DELAWARE GROUP PREMIUM FUND INC, N-30D, 1999-03-08

DELAWARE GROUP PREMIUM FUND INC
N-30D, 1999-03-08

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<PAGE>

January 10, 1999

Dear Policy Holder:

Fiscal year 1998 was the best and worst of times for equity and fixed-income
investors. While the year began and ended with U.S. stocks posting tremendous
gains, the events in between left investors a bit uncertain about the outlook
going forward.

1998 Total Return
Standard & Poor's 500 Index +28.56%
Russell 2000 Index -2.55%
Lehman Brothers Government/Corporate Bond Index +8.69%
Morgan Stanley Europe, Australia, Far East (EAFE) Index +20.33%

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.

During the first half of 1998, U.S. and European stock markets continued to
hit record levels fueled by a positive environment with low inflation, low
interest rates and low unemployment. Between January 1 and July 17, the Standard
& Poor's 500 Index rose +23.3% and the Morgan Stanley Europe, Australia, Far
East (EAFE) Index had posted a comparable gain of +21.3%.
However, as U.S. corporations began lowering their earnings expectations for
the second half of 1998 and investors learned of escalating financial problems
in Asia, Russia and Latin America, concern mounted that the U.S. economy would
weaken. Foreign investors responded by moving their money out of riskier
investments--stocks and non-government bonds--and into U.S. Treasuries for their
safety and liquidity.
Stock and non-government bond prices spiraled downward. Conversely, prices of
U.S. Treasury securities skyrocketed causing yields to decline. For the first
time since the 1960s, the yield on the benchmark 30-year U.S. Treasury fell
below 5% to 4.97% at the end of September.
To help ease the strain on the U.S. economy, the Federal Reserve responded by
lowering its target for short-term interest rates three times in the fall. By
the end of November, the federal funds rate (the interest rate charged between
banks for overnight loans) was reduced a total of 0.75 percentage points to
4.75%.
The impact of the Fed's rate cuts was tremendous. U.S. stocks soared to new
highs--the large-cap S&P 500 Index returned +21.28% in the fourth quarter after
reporting a near 10% drop in the third quarter. Small and mid-cap stocks also
rebounded, but still underperformed their large-cap counterparts in 1998.
Most strategists believe that the economies of Southeast Asia will bottom out
in 1999, that Japan may begin to recover from its recession, and that the
Federal Reserve has the capability, and the will, to keep the U.S. economy
growing. As long as the economy continues to grow, we think the stock market
will enjoy a favorable environment, though volatility may continue and returns
may not be in the 20+% range we have seen for the past four years.
On the following pages, the performance of each Series of Premium Fund is
discussed in detail. After a difficult period like we encountered in 1998, it is
important to remember that your annuity is a long-term investment that requires
patience and a long-term perspective. We thank you for placing your confidence
in Delaware Investments.

Sincerely,

/s/ Jeffrey J. Nick

Jeffrey J. Nick
Chairman, President and Chief Executive Officer
Delaware Investments Family of Funds

<PAGE>

FOR GROWTH OF CAPITAL

Trend Series

Investment Strategy and Performance in 1998

Bigger was better in fiscal 1998 as large-cap growth stocks dominated the
marketplace in spite of a temporary pricing setback during the summer. Small
company stocks, which trailed large-caps for much of the year, staged a strong
rally in the fall after the Federal Reserve's three interest rate cuts. This
rebound came too little too late for small stocks, which underperformed
large-cap stocks by a wide margin for the year.
Trend Series delivered a total return of +16.04% (capital change plus
reinvestment of distributions) for the 12 months ended December 31, 1998,
outdistancing its benchmark Russell 2000 Growth Index, which returned +1.23%.
The large-cap Standard & Poor's 500 Index had a total return of +28.56% for the
same 12-month period, reflecting the wide gap between large and small stock
performance.
In seeking long-term capital appreciation, the Series invests in small
companies that its portfolio management believes are positioned to profit from
dynamics within their industry, new products coming to market, and/or innovative
changes in technology or marketing concepts.
In 1998, technology stocks soared as investors clamored to own stocks in
computer and internet-related companies. This sector led the Russell 2000 Growth
Index with a +12.76% total return for the year ended December 31. Because Trend
Series tends to hold a larger weighting in small technology stocks than the
Index, this pushed our return ahead of the Index in 1998.

Portfolio Snapshot

As of year end, Trend Series had 24.19% of its net assets invested in
technology companies, including several small manufacturers of semiconductors
(microchips used in virtually all electronics products, from computers to
microwave ovens). Our weighting in the technology sector contributed positively
to the Series' 1998 performance.
In November 1998, worldwide sales of semiconductors increased to $11.4
billion, the highest mark since December 1997, according to the Semiconductor
Industry Association. We continue to see strong profit margins from small
companies operating in this arena, and we expect this industry to be prosperous
over the coming years.
One of our biggest areas for concern in 1998 was software companies, which
did not perform well due to decreased business demand for software. Because
software companies are focusing so much on solving Year 2000 problems, they are
not developing as much new software, which has led to slowing sales. Once we
pass the millennium milestone, we believe the software sector will regain
earnings momentum and perform well.
The health care sector had disappointing performance in 1998, largely the
result of underperformance in the service side of the industry--that is,
hospitals and hospital management companies. We were not heavily weighted in
this sector during the past year.

Investment Outlook

The small-cap market looks promising to us in 1999. Low inflation, a
relatively strong economy and willingness by the Federal Reserve and central
banks throughout the world to maintain a high level of liquidity in the
financial markets offer a supportive backdrop for small-cap companies to
increase their earnings.
The silver lining in small-cap underperformance in 1998 is that small stocks
are now selling at historically low prices relative to large stocks. This
superior value, compared to their larger peers, provides encouragement for
future performance.
With that in mind, we have positioned the Series' portfolio in the stocks of
small companies that should be able to participate to a greater extent than
large companies in the next performance cycle.

- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Trend-1

<PAGE>

Growth of a $10,000 Investment
December 27, 1993 through
December 31, 1998

Russell 2000 NASDAQ
Trend Series Growth Index Industrial Index
12/27/93 $10,000 $10,000 $15,289
3/31/94 $10,060 $ 9,593 $14,781
6/30/94 $ 9,791 $ 8,991 $13,552
9/30/94 $10,221 $ 9,829 $14,752
12/31/94 $10,161 $ 9,757 $14,304
3/31/95 $10,786 $10,292 $15,214
6/30/95 $11,996 $11,313 $16,795
9/30/95 $13,669 $12,599 $19,628
12/31/95 $14,145 $12,785 $18,307
3/31/96 $14,494 $13,520 $19,447
6/30/96 $16,350 $14,310 $21,071
9/30/96 $16,036 $14,188 $21,019
12/31/96 $15,755 $14,225 $21,057
3/31/97 $15,845 $12,733 $19,317
6/30/97 $15,779 $14,969 $22,443
9/30/97 $19,942 $17,501 $26,097
12/31/97 $19,055 $16,068 $23,170
3/31/98 $21,070 $17,977 $27,127
6/30/98 $21,146 $16,945 $28,038
9/30/98 $17,864 $13,156 $25,114
12/31/98 $22,110 $16,266 $31,749

Trend Series
Average Annual Total Returns
-------------------------------
Lifetime +17.15%
Five Years +16.73%
One Year +16.04%

For periods ending December 31, 1998

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, Russell 2000
Growth Index and the NASDAQ Industrial Index for the period from the Series'
inception on December 27, 1993 through December 31, 1998. 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 annuity 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 was removed. For more information about fees, consult
your variable annuity prospectus.

