DELAWARE GROUP EQUITY FUNDS II INC, 497, 1998-09-17

DELAWARE GROUP EQUITY FUNDS II INC
497, 1998-09-17

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DIVERSIFIED VALUE FUND PROSPECTUS
A CLASS SHARES September 14, 1998
B CLASS SHARES
C CLASS SHARES

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1818 Market Street, Philadelphia, PA 19103

For Prospectus and Performance:
Nationwide 800-523-1918

Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918

Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500

Representatives of Financial Institutions:
Nationwide 800-659-2265

This Prospectus describes shares of the Diversified Value Fund series
(the "Fund") of Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc."),
a professionally-managed mutual fund of the series type. The objective of the
Fund is capital appreciation with current income as a secondary objective. The
Fund seeks to achieve this objective by investing primarily in dividend paying
stocks and income producing securities that are convertible into common stocks.

The Fund offers Diversified Value Fund A Class ("Class A Shares"),
Diversified Value Fund B Class ("Class B Shares") and Diversified Value Fund C
Class ("Class C Shares") (individually, a "Class" and collectively, the
"Classes").

This Prospectus relates only to the Classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Fund's Statement of Additional Information ("Part
B" of Equity Funds II, Inc.'s registration statement), dated September 14, 1998,
as it may be amended from time to time, contains additional information about
the Fund and has been filed with the Securities and Exchange Commission ("SEC").
Part B is incorporated by reference into this Prospectus and is available,
without charge, by writing to Delaware Distributors, L.P. at the above address
or by calling the above numbers. The Fund's financial statements will appear in
its Annual Report, which will accompany any response to requests for Part B. In
addition, the SEC maintains a Web site (http://www.sec.gov) that contains Part
B, material incorporated by reference into Equity Funds II, Inc.'s registration
statement, and other information regarding registrants that electronically file
with the SEC.

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The Fund also offers an Institutional Class, which is available for
purchase only by certain investors. A prospectus for the Fund's Institutional
Class can be obtained by writing to Delaware Distributors, L.P. at the above
address or by calling the above number.

TABLE OF CONTENTS

Cover Page ............................ 1
Synopsis .............................. 3
Summary of Expenses ................... 5
Investment Objective and Policies ..... 8
Suitability .................. 8
Investment Strategy .......... 8
The Delaware Difference ............... 10
Plans and Services
Classes of Shares ..................... 12
How to Buy Shares ..................... 22
Redemption and Exchange ............... 26
Dividends and Distributions ........... 31
Taxes ................................. 32
Calculation of Offering Price and
Net Asset Value Per Share .... 34
Management of the Fund ................ 35
Other Investment Policies and
Risk Considerations .......... 39
Appendix A - Ratings .................. 48

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUND ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUND ARE NOT BANK OR CREDIT UNION DEPOSITS.

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SYNOPSIS

Investment Objective
The objective of the Fund is capital appreciation with current income
as a secondary objective. The Fund seeks to achieve this objective by investing
primarily in dividend paying stocks and income producing securities that are
convertible into common stocks. For further details, see Investment Objective
and Policies and Other Investment Policies and Risk Considerations.

Risk Factors and Special Considerations
The Fund has the ability to enter into options and futures transactions
for hedging purposes to attempt to counterbalance portfolio volatility. There
are risks that result from the use of options and futures and the investor
should review the description of these risks in this Prospectus. See Futures
Contracts and Options under Other Investment Policies and Risk Considerations.

The Fund may invest up to 20% of its total assets directly or
indirectly in foreign securities. Such investments involve certain risk and
opportunity considerations not typically associated with investing in United
States companies. See Foreign Securities under Other Investment Policies and
Risk Considerations.

Investment Manager, Distributor and Transfer Agent
Delaware Management Company (the "Manager") furnishes investment
management services to the Fund, subject to the supervision and direction of
Equity Funds II, Inc.'s Board of Directors. The Manager also provides investment
management services to certain of the other funds in the Delaware Investments
family. Delaware Distributors, L.P. (the "Distributor") is the national
distributor for the Fund and for all of the other mutual funds in the Delaware
Investments family. Delaware Service Company, Inc. (the "Transfer Agent") is the
shareholder servicing, dividend disbursing, accounting services and transfer
agent for the Fund and for all of the other mutual funds in the Delaware
Investments family. See Summary of Expenses and Management of the Fund for
further information regarding the Manager and the fees payable under the Fund's
Investment Management Agreement.

Sales Charges
The price of Class A Shares includes a maximum front-end sales charge
of 4.75% of the offering price. The front-end sales charge is reduced on certain
transactions of at least $100,000 but under $1,000,000. For purchases of
$1,000,000 or more, the front-end sales charge is eliminated; if a dealer's
commission is paid in connection with those sales, a contingent deferred sales
charge ("Limited CDSC") of 1% will be imposed if shares are redeemed during the
first year after purchase and 0.50% will be imposed if shares are redeemed
during the second year after the purchase. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange. Class A Shares are also subject to annual 12b-1 Plan
expenses for the life of the investment.

The price of Class B Shares is equal to the net asset value per share.
Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. Class B Shares are subject to annual
12b-1 Plan expenses for approximately eight years after purchase. See Deferred
Sales Charge - Class B Shares and Automatic Conversion of Class B Shares under
Classes of Shares.

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The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses for
the life of the investment.

See Classes of Shares, and Distribution (12b-1) and Service under
Management of the Fund.

Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.

Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B and Class C Shares and generally are not subject to a CDSC. The
minimum and maximum purchase amounts for retirement plans may vary. See How to
Buy Shares.

Redemption and Exchange
Class A Shares of the Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Fund nor the Distributor assess a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.

Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Fund
nor the Distributor assess any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See Redemption and Exchange.

Open-End Investment Company
Equity Funds II, Inc., which was organized as a Maryland corporation in
1983, is an open-end management investment company. The Fund's portfolio of
assets is diversified as defined by the Investment Company Act of 1940 (the
"1940 Act"). Equity Funds II, Inc. was previously organized as a Delaware
corporation in 1956. See Shares under Management of the Fund.

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SUMMARY OF EXPENSES

A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:

Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
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Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price)................... 4.75% None None

Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price)........ None None None

Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
as applicable)....................... None(1) 4.00%(2) 1.00%(3)

Redemption Fees......................... None(4) None(4) None(4)

(1) Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a Limited CDSC of
1% will be imposed on certain redemptions made during the first year after the
purchase and 0.50% will be imposed on certain redemptions made during the second
year after the purchase. Additional Class A purchase options involving the
imposition of a CDSC may be permitted as described in this Prospectus from time
to time. See Contingent Deferred Sales Charge for Certain Redemptions of Class A
Shares Purchased at Net Asset Value under Redemption and Exchange.

(2) Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed
within two years of purchase; (ii) 3% if shares are redeemed during the third or
fourth year following purchase; (iii) 2% if shares are redeemed during the fifth
year following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter. See Deferred Sales Charge Alternative
- - Class B Shares under Classes of Shares and Contingent Deferred Sales Charge -
Class B Shares and Class C Shares under Classes of Shares.

(3) Class C Shares are subject to a CDSC of 1% if the shares are redeemed within
12 months of purchase. See Level Sales Charge Alternative - Class C Shares under
Classes of Shares and Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Classes of Shares.

(4) CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.

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Annual Operating Expenses
(as a percentage of
average daily net assets Class A Class B Class C
after fee waivers and expense payments) Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Management Fees
(after voluntary fee waivers)......................................0.16%(5) 0.16%(5) 0.16%(5)

12b-1 Plan Expenses
(including service fees)....................................0.00%(6) 0.00%(6) 0.00%(6)

Other Operating Expenses...........................................0.59%(5) 0.59%(5) 0.59%(5)
(after voluntary expense payments)

Total Operating Expenses
(after voluntary fee waivers
and expense payments).............................0.75%(5) 0.75%(5) 0.75%(5)

</TABLE>

(5) "Total Operating Expenses" and "Other Operating Expenses" for the Class A
Shares, the Class B Shares and the Class C Shares are based on estimated
amounts for the first full fiscal year of the Classes, after giving
effect to the voluntary expense waiver. As noted below, the Distributor
has elected to voluntarily waive 12b-1 Plan expenses through January 31,
1999. Also, the Manager has elected voluntarily to waive that portion, if
any, of the annual management fees payable by the Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the Total
Operating Expenses of the Fund (exclusive of 12b-1 Plan expenses, taxes,
interest, brokerage commissions and extraordinary expenses) do not
exceed, on an annualized basis, 0.75% of the average daily net assets of
each Class from the commencement of the public offering of Classes
through January 31, 1999. If the voluntary expense waivers by the
Distributor and the Manager were not in effect, it is estimated that for
the first full year, the Total Operating Expenses, as a percentage of
average daily net assets, would be 1.49%, 2.24% and 2.24%, respectively,
for the Class A Shares, the Class B Shares and the Class C Shares,
including Management Fees of 0.65%.

(6) Class A Shares, Class B Shares and Class C Shares are subject to separate
12b-1 Plans. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charges permitted by rules of
the National Association of Securities Dealers, Inc. (the "NASD"). The
Distributor has elected voluntarily to waive its right to receive 12b-1
Plan fees (including service fees) from the commencement of the public
offering of the Classes through January 31, 1999. In the absence of those
waivers, 12b-1 Plan expenses would equal 0.30% (no more than 0.25% as set
by the Board) for Class A Shares and 1.00% for each of the Class B and
Class C Shares. See Distribution (12b-1) and Service under Management of
the Fund and Part B.

Investors utilizing the Asset Planner asset allocation service also
typically incur an annual maintenance fee of $35 per strategy. However, the
annual maintenance fee is waived until further notice. Investors who utilize the
Asset Planner for an Individual Retirement Account ("IRA") will pay an annual
IRA fee of $15 per Social Security number. See Asset Planner in Part B.

For expense information about the Diversified Value Fund Institutional
Class of shares, see the separate prospectus relating to that class.

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The following example illustrates the expenses that an investor would pay
on a $1,000 investment over various time periods, assuming (1) a 5% annual rate
of return, (2) redemption and no redemption at the end of each time period and
(3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable. The following example assumes the voluntary waiver of
the management fee by the Manager and waiver of the 12b-1 Plan fees by the
Distributor as discussed in this Prospectus.

Assuming Redemption Assuming No Redemption
1 year 3 years 1 years 3 years
------ ------- ------- -------

Class A Shares $55(1) $70 $55 $70

Class B Shares(2) $48 $54 $8 $24

Class C Shares $18 $24 $8 $24

(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which has
not been reflected in this calculation, may be imposed on certain
redemptions made within two years after a purchase. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.

(2) At the end of approximately eight years after purchase, Class B Shares
will be automatically converted into Class A Shares. The example above
does not assume conversion of Class B Shares since it reflects figures
only for one and three years. See Automatic Conversion of Class B
Shares under Classes of Shares for a description of the automatic
conversion feature.

This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.

The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in any of the
Classes will bear directly or indirectly.

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INVESTMENT OBJECTIVE AND POLICIES

SUITABILITY
The Fund may be suitable for the investor interested in long term
capital appreciation and the potential for income from dividend paying stocks.
Because current income is a secondary objective of the Fund, the Fund is not
suitable as an investment vehicle for investors whose primary investment goal is
current income.

Naturally, the Fund cannot assure a specific rate of return or that
principal will be protected. The value of the Fund's shares can be expected to
move up and down depending upon market conditions. Consequently, appreciation
may be obtained in periods of generally rising markets, while in declining
markets, the value of its shares may, decline. For this reason, the Fund is not
appropriate for short-term investors. However, through the prudent security
selection and supervision of its portfolio, the Fund will strive to achieve its
objective set forth above.

Investors should not consider a purchase of shares of the Fund as
equivalent to a complete investment program. Delaware Investments includes a
family of funds, generally available through registered investment dealers,
which may be used together to create a more complete investment program.

INVESTMENT STRATEGY
The investment objective of Diversified Value Fund is to achieve
capital appreciation with current income as a secondary objective. The Fund
seeks to achieve this objective by investing primarily in dividend paying stocks
and income producing securities that are convertible into common stocks. The
Fund will generally invest in companies currently having a market capitalization
of at least $1 billion. The Manager seeks companies that have one or more of the
following characteristics in relation to the market as represented by the S&P
500 Index: a lower price-to-earnings ratio; a lower price-to-cash flow ratio; a
lower price-to-book ratio; or favorable trends in earnings estimates.

The Manager ranks a broad universe of stocks using quantitative models
that assess each company on a variety of value and growth characteristics such
as those mentioned above. Generally speaking, a value orientation focuses on
stocks that the Manager believes are undervalued in price and will eventually be
recognized by the market. A growth oriented strategy, on the other hand,
typically concentrates on stocks with earnings that the Manager believes will
grow faster than the overall market. A composite ranking is generated which
seeks to identify companies with favorable valuations and/or improving
fundamentals. The Manager will then perform qualitative assessments of these
companies in selecting securities which the Manager believes will best help the
Fund achieve its objectives. In selecting portfolio securities, the Manger will
structure a portfolio that is weighted towards those securities that are more
highly ranked by the quantitative models.

While it is anticipated that the Fund will invest principally in common
stock and securities that are convertible into common stock, the Fund may invest
in all available types of equity securities, including without limitation,
preferred stock and warrants. Investments in equity securities other than common
stock or securities that are convertible into common stock will be made when
such securities are more attractively priced relative to the underlying common
stock. Such investments may be made in any proportion deemed prudent under
existing market and economic conditions. Convertible securities include
preferred stock and debentures that pay a stated interest rate or dividend and
are convertible into common stock at an established ratio. These securities,
which are usually priced at a premium to their conversion value, may allow the
Fund to receive current income while participating to some extent in any
appreciation in the underlying common stock. The value of a convertible security
tends to be affected by changes in interest rates as well as factors affecting
the

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market value of the underlying common stock. See Other Investment Policies and
Risk Considerations.

The Fund will invest in convertible fixed-income securities for their
equity characteristics and without respect to investment ratings. As a result,
the Fund may hold convertible fixed-income securities which are rated below
investment grade (i.e., rated below BBB by Standard & Poor's Ratings Group
("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's")). Although such
securities entail higher risks, they are typically less risky than similarly
rated non-convertible fixed-income securities by virtue of the convertibility
feature. See High-Yield Securities under Other Investment Policies and Risk
Considerations

Up to 20% of the Fund's total assets may be invested directly or
indirectly in foreign securities, including investments in American, European
and Global Depositary Receipts. See Foreign Investment Information under Other
Investment Policies and Risk Considerations.

The Fund may enter into futures contracts on stocks, stock indices and
foreign currencies, and purchase or sell options on such futures contracts.
These activities will not be entered into for speculative purposes, but rather
for hedging purposes and to facilitate the ability to quickly deploy into the
stock market the Fund's positions in cash, short-term debt securities and other
money market instruments, at times when the Fund's assets are not fully invested
in equity securities. Such positions will generally be eliminated when it
becomes possible to invest in securities that are appropriate for the Fund. See
Futures Contracts and Options under Other Investment Policies and Risk
Considerations.

The Fund may hold cash or invest in short-term debt securities and
other money market instruments when, in the Manager's opinion, such holdings are
prudent given then prevailing market conditions. The Fund may also invest in
such instruments pending investment by the Fund of proceeds from the sale of
portfolio securities or proceeds from new sales of Fund shares pending
investment in other types of securities for the Fund or to maintain sufficient
liquidity to meet redemptions. All such short-term investments will be of the
highest quality as determined by a nationally-recognized statistical rating
organization (e.g., AAA by S&P or Aaa by Moody's) or, if unrated, judged to be
of comparable quality as determined by the Manager. See Short- Term Investments
under Other Investment Policies and Risk Considerations.

The Fund will constantly strive to achieve its objectives and, in
investing to do so, may hold securities for any period of time. To the extent
the Fund engages in short-term trading in attempting to achieve its objectives,
it may increase the turnover rate and incur larger brokerage commissions and
other expenses than might otherwise be the case.

The Fund may also engage in short sales. See Short Sales under Other
Investment Policies and Risk Considerations.

Although the Fund will constantly strive to attain its objective, there
can be no assurance that it will be attained. The objective of the Fund may be
changed without shareholder approval. For a description of the Fund's other
investment policies, see Other Investment Policies and Risk Considerations. Part
B sets for other investment restrictions.

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THE DELAWARE DIFFERENCE

PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Investments
family of funds.

SHAREHOLDER PHONE DIRECTORY

Shareholder Service Center and Investor Information Center
800-523-1918
Information on Existing Regular Investment Accounts and Retirement
Plan Accounts;
Wire Investments; Wire Liquidations; Telephone Liquidations and
Telephone Exchanges;
Fund Information; Literature; Price; Yield and Performance Figures

Delaphone
800-362-FUND
(800-362-3863)

Performance Information
During business hours, you can call the Investor Information Center for
current performance information.

Shareholder Services

During business hours, you can call Delaware Investments' Shareholder
Service Center. Our representatives can answer any questions about your account,
the Fund, various service features and other funds in the Delaware Investments
family.

Delaphone Service

Delaphone is an account inquiry service for investors with
Touch-Tone(R) phone service. It enables you to get information on your account
faster than the mailed statements and confirmations. Delaphone also provides
current performance information on the Fund, as well as other funds in the
Delaware Investments family. Delaphone is available seven days a week, 24 hours
a day.

Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling the Shareholder Service Center.

Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.

Tax Information
Each year, Equity Funds II, Inc. will mail to you information on the
tax status of your dividends and distributions.

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Dividend Payments
Dividends, capital gains and other distributions are automatically
reinvested in your account. You may also elect to have the dividends earned in
one fund automatically invested in another fund in the Delaware Investments
family with a different investment objective, subject to certain exceptions and
limitations.

For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.

Retirement Planning
An investment in the Fund may be a suitable investment option for
tax-deferred retirement plans. Delaware Investments offers a full spectrum of
qualified and non-qualified retirement plans, including the popular 401(k)
deferred compensation plan, IRA, and the new Roth IRA. Please call Delaware
Investments at 800-523-1918 for more information.

Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of the Fund with the dollar amount of new
purchases of Class A Shares of the Fund to qualify for a reduced front-end sales
charge on such purchases of Class A Shares. Under the Combined Purchases
Privilege, you may also include certain shares that you own in other funds in
the Delaware Investments family. See Classes of Shares.

Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of shares of funds in the Delaware Investments family over a
13-month period. See Classes of Shares and Part B.

12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B.

Exchange Privilege
The Exchange Privilege permits you to exchange all or part of your
shares into shares of other mutual funds in the Delaware Investments family,
subject to certain exceptions and limitations. For additional information on
exchanges, see Investing by Exchange under How to Buy Shares, and Redemption and
Exchange.

Wealth Builder Option
You may elect to invest in the Fund through regular liquidations of
shares in your accounts in other funds in the Delaware Investments family.
Investments under this feature are exchanges and are therefore subject to the
same conditions and limitations as other exchanges of Fund shares. See
Additional Methods of Adding to Your Investment - Wealth Builder Option and
Investing by Exchange under How to Buy Shares, and Redemption and Exchange.

Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
the Fund's investments and performance. Equity Funds II, Inc.'s fiscal year ends
on November 30.

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CLASSES OF SHARES

Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").

Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares, which incur a sales charge when they are
purchased, but generally are not subject to any sales charge when they are
redeemed. Absent any applicable fee waiver, Class A Shares are subject to annual
12b-1 Plan expenses of up to a maximum of 0.30% (no more than 0.25% as set by
the Board) of average daily net assets of such shares. Certain purchases of
Class A Shares qualify for reduced front-end sales charges. See Front-End Sales
Charge Alternative - Class A Shares, below. See also Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset Value
under Redemption and Exchange, and Distribution (12b-1) and Service under
Management of the Fund.

Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when shares are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within six years of purchase. Absent any applicable fee
waiver, Class B Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 1% (0.25% of which are service fees to be paid to the Distributor,
dealers or others for providing personal service and/or maintaining shareholder
accounts) of average daily net assets of such shares for approximately eight
years after purchase. Class B Shares permit all of the investor's dollars to
work from the time the investment is made. If no waiver of 12b-1 fees is in
effect, the higher 12b-1 Plan expenses paid by Class B Shares will cause such
shares to have a higher expense ratio and to pay lower dividends than Class A
Shares. At the end of approximately eight years after purchase, Class B Shares
will automatically be converted into Class A Shares and, thereafter, for the
remainder of the life of the investment, the annual 12b-1 Plan fee of up to
0.30% for Class A Shares will apply. See Automatic Conversion of Class B Shares,
below.

Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within 12 months of purchase. Absent any applicable fee
waiver, Class C Shares are subject to annual 12b-1 Plan expenses of up to a
maximum of 1% (0.25% of which are service fees to be paid to the Distributor,
dealers or others for providing personal service and/or maintaining shareholder
accounts) of average daily net assets of such shares for the life of the
investment. If no waiver of 12b-1 fees is in effect, the higher 12b-1 Plan
expenses paid by Class C Shares will cause such shares to have a higher expense
ratio and to pay lower dividends than Class A Shares. Unlike Class B Shares,
Class C Shares do not convert to another class.

The alternative purchase arrangements described above permit investors
to choose the method of purchasing shares that is most suitable given the amount
of their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in the Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in the Fund with
their investment being subject to a CDSC if they

-12-

<PAGE>

redeem shares within 12 months of purchase. In addition, investors should
consider the level of annual 12b-1 Plan expenses applicable to each Class. If no
waiver of 12b-1 fees is in effect, the higher 12b-1 Plan expenses on Class B
Shares and Class C Shares will be offset to the extent a return is realized on
the additional money initially invested upon the purchase of such shares.
However, there can be no assurance as to the return, if any, that will be
realized on such additional money, and the effect of earning a return on such
additional money will diminish over time. In comparing Class B Shares to Class C
Shares, investors should consider the duration of the annual 12b-1 Plan expenses
to which each of the Classes is subject and the desirability of an automatic
conversion feature, which is available only for Class B Shares.

For the distribution and related services provided to, and the expenses
borne on behalf of, the Fund, absent any applicable fee waiver, the Distributor
and others will be paid, in the case of Class A Shares, from the proceeds of the
front-end sales charge and 12b-1 Plan fees and, in the case of Class B Shares
and Class C Shares, from the proceeds of the 12b-1 Plan fees and, if applicable,
the CDSC incurred upon redemption. Financial advisers may receive different
compensation for selling Class A, Class B and Class C Shares. Investors should
understand that the purpose and function of the respective 12b-1 Plans and the
CDSCs applicable to Class B Shares and Class C Shares are the same as those of
the 12b-1 Plan and the front-end sales charge applicable to Class A Shares in
that such fees and charges are used to finance the distribution of the
respective Classes. See Distribution (12b-1) and Service under Management of the
Fund.

Dividends paid on Class A, Class B and Class C Shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same time,
on the same day and will be in the same amount, except that, when assessed, the
additional amount of 12b-1 Plan expenses relating to Class B Shares and Class C
Shares will be borne exclusively by such shares. See Calculation of Offering
Price and Net Asset Value Per Share.

The NASD has adopted certain rules relating to investment company sales
charges. Equity Funds II, Inc. and the Distributor intend to operate in
compliance with these rules.

Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price, which reflects a
maximum front-end sales charge of 4.75%. See Calculation of Offering Price and
Net Asset Value Per Share.

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<PAGE>

Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.

Diversified Value Fund A Class
- ----------------------------------------------------------------------------------------------

Dealer's
Front-End Sales Charge as % of Commission***
Offering Amount as % of
Amount of Purchase Price Invested** Offering Price
- ----------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Less than $100,000 4.75% 4.94% 4.00%

$100,000 but
under $250,000 3.75 3.88 3.00

$250,000 but
under $500,000 2.50 2.59 2.00

$500,000 but
under $1,000,000* 2.00 2.00 1.60
</TABLE>

* There is no front-end sales charge on purchases of Class A Shares of
$1,000,000 or more but, under certain limited circumstances, a Limited
CDSC of 1% may apply upon redemption of such shares made during the
first year after the purchase and 0.50% may apply upon redemption of
such shares made during the second year after the purchase.

** Based upon an initial net asset value of $8.50 per share of Class A
Shares of Fund.

*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.

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

The Fund must be notified when a sale takes place which would qualify
for the reduced front-end sales charge on the basis of previous or
current purchases. The reduced front-end sales charge will be granted
upon confirmation of the shareholder's holdings by the Fund. Such
reduced front-end sales charges are not retroactive.

From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front-end sales charge shown above. In addition, certain dealers
who enter into an agreement to provide extra training and information
on Delaware Investments products and services and who increase sales of
Delaware Investments funds may receive an additional commission of up
to 0.15% of the offering price. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the Securities Act
of 1933.
- --------------------------------------------------------------------------------

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<PAGE>

For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:

Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ -----------------

Up to $5 million 1.00%
Next $20 million up to $25 million 0.50
Amount over $25 million 0.25

Such Class A Shares are subject to a Limited CDSC of 1% if shares are
redeemed during the first year after the purchase and 0.50% if shares are
redeemed during the second year after the purchase.

For accounts with assets over $1 million, the dealer commission resets
annually to the highest incremental commission rate on the anniversary of the
first purchase. In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other funds in the Delaware
Investments family as to which a Limited CDSC applies may be aggregated with
those of Class A Shares of the Fund. Financial advisers also may be eligible for
a dealer's commission in connection with certain purchases made under a Letter
of Intention or pursuant to an investor's Right of Accumulation. Financial
advisers should contact the Distributor concerning the applicability and
calculation of the dealer's commission in the case of combined purchases.

An exchange from other funds in the Delaware Investments family will
not qualify for payment of the dealer's commission, unless a dealer's commission
or similar payment has not been previously paid on the assets being exchanged.
The schedule and program for payment of the dealer's commission are subject to
change or termination at any time by the Distributor at its discretion.

Redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC if the dealer's commission described above
was paid in connection with the purchase of those shares. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.

Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of the Fund and shares of other funds in
the Delaware Investments family, except those noted below, you can reduce the
front-end sales charges on any additional purchases of Class A Shares. Shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with
ownership of variable insurance products may be combined with other holdings of
funds in the Delaware Investments family. Assets held by investment advisory
clients of the Manager or its affiliates in a stable value account may be
combined with other holdings of funds in the Delaware Investments family. Shares
of other funds that do not carry a front-end sales charge or CDSC may not be
included unless they were acquired through an exchange from a fund in the
Delaware Investments family that does carry a front-end sales charge or CDSC.

-15-

<PAGE>

This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.

It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.

Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative Class A Shares, above.

Allied Plans
Class A Shares are available for purchase by participants in certain
defined contribution plans ("Allied Plans") which are made available under a
joint venture agreement between the Distributor and another institution through
which mutual funds are marketed and which allow investments in Class A Shares of
designated Delaware Investments funds ("eligible Delaware Investments fund
shares"), as well as shares of designated classes of non-Delaware Investments
funds ("eligible non-Delaware Investments fund shares"). Class B Shares and
Class C Shares are not eligible for purchase by Allied Plans.

With respect to purchases made in connection with an Allied Plan, the
value of eligible Delaware Investments and eligible non-Delaware Investments
fund shares held by the Allied Plan may be combined with the dollar amount of
new purchases by that Allied Plan to obtain a reduced front-end sales charge on
additional purchases of eligible Delaware Investments fund shares.

Participants in Allied Plans may exchange all or part of their eligible
Delaware Investments fund shares for other eligible Delaware Investments fund
shares or for eligible non-Delaware Investments fund shares at net asset value
without payment of a front-end sales charge. However, exchanges of eligible fund
shares, both Delaware Investments and non-Delaware Investments, which were not
subject to a front-end sales charge, will be subject to the applicable sales
charge if exchanged for eligible Delaware Investments fund shares to which a
sales charge applies. No sales charge will apply if the eligible fund shares
were previously acquired through the exchange of eligible shares on which a
sales charge was already paid or through the reinvestment of dividends.
See Investing by Exchange under How to Buy Shares.

A dealer's commission may be payable on purchases of eligible Delaware
Investments fund shares under an Allied Plan. In determining a financial
adviser's eligibility for a dealer's commission on net asset value purchases of
eligible Delaware Investments fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated.

The Limited CDSC is applicable to redemptions of net asset value
purchases from an Allied Plan on which a dealer's commission has been paid.
Waivers of the Limited CDSC, as described under Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of exchanges
between eligible Delaware Investments and non- Delaware Investments fund shares.
When eligible Delaware Investments fund shares are exchanged into eligible
non-Delaware Investments fund shares, the Limited CDSC will be imposed at the
time of the exchange, unless the joint venture agreement specifies that the
amount of the Limited CDSC will be paid by the financial

-16-

<PAGE>

adviser or selling dealer. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange.

Buying Class A Shares at Net Asset Value
Class A Shares of the Fund may be purchased at net asset value under
the Delaware Investments Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month Reinvestment Privilege.
See The Delaware Difference and Redemption and Exchange for additional
information.

Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Investments family,
certain of their agents and registered representatives and employees of
authorized investment dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts, must be for
accounts in the name of the individual or a qualifying family member.

Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of funds in the
Delaware Investments family. Officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may purchase Class
A Shares at net asset value. Moreover, purchases may be effected at net asset
value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Investors may be charged a fee when effecting transactions in Class A
Shares through a broker or agent that offers these special products.

Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers if they are not eligible to purchase shares of the Institutional Class
of the Fund; any group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan participant records
are maintained on the Retirement Financial Services, Inc. (formerly named
Delaware Investment & Retirement Services, Inc.) proprietary record keeping
system that (i) has in excess of $500,000 of plan assets invested in Class A
Shares of Delaware Investments funds and any stable value account available to
investment advisory clients of the Manager or its affiliates, or (ii) is
sponsored by an employer that has at any point after May 1, 1997 had more than
100 employees while such plan has held Class A Shares of a Delaware Investments
fund and such employer has properly represented to Retirement Financial
Services, Inc. in writing that it has the requisite number of employees and has
received written confirmation back from Retirement Financial Services, Inc. See
Group Investment Plans for information regarding the applicability of the
Limited CDSC.

Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Investments family at net asset value.

-17-

<PAGE>

Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Investments account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.

Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in Delaware Investments at net asset value.
The Fund must be notified in advance that an investment qualifies for
purchase at net asset value.

Group Investment Plans
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, SIMPLE IRA, SIMPLE
401(k), Profit Sharing and Money Purchase Pension Plans and 401(k) Defined
Contribution Plans and 403(b)(7) and 457 Deferred Compensation Plans) may
benefit from the reduced front-end sales charges available on Class A Shares
based on total plan assets. If a company has more than one plan investing in the
Delaware Investments family of funds, then the total amount invested in all
plans will be aggregated to determine the applicable front-end sales charge
reduction on each purchase, both initial and subsequent, if, at the time of each
such purchase, the company notifies the Fund that it qualifies for the
reduction. Employees participating in such Group Investment Plans may also
combine the investments held in their plan account to determine the front-end
sales charge applicable to purchases in non-retirement investment accounts of
Delaware Investments if, at the time of each such purchase, they notify the Fund
that they are eligible to combine purchase amounts held in their plan account.

The Limited CDSC is applicable to any redemptions of net asset value
purchases made on behalf of any group retirement plan on which a dealer's
commission has been paid only if such redemption is made pursuant to a
withdrawal of the entire plan from Delaware Investments funds. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.

For additional information on retirement plans, including plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.

Deferred Sales Charge Alternative - Class B Shares

Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class B Shares at the time of purchase from its
own assets in an amount equal to no more than 4% of the dollar amount purchased.
In addition, from time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during which the
Distributor may pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below, however, absent any
applicable fee waiver, Class B Shares are subject to annual 12b-1 Plan expenses
up to a maximum of 1% for approximately eight years after purchase and, if
redeemed within six years of purchase, a CDSC.

Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid
to the Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class B Shares.
These payments support the compensation paid to dealers or brokers for selling
Class B Shares. Payments to the Distributor and others under the Class B 12b-1
Plan may be in an amount equal to no more than 1% annually. The combination of
the CDSC and the proceeds of the 12b-1 Plan fees makes it possible for the

-18-

<PAGE>

Fund to sell Class B Shares without deducting a front-end sales charge at the
time of purchase.

Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class B Shares
described in this Prospectus, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.

Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B Shares
falls on a Conversion Date, an investor's Class B Shares will be converted on
that date. If the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth anniversary falls on
the day after a Conversion Date, that shareholder will have to hold Class B
Shares for as long as three additional months after the eighth anniversary of
purchase before the shares will automatically convert into Class A Shares.

Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.

All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.

Level Sales Charge Alternative - Class C Shares

Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently compensates
dealers or brokers for selling Class C Shares at the time of purchase from its
own assets in an amount equal to no more than 1% of the dollar amount purchased.
As discussed below, however, absent any applicable fee waiver, Class C Shares
are subject to annual 12b-1 Plan expenses and, if redeemed within 12 months of
purchase, a CDSC.

Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid
to the Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class C Shares.
These payments support the compensation paid to dealers or brokers for selling
Class C Shares. Payments to the Distributor and others under the Class C 12b-1
Plan may be in an amount equal to no more than 1% annually.

Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for Class C Shares as
described in this Prospectus. See Redemption and Exchange.

Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an

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<PAGE>

amount equal to the lesser of the net asset value at the time of purchase of the
shares being redeemed or the net asset value of those shares at the time of
redemption. No CDSC will be imposed on increases in net asset value above the
initial purchase price, nor will a CDSC be assessed on redemptions of shares
acquired through reinvestments of dividends or capital gains distributions. For
purposes of this formula, the "net asset value at the time of purchase" will be
the net asset value at purchase of Class B Shares or Class C Shares of the Fund,
even if those shares are later exchanged for shares of another fund in the
Delaware Investments family. In the event of an exchange of the shares, the "net
asset value of such shares at the time of redemption" will be the net asset
value of the shares that were acquired in the exchange.

The following table sets forth the rates of the CDSC for Class B Shares
of the Fund:

Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ ------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares, absent any applicable fee waiver. See Automatic Conversion of Class B
Shares, above. Investors are reminded that the Class A Shares into which Class B
Shares will convert are subject to ongoing annual 12b-1 Plan expenses of up to a
maximum of 0.30% of average daily net assets of such shares.

In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.

All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.

The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B and Class C
Shares under Redemption and Exchange.

Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the funds in the Delaware Investments family. In some instances, these
incentives or payments may be offered only to certain dealers who

-20-

<PAGE>

maintain, have sold or may sell certain amounts of shares.

Subject to pending amendments to the NASD's Conduct Rules, in
connection with the promotion of shares of the funds in the Delaware Investments
family, the Distributor may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences and advertising
and may, from time to time, pay or allow additional promotional incentives to
dealers, which shall include non-cash concessions, such as certain luxury
merchandise or a trip to or attendance at a business or investment seminar at a
luxury resort, as part of preapproved sales contests. Payment of non-cash
compensation to dealers is currently under review by the NASD and the SEC. It is
likely that the NASD's Conduct Rules will be amended such that the ability of
the Distributor to pay non-cash compensation as described above will be
restricted in some fashion. The Distributor intends to comply with the NASD's
Conduct Rules as they may be amended.

Diversified Value Fund Institutional Class
In addition to offering Class A, Class B and Class C Shares, the Fund
also offers Diversified Value Fund Institutional Class, which is described in a
separate prospectus and is available for purchase only by certain investors.
Diversified Value Fund Institutional Class shares generally are distributed
directly by the Distributor and do not have a front-end sales charge, a CDSC or
a Limited CDSC, and are not subject to 12b-1 Plan distribution expenses. To
obtain the prospectus that describes the Diversified Value Fund Institutional
Class, contact the Distributor by writing to the address or by calling the
telephone number listed on the back of this Prospectus.

