Shares Voted
Voted Withheld
For Authority Abstain
--------- --------- -------
Jeffrey J. Nick .............. 6,181,225 121,968 --
Walter P. Babich ............. 6,179,529 123,665 --
John H. Durham ............... 6,182,255 120,939 --
Anthony D. Knerr ............. 6,177,651 125,543 --
Ann R. Leven ................. 6,182,982 120,212 --
Thomas F. Madison ............ 6,183,345 119,848 --
Charles E. Peck .............. 6,179,468 123,725 --
Wayne A. Stork ............... 6,183,224 119,969 --
Jan L. Yeomans ............... 6,183,345 119,848 --
2. To approve the reclassification of the investment objective from fundamental
to non-fundamental.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,631,339 219,037 452,818
3. To approve standardized fundamental investment restrictions (proposal
involves separate votes on seven sub-proposals 3A-3G).
3B. To adopt a new fundamental investment restriction concerning concentration
of the investments in the same industry.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,752,263 123,526 427,405
3B. To adopt a new fundamental investment restriction concerning borrowing money
and issuing senior securities.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,715,545 157,917 429,731
3C. To adopt a new fundamental investment restriction concerning underwriting.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,753,803 148,969 400,421
<PAGE>
3D. To adopt a new fundamental investment restriction concerning investments in
real estate.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,716,972 179,717 406,505
3E. To adopt a new fundamental investment restriction concerning investments in
commodities.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,711,415 186,303 405,475
3F. To adopt a new fundamental investment restriction concerning lending by the
Fund.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,712,705 189,132 401,356
3G. To reclassify all current fundamental investment restrictions as
non-fundamental.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,721,522 175,476 406,196
4. To approve a new investment management agreement with Delaware Management
Company.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,753,541 132,979 416,674
5. To ratify the selection of Ernst & Young LLP, as the independent auditors for
Delaware Group Premium Fund, Inc.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,887,197 63,700 352,296
6. To approve the restructuring of Delaware Group Premium Fund, Inc. from a
Maryland Corporation into a Delaware Business Trust.
Shares Shares Shares
Voted Voted Voted
For Against Abstain
--------- ------- -------
5,750,960 120,330 431,904
Small Cap Value-7