Trend-2

<PAGE>

Delaware Group Premium Fund, Inc.-Trend Series
Statement of Net Assets
December 31, 1998

Number Market
of Shares Value

COMMON STOCK-94.96%
Aerospace & Defense-0.45%
AAR ........................................... 31,850 $ 760,419
-----------
760,419
-----------
Banking, Finance & Insurance-8.86%
Ambac Financial Group ......................... 72,300 4,351,556
Blanch (E.W.) Holdings ........................ 26,300 1,247,606
Doral Financial ............................... 17,800 398,275
First American (Tennessee) .................... 86,000 3,816,250
+Metris ........................................ 58,800 2,951,025
Resource Asset Investment Trust ............... 37,200 409,200
Webster Financial ............................. 63,100 1,733,278
-----------
14,907,190
-----------
Buildings & Materials-1.74%
*Comfort Systems USA ........................... 117,500 2,100,312
*National Equipment Services ................... 71,600 823,400
-----------
2,923,712
-----------
Business Services-2.19%
*+Profit Recovery Group ......................... 98,000 3,681,125
-----------
3,681,125
-----------
Cable, Media & Publishing-12.01%
*Chancellor Media Class A ...................... 101,200 4,841,788
*+Consolidated Graphics ......................... 69,800 4,715,863
*Emmis Broadcasting ............................ 40,300 1,748,012
*+Metro Networks ................................ 26,500 1,127,906
*+Snyder Communications ......................... 94,700 3,196,125
TCA Cable TV .................................. 32,300 1,151,697
*+USA Networks .................................. 103,604 3,428,645
-----------
20,210,036
-----------
Chemicals-2.72%
*+Mettler-Toledo International .................. 163,100 4,576,994
-----------
4,576,994
-----------
Computers & Technology-24.19%
*+AnswerThink Consulting Group .................. 56,600 1,521,125
*+Aspect Development ............................ 48,000 2,145,000
*Bindview Development .......................... 72,800 2,011,100
*Clarify ....................................... 25,800 631,294
*+DSET .......................................... 34,400 381,625
*EMC ........................................... 84,100 7,148,500
*Fore Systems .................................. 61,400 1,122,469
+Henry (Jack) & Associates ..................... 73,100 3,645,863
*Hyperion Solutions ............................ 25,890 467,638
*Infospace.com ................................. 9,700 369,813
*Inso .......................................... 13,900 348,369
*J.D. Edwards .................................. 51,900 1,474,284
*Network Appliance ............................. 83,200 3,723,200
*NOVA .......................................... 67,449 2,339,620
*+PLATINUM technology ........................... 155,195 2,982,654
*+Policy Management Systems ..................... 10,400 525,200
*Softworks ..................................... 55,800 395,831
*SPR ........................................... 63,800 1,084,600
*SunGard Data Systems .......................... 116,000 4,603,750
*+Veritas Software .............................. 63,475 3,800,566
-----------
40,722,501
-----------
- ----------------
Top 10 stock holdings, representing 30.9% of net assets, are printed in bold.

<PAGE>

Number Market
of Shares Value
COMMON STOCK (CONTINUED)
Consumer Products-4.02%
*+Concepts Direct ............................... 24,900 $ 210,094
+G&K Services .................................. 26,300 1,397,187
*Gemstar International
Group Limited ................................ 90,100 5,155,409
-----------
6,762,690
-----------
Electronics & Electrical Equipment-8.64%
*+Applied Micro Circuits ........................ 148,900 5,062,600
*+Integrated Electrical Services ................ 47,300 1,052,425
*+Micrel ........................................ 63,800 3,524,950
*Novellus Systems .............................. 31,400 1,551,356
*+Protection One ................................ 144,900 1,240,706
*Teradyne ...................................... 49,600 2,101,800
-----------
14,533,837
-----------
Food, Beverage & Tobacco-2.08%
*Cheesecake Factory ............................ 87,700 2,600,853
+Ruby Tuesday .................................. 42,100 894,625
-----------
3,495,478
-----------
Healthcare & Pharmaceuticals-8.40%
*+ABR Information Services ...................... 51,800 1,000,387
*+Alternative Living Services ................... 58,900 2,017,325
*Brookdale Living Communities .................. 140,200 2,681,325
*+Coulter Pharmaceuticals ....................... 39,000 1,161,469
*+Renal Care Group .............................. 47,375 1,373,875
*+Sunrise Assisted Living ....................... 90,500 4,677,719
*Trigon Healthcare ............................. 32,600 1,216,388
-----------
14,128,488
-----------
Industrial Machinery-0.11%
*Spinnaker Industries Class A .................. 4,500 81,000
*Spinnaker Industries Common ................... 5,800 101,500
-----------
182,500
-----------
Leisure, Lodging & Entertainment-1.32%
*Dave & Buster's ............................... 80,300 1,844,391
*+Extended Stay America ......................... 36,401 382,206
-----------
2,226,597
-----------
Retail-12.33%
*Cost Plus ..................................... 94,900 2,971,556
*+Dollar Tree Stores ............................ 77,100 3,365,897
*Hibbett Sporting Goods ........................ 60,000 1,451,250
*+Linens 'n Things .............................. 91,300 3,617,763
*MSC Industrial Direct Class A ................. 40,500 916,313
Schultz Sav-O Stores .......................... 30,000 500,625
*Sonic ......................................... 70,850 1,700,400
*Staples ....................................... 118,075 5,162,091
*Wilmar Industries ............................. 51,900 1,052,597
-----------
20,738,492
-----------
Telecommunications-5.90%
*+Aware ......................................... 23,500 639,641
*+Genesys Telecommunication Laboratories ........ 40,700 920,837
*+GeoTel Communications ......................... 161,100 5,980,837
*+Nextlink Communications Class A ............... 63,000 1,803,375
*Star Telecommunications ....................... 47,000 574,281
-----------
9,918,971
-----------
Total Common Stock
(cost $118,547,939) .......................... 159,769,030
-----------

Trend-3
<PAGE>

Trend Series
Statement of Net Assets (Continued)

Principal Market
Amount Value
REPURCHASE AGREEMENTS-6.25%
With Chase Manhattan 4.50%
1/4/99 (dated 12/31/98,
collateralized by $2,712,000
U.S. Treasury Notes 7.875%
due 8/15/01, market value
$3,008,678) .................................. $2,948,000 $2,948,000
With J.P. Morgan Securities 4.75%
1/4/99 (dated 12/31/98,
collateralized by $3,760,000
U.S. Treasury Notes 5.75% due
10/31/00, market value
$3,867,937) .................................. 3,788,000 3,788,000

Principal Market
Amount Value
REPURCHASE AGREEMENTS (Continued)
With PaineWebber 4.85%
1/4/99 (dated 12/31/98, collateralized by
$824,000 U.S. Treasury Notes 7.75%
due 12/31/99, market value $849,412 and
$1,152,000 U.S. Treasury Notes 7.75%
due 1/31/00, market value $1,227,269 and
$1,157,000 U.S. Treasury Notes 6.25%
due 8/31/00, market value $1,211,474 and
$552,000 U.S. Treasury Notes 6.50%
due 5/31/01, market value $577,866) .......... $3,788,000 $3,788,000
----------
Total Repurchase Agreements
(cost $10,524,000) ........................... 10,524,000
----------

TOTAL MARKET VALUE OF SECURITIES-101.21% (cost $129,071,939) .... $170,293,030

LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS-(1.21%) ......... (2,041,820)
------------
NET ASSETS APPLICABLE TO 8,516,814 SHARES ($0.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $19.76 PER SHARE-100.00% .......... $168,251,210
============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1998:
Common stock, $0.01 par value, 1,000,000,000 shares authorized
to the Fund with 50,000,000 shares allocated to the Series ...... $128,369,931
Undistributed net investment income ............................. 12,547
Accumulated net realized loss on investments .................... (1,352,359)
Net unrealized appreciation of investments ...................... 41,221,091
------------
Total net assets ................................................ $168,251,210
============
- ------------------
* Non-income producing security for the year ended December 31, 1998.
+ Security is partially or fully on loan.