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<PAGE>

HOW TO BUY SHARES

Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of shares of any Class
generally must be $100 or more. For purchases under the Uniform Gifts to Minors
Act or Uniform Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum subsequent purchase of
$25. Minimum purchase requirements do not apply to retirement plans other than
IRAs, for which there is a minimum initial purchase of $250, and a minimum
subsequent purchase of $25, regardless of which Class is selected.

There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase limitations
by making cumulative purchases over a period of time. In doing so, an investor
should keep in mind that reduced front-end sales charges are available on
investments of $100,000 or more in Class A Shares, and that Class A Shares (i)
are subject to lower annual 12b-1 Plan expenses than Class B Shares and Class C
Shares and (ii) generally are not subject to a CDSC. For retirement plans, the
maximum purchase limitations apply only to the initial purchase of Class B
Shares or Class C Shares by the plan.

The Fund makes it easy to invest by arrangement with your investment
dealer, by mail, by wire and by exchange.

Investing through Your Investment Dealer
You can make a purchase of shares of the Fund through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one,
Delaware Investments can refer you to one.

Investing by Mail

1. Initial Purchases--An Investment Application or, in the case of a retirement
plan account, an appropriate retirement plan application, must be completed,
signed and sent with a check payable to Diversified Value Fund A Class,
Diversified Value Fund B Class or Diversified Value Fund C Class, to Delaware
Investments at 1818 Market Street, Philadelphia, PA 19103.

2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the Fund and Class selected. Your check should be identified
with your name(s) and account number. An investment slip (similar to a deposit
slip) is provided at the bottom of transaction confirmations and dividend
statements that you will receive from Equity Funds II, Inc. Use of this
investment slip can help expedite processing of your check when making
additional purchases. Your investment may be delayed if you send additional
purchases by certified mail.

Investing by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number for the Class in which you are
investing).

1. Initial Purchases--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application or, in the case of a retirement plan account, an appropriate
retirement plan

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<PAGE>

application, for the Fund and Class selected, to Delaware Investments at 1818
Market Street, Philadelphia, PA 19103.

2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.

If you want to wire investments to a retirement plan account, call the
Shareholder Service Center for special wiring instructions.

Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family, you may write and authorize an exchange of part or all of
your investment into shares of the Fund. If you wish to open an account by
exchange, call the Shareholder Service Center for more information. All
exchanges are subject to the eligibility and minimum purchase requirements set
forth in each fund's prospectus. See Redemption and Exchange for more complete
information concerning your exchange privileges.

Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Investments family,
including other Class A Shares, but may not exchange their Class A Shares for
Class B Shares or Class C Shares of the Fund or of any other fund in the
Delaware Investments family. Holders of Class B Shares of the Fund are permitted
to exchange all or part of their Class B Shares only into Class B Shares of
other funds in the Delaware Investments family. Similarly, holders of Class C
Shares of the Fund are permitted to exchange all or part of their Class C Shares
only into Class C Shares of other funds in the Delaware Investments family.
Class B Shares of the Fund and Class C Shares of the Fund acquired by exchange
will continue to carry the CDSC and, in the case of Class B Shares, the
automatic conversion schedule of the fund from which the exchange is made. The
holding period of Class B Shares of the Fund acquired by exchange will be added
to that of the shares that were exchanged for purposes of determining the time
of the automatic conversion into Class A Shares of the Fund.

Permissible exchanges into Class A Shares of the Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of the Fund will be made without the imposition of a
CDSC by the fund from which the exchange is being made at the time of the
exchange.

See Allied Plans under Classes of Shares for information on exchanges
by participants in an Allied Plan.

Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to
use the following services:

1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize Equity Funds
II, Inc. to transfer a designated amount monthly from your checking account to
your account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.

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<PAGE>

This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and Money Purchase
Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or 457 Deferred
Compensation Plans.

2. Direct Deposit
You may have your employer or bank make regular investments directly to
your Fund account for you (for example: payroll deduction, pay by phone, annuity
payments). The Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.

* * *

Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, Equity Funds II, Inc. has the
right to liquidate your shares to reimburse the government or transmitting bank.
If there are insufficient funds in your account, you are obligated to reimburse
the Fund.

3. Wealth Builder Option
You can use the Wealth Builder Option to invest in the Fund through
regular liquidations of shares in your accounts in other funds in the Delaware
Investments family. You may also elect to invest in other mutual funds in the
Delaware Investments family through the Wealth Builder Option through regular
liquidations of shares in your Fund account.

Under this automatic exchange program, you can authorize regular
monthly amounts (minimum of $100 per fund) to be liquidated from your account in
one or more funds in the Delaware Investments family and invested automatically
into any other account in a Delaware Investments mutual fund that you may
specify. If in connection with the election of the Wealth Builder Option, you
wish to open a new account to receive the automatic investment, such new account
must meet the minimum initial purchase requirements described in the prospectus
of the fund that you select. All investments under this option are exchanges and
are therefore subject to the same conditions and limitations as other exchanges
noted above. You can terminate your participation in Wealth Builder at any time
by giving written notice to the fund from which the exchanges are made. See
Redemption and Exchange.

4. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or dividend
income) invested in your Fund account or invested in certain other funds in the
Delaware Investments family, subject to the exceptions noted below as well as
the eligibility and minimum purchase requirements set forth in each fund's
prospectus.

Reinvestments of distributions into Class A Shares of the Fund or of
other funds in the Delaware Investments family are made without a front-end
sales charge. Reinvestments of distributions into Class B Shares of the Fund or
of other funds available from Delaware Investments or into Class C Shares of the
Fund or of other funds available from Delaware Investments are also made without
any sales charge and will not be subject to a CDSC if later redeemed. See
Automatic Conversion of Class B Shares under Classes of Shares for information
concerning the automatic conversion of Class B Shares acquired by reinvesting
dividends.

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<PAGE>

Holders of Class A Shares of the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Investments family, including the Fund. Holders of Class B Shares of the Fund
may reinvest their distributions only into Class B Shares of the funds in the
Delaware Investments family which offer that class of shares. Similarly, holders
of Class C Shares of the Fund may reinvest their distributions only into Class C
Shares of the funds in the Delaware Investments family which offer that class of
shares. For more information about reinvestments, call the Shareholder Service
Center.

Capital gains and/or dividend distributions to participants in the
following retirement plans are automatically reinvested into the same Delaware
Investments fund in which their investments are held: SAR/SEP, SEP/IRA, SIMPLE
IRA, SIMPLE 401(k), Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans or 403(b)(7) or 457 Deferred Compensation Plans.

Purchase Price and Effective Date
The offering price and net asset value of Class A, Class B and Class C
Shares are determined as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.

The effective date of a purchase is the date the order is received by
the Fund, its agent or designee. The effective date of a direct purchase is the
day your wire, electronic transfer or check is received, unless it is received
after the time the offering price or net asset value of shares is determined, as
noted above. Purchase orders received after such time will be effective the next
business day.

The Conditions of Your Purchase
The Fund reserves the right to reject any purchase order. If a purchase
is canceled because your check is returned unpaid, you are responsible for any
loss incurred. The Fund can redeem shares from your account(s) to reimburse
itself for any loss, and you may be restricted from making future purchases in
any of the funds in the Delaware Investments family. The Fund reserves the right
to reject purchase orders paid by third-party checks or checks that are not
drawn on a domestic branch of a United States financial institution. If a check
drawn on a foreign financial institution is accepted, you may be subject to
additional bank charges for clearance and currency conversion.

The Fund also reserves the right, following shareholder notification,
to charge a service fee on non- retirement accounts that, as a result of
redemption, have remained below the minimum stated account balance for a period
of three or more consecutive months. Holders of such accounts may be notified of
their insufficient account balance and advised that they have until the end of
the current calendar quarter to raise their balance to the stated minimum. If
the account has not reached the minimum balance requirement by that time, the
Fund will charge a $9 fee for that quarter and each subsequent calendar quarter
until the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.

The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.

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<PAGE>

REDEMPTION AND EXCHANGE

You can redeem or exchange your shares in a number of different ways.
The exchange service is useful if your investment requirements change and you
want an easy way to invest in other equity funds, bond funds, tax-advantaged
funds or money market funds. This service is also useful if you are anticipating
a major expenditure and want to move a portion of your investment into a fund
that has the checkwriting feature. Exchanges are subject to the requirements of
each fund and all exchanges of shares constitute taxable events. See Taxes.
Further, in order for an exchange to be processed, shares of the fund being
acquired must be registered in the state where the acquiring shareholder
resides. You may want to consult your financial adviser or investment dealer to
discuss which funds available from Delaware Investments will best meet your
changing objectives, and the consequences of any exchange transaction. You may
also call Delaware Investments directly for fund information.

Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after the Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
For example, redemption or exchange requests received in good order after the
time the offering price and net asset value of shares are determined will be
processed on the next business day. See Purchase Price and Effective Date under
How to Buy Shares. A shareholder submitting a redemption request may indicate
that he or she wishes to receive redemption proceeds of a specific dollar
amount. In the case of such a request, and in the case of certain redemptions
from retirement plan accounts, the Fund will redeem the number of shares
necessary to deduct the applicable CDSC in the case of Class B and Class C
Shares, and, if applicable, the Limited CDSC in the case of Class A Shares and
tender to the shareholder the requested amount, assuming the shareholder holds
enough shares in his or her account for the redemption to be processed in this
manner. Otherwise, the amount tendered to the shareholder upon redemption will
be reduced by the amount of the applicable CDSC or Limited CDSC. Redemption
proceeds will be distributed promptly, as described below, but not later than
seven days after receipt of a redemption request.

Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. The Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.

The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but it will not mail or wire the proceeds until it is
reasonably satisfied that the check has cleared, which may take up to 15 days
from the purchase date. You can avoid this potential delay if you purchase
shares by wiring Federal Funds. The Fund reserves the right to reject a written
or telephone redemption request or delay payment of redemption proceeds if there
has been a recent change to the shareholder's address of record.

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<PAGE>

There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.

Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Investments family
(in each case, "New Shares") in a permitted exchange, will not be subject to a
CDSC that might otherwise be due upon redemption of the Original Shares.
However, such shareholders will continue to be subject to the CDSC and, in the
case of Class B Shares, the automatic conversion schedule of the Original Shares
as described in this Prospectus and any CDSC assessed upon redemption will be
charged by the fund from which the Original Shares were exchanged. In an
exchange of Class B Shares from the Fund, the Fund's CDSC schedule may be higher
than the CDSC schedule relating to the New Shares acquired as a result of the
exchange. For purposes of computing the CDSC that may be payable upon a
disposition of the New Shares, the period of time that an investor held the
Original Shares is added to the period of time that an investor held the New
Shares. With respect to Class B Shares, the automatic conversion schedule of the
Original Shares may be longer than that of the New Shares. Consequently, an
investment in New Shares by exchange may subject an investor, absent any
applicable fee waiver, to the higher 12b-1 fees applicable to Class B Shares of
the Fund for a longer period of time than if the investment in New Shares were
made directly.

Various redemption and exchange methods are outlined below. Except for
the CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by the Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares redeemed
or exchanged. Your investment dealer may charge for this service.

All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund or its agent.

Written Redemption

You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares. The request must be signed by all owners
of the account or your investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s) at the address
of record, the Fund requires a signature by all owners of the account and a
signature guarantee for each owner. A signature guarantee can be obtained from a
commercial bank, a trust company or a member of a securities transfer
association medallion program. A signature guarantee cannot be provided by a
notary public. A signature guarantee is designed to protect the shareholders,
the Fund and its agent from fraud. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Fund may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.

Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request. Certificates are not issued for Class B Shares or Class C
Shares.

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<PAGE>

Written Exchange
You may also write to the Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund in the Delaware Investments family, subject to the same conditions and
limitations as other exchanges noted above.

Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.

The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in writing that you do not
wish to have such services available with respect to your account. The Fund
reserves the right to modify, terminate or suspend these procedures upon 60
days' written notice to shareholders. It may be difficult to reach the Fund by
telephone during periods when market or economic conditions lead to an unusually
large volume of telephone requests.

Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.

Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.

Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no separate fees for this redemption method, but the mail
time may delay getting funds into your bank account. Simply call the Shareholder
Service Center prior to the time the offering price and net asset value are
determined, as noted above.

Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can

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<PAGE>

exchange your shares into other funds in the Delaware Investments family under
the same registration, subject to the same conditions and limitations as other
exchanges noted above. As with the written exchange service, telephone exchanges
are subject to the requirements of each fund, as described above. Telephone
exchanges may be subject to limitations as to amounts or frequency.

Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value

For purchases of $1,000,000, a Limited CDSC will be imposed on certain
redemptions of Class A Shares (or shares into which such Class A Shares are
exchanged) according to the following schedule: (1) 1.00% if shares are redeemed
during the first year after the purchase; and (2) 0.50% if such shares are
redeemed during the second year after the purchase, if such purchases were made
at net asset value and triggered the payment by the Distributor of the dealer's
commission described above.

The Limited CDSC will be paid to the Distributor and will be assessed
on an amount equal to the lesser of (1) the net asset value at the time of
purchase of the Class A Shares being redeemed or (2) the net asset value of such
Class A Shares at the time of redemption. For purposes of this formula, the "net
asset value at the time of purchase" will be the net asset value at purchase of
Class A Shares even if those shares are later exchanged for shares of another
Delaware Investments fund and, in the event of an exchange of Class A Shares,
the "net asset value of such shares at the time of redemption" will be the net
asset value of the shares acquired in the exchange.

Redemptions of such Class A Shares held for more than two years will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Investments fund will not trigger the imposition of the Limited
CDSC at the time of such exchange. The period a shareholder owns shares into
which Class A Shares are exchanged will count towards satisfying the two-year
holding period. The Limited CDSC is assessed if such two-year period is not
satisfied irrespective of whether the redemption triggering its payment is of
Class A Shares of the Fund or Class A Shares acquired in the exchange.

In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.

Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from the Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2 and IRA distributions qualifying under Section 72(t) of
the Internal Revenue Code; (v) returns of excess contributions to an IRA; (vi)
distributions by other employee benefit plans to pay benefits; and (vii)
redemptions by the classes of shareholders who are permitted to purchase shares
at net asset value, regardless of the size of the purchase (see Buying Class A
Shares at Net Asset Value under Classes of Shares).

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<PAGE>

Waiver of Contingent Deferred Sales Charge - Class B and Class C Shares

The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from the
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA, or 403(b)(7) or 457 Deferred Compensation Plan; (iii) periodic
distributions from an IRA, SIMPLE IRA, SEP/IRA, or 403(b)(7) or 457 Deferred
Compensation Plan due to death, disability or attainment of age 59 1/2, and IRA
distributions qualifying under Section 72(t) of the Code; and (iv) distributions
from an account if the redemption results from the death of all registered
owners of the account (in the case of accounts established under the Uniform
Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts, the
waiver applies upon the death of all beneficial owners) or a total and permanent
disability (as defined in Section 72 of the Code) of all registered owners
occurring after the purchase of the shares being redeemed.

The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from the Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan or 401(k)
Defined Contribution Plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Pension Plan, 401(k) Defined Contribution Plans upon attainment
of age 70 1/2, and IRA distributions qualifying under Section 72(t) of the Code;
(iv) distributions from a 403(b)(7) or 457 Deferred Compensation Plan, Profit
Sharing Plan, or 401(k) Defined Contribution Plan, under hardship provisions of
the plan; (v) distributions from a 403(b)(7) or 457 Deferred Compensation Plan,
Profit Sharing Plan, Money Purchase Pension Plan or 401(k) Defined Contribution
Plan upon attainment of normal retirement age under the plan or upon separation
from service; (vi) periodic distributions from an IRA or SIMPLE IRA on or after
attainment of age 59 1/2; and (vii) distributions from an account if the
redemption results from the death of all registered owners of the account (in
the case of accounts established under the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts or trust accounts, the waiver applies upon the death of
all beneficial owners) or a total and permanent disability (as defined in
Section 72 of the Code) of all registered owners occurring after the purchase of
the shares being redeemed.

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<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Equity Funds II, Inc. currently intends to make payments from the
Fund's net investment income once a year; however, it does not anticipate making
any payments during the first year following commencement of operations.
Payments from the Fund's net realized securities profits will be made during the
first quarter of the next fiscal year.

Each class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that, absent any applicable fee waiver,
the per share dividends from net investment income on the Class A Shares, the
Class B Shares and the Class C Shares will vary due to the expenses under the
12b-1 Plan applicable to each Class. Generally, the dividends per share on Class
B Shares and Class C Shares can be expected to be lower than the dividends per
share on Class A Shares because the expenses under the 12b-1 Plans relating to
Class B and Class C Shares will be higher than the expenses under the 12b-1 Plan
relating to Class A Shares. See Distribution (12b-1) and Service under
Management of the Fund.

Both dividends and distributions, if any, are automatically reinvested
in your account at net asset value.

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<PAGE>

TAXES

The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in the Fund.

On August 5, 1997, President Clinton signed into law the Taxpayer
Relief Act of 1997 (the "1997 Act"). This new law makes sweeping changes in the
Code. Because many of these changes are complex, and only indirectly affect the
Fund and its distributions to you, they are discussed in Part B. Changes in the
treatment of capital gains, however, are discussed in this section.

The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). As such, the Fund will
not be subject to federal income tax, or to any excise tax, to the extent its
earnings are distributed as provided in the Code and by satisfying certain other
requirements relating to the sources of its income and diversification of its
assets.

The Fund intends to distribute substantially all of its net investment
income and net capital gains, if any. Dividends from net investment income or
net short-term capital gains will be taxable to those investors who are subject
to income taxes as ordinary income, whether received in cash or in additional
shares.

Distributions paid by the Fund from long-term capital gains are taxable
to those investors who are subject to income taxes as long-term capital gains,
regardless of the length of time an investor has owned shares in the Fund. The
Fund does not seek to realize any particular amount of capital gains during a
year; rather, realized gains are a by-product of Fund management activities.
Consequently, capital gains distributions may be expected to vary considerably
from year to year. Also, for those investors subject to tax, if purchases of
shares in the Fund are made shortly before the record date for a dividend or
capital gains distribution, a portion of the investment will be returned as a
taxable distribution.