See accompanying notes

Trend-4
<PAGE>

Delaware Group Premium Fund, Inc.-Trend Series
Statement of Operations
Year Ended December 31, 1998

INVESTMENT INCOME:
Interest ....................................................... $ 721,333
Dividends ...................................................... 429,627
-----------
1,150,960
-----------
EXPENSES:
Management fees ................................................ 1,025,600
Accounting and administration .................................. 53,754
Professional fees .............................................. 16,710
Custodian fees ................................................. 12,736
Reports and statements to shareholders ......................... 10,938
Taxes (other than taxes on income) ............................. 8,490
Registration fees .............................................. 6,430
Dividend disbursing and transfer agent
fees and expenses ........................................... 2,664
Directors' fees ................................................ 2,373
Other .......................................................... 16,644
-----------
1,156,339
-----------
Less expenses absorbed or waived by
Delaware Management Company ................................. (48,079)
-----------
Total expenses ................................................. 1,108,260
-----------
NET INVESTMENT INCOME .......................................... 42,700
-----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized loss on investments ............................... (1,048,182)
Net change in unrealized appreciation/
depreciation of investments ................................. 23,501,658
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS ......................................... 22,453,476
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................... $22,496,176
===========
See accompanying notes

<PAGE>

Delaware Group Premium Fund, Inc.-Trend Series
Statements of Changes in Net Assets

Year Ended Year Ended
12/31/98 12/31/97
---------- ----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income........................ $ 42,700 $ 132,509
Net realized gain (loss) on investments...... (1,048,182) 2,089,208
Net change in unrealized appreciation /
depreciation of investments............... 23,501,658 13,569,520
------------ ------------
Net increase in net assets resulting from
operations................................ 22,496,176 15,791,237
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................ (135,410) (204,613)
Net realized gain on investments............. (2,315,513) (736,608)
------------ ------------
(2,450,923) (941,221)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.................... 113,799,362 56,666,244
Net asset value of shares issued upon
reinvestment of distributions from net
investment income and net realized
gain on investments....................... 2,450,923 941,222
------------ ------------
116,250,285 57,607,466
Cost of shares repurchased................... (86,320,418) (10,604,885)
------------ ------------
Increase in net assets derived from capital
share transactions........................ 29,929,867 47,002,581
------------ ------------
NET INCREASE IN NET ASSETS................... 49,975,120 61,852,597
------------ ------------
NET ASSETS:
Beginning of year............................ 118,276,090 56,423,493
------------ ------------
End of year.................................. $168,251,210 $118,276,090
============ ============

See accompanying notes

Trend-5
<PAGE>

Delaware Group Premium Fund, Inc.-Trend Series
Financial Highlights

Selected data for each share of the Series outstanding throughout each period
were as follows:

Year Ended December 31,
1998 1997 1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........................ $17.380 $14.560 $14.020 $10.160 $10.200

Income (loss) from investment operations:
Net investment income ..................................... 0.006 0.019 0.050 0.098 0.079
Net realized and unrealized gain (loss) on investments .... 2.736 3.031 1.380 3.852 (0.119)
------- ------- ------- ------- -------
Total from investment operations .......................... 2.742 3.050 1.430 3.950 (0.040)
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ...................... (0.020) (0.050) (0.090) (0.090) none
Distributions from net realized gain on investments ....... (0.342) (0.180) (0.800) none none
------- ------- ------- ------- -------
Total dividends and distributions ......................... (0.362) (0.230) (0.890) (0.090) none
------- ------- ------- ------- -------

Net asset value, end of year .............................. $19.760 $17.380 $14.560 $14.020 $10.160
======= ======= ======= ======= =======

Total return .............................................. 16.04% 21.37% 11.00% 39.21% (0.39%)

Ratios and supplemental data:
Net assets, end of year (000 omitted) ..................... $168,251 $118,276 $56,423 $20,510 $7,087
Ratio of expenses to average net assets ................... 0.81% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation ............................ 0.85% 0.88% 0.92% 0.96% 1.47%
Ratio of net investment income to average net assets ...... 0.03% 0.16% 0.56% 1.03% 1.63%
Ratio of net investment income (loss) to average net
assets prior to expense limitation ..................... (0.01%) 0.08% 0.44% 0.87% 0.96%
Portfolio turnover ........................................ 121% 125% 112% 76% 59%

</TABLE>
See accompanying notes

Trend-6
<PAGE>

Delaware Group Premium Fund, Inc.-Trend Series
Notes to Financial Statements
December 31, 1998

Delaware Group Premium Fund, Inc. (the "Fund") is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Fund is organized as a Maryland Corporation and offers 16 series:
the Trend Series, the DelCap Series, the Small Cap Value Series (formerly the
Value Series), the Social Awareness Series (formerly the Quantum Series), the
Devon Series, the Decatur Total Return Series, the REIT Series, the Delaware
Series, the Convertible Securities Series, the Emerging Markets Series, the
International Equity Series, the Global Bond Series, the Delchester Series, the
Strategic Income Series, the Capital Reserves Series, and the Cash Reserve
Series. These financial statements and the related notes pertain to the Trend
Series (the "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.

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.

The Trend 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. The amount of these expenses is less than 0.01% of the Series' average
daily net assets.

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 rate of 0.75% of 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 April 30,
1999. Prior to May 1, 1998, the expense limitation was 0.80%.

Trend-7
<PAGE>

Trend Series
Notes to Financial Statements (Continued)

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.

On December 31, 1998, 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
-------------- -------------------
$99,360 $5,886

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 year ended December 31, 1998, the Series made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments as follows:

Purchases ............. $185,532,545
Sales ................. $153,307,565

At December 31, 1998, the aggregate cost of securities and unrealized
appreciation (depreciation) for federal income tax purposes for the Series were
as follows:

For federal income tax purposes, the Series had accumulated capital losses at
December 31, 1998 as follows:

Year of
expiration
2006
----------
$916,288

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 increase
----------- ----------------------------- ----------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 ..... 6,458,076 147,114 (4,891,718) 1,713,472
Year ended December 31, 1997 ..... 3,548,538 63,254 (682,630) 2,929,162

</TABLE>
<PAGE>

5. Securities Lending
The Series may participate, along with other funds in the Delaware Investments
Family of Funds, in a Securities Lending Agreement ("Lending Agreement").
Security loans made pursuant to the Lending Agreement are required at all times
to be secured by U.S. Treasury obligations and/or cash collateral at least equal
to 100% 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. Cash collateral received
is invested in fixed-income securities, with a weighted average maturity not to
exceed 90 days, rated in one of the top two tiers by Standard & Poors Ratings
Group or Moody's Investors Service, Inc. or repurchase agreements collateralized
by such securities. However, in the event of default or bankruptcy by the
lending agent, 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 the collateral received is insufficient to cover the value of the
loaned securities and provided such collateral 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 discretion of the lending agent, replace the loaned
securities. The market value of the securities on loan and the related
collateral received at December 31, 1998 were as follows:

Market value of Market value of
securities on loan collateral
------------------ ---------------
$30,681,640 $30,653,648

Net income from securities lending activities for the year ended December 31,
1998 was $72,047 and is included in interest income on the statement of
operations.