The Treatment of Capital Gain Distributions under the Taxpayer Relief
Act of 1997

The 1997 Act creates a category of long-term capital gain for
individuals who will be taxed at new lower tax rates. For investors who are in
the 28% or higher federal income tax brackets, these gains will be taxed at a
maximum rate of 20%. For investors who are in the 15% federal income tax
bracket, these gains will be taxed at a maximum rate of 10%. Capital gain
distributions will qualify for these new maximum tax rates, depending on how
long the Fund's securities were held by the Fund before they were sold. The
holding periods for which the new rates apply were revised by the Internal
Revenue Service Restructuring and Reform Act of 1998. Investors who want more
information on holding periods and other qualifying rules relating to these new
rates should review the expanded discussion in Part B, or should contact their
own tax advisers.

Equity Funds II, Inc. will advise you in its annual information
reporting at calendar year end of the amount of its capital gain distributions
which will qualify for these maximum federal tax rates.

Although dividends generally will be treated as distributed when paid,
dividends which are declared in October, November or December to shareholders of
record on a specified date in one of those months, but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared.

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<PAGE>

The sale of shares of the Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
the Fund and any other fund in the Delaware Investments family. Any loss
incurred on a sale or exchange of Fund shares that had been held for six months
or less will be treated as a long-term capital loss to the extent of capital
gain dividends received with respect to such shares. All or a portion of the
sales charge incurred in acquiring Fund shares will be excluded from the federal
tax basis of any of such shares sold or exchanged within 90 days of their
purchase (for purposes of determining gain or loss upon the sale of such shares)
if the sale proceeds are reinvested in the Fund or in another fund in the
Delaware Investments family and a sales charge that would otherwise apply to the
reinvestment is reduced or eliminated. Any portion of such sales charge excluded
from the tax basis of the shares sold will be added to the tax basis of the
shares acquired in the reinvestment.

The automatic conversion of Class B Shares into Class A Shares at the
end of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes of Shares.

The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.

In addition to the federal taxes described above, shareholders may or
may not be subject to various state and local taxes. For example, distributions
of interest income and capital gains realized from certain types of U.S.
government securities may be exempt from state personal income taxes. Because
investors' state and local taxes may be different than the federal taxes
described above, investors should consult their own tax advisers.

Each year, Equity Funds II, Inc. will mail to you information on the
tax status of the dividends and distributions paid by the Fund. Shareholders
will also receive each year information as to the portion of dividend income
that is derived from U.S. government securities that are exempt from state
income tax. Of course, shareholders who are not subject to tax on their income
would not be required to pay tax on amounts distributed to them by the Fund.

The Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who have not complied
with IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.

See Accounting and Tax Issues and Distributions and Taxes in Part B for
additional information on tax matters relating to the Fund and its shareholders.

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CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE

The net asset value ("NAV") per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced on the basis of valuations provided by
an independent pricing service using methods approved by Equity Funds II, Inc.'s
Board of Directors. Equity securities for which marked quotations are available
are priced at market value. Short-term investments having a maturity of less
than 60 days are valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in good faith and
in a method approved by Equity Funds II, Inc.'s Board of Directors.

Class A Shares are purchased at the offering price per share, while
Class B Shares and Class C Shares are purchased at the NAV per share. The
offering price per share of Class A Shares consists of the NAV per share next
computed after the order is received, plus any applicable front-end sales
charges.

The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.

The net asset values of all outstanding shares of each class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a class, based on each class'
percentage in that Fund represented by the value of shares of such classes,
except that the Diversified Value Fund Institutional Class will not incur any of
the expenses under 12b-1 Plans and the Class A, Class B and Class C Shares alone
will bear the 12b-1 Plan expense payable under their respective Plans.

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MANAGEMENT OF THE FUND

Directors
The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors. Part B contains additional information
regarding Equity Funds II, Inc.'s directors and officers.

Investment Manager
The Manager furnishes investment management services to the Fund.

The Manager and its predecessors have been managing the funds in
Delaware Investments since 1938. On July 31, 1998, the Manager and its
affiliates within Delaware Investments, including Delaware International
Advisers Ltd., were managing in the aggregate more than $43 billion in assets in
the various institutional or separately managed (approximately $25,873,990,000)
and investment company (approximately $17,929,500,000) accounts.

The Manager is a series of Delaware Management Business Trust. The
Manager changed its form of organization from a corporation to a business trust
on March 1, 1998. The Manager is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.

The Manager administers the affairs of and is ultimately responsible
for the investment management of the Fund under an Investment Management
Agreement with Equity Funds II, Inc. on behalf of the Fund. Under the Investment
Management Agreement for the Fund, the Manager is paid an annual fee equal to
0.65% on the first $500 million of average daily net assets, 0.60% on the next
$500 million, 0.55% on the next $1.5 billion and 0.50% on the average daily net
assets in excess of $2.5 billion. The directors of Equity Funds II, Inc.
annually review fees paid to the Manager.

J. Paul Dokas, Vice President/Portfolio Manager for Equity Funds II,
Inc. and the Manager, has had primary responsibility for making day-to-day
investment decisions for the Fund since its inception. Mr. Dokas holds a BBA in
Business from Loyola College and an MBA in Business from the University of
Maryland. Prior to joining Delaware Investments in 1997, he was a Director of
Trust Investments for Bell Atlantic Corporation in Philadelphia. Mr. Dokas is a
CFA charterholder.

Portfolio Trading Practices
The Fund normally will not invest for short-term trading purposes.
However, the Fund may sell securities without regard to the length of time they
have been held. The degree of portfolio activity will affect brokerage costs of
the Fund and may affect taxes payable by its shareholders. Given the Fund's
investment objective, its annual portfolio turnover rate may exceed 100%. A
turnover rate of 100% would occur, for example, if all the investments in the
Fund's portfolio at the beginning of the year were replaced by the end of the
year. The rate of portfolio turnover is not a limiting factor when the
investment manager deems it desirable to purchase or sell securities. High
portfolio turnover (over 100%) involves correspondingly greater brokerage
commissions and other transaction costs and may affect taxes payable by the
Fund's shareholders that are subject to federal income taxes. The turnover rate
may also be affected by cash requirements from redemptions and repurchases of
the Fund's shares.

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The Manager uses its best efforts to obtain the best available price
and most favorable execution for portfolio transactions. Orders may be placed
with brokers or dealers who provide brokerage and research services to the
Manager or to their advisory clients. These services may be used by the Manager
in servicing any of its accounts. Subject to best price and execution, the
Manager may consider a broker/dealer's sales of shares of funds in the Delaware
Investments family in placing portfolio orders and may place orders with
broker/dealers that have agreed to defray certain expenses of such funds such as
custodian fees.

Performance Information
From time to time, the Fund may quote total return performance of its
Classes in advertising and other types of literature.

Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for one-, five- and ten-year periods (or life-of-fund, if applicable). The Fund
may also advertise aggregate and average total return information concerning a
Class over additional periods of time. In addition, the Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC. In this case, such total return information
would be more favorable than total return information that includes the
deductions of the maximum front-end sales charge or any applicable CDSC.

Net asset value fluctuates and is not guaranteed. Past performance is
not a guarantee of future results.

Distribution (12b-1) and Service

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund's shares under a Distribution Agreement with Equity
Funds II, Inc. dated as of September 14, 1998.

Equity Funds II, Inc. has adopted a separate distribution plan under
Rule 12b-1 for each of the Class A Shares, Class B Shares and Class C Shares of
the Fund (the "Plans"). The Plans permit the Fund to pay the Distributor from
the assets of the respective Classes a monthly fee for the Distributor's
services and expenses in distributing and promoting sales of shares. These
expenses include, among other things, preparing and distributing advertisements,
sales literature, and prospectuses and reports used for sales purposes,
compensating sales and marketing personnel, holding special promotions for
specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in
dealer-sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences, and advertising.
The Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of the Class. In addition,
the Fund may make payments from the 12b-1 plan fees of its respective Class
directly to others, such as banks, who aid in the distribution of Class shares
or provide services in respect of a Class, pursuant to service agreements with
Equity Funds II, Inc.

The 12b-1 Plan expenses relating to each of the Class B Shares and
Class C Shares are also used to pay the Distributor for advancing the commission
costs to dealers with respect to the initial sale of such shares.

Absent any applicable fee waiver, the aggregate fees paid by the Fund
from the assets of its respective Classes to the Distributor and others under
the Plans may not exceed (i) 0.30% of the Class A Shares' average

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daily net assets in any year, and (ii) 1% (0.25% of which are service fees to be
paid to the Distributor, dealers and others for providing personal service
and/or maintaining shareholder accounts) of each of the Class B Shares' and
Class C Shares' average daily net assets in any year. The Class A, Class B and
Class C Shares will not incur any distribution expenses beyond these limits,
which may not be increased without shareholder approval. See Part B.

While payments pursuant to the Plans may not exceed 0.30% annually with
respect to the Class A Shares, and 1% annually with respect to each of the Class
B Shares and the Class C Shares, the Plans do not limit fees to amounts actually
expended by the Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or exceed payments to
it under the Plans. The Distributor may, however incur such additional expenses
and make additional payments to dealers from its own resources to promote the
distribution of shares of the Classes. The monthly fees paid to the Distributor
under the Plans are subject to the review and approval of Equity Funds II,
Inc.'s unaffiliated directors, who may reduce the fees or terminate the Plans at
any time.

Equity Funds II, Inc.'s Plans do not apply to the Diversified Value
Fund Institutional Class of shares. Those shares are not included in calculating
the Plans' fees, and the Plans are not used to assist in the distribution and
marketing of the Diversified Value Fund Institutional Class shares.

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund
pursuant to an amended and restated agreement dated as of September 14, 1998.
The Transfer Agent also provides accounting services to the Fund pursuant to the
terms of a separate Fund Accounting Agreement.

The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH. The directors of Equity Funds II, Inc. annually review fees
paid to the Distributor and the Transfer Agent.

* * *

As with other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process and
calculate date-related information from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Equity Funds II, Inc. is taking
steps to obtain satisfactory assurances that the Fund's major service providers
are taking steps reasonably designed to address the Year 2000 Problem with
respect to the computer systems that such service providers use. There can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the business of the Fund.

Several European countries are participating in the European Economic
and Monetary Union, which will establish a common European currency for
participating countries. This currency will commonly be known as the "Euro." It
is anticipated that each such participating country will replace its existing
currency with the Euro on January 1, 1999. Additional European countries may
elect to participate after that date. The Fund could be adversely affected if
the computer systems used by its major service providers are not properly
prepared to handle the implementation of this single currency or the adoption of
the Euro by additional countries in the future. The Equity Funds II, Inc. is
taking steps to obtain satisfactory assurances that the major service providers
of the Fund are taking steps reasonably designed to address these matters with
respect to the computer systems that such service providers use. There can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the business of the Fund.

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<PAGE>

Expenses
The Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. The Funds' other expenses
include each Fund's proportionate share of rent and certain other administrative
expenses; the investment management fees; transfer and dividend disbursing agent
fees and costs; custodian expenses; federal and state securities registration
fees; proxy costs; and the costs of preparing prospectuses and reports sent to
shareholders.

Shares
Equity Funds II, Inc. is an open-end management investment company. The
Fund's portfolio of assets is diversified as defined by the 1940 Act. Commonly
known as a mutual fund, Equity Funds II, Inc. was organized as a Maryland
corporation on March 4, 1983. Equity Funds II, Inc. was previously organized as
a Delaware corporation in 1956. In addition to the Fund, Equity Funds II, Inc.
presently offers four other series, Blue Chip Fund series, the Decatur Income
Fund series, the Decatur Total Return Fund series and the Social Awareness Fund
series.

Equity Funds II, Inc.'s shares have a par value of $1.00, equal voting
rights, except as noted below, and are equal in all other respects. Equity Funds
II, Inc.'s shares have noncumulative voting rights which means that the holders
of more than 50% of Equity Funds II, Inc.'s shares voting for the election of
directors can elect 100% of the directors if they choose to do so. Under
Maryland law, Equity Funds II, Inc. is not required, and does not intend, to
hold annual meetings of shareholders unless, under certain circumstances, it is
required to do so under the 1940 Act. Shareholders of 10% or more of Equity
Funds II, Inc.'s outstanding shares may request that a special meeting be called
to consider the removal of a director.

In addition to Class A Shares, Class B Shares and Class C Shares, the
Fund also offers, the Diversified Value Fund Institutional Class. Shares of each
class represent proportionate interests in the assets of the Fund and have the
same voting and other rights and preferences as the other classes of the Fund,
except that shares of the Diversified Value Fund Institutional Class are not
subject to, and may not vote on matters affecting, the Distribution Plans under
Rule 12b-1 relating to the Class A, Class B and Class C Shares. Similarly, as a
general matter, the shareholders of Class A Shares, Class B Shares and Class C
Shares may vote only on matters affecting the 12b-1 Plan that relates to the
class of shares that they hold. However, the Class B Shares may vote on any
proposal to increase materially the fees to be paid by the Fund under the Rule
12b-1 Plan relating to the Class A Shares if such proposal is submitted to a
vote of Class A Shares.

It is expected that The Lincoln National Life Insurance Company will
make an initial investment in the Fund, which could result in The Lincoln
National Life Insurance Company holding up to 100% of the outstanding shares of
the Fund. Subject to certain limited exceptions, there would be no limitation on
The Lincoln National Life Insurance Company's ability to redeem its shares of
the Fund and it may elect to do so at any time.

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<PAGE>

OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

Convertible, Debt and Non-Traditional Equity Securities
The Fund may invest in convertible and debt securities of issuers in
any industry. A convertible security is a security which may be converted at a
stated price within a specified period of time into a certain quantity of the
common stock of the same or a different issuer. Convertible and debt securities
are typically senior to common stocks in a corporation's capital structure,
although convertible securities are usually subordinated to similar
nonconvertible securities. Convertible and debt securities typically provide a
fixed-income stream and the opportunity, through its conversion feature, to
participate in the capital appreciation resulting from a market price advance in
the convertible security's underlying common stock. Just as with debt
securities, convertible securities tend to increase in market value when
interest rates decline and tend to decrease in value when interest rates rise.
However, the price of a convertible security is also influenced by the market
value of the security's underlying common stock and tends to increase as the
market value of the underlying stock rises, whereas it tends to decrease as the
market value of the underlying stock declines.

The Fund may invest in convertible preferred stocks that offer enhanced
yield features, such as Preferred Equity Redemption Cumulative Stock ("PERCS"),
which provide an investor with the opportunity to earn higher dividend income
than is available on a company's common stock. A PERCS is a preferred stock
which generally features a mandatory conversion date, as well as a capital
appreciation limit which is usually expressed in terms of a stated price. Upon
the conversion date, most PERCS convert into common stock of the issuer (PERCS
are generally not convertible into cash at maturity). Under a typical
arrangement, if after a predetermined number of years the issuer's common stock
is trading at a price below that set by the capital appreciation limit, each
PERCS would convert to one share of common stock. If, however, the issuer's
common stock is trading at a price above that set by the capital appreciation
limit, the holder of the PERCS would receive less than one full share of common
stock. The amount of that fractional share of common stock received by the PERCS
holder is determined by dividing the price set by the capital appreciation limit
of the PERCS by the market price of the issuer's common stock. PERCS can be
called at any time prior to maturity, and hence do not provide call protection.
However, if called early, the issuer may pay a call premium over the market
price to the investor. This call premium declines at a preset rate daily, up to
the maturity date of the PERCS.

The Fund may also invest in other enhanced convertible securities.
These include but are not limited to ACES (Automatically Convertible Equity
Securities), PEPS (Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock Appreciation
Income Linked Securities), TECONS (Term Convertible Notes), QICS (Quarterly
Income Cumulative Securities) and DECS (Dividend Enhanced Convertible
Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS and DECS all have the
following features: they are company-issued convertible preferred stock; unlike
PERCS, they do not have capital appreciation limits; they seek to provide the
investor with high current income, with some prospect of future capital
appreciation; they are typically issued with three to four-year maturities; they
typically have some built-in call protection for the first two to three years;
investors have the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity; and upon maturity, they will
automatically convert to either cash or a specified number of shares of common
stock.

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Foreign Securities
The Fund may invest up to 20% of its total assets in foreign securities
(which include American, European and Global Depositary Receipts). Foreign
markets may be more volatile than U.S. markets. Such investments involve
sovereign risk in addition to the normal risks associated with securities of
U.S. issuers. These risks include political risks, foreign taxes and exchange
controls and currency fluctuations. For example, foreign portfolio investments
may fluctuate in value due to changes in currency rates (i.e., other things
being equal, the value of foreign investments would increase with a fall in the
value of the dollar, and decrease with a rise in the value of the dollar) and
control regulations apart from market fluctuations. The Fund may also experience
delays in foreign securities settlement.

Depositary Receipts
The Fund may make foreign investments through the purchase and sale of
sponsored or unsponsored American, European and Global Depositary Receipts
("Depositary Receipts"). Depositary Receipts are receipts typically issued by a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. "Sponsored" Depositary Receipts are
issued jointly by the issuer of the underlying security and a depository,
whereas "unsponsored" Depositary Receipts are issued without participation of
the issuer of the deposited security. Holders of unsponsored Depositary Receipts
generally bear all the costs of such facilities and the depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through voting rights to the holders of such receipts with respect to the
deposited securities. Therefore, there may not be a correlation between
information concerning the issuer of the security and the market value of an
unsponsored Depositary Receipt. Investments in Depositary Receipts involve risks
similar to those accompanying direct investments in foreign securities.