Trend-8
<PAGE>

Delaware Group Premium Fund, Inc.-Trend Series
Report of Independent Auditors

To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc.-Trend Series

We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc.-Trend Series (the "Fund") as of December 31, 1998, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the Fund's
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
Delaware Group Premium Fund, Inc.-Trend Series at December 31, 1998, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and its financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP

Philadelphia, Pennsylvania
February 5, 1999

Trend-9
<PAGE>

FOR TOTAL RETURN

Decatur Total Return Series

Investment Strategy and Performance in 1998
Large-cap growth stocks continued to dominate market returns in 1998. This
made it difficult for Decatur Total Return Series' large-cap value strategy to
keep pace.
For the 12 months ended December 31, 1998, the Series provided a total return
of +11.35% (capital change plus reinvestment of distributions). This was less
than half the 28.56% return of the unmanaged Standard & Poor's 500 Index for the
same period.
Much of the S&P 500's 12-month return was driven by a select group of
large-cap growth companies. These stocks did not meet our investment criteria
because their dividend yields were well below the average yield of the Index.
Decatur Total Return Series' portfolio consists primarily of stocks that
yield more than the average yield of the S&P 500. The potential benefits of this
strategy are two-fold: a high yield may signal future appreciation potential and
dividends offer investors up-front income while they wait for that possible
appreciation.

Portfolio Snapshot
During fiscal 1998, Decatur Total Return Series did not invest in technology
stocks. None met our dividend-yield expectations. This was detrimental to the
Series' 1998 performance since technology stocks were among the year's top
performing sectors.
Financial services stocks represented the largest percentage of portfolio net
assets, though we modestly reduced our holdings of smaller banks. With the
mergers completed in the banking industry in 1998, market prices have shifted in
favor of banks that have merged. Therefore, we shifted our focus toward large
banks. We believe they now offer better opportunities for capital appreciation
and income potential than small banks.
Our holdings of several pharmaceutical companies contributed positively to
the Series' total return in 1998. These included companies that manufacture
drugs to treat a range of conditions, from male pattern baldness and arthritis
to infectious diseases.
In a highly unusual move for the Series, we added more utility stocks.
Deregulation in the electric industry has, in our opinion, created a unique
opportunity for meaningful stock returns.

Investment Outlook
In our opinion, this past year's volatility in the stock market signals the
beginning of stock returns more consistent with historic trends. Over the next
few years, we think annual returns from stocks may be moderate, ranging from 8%
to 12% returns--still attractive compared to most investment alternatives.
Historically, Decatur Total Return Series' large-cap value discipline has
contributed the most to the portfolio during periods of more "normal" stock
returns. Though past performance is not a guarantee of the future, we believe we
may soon embark upon a new cycle of outperformance for our yield-oriented
strategy.
Given the challenges equity investors faced in 1998, it appears that
investors have begun to pay closer attention to investment risk. In our view, a
value-oriented approach like Decatur Total Return Series employs can help manage
such risk within your portfolio.

- --------------------------------------------------------------------------------

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.

- --------------------------------------------------------------------------------

Decatur Total Return-1
<PAGE>
Growth of a $10,000 investment
January 1, 1989 through
December 31, 1998

Decatur Total Return Series S&P 500 Index
12/31/88 $10,000 $10,000
12/31/89 $11,303 $13,169
12/30/90 $ 9,807 $12,759
12/31/91 $11,997 $16,647
12/31/92 $13,055 $17,916
12/31/93 $15,072 $19,722
12/31/94 $15,039 $19,982
12/31/95 $20,473 $27,492
12/31/96 $24,713 $33,802
12/31/97 $32,325 $45,080
12/31/98 $36,021 $58,037

Decatur Total Return Series
Average Annual Total Returns
----------------------------
10 Years +13.67%
Five Years +19.06%
One Year +11.35%
For periods ending December 31, 1998

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 S&P 500 Index for the 10-year period from January 1, 1989 through
December 31, 1998. 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 annuity
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 was removed. For more information about fees, consult your variable
annuity prospectus.
Decatur Total Return-2

<PAGE>

Delaware Group Premium Fund, Inc.-Decatur Total Return Series
Statement of Net Assets
December 31, 1998

Number Market
of Shares Value
COMMON STOCK-97.95%
Aerospace & Defense-1.40%
Lockheed Martin ................................... 95,800 $ 8,119,050
------------
8,119,050
------------
Automobiles & Automotive Parts-3.69%
Ford Motor ........................................ 217,200 12,746,925
General Motors .................................... 121,100 8,666,219
------------
21,413,144
------------
Banking, Finance & Insurance-18.63%
American General .................................. 185,900 14,500,200
Aon ............................................... 111,425 6,170,159
Bank One .......................................... 216,594 11,059,831
BankAmerica ....................................... 209,011 12,566,786
BankBoston ........................................ 168,200 6,549,288
Chubb ............................................. 149,300 9,685,838
First Union ....................................... 197,126 11,987,725
Mellon Bank ....................................... 148,800 10,230,000
+St. Paul .......................................... 217,000 7,540,750
Summit Bancorp .................................... 174,775 7,635,483
Wells Fargo ....................................... 252,800 10,096,200
------------
108,022,260
------------
Cable, Media & Publishing-3.06%
McGraw-Hill ....................................... 174,200 17,746,625
------------
17,746,625
Chemicals-4.68% ------------
duPont(E.I.)deNemours ............................. 191,500 10,161,469
+Imperial Chemical ADR ............................. 313,100 10,938,931
PPG Industries .................................... 104,000 6,058,000
------------
27,158,400
------------
Consumer Products-2.79%
Kimberly-Clark .................................... 297,000 16,186,500
------------
16,186,500
------------
Electronics & Electrical Equipment-5.70%
Cooper Industries ................................. 169,000 8,059,188
Emerson Electric .................................. 191,600 11,986,975
Thomas & Betts .................................... 126,400 5,474,700
+Xerox ............................................. 63,700 7,516,600
------------
33,037,463
------------
Energy-8.00%
+British Petroleum ADR ............................. 90,742 8,620,490
Chevron ........................................... 159,800 13,253,413
Mobil ............................................. 98,500 8,581,813
Royal Dutch Petroleum ............................. 204,700 9,800,013
USX-Marathon Group ................................ 203,800 6,139,475
------------
46,395,204
------------
Environmental Services-1.15%
Browning Ferris ................................... 233,980 6,653,806
------------
6,653,806
------------
Food, Beverage & Tobacco-5.94%
Bestfoods ......................................... 280,300 14,925,975
Fortune Brands .................................... 273,900 8,662,088
Heinz (H.J.) ...................................... 191,800 10,860,675
------------
34,448,738
------------
- ----------
Top 10 stock holdings, representing 25.5% of net assets, are printed in bold.
<PAGE>
Number Market
of Shares Value
COMMON STOCK (Continued)
Healthcare & Pharmaceuticals-8.42%
American Home Products ............................207,200 $11,667,950
Baxter International ..............................186,300 11,981,419
+Glaxo Wellcome ADR ................................166,200 11,550,900
Pharmacia & Upjohn ................................237,400 13,442,775
Zeneca Group ADR .................................. 3,900 175,013
-----------
48,818,057
-----------
Industrial Machinery-1.29%
Deere & Co. .......................................225,900 7,482,938
-----------
7,482,938
-----------
Metals & Mining-2.51%
Allegheny Teledyne ................................217,800 4,451,288
Aluminum Company of America .......................135,400 10,095,763
-----------
14,547,051
-----------
Paper & Forest Products-2.03%
Union Camp ........................................174,500 11,778,750
-----------
11,778,750
-----------
Retail-3.44%
May Department Stores .............................176,200 10,638,075
+Penney (J.C.) .....................................198,600 9,309,375
-----------
19,947,450
-----------
Telecommunications-10.42%
AT&T .............................................. 77,300 5,816,825
Ameritech .........................................203,600 12,903,150
Bell Atlantic .....................................167,700 9,527,456
+Cable & Wireless ADR ..............................159,100 5,846,925
Frontier ..........................................372,400 12,661,600
GTE ...............................................203,200 13,703,300
-----------
60,459,256
-----------
Transportation & Shipping-1.58%
+British Airways ADR ...............................135,000 9,154,688
-----------
9,154,688
-----------
Utilities-7.82%
Dominion Resources ................................244,100 11,411,675
Enron .............................................136,200 7,771,913
Southern ..........................................188,400 5,475,375
Texas Utilities ...................................244,600 11,419,763
+Williams ..........................................297,000 9,262,688
-----------
45,341,414
-----------
Miscellaneous-5.40%
Pitney Bowes ......................................278,900 18,424,831
Tenneco ...........................................378,800 12,902,875
-----------
31,327,706
-----------
Total Common Stock
(cost $509,648,621) ............................... 568,038,500
-----------