Futures Contracts
A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument, or for the
making and acceptance of a cash settlement, at a stated time in the future for a
fixed price. By its terms, a futures contract provides for a specified
settlement date on which the securities, foreign currency or other financial
instrument underlying the contract are delivered, or in the case of securities
index futures contracts, the difference between the price at which the contract
was entered into and the contract's closing value is settled between the
purchaser and seller in cash. Futures contracts differ from options in that they
are bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. In addition, futures contracts call for
settlement only on the expiration date, and cannot be "exercised" at any other
time during their term.

The purchase or sale of a futures contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalents, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin" as a good faith deposit. This
amount is generally maintained in a segregated account at the custodian bank.
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index or instrument underlying the
futures contract fluctuates, making positions in the futures contracts more or
less valuable, a process known as "marking to the market."

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not fully invested in the securities market and anticipates a significant market
advance, it may purchase stock index futures contracts in order to gain rapid
market exposure that may, in part or entirely, offset increases in the cost of
securities that the Fund intends to purchase. As such purchases are made, the
corresponding positions in stock index futures contracts will be closed out.

The Fund may purchase and sell foreign currency futures contracts for
hedging purposes to attempt to protect its current or intended investments
denominated in foreign currencies from fluctuations in currency exchange rates.
Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities in the
currencies in which they are denominated remains constant. The Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if the value of
the foreign currency increases relative to the dollar, the Fund's loss on the
foreign currency futures contract may or may not be offset by an increase in the
value of the securities because a decline in the price of the security stated in
terms of the foreign currency may be greater than the increase in value as a
result of the change in exchange rates.

Conversely, the Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When the Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.

The Fund may also purchase and write options on the types of futures
contracts in which the Fund may invest, and enter into related closing
transactions. Options on futures are similar to options on securities, as
described below, except that options on futures give the purchaser the right, in
return for the premium paid, to assume a position in a futures contract, rather
than to actually purchase or sell the futures contract, at a specified exercise
price at any time during the period of the option. In the event that an option
written by the Fund is exercised, the Fund will be subject to all the risks
associated with the trading of futures contracts, such as payment of variation
margin deposits. In addition, the writer of an option on a futures contract,
unlike the holder, is subject to initial and variation margin requirements on
the option position.

At any time prior to the expiration of a futures contract, a trader may
elect to close out its position by taking an opposite position on the contract
market on which the position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial position.
Likewise, a position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to availability of a secondary market, which is the
purchase or sale of an option of the same series (i.e., the same exercise price
and expiration date) as the option previously purchased or sold. The Fund may
realize a profit or a loss when closing out a futures contract or an option on a
futures contract.

To the extent that interest or exchange rates or securities prices move
in an unexpected direction, the Fund may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that the Fund purchases an option on a futures contract and fails to
exercise the option prior to the exercise date, it will suffer a loss of the
premium paid. Further, the possible lack of a

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secondary market could prevent the Fund from closing out its positions relating
to futures. See Part B for a further discussion of this investment technique.

Options
The Fund may write covered call options on individual issues as well as
write call options on stock indices. The Fund may also purchase put options on
individual issues and on stock indices. The Manager will employ these techniques
in an attempt to protect appreciation attained, to offset capital losses and to
take advantage of the liquidity available in the option markets. The ability to
hedge effectively using options on stock indices will depend, in part, on the
correlation between the composition of the index and the Fund's portfolio as
well as the price movement of individual securities. The Manager may also write
covered call options to achieve income to offset the cost of purchasing put
options.

Call Options
Writing Covered Call Options - A covered call option obligates the Fund
to sell one of its securities for an agreed price up to an agreed date. When the
Fund writes a call, it receives a premium and agrees to sell the callable
securities to a purchaser of a corresponding call during the call period
(usually, not more than nine months) at a fixed price regardless of market price
changes during the call period. Because the Fund must possess a sufficient
amount of the security to meet any potential call while the option is
outstanding, the call option is considered to be "covered." The advantage is
that the Fund receives premium income for the limited purpose of offsetting the
costs of purchasing put options or offsetting any capital loss or decline in the
market value of the security. However, if the Manager's forecast is wrong, the
Fund may not fully participate in the market appreciation if the security's
price rises.

Writing a Call Option on Stock Indices - Writing a call option on stock
indices is similar to the writing of a call option on an individual stock. Stock
indices used will include, but not be limited to, the S&P 500, the S&P 100 and
the S&P Over-The-Counter ("OTC") 250. While the option is outstanding, the Fund
must segregate cash and/or securities sufficient to meet the call.

Purchasing a Call Option - When the Fund purchases a call option, in
return for a premium paid by the Fund to the writer of the option, the Fund
obtains the right to buy the security underlying the option at a specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium upon writing the option, has the obligation,
upon exercise of the option, to deliver the underlying security against payment
of the exercise price. The advantage of purchasing call options is that the Fund
may alter portfolio characteristics and modify portfolio maturities without
incurring the cost associated with portfolio transactions.

Put Options
Purchasing a Put Option - A put option gives the Fund the right to sell
one of its securities for an agreed price up to an agreed date. The advantage is
that the Fund can be protected should the market value of the security decline.
However, the Fund must pay a premium for this right which would be lost if the
option is not exercised.

Purchasing a Put Option on Stock Indices - Purchasing a protective put
option on stock indices is similar to the purchase of protective puts on an
individual stock. Indices used will include, but not be limited to, the S&P 500,
the S&P 100 and the S&P OTC 250.

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the right to sell the security to the writer. The Fund will only write put
options on a secured basis which means that the Fund will maintain, in a
segregated account with its Custodian Bank, cash or U.S. government securities
in an amount not less than the exercise price of the option at all times during
the option period. The advantage is that the writer receives premium income
while the purchaser can be protected should the market value of the security
decline.

Closing Transactions - Closing transactions essentially let the Fund
offset a put option or covered call option prior to its exercise or expiration.
If the Fund cannot effect a closing transaction, it may have to hold a security
it would otherwise sell or deliver a security it might want to hold.

Short Sales
The Fund may make short sales in an attempt to protect against market
declines. Typically, short sales are transactions in which the Fund sells a
security it does not own in anticipation of a decline in the market value of
that security. The Fund may borrow the security sold short in order to make
delivery on the sale. At the time a short sale is effected, the Fund incurs an
obligation to replace the security borrowed at whatever its price may be at the
time the Fund purchases it for redelivery to the lender. The price at such time
may be more or less than the price at which the security was sold by the Fund.
When a short sale transaction is closed out by redelivery of the security, any
gain or loss on the transaction is taxable as capital gain or loss. Until the
security is replaced, the Fund is required to pay to the lender amounts equal to
any dividends or interest which accrue during the period of the loan. To borrow
the security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed out.

While the short position is open and until the Fund replaces a borrowed
security in connection with a short sale, the Fund will be required to maintain
daily a segregated account, containing cash or securities, marked to market
daily, at such a level that (i) the amount deposited in the account plus the
amount deposited with the broker as collateral will at all times be equal to at
least 100% of the current value of the security sold short, and (ii) the amount
deposited in the segregated account plus the amount deposited with the broker as
collateral will not be less than the market value of the security at the time it
was sold short.

The Fund will incur a loss as a result of a short sale if the price of
the security sold short increases between the date of the short sale and the
date on which the Fund replaces the borrowed security; conversely, the Fund will
realize a gain if the security declines in price between those dates. This
result is the opposite of what one would expect from a cash purchase of a long
position in a security. The amount of any gain will be decreased, and the amount
of any loss increased, by the amount of any premium or amounts in lieu of
interest the Fund may be required to pay in connection with a short sale.

In addition to the short sales discussed above, the Fund also may make
short sales "against the box," a transaction in which the Fund enters into a
short sale of a security which the Fund owns. The proceeds of the short sale are
held by a broker until the settlement date, at which time the Fund delivers the
security to close the short position. The Fund receives the net proceeds from
the short sale. Because the Fund already owns the security, it is not required
to segregate cash and/or securities, although it is required to segregate the
security in the amount sold short against the box.

The ability of the Fund to effect short sales may be limited because of
certain requirements the Fund must satisfy to maintain its status as a regulated
investment company. See Accounting and Tax Issues - Other Tax Requirements in
Part B.

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<PAGE>

Restricted/Illiquid Securities
The Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933 ("1933 Act"). Rule 144A exempts
many privately placed and legally restricted securities from the registration
requirements of the 1933 Act and permits such securities to be freely traded
among certain institutional buyers such as the Fund.

The Fund may invest no more than 15% of the value of its net assets in
illiquid securities. Illiquid securities, for purposes of this policy, include
repurchase agreements maturing in more than seven days.

While maintaining oversight, the Board of Directors has delegated to
the Fund's Manager the day-to-day functions of determining whether or not
individual Rule 144A Securities are liquid for purposes of the Fund's limitation
on investments in illiquid assets. The Board has instructed the Fund's Manager
to consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; and (iv) the nature of the security and the
nature of the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of transfer).

If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the 15% limit on investment in
such securities, the Manager will determine what action shall be taken to ensure
that the Fund continues to adhere to such limitation.

Short-Term Investments
The short-term investments in which the Fund will invest are:

(1) Time deposits, certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances issued by a U.S.
commercial bank. Time deposits are non-negotiable deposits maintained in a
banking institution for a specified period of time at a stated interest rate.
Time deposits maturing in more than seven days will not be purchased by the
Fund, and time deposits maturing from two business days through seven calendar
days will not exceed 15% of the Fund's total assets. Certificates of deposit are
negotiable short-term obligations issued by commercial banks against funds
deposited in the issuing institution. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods).

The Fund will not invest in any security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion or, in the case of a
bank which does not have total assets of at least $1 billion, the aggregate
investment made in any one such bank is limited to $100,000 and the principal
amount of such investment is insured in full by the Federal Deposit Insurance
Corporation, (ii) it is a member of the Federal Deposit Insurance Corporation,
and (iii) the bank or its securities have received the highest quality rating by
a nationally-recognized statistical rating organization;

(2) Commercial paper with the highest quality rating by a
nationally-recognized statistical rating organization (e.g., A-1 by S&P or
Prime-1 by Moody's) or, if not so rated, of comparable quality as determined by
the Fund's investment adviser;

-44-

<PAGE>

(3) Short-term corporate obligations with the highest quality rating by
a nationally-recognized statistical rating organization (e.g., AAA by S&P or Aaa
by Moody's) or, if not so rated, of comparable quality as determined by the
Fund's investment adviser;

(4) U.S. government securities; and

(5) Repurchase agreements collateralized by securities listed below.

See Appendix A of Part B for a description of applicable ratings.

When-Issued and Delayed Delivery Securities
The Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The Fund will maintain with its Custodian Bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the Fund enters into the commitment
and no interest accrues to the Fund until settlement. Thus, it is possible that
the market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed. It is a
current policy of the Fund not to enter into when- issued commitments exceeding
in the aggregate 15% of the market value of the its total assets less
liabilities other than the obligations created by these commitments.

Repurchase Agreements

In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by its Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of the Fund's assets may
be invested in illiquid assets, of which no more than 10% may be invested in
repurchase agreements of over seven days' maturity. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the loss, if
any, would be the difference between the repurchase price and the market value
of the security. The Fund will limit its investments in repurchase agreements to
those which its Manager under guidelines of the Board of Directors determines to
present minimal credit risks and which are of high quality. In addition, the
Fund must have collateral of at least 102% of the repurchase price, including
the portion representing the Fund's yield under such agreements, which is
monitored on a daily basis.

Securities Lending Activities
The Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.

The major risk to which the Fund would be exposed on a loan transaction
is the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the investment adviser, subject to
overall supervision by the Board of Directors, including the creditworthiness of
the borrowing broker, dealer or institution and then only if the consideration
to be received from such loans would justify the risk. Creditworthiness will be
monitored on an ongoing basis by the management for the Fund.

-45-

<PAGE>

Borrowing from Banks
The Fund may borrow money as a temporary measure for extraordinary
purposes or to facilitate redemptions. The Fund will not borrow money in excess
of one-third of the value of its net assets. The Fund has no intention of
increasing its net income through borrowing. Any borrowing will be done from a
bank and, to the extent that such borrowing exceeds 5% of the value of the
Fund's net assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sundays or holidays, or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations), reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
pledge more than 10% of its net assets, or issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not be
purchased while the Fund has an outstanding borrowing.

High Yield Securities
The Fund will invest in convertible fixed-income securities for their
equity characteristics and without respect to investment ratings. As a result,
the Fund may hold convertible fixed-income securities which are rated below
investment grade (i.e., rated below BBB by S&P or Baa by Moody's). See Appendix
A - Ratings to this Prospectus for more rating information. Below investment
grade fixed-income securities are considered to be of poor standing and
predominantly speculative. Such securities are subject to a substantial degree
of credit risk.

In the past, in the opinion of the Manager, the high yields from these
bonds have more than compensated for their higher default rates. There can be no
assurance, however, that yields will continue to offset default rates on these
bonds in the future. The Manager intends to maintain an adequately diversified
portfolio of these bonds. While diversification can help to reduce the effect of
an individual default on the Fund, there can be no assurance that
diversification will protect the Fund from widespread bond defaults brought
about by a sustained economic downturn.

Medium and low-grade bonds held by the Fund may be issued as a
consequence of corporate restructurings, such as leveraged buy-outs, mergers,
acquisitions, debt recapitalizations or similar events. Also these bonds are
often issued by smaller, less creditworthy companies or by highly leveraged
(indebted) firms, which are generally less able than more financially stable
firms to make scheduled payments of interest and principal. The risks posed by
bonds issued under such circumstances are substantial.

The economy and interest rates may affect these high yield, high risk
securities differently than other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any security
and in the ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these investments
than on the values of higher-rated securities. Such changes in value will not
affect cash income derived from these securities, unless the issuers fail to pay
interest or dividends when due. Such changes will, however, affect the Fund's
net asset value per share.

-46-

<PAGE>

fees, of such other investment companies. Under the 1940 Act's current
limitations, the Fund may not (1) own more than 3% of the voting stock of
another investment company; (2) invest more than 5% of the Fund's total assets
in the shares of any one investment company; nor (3) invest more than 10% of the
Fund's total assets in shares of other investment companies. If the Fund elects
to limit its investment in other investment companies to closed-end investment
companies, the 3% limitation described above is increased to 10%. These
percentage limitations also apply to the Fund's investments in unregistered
investment companies. Among investment companies in which the Fund may invest
subject to the above limitations are certain exchange traded investment
companies which replicate U.S. or foreign stock indices, such as SPDRs or WWEBs.

-47-

<PAGE>

APPENDIX A - RATINGS

General Rating Information

Bonds

Moody's Investors Aaa Highest quality, smallest degree of
Service, Inc. investment risk.
Aa High quality; together with Aaa bonds,
they compose the high-grade bond group
A Upper-medium-grade obligations; many
favorable investment attributes.
Baa Medium-grade obligations; neither highly
protected nor poorly secured. Interest
and principal appear adequate for the
present, but certain protective elements
mat be lacking or may be unreliable over
any great length of time.
Ba More uncertain with speculative elements.
Protective of interest and principal
payments not well safeguarded in good and
bad times.
B Lack characteristics of desirable
investment; potentially low assurance of
timely interest and principal payments or
maintenance of other contract terms over
time.
Caa Poor standing, may be in default;
elements of danger with respect to
principal or interest payments.
Ca Speculative in high degree; could be in
default or have other marked
shortcomings.
C Lowest rated. Extremely poor prospects of
ever attaining investment standing.

Standard & Poor's AAA Highest rating; extremely strong capacity
Corporation to pay principal and interest.
AA High quality; very strong capacity to pay
principal and interest.
A Strong capacity to pay principal and
interest; somewhat more susceptible to
the adverse effects of changing
circumstances and economic conditions.
BBB Adequate capacity to pay principal and
interest; normally exhibit adequate
protection parameters, but adverse
economic conditions or changing
circumstances more likely to lead to
weakened capacity to pay principal and
interest than for higher-rated bonds.
BB, B, Predominantly speculative with respect
CCC, CC to the issuer's capacity to meet required
interest and principal payments. BB-
lowest degree of speculation; CC-the
highest degree of speculation. Quality
and protective characteristics outweighed
by large uncertainties or major risk
exposure to adverse conditions.
D In default.

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<PAGE>

Fitch Investors AAA Highest quality; obligor has
Service, Inc. exceptionally strong ability to pay
interest and repay principal, which is
unlikely to be affected by reasonably
foreseeable events.
AA Very high quality; obligor's ability to
pay interest and repay principal is very
strong. Because bonds rated in the AAA
and AA categories are not significantly
vulnerable to foreseeable future
developments, short-term debt of these
issuers is generally rated F-1+.
A High quality; obligor's ability to pay
interest and repay principal is
considered to be strong, but may be more
vulnerable to adverse changes in economic
conditions and circumstances than
higher-rated bonds.
BBB Satisfactory credit quality; obligor's
ability to pay interest and repay
principal is considered adequate.
Unfavorable changes in economic
conditions and circumstances are more
likely to adversely affect these bonds
and impair timely payment. The likelihood
that the ratings of these bonds will fall
below investment grade is higher than for
higher-rated bonds.
BB, Not investment grade; predominantly
CCC, speculative with respect to the issuer's
CC, C capacity to repay interest and repay
principal in accordance with the terms of
the obligation for bond issues not in
default. BB is the least speculative. C
is the most speculative.

-49-

<PAGE>

(EQ2/DVL-R)

Delaware Investments includes funds with a wide range of investment objectives.
Stock funds, income funds, national and state specific tax-exempt funds, money
market funds, global and international funds and closed-end funds give investors
the ability to create a portfolio that fits their personal financial goals. For
more information, contact your financial adviser or call Delaware Investments at
800-523-1918.

INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245

<PAGE>

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

DIVERSIFIED VALUE FUND

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

A CLASS
B CLASS
C CLASS
- ---------------------------------------------------------------------------

PROSPECTUS

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

September 14, 1998

DELAWARE
INVESTMENTS
- -----------------

-50-

<PAGE>

DIVERSIFIED VALUE FUND PROSPECTUS
INSTITUTIONAL CLASS SHARES September 14, 1998

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

1818 Market Street, Philadelphia, PA 19103

For more information about
Diversified Value Fund Institutional Class
call Delaware Investments at 800-828-5052.