Decatur Total Return-3
<PAGE>
<TABLE>
<CAPTION>
Decatur Total Return Series
Statement of Net Assets (Continued)
Principal Market
Amount Value

<S> <C> <C>
REPURCHASE AGREEMENTS-1.78%
With Chase Manhattan 4.50%
1/4/99 (dated 12/31/98,
collateralized by $2,663,000
U.S. Treasury Notes 7.875%
due 8/15/01, market value
$2,954,359) .......................................... $2,895,000 $ 2,895,000
With J.P. Morgan Securities
4.75% 1/4/99 (dated 12/31/98,
collateralized by $3,693,000
U.S. Treasury Notes 5.75%
due 10/31/00, market value
$3,798,106) .......................................... 3,720,000 3,720,000

Principal Market
Amount Value
REPURCHASE AGREEMENTS (Continued)
With PaineWebber 4.85%
1/4/99 (dated 12/31/98,
collateralized by $809,000
U.S. Treasury Notes 7.75%
due 12/31/99, market value
$834,077 and $1,132,000 U.S.
Treasury Notes 7.75% due 1/31/00,
market value $1,205,112 and
$1,136,000 U.S. Treasury Notes
6.25% due 8/31/00, market value
$1,189,602 and $542,000 U.S.
Treasury Notes 6.50% due
5/31/01, market value $567,433) ....................... $3,719,000 $ 3,719,000
------------
Total Repurchase Agreements
(cost $10,334,000) ................................... 10,334,000
------------

TOTAL MARKET VALUE OF SECURITIES-99.73% (cost $519,982,621) ..................... $578,372,500

RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-0.27% ........................... 1,534,197
------------
NET ASSETS APPLICABLE TO 29,856,557 SHARES ($0.01 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $19.42 PER SHARE-100.00% ....................................... $579,906,697
============
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1998:
Common stock, $0.01 par value, 1,000,000,000 shares authorized to
the Fund with 50,000,000 shares allocated to the Series.......................... $476,116,153
Undistributed net investment income ............................................. 1,818,869
Accumulated net realized gain on investments..................................... 43,581,796
Net unrealized appreciation of investments ...................................... 58,389,879
------------
Total net assets ................................................................ $579,906,697
============
</TABLE>
- ------------------
+Security is partially or fully on loan.

ADR-American Depository Receipt

See accompanying notes

Decatur Total Return-4
<PAGE>

Delaware Group Premium Fund, Inc.-
Decatur Total Return Series
Statement of Operations
Year Ended December 31, 1998

INVESTMENT INCOME:
Dividends ........................................ $ 12,937,962
Interest ......................................... 760,320
------------
13,698,282
------------

EXPENSES:
Management fees .................................. 3,018,521
Accounting and administration .................... 198,278
Professional fees ................................ 71,825
Reports and statements to shareholders ........... 70,923
Registration fees ................................ 69,542
Taxes (other than taxes on income) ............... 47,069
Custodian fees ................................... 12,520
Dividend disbursing and transfer agent
fees and expenses ............................. 9,000
Directors' fees .................................. 6,649
Other ............................................ 77,069
------------
Total expenses ................................... 3,581,396
------------

NET INVESTMENT INCOME ............................ 10,116,886
------------

NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ................. 43,739,574
Net change in unrealized appreciation /
depreciation of investments ................... (3,304,465)
------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS ........................... 40,435,109
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 50,551,995
============
See accompanying notes
<PAGE>
Delaware Group Premium Fund, Inc.-
Decatur Total Return Series
Statements of Changes in Net Assets

Year Ended Year Ended
12/31/98 12/31/97
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ............................ $ 10,116,886 $ 5,543,484
Net realized gain on investments ................. 43,739,574 23,181,744
Net change in unrealized appreciation /
depreciation of investments ................... (3,304,465) 40,216,861
------------ ------------
Net increase in net assets resulting from
operations .................................... 50,551,995 68,942,089
------------ ------------

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................ (8,876,285) (5,726,790)
Net realized gain on investments ................. (23,162,228) (14,788,457)
------------ ------------
(32,038,513) (20,515,247)
------------ ------------

CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ........................ 180,559,930 187,531,270
Net asset value of shares issued upon
reinvestment of distributions from net
investment income and net realized
gain on investments ........................... 32,038,513 20,515,247
------------ ------------
212,598,443 208,046,517
Cost of shares repurchased ....................... (52,607,198) (21,717,966)
------------ ------------
Increase in net assets derived from capital
share transactions ............................ 159,991,245 186,328,551
------------ ------------

NET INCREASE IN NET ASSETS ....................... 178,504,727 234,755,393
------------ ------------

NET ASSETS:
Beginning of year ................................ 401,401,970 166,646,577
------------ ------------
End of year ...................................... $579,906,697 $401,401,970
============ ============
See accompanying notes

Decatur Total Return-5

<PAGE>

Delaware Group Premium Fund, Inc.-Decatur Total Return Series
Financial Highlights

Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
-----------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........................ $ 18.800 $ 15.980 $ 14.830 $11.480 $12.510

Income (loss) from investment operations:
Net investment income ..................................... 0.361 0.324 0.377 0.416 0.412
Net realized and unrealized gain (loss) on investments .... 1.636 4.216 2.398 3.574 (0.422)
-------- -------- -------- ------- -------
Total from investment operations .......................... 1.997 4.540 2.775 3.990 (0.010)
-------- -------- -------- ------- -------
Less dividends and distributions:
Dividends from net investment income ...................... (0.327) (0.370) (0.420) (0.430) (0.420)
Distributions from net realized gain on investments ....... (1.050) (1.350) (1.205) (0.210) (0.600)
-------- -------- -------- ------- -------
Total dividends and distributions ......................... (1.377) (1.720) (1.625) (0.640) (1.020)
-------- -------- -------- ------- -------

Net asset value, end of year .............................. $19.420 $ 18.800 $ 15.980 $14.830 $11.480
======== ======== ======== ======= =======
Total return .............................................. 11.35% 31.00% 20.72% 36.12% (0.20%)

Ratios and supplemental data:
Net assets, end of year (000 omitted) ..................... $579,907 $401,402 $166,647 $109,003 $72,725
Ratio of expenses to average net assets ................... 0.71% 0.71% 0.67% 0.69% 0.71%
Ratio of net investment income to average net assets ...... 2.00% 2.02% 2.66% 3.24% 3.63%
Portfolio turnover ........................................ 81% 54% 81% 85% 91%
</TABLE>
See accompanying notes

Decatur Total Return-6
<PAGE>
Delaware Group Premium Fund, Inc.-Decatur Total Return Series
Notes to Financial Statements
December 31, 1998

Delaware Group Premium Fund, Inc. (the "Fund") is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Fund is organized as a Maryland Corporation and offers 16 series:
the Trend Series, the DelCap Series, the Small Cap Value Series (formerly the
Value Series), the Social Awareness Series (formerly the Quantum Series), the
Devon Series, the Decatur Total Return Series, the REIT Series, the Delaware
Series, the Convertible Securities Series, the Emerging Markets Series, the
International Equity Series, the Global Bond Series, the Delchester Series, the
Strategic Income Series, the Capital Reserves Series, and the Cash Reserve
Series. These financial statements and the related notes pertain to the Decatur
Total Return 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.