The Fund offers Diversified Value Fund Institutional Class
(the "Class").

This Prospectus relates only to the Class listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. The Fund's Statement of Additional Information ("Part
B" of Equity Funds II, Inc.'s registration statement), dated September 14, 1998,
as it may be amended from time to time, contains additional information about
the Fund and has been filed with the Securities and Exchange Commission ("SEC").
Part B is incorporated by reference into this Prospectus and is available,
without charge, by writing to Delaware Distributors, L.P. at the above address
or by calling the above numbers. The Fund's financial statements will appear in
its Annual Report, which will accompany any response to requests for Part B. In
addition, the SEC maintains a Web site (http://www.sec.gov) that contains Part
B, material incorporated by reference into Equity Funds II, Inc.'s registration
statement, and other information regarding registrants that electronically file
with the SEC.

The Fund also offers Diversified Value Fund A Class, Diversified Value
Fund B Class and Diversified Value Fund C Class. Shares of these classes are
subject to sales charges and other expenses, which may affect their performance.
A prospectus for these classes can be obtained by writing to Delaware
Distributors, L.P. at the above address or by calling 800-523-1918.

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<PAGE>

TABLE OF CONTENTS

Cover Page ...................... 1
Synopsis ........................ 3
Summary of Expenses ............. 4
Investment Objective and Policies 6
Suitability ............... 6
Investment Strategy ....... 6
Classes of Shares ............... 8
How to Buy Shares ............... 9
Redemption and Exchange ......... 11
Dividends and Distributions ..... 13
Taxes ........................... 14
Calculation of Net Asset
Value Per Share ........... 16
Management of the Fund .......... 17
Other Investment Policies and
Risk Considerations ....... 21
Appendix A - Ratings ............ 30

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<PAGE>

SYNOPSIS

Investment Objective
The objective of the Fund is capital appreciation with current income as a
secondary objective. The Fund seeks to achieve this objective by investing
primarily in dividend paying stocks and income producing securities that are
convertible into common stocks. For further details, see Investment Objective
and Policies and Other Investment Policies and Risk Considerations.

The Fund may invest up to 20% of its total assets directly or indirectly
in foreign securities. Such investments involve certain risk and opportunity
considerations not typically associated with investing in United States
companies. See Foreign Securities under Other Investment Policies and Risk
Considerations.

Purchase Price
Shares of the Class offered by this Prospectus are available at net asset
value, without a front-end or contingent deferred sales charge, and are not
subject to distribution fees under a Rule 12b-1 distribution plan.
See Classes of Shares.

Redemption and Exchange
Shares of the Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.

Open-End Investment Company
Equity Funds II, Inc., which was organized as a Maryland
corporation in 1983, is an open-end management investment company. The Fund's
portfolio of assets is diversified as defined by the Investment Company Act of
1940 (the "1940 Act"). Equity Funds II, Inc. was previously organized as a
Delaware corporation in 1956. See Shares under Management of the Fund.

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<PAGE>

SUMMARY OF EXPENSES

Shareholder Transaction Expenses
- -------------------------------------------------------------------------

Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)............................ None

Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................... None

Exchange Fees................................................. None*

Annual Operating Expenses
(as a percentage of average daily net assets)
- ------------------------------------------------------------------------

Management Fees............................................... 0.16%

12b-1 Fees.................................................... None

Other Operating Expenses...................................... 0.59%+
-----
Total Operating Expenses................................ 0.75%+
=====

*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.

+"Total Operating Expenses" and "Other Operating Expenses" for the Class are
based on estimated amounts for the first full fiscal year of the Class, after
giving effect to the voluntary expense waiver. The Manager has elected
voluntarily to waive that portion, if any, of the annual management fees payable
by the Fund and to pay certain expenses of the Fund to the extent necessary to
ensure that the Total Operating Expenses of the Fund (exclusive of taxes,
interest, brokerage commissions and extraordinary expenses) do not exceed, on an
annualized basis, 0.75% of the average daily net assets of the Class from the
commencement of the public offering of Class through January 31, 1999. If the
voluntary expense waivers were not in effect, it is estimated that the "Total
Operating Expenses," as a percentage of average daily net assets, would be 1.24%
for the Class' first full fiscal year, reflecting management fees of 0.65%.

For expense information about Diversified Value Fund A Class, B Class
and C Class, see the separate prospectus relating to those classes.

-4-

<PAGE>

The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, and (2) redemption at the end of each time period. The Fund
charges no redemption fees. The following example assumes the voluntary waiver
of the management fee and payment of expenses by the Manager as discussed in
this Prospectus.

1 year 3 years
------ -------
$8 $24

This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.

The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in the Class will
bear directly or indirectly.

-5-

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

-6-

<PAGE>

value of a convertible security tends to be affected by changes in interest
rates as well as factors affecting the market value of the underlying common
stock. See Other Investment Policies and Risk Considerations.

The Fund may also engage in short sales. See Short Sales under Other
Investment Policies and Risk Considerations.

-7-

<PAGE>

CLASSES OF SHARES

The Distributor serves as the national distributor for the Fund. Shares
of the Class may be purchased directly by contacting the Fund or its agent or
through authorized investment dealers. All purchases of shares of the Class are
at net asset value. There is no front-end or contingent deferred sales charge.

Investment instructions given on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees considering purchasing shares of the Class
as part of their retirement program should contact their employer for details.

Shares of the Class are available for purchase only by: (a) retirement
plans introduced by persons not associated with brokers or dealers that are
primarily engaged in the retail securities business and rollover individual
retirement accounts from such plans; (b) tax-exempt employee benefit plans of
the Manager, or its affiliates and securities dealer firms with a selling
agreement with the Distributor; (c) institutional advisory accounts of the
Manager or its affiliates and those having client relationships with Delaware
Investment Advisers, a division of the Manager, or its affiliates and their
corporate sponsors, as well as subsidiaries and related employee benefit plans
and rollover individual retirement accounts from such institutional advisory
accounts; (d) a bank, trust company and similar financial institution investing
for its own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing shares
of the Class, except where the investment is part of a program that requires
payment to the financial institution of a Rule 12b-1 Plan fee; and (e)
registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services.

Diversified Value Fund A Class, Diversified Value Fund B Class and Diversified
Value Fund C Class In addition to offering Diversified Value Fund
Institutional Class, the Fund also offers Diversified
Value Fund A Class, Diversified Value Fund B Class and Diversified Value Fund C
Class, which are described in a separate prospectus. Shares of Diversified Value
Fund A Class, Diversified Value Fund B Class and Diversified Value Fund C Class
may be purchased through authorized investment dealers or directly by contacting
the Fund or its Distributor. Class A Shares, Class B Shares and Class C Shares
may have different sales charges and other expenses which may affect
performance. To obtain a prospectus relating to such classes, contact the
Distributor by writing to the address or by calling the phone number listed on
the cover of this Prospectus.

-8-

<PAGE>

HOW TO BUY SHARES

The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Class.

Investing Directly by Mail
1. Initial Purchases--An Investment Application, or in the case of a retirement
plan account, an appropriate retirement plan application, must be completed,
signed and sent with a check payable to Diversified Value Fund Institutional
Class, to Delaware Investments at 1818 Market Street, Philadelphia, PA 19103.

2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to Diversified Value Fund Institutional Class. Your check should
be identified with your name(s) and account number.

Investing Directly by Wire
You may purchase shares by requesting your bank to transmit funds by
wire to CoreStates Bank, N.A., ABA #031000011, account number 1412893401
(include your name(s) and your account number).

1. Initial Purchases--Before you invest, telephone the Fund's Client Services
Department at 800-828-5052 to get an account number. If you do not call first,
it may delay processing your investment. In addition, you must promptly send
your Investment Application, or in the case of a retirement plan account, an
appropriate retirement plan application, for Diversified Value Fund
Institutional Class, to Delaware Investments at 1818 Market Street,
Philadelphia, PA 19103.

2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You must advise your Client
Services Representative by telephone at 800-828-5052 prior to sending your
wire.

Investing by Exchange
If you have an investment in another mutual fund in the Delaware
Investments family and you qualify to purchase shares of the Class, you may
write and authorize an exchange of part or all of your investment into the Fund.
However, shares of Diversified Value Fund B Class and Diversified Value Fund C
Class and Class B Shares and Class C Shares of the other funds in the Delaware
Investments family offering such a class of shares may not be exchanged into the
Class. If you wish to open an account by exchange, call your Client Services
Representative at 800-828-5052 for more information. See Redemption and Exchange
for more complete information concerning your exchange privileges.

Investing through Your Investment Dealer
You can make a purchase of Fund shares through most investment dealers
who, as part of the service they provide, must transmit orders promptly to the
Fund. They may charge for this service.

Purchase Price and Effective Date
The purchase price (net asset value) is determined as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when the Exchange is open.

-9-

<PAGE>

The effective date of a purchase made through an investment dealer is
the date the order is received by the Fund, its agent or designee. The effective
date of a direct purchase is the day your wire, electronic transfer or check is
received, unless it is received after the time the share price is determined, as
noted above. Purchase orders received after such time will be effective the next
business day.

The Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.

-10-

<PAGE>

REDEMPTION AND EXCHANGE

Redemption and exchange requests made on behalf of participants in an
employer-sponsored retirement plan are made in accordance with directions
provided by the employer. Employees should therefore contact their employer for
details.

Your shares will be redeemed or exchanged based on the net asset value
next determined after the Fund receives your request in good order. For example,
redemption and exchange requests received in good order after the time the net
asset value of shares is determined, as noted above, will be processed on the
next business day. See Purchase Price and Effective Date under How to Buy
Shares. Except as otherwise noted below, for a redemption request to be in "good
order," you must provide your Class account number, account registration, and
the total number of shares or dollar amount of the transaction. With regard to
exchanges, you must also provide the name of the fund you want to receive the
proceeds. Exchange instructions and redemption requests must be signed by the
record owner(s) exactly as the shares are registered. You may request a
redemption or an exchange by calling the Fund at 800-828-5052. Redemption
proceeds will be distributed promptly, as described below, but not later than
seven days after receipt of a redemption request.

The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared, which may take up to 15
days from the purchase date. You can avoid this potential delay if you purchase
shares by wiring Federal Funds. The Fund reserves the right to reject a written
or telephone redemption request or delay payment of redemption proceeds if there
has been a recent change to the shareholder's address of record.

Shares of the Class may be exchanged into any other Delaware
Investments mutual fund, provided: (1) the investment satisfies the eligibility
and other requirements set forth in the prospectus of the fund being acquired,
including the payment of any applicable front-end sales charge; and (2) the
shares of the fund being acquired are in a state where that fund is registered.
If exchanges are made into other shares that are eligible for purchase only by
those permitted to purchase shares of the Class, such exchange will be exchanged
at net asset value. Shares of the Class may not be exchanged into Class B Shares
or Class C Shares of the funds in the Delaware Investments family. The Fund may
suspend, terminate or amend the terms of the exchange privilege upon 60 days'
written notice to shareholders.

Various redemption and exchange methods are outlined below. No fee is
charged by the Fund or the Distributor for redeeming or exchanging your shares,
although in the case of an exchange, a sales charge may apply. You may also have
your investment dealer arrange to have your shares redeemed or exchanged. Your
investment dealer may charge for this service.

-11-

<PAGE>

Written Redemption and Exchange
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares or to request an exchange of any or all of
your shares into another mutual fund in the Delaware Investments family, subject
to the same conditions and limitations as other exchanges noted above. The
request must be signed by all owners of the account or your investment dealer of
record.

For redemptions of more than $50,000, or when the proceeds are not sent
to the shareholder(s) at the address of record, the Fund requires a signature by
all owners of the account and may require a signature guarantee. A signature
guarantee can be obtained from a commercial bank, a trust company or a member of
a securities transfer association medallion program. A signature guarantee
cannot be provided by a notary public. A signature guarantee is designed to
protect the shareholders, the Fund and its agent from fraud. The Fund reserves
the right to reject a signature guarantee supplied by an institution based on
its creditworthiness. The Fund may require further documentation from
corporations, executors, retirement plans, administrators, trustees or
guardians.

Payment is normally mailed the next business day after receipt of your
redemption request. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate(s)
must accompany your request and also be in good order.

You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.

Telephone Redemption and Exchange

To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your shares in certificate form, you may redeem or
exchange only by written request and you must return your certificate(s).

Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. A written confirmation will be provided
for all purchase, exchange and redemption transactions initiated by telephone.
By exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.

Telephone Redemption-Check to Your Address of Record
You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your record address. Checks will be payable to
the shareholder(s) of record. Payment is normally mailed the next business day
after receipt of the redemption request.

-12-

<PAGE>

Telephone Redemption-Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must submit a written authorization and you may need to have your
signature guaranteed. For your protection, your authorization must be on file.
If you request a wire, your funds will normally be sent the next business day.
If you ask for a check, it will normally be mailed the next business day after
receipt of your redemption request to your predesignated bank account. There are
no fees for this redemption method, but the mail time may delay getting funds
into your bank account. Simply call your Client Services Representative prior to
the time the net asset value is determined, as noted above.

Telephone Exchange
You or your investment dealer of record can exchange shares into any
fund in the Delaware Investments family under the same registration. As with the
written exchange service, telephone exchanges are subject to the same conditions
and limitations as other exchanges noted above. Telephone exchanges may be
subject to limitations as to amounts or frequency.

DIVIDENDS AND DISTRIBUTIONS

Each class of the Fund will share proportionately in the investment
income and expenses of the Fund, except that the Class will not incur
distribution fees under the Rule 12b-1 Plans which, absent any applicable fee
waiver, apply to Diversified Value Fund A Class, B Class and C Class.

Both dividends and distributions, if any, are automatically reinvested
in your account at net asset value.

-13-

<PAGE>

TAXES

The Treatment of Capital Gain Distributions under the Taxpayer Relief
Act of 1997

Equity Funds II, Inc. will advise you in its annual information
reporting at calendar year end of the amount of its capital gain distributions
which will qualify for these maximum federal tax rates.

-14-

<PAGE>

The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.

See Accounting and Tax Issues and Distributions and Taxes in Part B for
additional information on tax matters relating to the Fund and its shareholders.

-15-

<PAGE>

CALCULATION OF NET ASSET VALUE PER SHARE

The purchase and redemption price of Class shares is the net asset
value ("NAV") per share of the Class shares next computed after the order is
received. The NAV is computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open.

The net asset values of all outstanding shares of each class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of a class, based on each class'
percentage in the Fund represented by the value of shares of such classes,
except that the Class will not incur any of the expenses under the Equity Funds
II, Inc.'s 12b-1 Plans and the Diversified Value Fund A, B and C Classes alone
will bear the 12b-1 Plan fees payable under their respective Plans.

-16-

<PAGE>

MANAGEMENT OF THE FUND

Investment Manager
The Manager furnishes investment management services to the Fund.

-17-

<PAGE>

subject to federal income taxes. The turnover rate may also be affected by cash
requirements from redemptions and repurchases of the Fund's shares.

Performance Information
From time to time, the Fund may quote total return performance of the
Class in advertising and other types of literature.

Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions. Each presentation will include
the average annual total return for one-, five- and ten-year (or life- of-fund,
if applicable) periods. The Fund may also advertise aggregate and average total
return information concerning the Class over additional periods of time.

Yield and net asset value fluctuate and are not guaranteed. Past
performance is not considered a guarantee of future results.

Distribution and Service

The Distributor, Delaware Distributors, L.P., serves as the national
distributor for the Fund's shares under a Distribution Agreement with Equity
Funds II, Inc. dated as of September 14, 1998. The Distributor bears all of the
costs of promotion and distribution.

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for Equity Funds
II, Inc. under an amended and restated agreement dated as of September 14, 1998.
The Transfer Agent also provides accounting services to the Fund pursuant to the
terms of a separate Fund Accounting Agreement. Certain recordkeeping services
and other shareholder services that otherwise would be performed by the Transfer
Agent may be performed by certain other entities and the Transfer Agent may
elect to enter into an agreement to pay such other entities for their services.
In addition, participant account maintenance fees may be assessed for certain
recordkeeping provided as part of retirement plan and administration service
packages. These fees are based on the number of participants in the plan and the
various services selected. Fees will be quoted upon request and are subject to
change.

-18-

<PAGE>

The directors of Equity Funds II, Inc. annually review fees paid to the
Distributor and the Transfer Agent. The Distributor and the Transfer Agent are
also indirect, wholly owned subsidiaries of DMH.

* * *

-19-

<PAGE>

In addition to the Class, the Fund also offers Diversified Value Fund A
Class, Diversified Value Fund B Class and Diversified Value Fund C Class which
represent proportionate interests in the assets of the Fund and have the same
voting and other rights and preferences as the Class, except that shares of the
Class are not subject to, and may not vote on matters affecting, the
Distribution Plans under Rule 12b-1 relating to Diversified Value Fund A Class,
Diversified Value Fund B Class and Diversified Value Fund C Class.

-20-

<PAGE>

OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS

-21-

<PAGE>

foreign portfolio investments may fluctuate in value due to changes in currency
rates (i.e., other things being equal, the value of foreign investments would
increase with a fall in the value of the dollar, and decrease with a rise in the
value of the dollar) and control regulations apart from market fluctuations. The
Fund may also experience delays in foreign securities settlement.

Purchases or sales of stock index futures contracts are used for
hedging purposes to attempt to protect the Fund's current or intended
investments from broad fluctuations in stock prices. For example, the Fund may
sell stock index futures contracts in anticipation of or during a market decline
to attempt to offset the decrease in market value of the Fund's securities
portfolio that might otherwise result. If such decline occurs, the loss in value
of portfolio securities may be offset, in whole or part, by gains on the futures
position. When the Fund is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures
contracts in order to gain rapid market exposure that may, in part or entirely,
offset increases in the cost of securities that the Fund intends to purchase. As
such purchases are made, the corresponding positions in stock index futures
contracts will be closed out.

-22-

<PAGE>

-23-

<PAGE>

Writing a Put Option - A put option obligates the writer, in return for
the premium received, to buy the security underlying the option at the exercise
price during the option period, and the purchaser of the option has the right to
sell the security to the writer. The Fund will only write put options on a
secured basis which means that the Fund will maintain, in a segregated account
with its Custodian Bank, cash or U.S. government securities

-24-

<PAGE>

in an amount not less than the exercise price of the option at all times during
the option period. The advantage is that the writer receives premium income
while the purchaser can be protected should the market value of the security
decline.

-25-

<PAGE>

Short-Term Investments
The short-term investments in which the Fund will invest are:

-26-

<PAGE>

(4) U.S. government securities; and

(5) Repurchase agreements collateralized by securities listed below.

See Appendix A of Part B for a description of applicable ratings.

Repurchase Agreements

In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by its Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of the Fund's assets may
be invested in illiquid securities, of which no more than 10% may be invested in
repurchase agreements of over seven days' maturity. Should an issuer of a
repurchase agreement fail to repurchase the underlying security, the loss, if
any, would be the difference between the repurchase price and the market value
of the security. The Fund will limit its investments in repurchase agreements to
those which its Manager under guidelines of the Board of Directors determines to
present minimal credit risks and which are of high quality. In addition, the
Fund must have collateral of at least 102% of the repurchase price, including
the portion representing the Fund's yield under such agreements, which is
monitored on a daily basis.

Securities Lending Activities
The Fund may loan up to 25% of its assets to qualified broker/dealers
or institutional investors for their use relating to short sales or other
security transactions.

-27-

<PAGE>

only if the consideration to be received from such loans would justify the risk.
Creditworthiness will be monitored on an ongoing basis by the management for the
Fund.

-28-

<PAGE>

Investment Company Securities
Any investments that the Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve an
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies. Under the 1940 Act's current limitations, the Fund
may not (1) own more than 3% of the voting stock of another investment company;
(2) invest more than 5% of the Fund's total assets in the shares of any one
investment company; nor (3) invest more than 10% of the Fund's total assets in
shares of other investment companies. If the Fund elects to limit its investment
in other investment companies to closed-end investment companies, the 3%
limitation described above is increased to 10%. These percentage limitations
also apply to the Fund's investments in unregistered investment companies. Among
investment companies in which the Fund may invest subject to the above
limitations are certain exchange traded investment companies which replicate
U.S. or foreign stock indices, such as SPDRs or WWEBs.

-29-

<PAGE>

APPENDIX A - RATINGS

General Rating Information

Bonds

Moody's Investors Aaa Highest quality, smallest degree of
Service, Inc. investment risk.
Aa High quality; together with Aaa bonds,
they compose the high-grade bond
group
A Upper-medium-grade obligations; many
favorable investment attributes.
Baa Medium-grade obligations; neither
highly protected nor poorly secured.
Interest and principal appear adequate
for the present, but certain protective
elements mat be lacking or may be
unreliable over any great length of
time.
Ba More uncertain with speculative
elements. Protective of interest and
principal payments not well safeguarded
in good and bad times.
B Lack characteristics of desirable
investment; potentially low assurance
of timely interest and principal
payments or maintenance of other
contract terms over time.
Caa Poor standing, may be in default;
elements of danger with respect to
principal or interest payments.
Ca Speculative in high degree; could be in
default or have other marked
shortcomings.
C Lowest rated. Extremely poor prospects
of ever attaining investment standing.

Standard & Poor's AAA Highest rating; extremely strong
Corporation capacity to pay principal and interest.
AA High quality; very strong capacity to
pay principal and interest.
A Strong capacity to pay principal and
interest; somewhat more susceptible to
the adverse effects of changing
circumstances and economic conditions.
BBB Adequate capacity to pay principal and
interest; normally exhibit adequate
protection parameters, but adverse
economic conditions or changing
circumstances more likely to lead to
weakened capacity to pay principal and
interest than for higher-rated bonds.
BB, B, Predominantly speculative with respect
CCC, CC to the issuer's capacity to meet
required interest and principal
payments. BB-lowest degree of
speculation; CC-the highest degree of
speculation. Quality and protective
characteristics outweighed by large
uncertainties or major risk exposure to
adverse conditions.
D In default.

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<PAGE>

A High quality; obligor's ability to pay
interest and repay principal is
considered to be strong, but may be
more vulnerable to adverse changes in
economic conditions and circumstances
than higher-rated bonds.
BBB Satisfactory credit quality; obligor's
ability to pay interest and repay
principal is considered adequate.
Unfavorable changes in economic
conditions and circumstances are more
likely to adversely affect these bonds
and impair timely payment. The
likelihood that the ratings of these
bonds will fall below investment grade
is higher than for higher-rated bonds.
BB, Not investment grade; predominantly
CCC, speculative with respect to the issuer's
CC, C capacity to repay interest and repay
principal in accordance with the terms of
the obligation for bond issues not in
default. BB is the least speculative. C
is the most speculative.

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<PAGE>

For more information contact Delaware Investments at 800-828-5052.

INVESTMENT MANAGER
Delaware Management Company
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245

<PAGE>

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

DIVERSIFIED VALUE FUND

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

INSTITUTIONAL

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

P R O S P E C T U S

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

September 14, 1998

DELAWARE
INVESTMENTS
- ------------------
<PAGE>

Delaware Investments offers funds with a _______________________________________________
wide range of investment objectives. Stock funds,
income funds, national and state specific tax-exempt DELAWARE GROUP EQUITY FUNDS II, INC.
funds, money market funds, global and international _______________________________________________
funds and closed-end funds give investors the ability
to create a portfolio that fits their personal financial DIVERSIFIED VALUE FUND
goals. For more information, shareholders of the _______________________________________________
Fund Classes should contact their financial adviser or
call Delaware Investments at 800-523-1918 and A CLASS
shareholders of the Institutional Class should contact _______________________________________________
Delaware Investments at 800-828-5052.
B CLASS
_______________________________________________

C CLASS
INVESTMENT MANAGER _______________________________________________
Delaware Management Company
One Commerce Square INSTITUTIONAL CLASS
Philadelphia, PA 19103 _______________________________________________

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING, PART B
DIVIDEND DISBURSING,
ACCOUNTING SERVICES STATEMENT OF
AND TRANSFER AGENT ADDITIONAL INFORMATION
Delaware Service Company, Inc. _______________________________________________
1818 Market Street
Philadelphia, PA 19103 SEPTEMBER 14. 1998

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
</TABLE>

<PAGE>

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

PART B--STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 14, 1998
- --------------------------------------------------------------------------------

DELAWARE GROUP EQUITY FUNDS II, INC.

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

1818 MARKET STREET
PHILADELPHIA, PA 19103

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

FOR MORE INFORMATION ABOUT THE INSTITUTIONAL CLASS: 800-828-5052

FOR PROSPECTUS AND PERFORMANCE OF CLASS A SHARES,
CLASS B SHARES AND CLASS C SHARES:
NATIONWIDE 800-523-1918

INFORMATION ON EXISTING ACCOUNTS OF CLASS A SHARES,
CLASS B SHARES AND CLASS C SHARES:
(SHAREHOLDERS ONLY) NATIONWIDE 800-523-1918

DEALER SERVICES:
(BROKER/DEALERS ONLY) NATIONWIDE 800-362-7500
- --------------------------------------------------------------------------------

TABLE OF CONTENTS

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

COVER PAGE
- --------------------------------------------------------------------------------

INVESTMENT POLICIES AND PORTFOLIO TECHNIQUES
- --------------------------------------------------------------------------------

ACCOUNTING AND TAX ISSUES
- --------------------------------------------------------------------------------

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

TRADING PRACTICES AND BROKERAGE
- --------------------------------------------------------------------------------

PURCHASING SHARES
- --------------------------------------------------------------------------------

INVESTMENT PLANS
- --------------------------------------------------------------------------------

DETERMINING OFFERING PRICE AND NET ASSET VALUE
- --------------------------------------------------------------------------------

REDEMPTION AND REPURCHASE
- --------------------------------------------------------------------------------

DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

INVESTMENT MANAGEMENT AGREEMENT
- --------------------------------------------------------------------------------

OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------

GENERAL INFORMATION
- --------------------------------------------------------------------------------

FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

-2-

<PAGE>

Delaware Group Equity Funds II, Inc. ("Equity Funds II, Inc.") is a
professionally-managed mutual fund of the series type offering five portfolios:
Decatur Income Fund; Decatur Total Return Fund; Blue Chip Fund; Social Awareness
Fund; and Diversified Value Fund. This Statement of Additional Information
("Part B" of Equity Funds II, Inc.'s registration statement) describes the
Diversified Value Fund series (the "Fund") only, except where noted.

The Diversified Value Fund offers the Diversified Value Fund A Class
("Class A Shares"), Diversified Value Fund B Class ("Class B Shares"),
Diversified Value Fund C Class ("Class C Shares") (Class A Shares, Class B
Shares and Class C Shares together referred to as the "Fund Classes") and the
Diversified Value Fund Institutional Class (the "Institutional Class").

Class B Shares, Class C Shares and Institutional Class shares of the
Fund may be purchased at a price equal to the next determined net asset value
per share. Class A Shares may be purchased at the public offering price, which
is equal to the next determined net asset value per share, plus a front-end
sales charge. Class A Shares are subject to a maximum front-end sales charge of
4.75% and annual 12b-1 Plan expenses of up to 0.30% (0.25% pursuant to Board
action). Class B Shares are subject to a contingent deferred sales charge
("CDSC") which may be imposed on redemptions made within six years of purchase
and annual 12b-1 Plan expenses of up to 1% which are assessed against Class B
Shares for approximately eight years after purchase. See Automatic Conversion of
Class B Shares under Classes of Shares in the Fund Classes' Prospectuses. Class
C Shares are subject to a CDSC which may be imposed on redemptions made within
12 months of purchase and annual 12b-1 Plan expenses of up to 1% which are
assessed against Class C Shares for the life of the investment. The Fund will
not pay a 12b-1 fee with respect to any Class until January 31, 1999.

This Part B supplements the information contained in the current
Prospectus for the Fund Classes dated September 14, 1998, and the current
Prospectus for the Institutional Class dated September 14, 1998, as they may be
amended from time to time. Part B should be read in conjunction with the
respective Class' Prospectus. Part B is not itself a prospectus but is, in its
entirety, incorporated by reference into each Class' Prospectus. A prospectus
relating to the Fund Classes and a prospectus relating to the Institutional
Class may be obtained by writing or calling your investment dealer or by
contacting the Fund's national distributor, Delaware Distributors, L.P. (the
"Distributor"), 1818 Market Street, Philadelphia, PA 19103.

All references to "shares" in this Part B refer to all Classes of
shares of the Fund, except where noted.

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<PAGE>

INVESTMENT POLICIES AND PORTFOLIO TECHNIQUES

INVESTMENT RESTRICTIONS--The Fund has adopted the following
restrictions which cannot be changed without approval by the holders of a
"majority" of the Fund's outstanding shares, which is a vote by the holders of
the lesser of a) 67% or more of the voting securities present at a meeting, if
the holders of more than 50% of the outstanding voting securities are present or
represented by proxy; or b) more than 50% of the outstanding voting securities.
Except for the restriction on borrowing, the percentage limitations contained in
the restrictions and policies set forth herein apply at the time of purchase of
securities.

The Fund shall not:

1. Make investments that will result in the concentration (as that term
may be defined in the 1940 Act, any rule or order thereunder, or U.S. Securities
and Exchange Commission ("SEC") staff interpretation thereof) of its investments
in the securities of issuers primarily engaged in the same industry, provided
that this restriction does not limit the Fund from investing in obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or in certificates of deposit.

2. Borrow money or issue senior securities, except as the 1940 Act, any
rule or order thereunder, or SEC staff interpretation thereof, may permit.

3. Underwrite the securities of other issuers, except that the Fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.

4. Purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments and provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.

5. Purchase or sell physical commodities, unless acquired as a result
of ownership of securities or other instruments and provided that this
restriction does not prevent the Fund from engaging in transactions involving
futures contracts and options thereon or investing in securities that are
secured by physical commodities.

6. Make loans, provided that this restriction does not prevent the Fund
from purchasing debt obligations, entering into repurchase agreements, loaning
its assets to broker/dealers or institutional investors and investing in loans,
including assignments and participation interests.

In addition to the fundamental policies and investment restrictions
described above, and the various general investment policies described in the
Prospectus, the Fund will be subject to the following investment restrictions,
which are considered non-fundamental and may be changed by the Board of
Directors without shareholder approval.

1. The Fund is permitted to invest in other investment companies,
including open-end, closed-end or unregistered investment companies, either
within the percentage limits set forth in the 1940 Act, any rule or order
thereunder, or SEC staff interpretation thereof, or without regard to percentage
limits in connection

-4-

<PAGE>

with a merger, reorganization, consolidation or other similar transaction.
However, the Fund may not operate as a"fund of funds" which invests primarily in
the shares of other investment companies as permitted by Section 12(d)(1)(F) or
(G) of the 1940 Act, if its own shares are utilized as investments by such a
"fund of funds."

2. The Fund may not invest more than 15% of its net assets in
securities which it can not sell or dispose of in the ordinary course of
business within seven days at approximately the value at which the Fund has
valued the investment.

Securities will not normally be purchased by the Fund while it has an
outstanding borrowing.

In addition, from time to time, the Fund may also engage in the
following investment techniques:

A. RULE 144A SECURITIES--The Fund may invest in restricted securities,
including unregistered securities eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the 1933 Act. Rule 144A
Securities may be freely traded among qualified institutional investors without
registration under the 1933 Act.

Investing in Rule 144A Securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. After
the purchase of a Rule 144A Security, however, the Board of Directors and
Delaware Management Company (the "Manager") will continue to monitor the
liquidity of that security to ensure that the Fund has no more than 15% of its
net assets in illiquid securities.

B. REPURCHASE AGREEMENTS--In order to invest its cash reserves or when
in a temporary defensive posture, the Fund may enter into repurchase agreements
with banks or broker/dealers deemed to be creditworthy by the Manager, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, thereby determining the yield during the purchaser's
holding period. Generally, repurchase agreements are of short duration, often
less than one week, but on occasion for longer periods. Not more than 15% of the
Fund's assets may be invested in illiquid assets, including repurchase
agreements of over seven days' maturity. Should an issuer of a repurchase
agreement fail to repurchase the underlying security, the loss to the Fund, if
any, would be the difference between the repurchase price and the market value
of the security. The Fund will limit its investments in repurchase agreements,
to those which the Manager, under the guidelines of the Board of Directors,
determines to present minimal credit risks and which are of high quality. In
addition, the Fund must have collateral of at least 102% of the repurchase
price, including the portion representing the Fund's yield under such
agreements, which is monitored on a daily basis. Such collateral is held by the
Custodian in book entry form. Such agreements may be considered loans under the
1940 Act, but the Fund considers repurchase agreements contracts for the
purchase and sale of securities, and it seeks to perfect a security interest in
the collateral securities so that it has the right to keep and dispose of the
underlying collateral in the event of a default.

The funds in the Delaware Investments family have obtained an exemption
from the joint-transaction prohibitions of Section 17(d) of the 1940 Act to
allow such funds jointly to invest cash balances. The Fund may invest cash
balances in a joint repurchase agreement in accordance with the terms of the
Order and subject generally to the conditions described above.

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C. PORTFOLIO LOAN TRANSACTIONS--The Fund may loan up to 25% of its
assets to qualified broker/dealers or institutional investors for their use
relating to short sales or other security transactions.

It is the understanding of the Manager that the staff of the SEC
permits portfolio lending by registered investment companies if certain
conditions are met. These conditions are as follows: 1) each transaction must
have 100% collateral in the form of cash, short-term U.S. government securities,
or irrevocable letters of credit payable by banks acceptable to the Fund
involved from the borrower; 2) this collateral must be valued daily and should
the market value of the loaned securities increase, the borrower must furnish
additional collateral to the Fund involved; 3) the Fund must be able to
terminate the loan after notice, at any time; 4) the Fund must receive
reasonable interest on any loan, and any dividends, interest or other
distributions on the lent securities, and any increase in the market value of
such securities; 5) the Fund may pay reasonable custodian fees in connection
with the loan; and 6) the voting rights on the lent securities may pass to the
borrower; however, if the directors of Equity Funds II, Inc. know that a
material event will occur affecting an investment loan, they must either
terminate the loan in order to vote the proxy or enter into an alternative
arrangement with the borrower to enable the directors to vote the proxy.

The major risk to which the Fund would be exposed on a loan transaction
is the risk that the borrower would go bankrupt at a time when the value of the
security goes up. Therefore, the Fund will only enter into loan arrangements
after a review of all pertinent facts by the Manager, under the supervision of
the Board of Directors, including the creditworthiness of the borrowing broker,
dealer or institution and then only if the consideration to be received from
such loans would justify the risk. Creditworthiness will be monitored on an
ongoing basis by the Manager.

D. OPTIONS--The Fund may write call options on a covered basis only and
purchase put options, and will not engage in option writing strategies for
speculative purposes.

COVERED CALL WRITING
The Fund may write covered call options from time to time on such
portion of its portfolio, without limit, as the Manager determines is
appropriate in seeking to obtain the Fund's investment objective. A call option
gives the purchaser of such option the right to buy, and the writer, in this
case the Fund, has the obligation to sell the underlying security at the
exercise price during the option period. The advantage to the Fund of writing
covered calls is that the Fund receives additional income, in the form of a
premium, which may offset any capital loss or decline in market value of the
security. However, if the security rises in value, the Fund may not fully
participate in the market appreciation.

During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.

With respect to both options on actual portfolio securities owned by
the Fund and options on stock indices, the Fund may enter into closing purchase
transactions. A closing purchase transaction is one in which the Fund, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.

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Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Fund may realize a net
gain or loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.