The Decatur Total Return Series will make payments from net investment income
quarterly and distributions from 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. The amount of these expenses is less than 0.01% of the Series' average
daily net assets.

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 0.80% of average daily net assets of the Series through April 30,
1999. No reimbursement was due for the year ended December 31, 1998.

Decatur Total Return-7
<PAGE>
Decatur Total Return Series
Notes to Financial Statements (Continued)

On December 31, 1998, 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
-------------------- ------------------
$183,612 $20,076

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 year ended December 31, 1998, the Series made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments as follows:

Purchases ................ $529,741,970
Sales .................... $393,176,423

At December 31, 1998, the aggregate cost of securities and unrealized
appreciation (depreciation) for federal income tax purposes for the Series were
as follows:
<TABLE>
<CAPTION>

Aggregate Aggregate
Cost of unrealized unrealized Net unrealized
investments appreciation depreciation appreciation
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
$520,269,948 $84,653,404 ($26,550,852) $58,102,552
</TABLE>
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 increase
----------- ----------------------------- ----------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 ........................ 9,550,511 1,783,160 (2,829,984) 8,503,687
Year ended December 31, 1997 ........................ 10,893,570 1,321,652 (1,289,152) 10,926,070
</TABLE>

Market value of Market value of
securities on loan collateral
------------------ ---------------
$26,530,685 $26,480,706

Net income from securities lending activities for the year ended December 31,
1998 was $88,424 and is included in interest income on the statement of
operations.

Decatur Total Return-8
<PAGE>
Delaware Group Premium Fund, Inc.-Decatur Total Return Series
Report of Independent Auditors

To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc.-Decatur Total Return Series

We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc.-Decatur Total Return Series (the "Fund") as of December 31,
1998, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Premium Fund, Inc.-Decatur Total Return Series at December 31,
1998, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.

/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP

Philadelphia, Pennsylvania
February 5, 1999

Decatur Total Return-9

<PAGE>

FOR INTERNATIONAL DIVERSIFICATION

Global Bond Series

Investment Strategy and Performance in 1998
During the last few months of 1998, a slightly weaker U.S. dollar led to
solid returns from most non-U.S. bonds. Still, U.S. government bonds delivered
the strongest performance of 1998 as a result of investors' summer romance with
U.S. Treasuries.
For the 12 months ended December 31, 1998, Global Bond Series had a modest
total return of +7.82% (capital change plus reinvestment of distributions). This
was significantly less than the robust +15.31% return of the Series' benchmark
Salomon SmithBarney World Government Bond Index.
We attribute the Series' underperformance to a substantially lower position
in U.S. Treasuries relative to the Index. Our focus on undervalued bonds and
high income potential limited our ability to purchase U.S. Treasuries and
participate in this past summer's U.S. Treasury bond market rally.
Global Bond Series seeks to provide a steady stream of current income while
preserving capital by investing in both U.S. and foreign government and
corporate bonds. The credit quality of the Series' holdings is a top
priority--all of the bonds in the portfolio are rated "A" or better by Standard
& Poor's or Moody's Investors Service.
We generally look for bonds with an average maturity of between five and 10
years. We believe this allows the Series to earn an attractive level of income
without increasing the risk to principal from fluctuating interest rates.

Portfolio Snapshot
We prefer to invest in countries whose currencies are linked to currencies
denominated in U.S. dollars. As of our fiscal year end, the Series had the
largest portion of its net assets (approximately 19%) invested in bonds
denominated in Canadian dollars. We believe the Canadian dollar, which
depreciated in 1998 because of its exposure to declining Asian and commodity
markets, currently offers superior value relative to the U.S. dollar.
The Series' best performing bonds over the last 12 months were in South
Africa. Bond prices in South Africa collapsed early in the summer following a
20% devaluation of the rand. Believing that the South African government was
fundamentally sound, we took advantage of exceptional bond market values and
increased our weighting in South African bonds. The Series benefited from yields
that approached 15% and a subsequent rise in bond prices as the market recovered
in August.

Investment Outlook
In fiscal 1998, our allocation to corporate bonds was low relative to the
Index because we believed the market was overvalued. In 1999, we expect to
increase our allocation in corporate bonds because, in our opinion, they now
offer better value compared to U.S. Treasuries.
We believe the current willingness of governments to lower interest rates in
order to stimulate economic growth could eventually lead to a trend toward
higher inflation. Therefore, in 1999, we expect to increase our holdings of U.S.
inflation-indexed bonds, which pay a coupon rate that rises with inflation. We
view these fixed-income securities as currently undervalued due to the current
low inflation environment in the U.S.
While we expect market volatility to continue in 1999, in our opinion,
further sharp stock market declines are less likely in the near future. We are,
however, concerned that rising labor costs and fiscal problems in some financial
markets could put additional pressure on corporate profits.
If economic conditions stabilize in Japan, as we believe they will, this
should speed the recovery process in many global economies.

- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

Global Bond-1
<PAGE>

Growth of a $10,000 Investment
May 2, 1996 through
December 31, 1998

Global Bond Salomon SmithBarney
Series World Govt. Bond Index
5/2/96 $10,000 $10,000
5/31/96 $10,010 $10,000
6/30/96 $10,170 $10,079
7/31/96 $10,341 $10,273
8/31/96 $10,492 $10,313
9/30/96 $10,674 $10,355
10/31/96 $10,987 $10,549
11/30/96 $11,220 $10,688
12/31/96 $11,261 $10,601
1/31/97 $10,988 $10,318
2/28/97 $11,030 $10,241
3/31/97 $10,914 $10,063
4/30/97 $10,851 $10,074
5/31/97 $11,083 $10,349
6/30/97 $11,231 $10,471
7/31/97 $11,152 $10,389
8/31/97 $11,146 $10,383
9/30/97 $11,456 $10,604
10/31/97 $11,584 $10,824
11/30/97 $11,487 $10,659
12/31/97 $11,357 $10,627
1/31/98 $11,486 $10,730
2/28/98 $11,586 $10,817
3/31/98 $11,464 $10,710
4/30/98 $11,576 $10,881
5/31/98 $11,554 $10,901
6/30/98 $11,453 $10,922
7/31/98 $11,453 $10,937
8/31/98 $11,272 $11,234
9/30/98 $11,939 $11,832
10/31/98 $12,223 $12,182
11/30/98 $12,165 $12,010
12/31/98 $12,159 $12,251

Global Bond Series
Average Annual Total Returns
- --------------------------------------------------------------------------------
Lifetime +7.61%
One Year +7.82%
For periods ending December 31, 1998

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 Global Bond Series and
the Salomon SmithBarney World Government Bond Index for the period from the
Series' inception on May 2, 1996 through December 31, 1998. 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 annuity 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 was removed. For more information about fees, consult
your variable annuity prospectus.

Global Bond-2
<PAGE>

Delaware Group Premium Fund, Inc.-Global Bond Series
Statement of Net Assets
December 31, 1998

Market
Principal Value
Amount* (U.S. $)
BONDS-93.14%
Australia-12.47%
Australian Government 6.75% 11/15/06 ........... A$ 700,000 $ 478,196
Australian Government 7.00% 4/15/00 ............ 100,000 62,940
Australian Government 10.00% 10/15/02 .......... 500,000 361,464
Federal National Mortgage Association
5.75% 9/5/00 ................................ 700,000 434,203
New South Wales Treasury 7.00%
2/1/00 ...................................... 1,400,000 876,347
Queensland Treasury 8.00% 8/14/01 .............. 750,000 493,545
----------
2,706,695
----------
Canada-19.06%
Abbey National Treasury Service
7.00% 12/31/99 .............................. C$ 1,350,000 898,310
Government of Canada 7.25% 6/1/07 .............. 500,000 380,085
Government of Canada 7.50% 3/1/01 .............. 500,000 345,036
Government of Canada 8.75% 12/1/05 ............. 300,000 240,641
Government of Canada 10.25% 3/15/14 ............ 1,100,000 1,111,798
Export-Import Bank of Japan
7.75% 10/8/02 ............................... 160,000 112,802
Japan Highway 7.875% 9/27/02 ................... 400,000 282,495
KFW International Finance
6.50% 12/28/01 .............................. 60,000 40,611
Kingdom of Norway 8.375% 1/27/03 ............... 200,000 145,493
Ontario Hydro 10.00% 3/19/01 ................... 300,000 215,790
Ontario Hydro 10.875% 3/29/99 .................. 550,000 363,957
----------
4,137,018
----------
Germany-8.90%
Deutsche Pfandbriefe Hypotheken Bank
5.625% 2/7/03 ............................... Dem 200,000 129,033
Deutschland Republic 6.00% 1/4/07 .............. 600,000 411,514
Deutschland Republic 6.50% 7/4/27 .............. 600,000 451,736
DSL Finance NV Amsterdam 6.00%
2/21/06 ..................................... 1,400,000 941,042
----------
1,933,325
----------
Netherlands-10.91%
Netherlands Government
8.25% 9/15/07 ............................... Nlg 3,400,000 2,369,694
----------
2,369,694
----------
New Zealand-12.38%
International Bank Reconstruction &
Development 5.50% 4/15/04 ................... NZ$ 700,000 359,912
New Zealand Government
6.50% 2/15/00 ............................... 500,000 267,204
New Zealand Government
7.00% 7/15/09 ............................... 200,000 118,337

<PAGE>
Market
Principal Value
Amount* (U.S. $)
BONDS (CONTINUED)
New Zealand (Continued)
New Zealand Government
8.00% 2/15/01 ............................... 750,000 $ 416,553
New Zealand Government
8.00% 4/15/04 ............................... 1,350,000 794,620
New Zealand Government
8.00% 11/15/06 .............................. 1,000,000 611,076
New Zealand Government
10.00% 3/15/02 .............................. 200,000 119,658
----------
2,687,360
----------
South Africa-4.15%
Republic of South Africa
12.50% 1/15/02 .............................. Sa 3,500,000 540,419
Republic of South Africa
13.00% 8/31/10 .............................. 2,500,000 359,642
----------
900,061
----------
Sweden-9.93%
Swedish Export Credit 6.50% 6/5/01 ............. Sk 5,000,000 650,020
Swedish Government 8.00% 8/15/07 ............... 2,200,000 345,742
Swedish Government 9.00% 4/20/09 ............... 6,300,000 1,085,204
Swedish Government 13.00% 6/15/01 .............. 500,000 75,077
----------
2,156,043
----------
Switzerland-2.79%
Government of Switzerland
4.50% 7/8/02 ................................ Chf 400,000 318,049
Government of Switzerland
4.50% 10/7/04 ............................... 350,000 288,610
----------
606,659
----------
United States-12.55%
International America Development Bank
6.375% 10/22/07 ............................. $ 300,000 320,625
J. Sainsbury 6.25% 3/27/02 ..................... 100,000 101,688
Korea Electric Power 6.375% 12/1/03 ............ 100,000 84,313
Matsushita Electric 7.25% 8/1/02 ............... 200,000 208,625
Republic of Finland 7.875% 7/28/04 ............. 200,000 225,000
U.S. Treasury Bonds 6.375% 8/15/27 ............. 200,000 229,521
U.S. Treasury Inflation Index Notes
3.375% 1/15/07 .............................. 619,560 599,618
U.S. Treasury Inflation Index Notes
3.625% 7/15/02 .............................. 357,528 355,294
U.S. Treasury Inflation Index Notes
3.625% 1/15/08 .............................. 506,330 497,311
U.S. Treasury Notes 6.125% 7/13/00 ............. 100,000 102,254
----------
2,724,249
----------
Total Bonds (cost $20,186,818) ................. 20,221,104
----------

Global Bond-3
<PAGE>
Global Bond Series
Statement of Net Assets (Continued)

Market
Principal Value
Amount* (U.S. $)
REPURCHASE AGREEMENTS-3.19%
With Chase Manhattan 4.50%
1/4/99 (dated 12/31/98,
collateralized by $179,000
U.S. Treasury Notes 7.875%
due 8/15/01, market value
$198,406)................................ $194,500 $194,500
With J.P. Morgan Securities 4.75%
1/4/99 (dated 12/31/98,
collateralized by $248,000
U.S. Treasury Notes 5.75% due
10/31/00, market value
$255,069)................................ 250,000 250,000

Market
Principal Value
Amount* (U.S. $)
REPURCHASE AGREEMENTS (CONTINUED)
With PaineWebber 4.85%
1/4/99 (dated 12/31/98,
collateralized by $54,000
U.S. Treasury Notes 7.75% due
12/31/99, market value $56,014
and $76,000 U.S. Treasury Notes
7.75% due 1/31/00, market value
$80,932 and $76,000 U.S.
Treasury Notes 6.25% due 8/31/00,
market value $79,890 and
$36,000 U.S. Treasury Notes
6.50% due 5/31/01, market value
$38,107)................................. $249,500 $249,500
--------
Total Repurchase Agreements
(cost $694,000)......................... 694,000
--------

TOTAL MARKET VALUE OF SECURITIES-96.33% (COST $20,880,818).......... $20,915,104

RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES-3.67%............... 796,066
-----------
NET ASSETS APPLICABLE TO 2,033,405 SHARES ($0.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $10.68 PER SHARE-100.00% ............. $21,711,170
===========

COMPONENTS OF NET ASSETS AT DECEMBER 31, 1998:
Common stock, $0.01 par value, 1,000,000,000 shares authorized to
the Fund with 50,000,000 shares allocated to the Series............ $21,249,244
Undistributed net investment income**............................... 313,256
Accumulated net realized gain on investments........................ 117,932
Net unrealized appreciation of investments and foreign currencies... 30,738
-----------
Total net assets.................................................... $21,711,170
===========
- -----------
* Principal amount is stated in the currency in which each bond is denominated.
A$ - Australian Dollars
C$ - Canadian Dollars
Chf - Swiss Francs
Dem - German Deutsche Marks
Nlg - Dutch Guilders
NZ$ - New Zealand Dollars
Sa - South African Rand
Sk - Swedish Kroner
$ - 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

Global Bond-4
<PAGE>

Delaware Group Premium Fund, Inc.-
Global Bond Series
Statement of Operations
Year Ended December 31, 1998

INVESTMENT INCOME:
Interest ...................................................... $ 1,264,640
Foreign tax withheld .......................................... (3,308)
-----------
1,261,332
-----------
EXPENSES:
Management fees ............................................... 141,939
Custodian fees ................................................ 9,665
Accounting and administration ................................. 7,450
Professional fees ............................................. 6,796
Reports and statements to shareholders ........................ 3,151
Registration fees ............................................. 1,762
Directors' fees ............................................... 465
Dividend disbursing and transfer agent
fees and expenses .......................................... 320
Other ......................................................... 2,070
-----------
173,618
-----------
Less expenses absorbed or waived by
Delaware International Advisers Ltd ........................ (16,095)
-----------
Total expenses ................................................ 157,523
-----------
NET INVESTMENT INCOME ......................................... 1,103,809
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments ................................................... 118,760
Foreign currencies ............................................ (71,426)
-----------
Net realized gain ............................................. 47,334
Net change in unrealized appreciation / depreciation of
investments and foreign currencies ......................... 309,368
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS AND
FOREIGN CURRENCIES ......................................... 356,702
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 1,460,511
===========
See accompanying notes
<PAGE>

Delaware Group Premium Fund, Inc.-
Global Bond Series
Statements of Changes in Net Assets

Year Ended Year Ended
12/31/98 12/31/97

INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ..................... $ 1,103,809 $ 880,323
Net realized gain (loss) on investments
and foreign currencies ................. 47,334 (30,733)
Net change in unrealized appreciation /
depreciation of investments and foreign
currencies ............................. 309,368 (543,397)
------------ ------------
Net increase in net assets resulting
from operations ........................ 1,460,511 306,193
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ..................... (1,059,148) (605,362)
Net realized gain on investments .......... (16,415) (83,855)
------------ ------------
(1,075,563) (689,217)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ................. 6,858,379 12,524,510
Net asset value of shares issued upon
reinvestment of distributions from net
investment income and net realized
gain on investments .................... 1,075,563 689,217
------------ ------------
7,933,942 13,213,727
Cost of shares repurchased ................ (3,483,316)
------------ ------------
Increase in net assets derived from capital
share transactions ..................... 4,450,626 7,787,802
------------ ------------
NET INCREASE IN NET ASSETS ................ 4,835,574 7,404,778
------------ ------------
NET ASSETS:
Beginning of year ......................... 16,875,596 9,470,818
------------ ------------
End of year ............................... $ 21,711,170 $ 16,875,596
============ ============

See accompanying notes

Global Bond-5
<PAGE>

Delaware Group Premium Fund, Inc.-Global Bond Series
Financial Highlights

Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
5/2/96(1)
Year Ended December 31, to
1998 1997 12/31/96
-----------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ...................... $10.500 $10.960 $10.000

Income (loss) from investment operations:
Net investment income(2)................................... 0.608 0.636 0.339
Net realized and unrealized gain (loss) on investments
and foreign currencies ................................. 0.182 (0.551) 0.831
------- ------- -------
Total from investment operations ......................... 0.790 0.085 1.170
------- ------- -------

Less dividends and distributions:
Dividends from net investment income ...................... (0.600) (0.460) (0.210)
Distributions from net realized gain
on investments.......................................... (0.010) (0.085) none
------- ------- -------
Total dividends and distributions ......................... (0.610) (0.545) (0.210)
------- ------- -------

Net asset value, end of period ............................ $10.680 $10.500 $10.960
======= ======= =======

Total return .............................................. 7.82% 0.88% 11.79%

Ratios and supplemental data:
Net assets, end of period (000 omitted) ................... $21,711 $16,876 $9,471
Ratio of expenses to average net assets ................... 0.83% 0.80% 0.80%
Ratio of expenses to average net assets prior to
expense limitation .................................... 0.92% 1.08% 1.19%
Ratio of net investment income to average net assets ...... 5.83% 6.03% 6.51%
Ratio of net investment income to average net assets prior
to expense limitation ................................. 5.74% 5.75% 6.12%
Portfolio turnover ........................................ 79% 97% 56%
</TABLE>
- -------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the years ended December 31, 1997 and 1998 was
based on the average shares outstanding method.

See accompanying notes

Global Bond-6
<PAGE>
Delaware Group Premium Fund, Inc.-Global Bond Series
Notes to Financial Statements
December 31, 1998

Delaware Group Premium Fund, Inc. (the "Fund") is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Fund is organized as a Maryland Corporation and offers 16 series:
the Trend Series, the DelCap Series, the Small Cap Value Series (formerly the
Value Series), the Social Awareness Series (formerly the Quantum Series), the
Devon Series, the Decatur Total Return Series, the REIT Series, the Delaware
Series, the Convertible Securities Series, the Emerging Markets Series, the
International Equity Series, the Global Bond Series, the Delchester Series, the
Strategic Income Series, the Capital Reserves Series, and the Cash Reserve
Series. These financial statements and the related notes pertain to the Global
Bond Series (the "Series"). The shares of the Fund are sold only to separate
accounts of life insurance companies.

1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Series.

Security Valuation--Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Securities listed on a foreign exchange are
valued at the last quoted sales price before the Series is valued. Long-term
debt securities are valued by an independent pricing service and such prices are
believed to reflect the fair value of such securities. Money market instruments
having less than 60 days to maturity are valued at amortized cost, which
approximates market value. Other securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Directors.

Foreign Currency Transactions--Transactions denominated in foreign currencies
are recorded at the prevailing exchange rates on the valuation date. 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. The
Series does 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 reports
certain foreign currency related transactions as components of realized gains
(losses) for financial reporting purposes, whereas such components are treated
as ordinary income (loss) for federal income tax purposes.

Other--Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Interest income is recorded on the accrual basis. Withholding taxes on foreign
interest have been provided for in accordance with the Series' understanding of
the applicable country's tax rules and rates. Original issue discounts are
accreted to interest income over the lives of the respective securities.
<PAGE>

The Global Bond Series will make payments from net investment income quarterly
and distributions from 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. The amount of these expenses is less than 0.01% of the Series' average
daily net assets.

2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Series
pays Delaware International Advisers Ltd. ("DIAL"), the Investment Manager of
the Series, an annual fee which is calculated at the rate of 0.75% of the
average daily net assets of the Series.

DIAL 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 April 30,
1999. Prior to May 1, 1998, the expense limitation was 0.80%.

The Series has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
Delaware Management Company ("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.

Global Bond-7
<PAGE>

Global Bond Series
Notes to Financial Statements (Continued)

On December 31, 1998, the Series had liabilities payable to affiliates as
follows:

Dividend disbursing
Investment transfer agent,
management accounting fees
fee payable to and other expenses
DIAL payable to DSC
-------------- -------------------
$13,434 $855

Certain officers of DMC, DSC and DIAL 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 year ended December 31, 1998, the Series made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments as follows:

Purchases ..................... $16,344,830
Sales ......................... $10,376,823

During the year ended December 31, 1998 the Series made purchases and sales of
U.S. government securities as follows:

Purchases .................... $1,857,081
Sales ......................... $3,730,094

At December 31, 1998, the aggregate cost of securities and unrealized
appreciation (depreciation) for federal income tax purposes for the Series were
as follows:

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 increase
----------- ----------------------------- ----------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 ...... 656,617 103,550 (334,171) 425,996
Year ended December 31, 1997 ...... 1,188,335 65,554 (510,926) 742,963
</TABLE>

5. Foreign Exchange Contracts
The Series will generally enter into forward foreign currency contracts as a way
of managing foreign exchange rate risk. These contracts may be entered into 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. They may also be used 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 is recorded 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.

The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Series' 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.

There were no forward foreign currency contracts outstanding at December 31,
1998.

Global Bond-8
<PAGE>

Global Bond Series
Notes to Financial Statements (Continued)

6. Credit and Market Risk
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.

The Series may invest up to 10% of its total assets in illiquid securities which
may include securities with contractual restrictions on resale and other
securities which may not be readily marketable. The relative illiquidity of some
of these securities may adversely affect the Series' ability to dispose of such
securities in a timely manner and at a fair price when it is necessary to
liquidate such securities.

Global Bond-9
<PAGE>

Delaware Group Premium Fund, Inc.-Global Bond Series
Report of Independent Auditors

To the Shareholders and Board of Directors
Delaware Group Premium Fund, Inc.-Global Bond Series

We have audited the accompanying statement of net assets of Delaware Group
Premium Fund, Inc.-Global Bond Series (the "Fund") as of December 31, 1998, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the 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.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Premium Fund, Inc.-Global Bond Series at December 31, 1998, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and its financial highlights
for each of the periods indicated therein, in conformity with generally accepted
accounting principles.

/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP

Philadelphia, Pennsylvania
February 5, 1999

Global Bond-10