If a call option expires unexercised, the Fund will realize a
short-term capital gain in the amount of the premium on the option, less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security, and the proceeds of the sale of the security plus the amount of the
premium on the option, less the commission paid.

The market value of a call option generally reflects the market price
of an underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.

The Fund will write call options only on a covered basis, which means
the Fund will own the underlying security subject to the call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Fund would be required to continue to hold a security which it
might otherwise wish to sell, or deliver a security it would want to hold.
Options written by the Fund will normally have expiration dates between one and
nine months from the date written. The exercise price of a call option may be
below, equal to or above the current market value of the underlying security at
the time the option is written.

PURCHASING CALL OPTIONS
The Fund may purchase call options to enhance income or to hedge its
portfolio securities. When the Fund purchases a call option, in return for a
premium paid by the Fund to the writer of the option, the Fund obtains the right
to buy the security underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option, who receives
the premium upon writing the option, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. The advantage of purchasing call options is that the Fund may alter
portfolio characteristics and modify portfolio maturities without incurring the
cost associated with portfolio transactions.

The Fund may, following the purchase of a call option, liquidate its
positions by effecting a closing sale transaction. This is accomplished by
selling an option of the same series as the option previously purchased. The
Fund will realize a profit from a closing sale transaction if the price received
on the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.

Although the Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular option,
or at any particular time, and for some options no secondary market on an
exchange may

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exist. In such event, it may not be possible to effect closing transactions in
particular options, with the result that the Fund would have to exercise their
options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of such options. Further,
unless the price of the underlying security changes sufficiently, a call option
purchased by the Fund may expire without any value to the Fund.

PURCHASING PUT OPTIONS
The Fund may invest in put options to enhance income or to hedge its
portfolio securities.

The Fund may purchase put options in order to protect against a decline
in the market value of the underlying security below the exercise price less the
premium paid for the option ("protective puts"). The ability to purchase put
options will allow the Fund to protect an unrealized gain in an appreciated
security in its portfolio without actually selling the security. If the security
does not drop in value, the Fund will lose the value of the premium paid. The
Fund may sell a put option which it has previously purchased prior to the sale
of the securities underlying such option. Such sales will result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put option which is
sold.

The Fund may sell a put option purchased on individual portfolio
securities or stock indices. Additionally, the Fund may enter into closing sale
transactions. A closing sale transaction is one in which the Fund, when it is
the holder of an outstanding option, liquidates its position by selling an
option of the same series as the option previously purchased.

WRITING PUT OPTIONS
A put option written by the Fund obligates it to buy the security
underlying the option at the exercise price during the option period and the
purchaser of the option has the right to sell the security to the Fund. During
the option period, the Fund, as writer of the put option, may be assigned an
exercise notice by the broker/dealer through whom the option was sold requiring
the Fund to make payment of the exercise price against delivery of the
underlying security. The obligation terminates upon expiration of the put option
or at such earlier time at which the writer effects a closing purchase
transaction. The Fund may write put options only if the Fund will maintain in a
segregated account with its Custodian Bank, cash, U.S. government securities or
or other assets in an amount not less than the exercise price of the option at
all times during the option period. The amount of cash, U.S. government
securities or other assets held in the segregated account will be adjusted on a
daily basis to reflect changes in the market value of the securities covered by
the put option written by the Fund. Consistent with the limited purposes for
which the Fund intends to engage in the writing of put options, such put options
will generally be written in circumstances where the investment adviser wishes
to purchase the underlying security for the Fund at a price lower than the
current market price of the security. In such event, the Fund would write a put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay.

Following the writing of a put option, the Fund may wish to terminate
the obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Fund may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.

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<PAGE>

OPTIONS ON STOCK INDICES
A stock index assigns relative values to the common stocks included in
the index with the index fluctuating with changes in the market values of the
underlying common stock.

Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. Gain or loss to the Fund on
transactions in stock index options will depend on price movements in the stock
market generally (or in a particular industry or segment of the market) rather
than price movements of individual securities.

As with stock options, the Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
Exchange or it may let the option expire unexercised.

A stock index fluctuates with changes in the market values of the stock
so included. Some stock index options are based on a broad market index such as
the Standard & Poor's 500 (R) Composite Stock Price Index ("S&P 500") or the New
York Stock Exchange Composite Index, or a narrower market index such as the
Standard & Poor's 100 ("S&P 100"). Indices are also based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options on stock indices are currently traded on the following
Exchanges among others: The Chicago Board Options Exchange, New York Stock
Exchange and American Stock Exchange.

The effectiveness of purchasing or writing stock index options as a
hedging technique will depend upon the extent to which price movements in the
Fund's portfolio correlate with price movements of the stock index selected.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will realize
a gain or loss from the purchase or writing of options on an index depends upon
movements in the level of stock prices in the stock market generally or, in the
case of certain indices, in an industry or market segment, rather than movements
in the price of a particular stock. Since the Fund's portfolio will not
duplicate the components of an index, the correlation will not be exact.
Consequently, the Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
Accordingly, successful use of options on stock indices will be subject to the
Manager's ability to predict correctly movements in the direction of the stock
market generally or of a particular industry. This requires different skills and
techniques than predicting changes in the price of individual stocks.

Positions in stock index options may be closed out only on an Exchange
which provides a secondary market. There can be no assurance that a liquid
secondary market will exist for any particular stock index option. Thus, it may
not be possible to close such an option. The inability to close options
positions could have an adverse impact on the Fund's ability to effectively
hedge its securities. The Fund will enter into an option position only if there
appears to be a liquid secondary market for such options.

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<PAGE>

The Fund will not engage in transactions in options on stock indices
for speculative purposes but only to protect appreciation attained, to offset
capital losses and to take advantage of the liquidity available in the option
markets.

E. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--As noted in the
Prospectus, the Fund may enter into futures contracts relating to securities,
securities indices, interest rates or foreign currencies. (Unless otherwise
specified, interest rate futures contracts, securities and securities index
futures contracts and foreign currency futures contracts are collectively
referred to as "futures contracts.") Such investment strategies will be used as
a hedge and not for speculation.

As noted in the Prospectus, the Fund may purchase and write options on
the types of futures contracts, described in the Prospectus.

The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in the Fund's
portfolio. If the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred in the
Fund's portfolio holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the securities or other
instruments required to be delivered under the terms of the futures contract. If
the futures price at expiration of the put option is higher than the exercise
price, the Fund will retain the full amount of the option premium, which
provides a partial hedge against any increase in the price of securities which
the Fund intends to purchase. If a put or call option that the Fund has written
is exercised, the Fund will incur a loss which will be reduced by the amount of
the premium it receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value of its options
on futures positions, the Fund's losses from exercised options on futures may to
some extent be reduced or increased by changes in the value of portfolio
securities.

The Fund may purchase options on futures contracts for hedging purposes
instead of purchasing or selling the underlying futures contracts. For example,
where a decrease in the value of portfolio securities is anticipated as a result
of a projected market-wide decline or changes in interest or exchange rates, the
Fund could, in lieu of selling futures contracts, purchase put options thereon.
In the event that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund will suffer
a loss equal to the price of the put. Where it is projected that the value of
securities to be acquired by the Fund will increase prior to acquisition, due to
a market advance or changes in interest or exchange rates, the Fund could
purchase call options on futures contracts, rather than purchasing the
underlying futures contracts. If the market advances, the increased cost of
securities to be purchased may be offset by a profit on the call. However, if
the market declines, the Fund will suffer a loss equal to the price of the call,
but the securities which the Fund intends to purchase may be less expensive.

F. FOREIGN AND EMERGING MARKET SECURITIES--The Fund has the ability to
purchase securities in any foreign country. Investors should consider carefully
the substantial risks involved in investing in securities issued by companies
and governments of foreign nations. These risks are in addition to the usual
risks inherent in domestic investments. There is the possibility of
expropriation, nationalization or confiscatory taxation, taxation of income
earned in foreign nations or other taxes imposed with respect to investments in
foreign nations, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations.

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<PAGE>

In addition, in many countries, there is substantially less publicly
available information about issuers than is available in reports about companies
in the United States. Foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Consequently, financial data about foreign companies may not
accurately reflect the real condition of those issuers and securities markets.

Further, the Fund may encounter difficulty or be unable to pursue legal
remedies and obtain judgments in foreign courts. Commission rates on securities
transactions in foreign countries, which are sometimes fixed rather than subject
to negotiation as in the United States, are likely to be higher. Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets, and may be subject to administrative uncertainties. In
many foreign countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States, and capital requirements for brokerage firms are
generally lower. The foreign securities markets of many of the countries in
which the Fund may invest may also be smaller, less liquid and subject to
greater price volatility than those in the United States.

The Fund may also invest in securities of issuers located in emerging
market nations. Compared to the United States and other developed countries,
emerging countries may have volatile social conditions, relatively unstable
governments and political systems, economies based on only a few industries and
economic structures that are less diverse and mature, and securities markets
that trade a small number of securities, which can result in a low or
nonexistent volume of trading. Prices in these securities markets tend to be
volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries. Until recently, there has been an absence of a capital
market structure or market-oriented economy in certain emerging countries.
Further, investments and opportunities for investments by foreign investors are
subject to a variety of national policies and restrictions in many emerging
countries. Also, the repatriation of both investment income and capital from
several foreign countries is restricted and controlled under certain
regulations, including, in some cases, the need for certain governmental
consents. Countries such as those in which the Fund may invest have historically
experienced and may continue to experience, substantial, and in some periods
extremely high rates of inflation for many years, high interest rates, exchange
rate fluctuations or currency depreciation, large amounts of external debt,
balance of payments and trade difficulties and extreme poverty and unemployment.
Other factors which may influence the ability or willingness to service debt
include, but are not limited to, a country's cash flow situation, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of its debt service burden to the economy as a whole, its
government's policy towards the International Monetary Fund, the World Bank and
other international agencies and the political constraints to which a government
debtor may be subject.

There has been in the past, and there may be again in the future, an
interest equalization tax levied by the United States in connection with the
purchase of foreign securities such as those purchased by the Fund. Payment of
such interest equalization tax, if imposed, would reduce the Fund's rate of
return on its investment. Dividends paid by foreign issuers may be subject to
withholding and other foreign taxes which may decrease the net return on such
investments as compared to dividends paid to the Fund by United States
corporations. Special rules govern the federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules generally
include the following: (i) the acquisition of, or becoming the obligor under, a
bond or other debt instrument (including, to the extent provided in Treasury
Regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instruments other than

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any "regulated futures contract" or "nonequity option" marked to market. The
disposition of a currency other than the U.S. dollar by a U.S. taxpayer is also
treated as a transaction subject to the special currency rules. However, foreign
currency-related regulated futures contracts and nonequity options are generally
not subject to the special currency rules, if they are or would be treated as
sold for their fair market value at year-end under the marking to market rules
applicable to other futures contracts, unless an election is made to have such
currency rules apply. With respect to transactions covered by the special rules,
foreign currency gain or loss is calculated separately from any gain or loss on
the underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. Certain transactions subject to the special currency rules
that are part of a "section 988 hedging transaction" (as defined in the Internal
Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations)
will be integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. The income tax effects of integrating and
treating a transaction as a single transaction are generally to create a
synthetic debt instrument that is subject to the original discount provisions.
It is anticipated that some of the non-U.S. dollar denominated investments and
foreign currency contracts the Fund may make or enter into will be subject to
the special currency rules described above.

G. FOREIGN CURRENCY TRANSACTIONS--Although the Fund values its assets
daily in terms of U.S. dollars, they do not intend to convert holdings of
foreign currencies into U.S. dollars on a daily basis. The Fund will, however,
from time to time, purchase or sell foreign currencies and/or engage in forward
foreign currency transactions in order to expedite settlement of portfolio
transactions and to minimize currency value fluctuations. The Fund may conduct
its foreign currency exchange transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market or through entering
into contracts to purchase or sell foreign currencies at a future date (i.e., a
"forward foreign currency" contract or "forward" contract). A forward contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract, agreed upon
by the parties, at a price set at the time of the contract. The Fund will
convert currency on a spot basis from time to time, and investors should be
aware of the costs of currency conversion.

The Fund may enter into forward contracts to "lock in" the price of a
security it has agreed to purchase or sell, in terms of U.S. dollars or other
currencies in which the transaction will be consummated. By entering into a
forward contract for the purchase or sale, for a fixed amount of U.S. dollars or
foreign currency, of the amount of foreign currency involved in the underlying
security transaction, the Fund will be able to protect itself against a possible
loss resulting from an adverse change in currency exchange rates during the
period between the date the security is purchased or sold and the date on which
payment is made or received.

When the Manager believes that the currency of a particular country may
suffer a significant decline against the U.S. dollar or against another
currency, the Fund may enter into a forward foreign currency contract to sell,
for a fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency.

The Fund will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's securities or other assets denominated in that currency.

At the maturity of a forward contract, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the

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foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency. The Fund may realize a gain or loss from currency
transactions. With respect to forward foreign currency contracts, the precise
matching of forward contract amounts and the value of the securities involved is
generally not possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of short-term currency strategy is highly
uncertain.

It is impossible to forecast the market value of Fund securities at the
expiration of the contract. Accordingly, it may be necessary for the Fund to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver and if a decision is made to
sell the security and make delivery of the foreign currency. Conversely, it may
be necessary to sell on the spot market some of the foreign currency received
upon the sale of a security if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.

H. Investment Company Securities--Any investments that the Fund makes
in either closed-end or open-end investment companies will be limited by the
1940 Act, and would involve an indirect payment of a portion of the expenses,
including advisory fees, of such other investment companies. Under the 1940
Act's current limitations, the Fund may not (1) own more than 3% of the voting
stock of another investment company; (2) invest more than 5% of the Fund's total
assets in the shares of any one investment company; nor (3) invest more than 10%
of the Fund's total assets in shares of other investment companies. If the Fund
elects to limit its investment in other investment companies to closed-end
investment companies, the 3% limitation described above is increased to 10%.
These percentage limitations also apply to the Fund's investments in
unregistered investment companies.

I. Unseasoned Companies--The Fund may invest in relatively new or
unseasoned companies which are in their early stages of development, or small
companies positioned in new and emerging industries where the opportunity for
rapid growth is expected to be above average. Securities of unseasoned companies
present greater risks than securities of larger, more established companies. The
companies in which the Fund may invest may have relatively small revenues,
limited product lines, and may have a small share of the market for their
products or services. Small companies may lack depth of management, they may be
unable to internally generate funds necessary for growth or potential
development or to generate such funds through external financing or favorable
terms, or they may be developing or marketing new products or services for which
markets are not yet established and may never become established. Due these and
other factors, small companies may suffer significant losses as well as realize
substantial growth, and investments in such companies tend to be volatile and
are therefore speculative.

CONCENTRATION
In applying the Fund's policy on concentration: (i) utility companies
will be divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (iii) asset backed
securities will be classified according to the underlying assets securing such
securities.

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ACCOUNTING AND TAX ISSUES

When the Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's assets and liabilities
as an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which the Fund has written expires on its stipulated expiration date, the Fund
reports a realized gain. If the Fund enters into a closing purchase transaction
with respect to an option which the Fund has written, the Fund realizes a gain
(or loss if the cost of the closing transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is extinguished.
Any such gain or loss is a short-term capital gain or loss for federal income
tax purposes. If a call option which the Fund has written is exercised, the Fund
realizes a capital gain or loss (long-term or short-term, depending on the
holding period of the underlying security) from the sale of the underlying
security and the proceeds from such sale are increased by the premium originally
received.

OTHER TAX REQUIREMENTS--The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, the Fund will not be subject to federal income
tax, or to any excise tax, to the extent its earnings are distributed as
provided in the Code and it satisfies other requirements relating to the sources
of its income and diversification of its assets.

In order to qualify as a regulated investment company for federal
income tax purposes, the Fund must meet certain specific requirements,
including:

(i) The Fund must maintain a diversified portfolio of securities,
wherein no security (other than U.S. government securities and securities of
other regulated investment companies) can exceed 25% of the Fund's total assets,
and, with respect to 50% of the Fund's total assets, no investment (other than
cash and cash items, U.S. Government securities and securities of other
regulated investment companies) can exceed 5% of the Fund's total assets;

(ii) The Fund must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or disposition of stock and securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies;

(iii) The Fund must distribute to its shareholders at least 90% of its
investment company taxable income and net tax-exempt income for each of its
fiscal years, and

(iv) The Fund must realize less than 30% of its gross income for each
fiscal year from gains from the sale of securities and certain other assets that
have been held by the Fund for less than three months ("short- short income").
The Taxpayer Relief Act of 1997 (the "1997 Act") repealed the 30% short-short
income test for tax years of regulated investment companies beginning after
August 5, 1997; however, this rule may have continuing effect in some states for
purposes of classifying the Fund as a regulated investment company.

The Code requires the Fund to distribute at least 98% of its taxable
ordinary income earned during the calendar year and 98% of its capital gain net
income earned during the 12 month period ending November 30 (in addition to
amounts from the prior year that were neither distributed nor taxed to the Fund)
to you by December 31 of each year in order to avoid federal excise taxes. The
Fund intends as a matter of policy to

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<PAGE>

declare and pay sufficient dividends in December or January (which are treated
by you as received in December) but does not guarantee and can give no
assurances that its distributions will be sufficient to eliminate all such
taxes.

The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the year that unrealized losses exceed unrealized gains or when
the offsetting position is sold.

The 1997 Act has also added new provisions for dealing with
transactions that are generally called "Constructive Sale Transactions." Under
these rules, the Fund must recognize gain (but not loss) on any constructive
sale of an appreciated financial position in stock, a partnership interest or
certain debt instruments. The Fund will generally be treated as making a
constructive sale when it: 1) enters into a short sale on the same or
substantially identical property; 2) enters into an offsetting notional
principal contract; or 3) enters into a futures or forward contract to deliver
the same or substantially identical property. Other transactions (including
certain financial instruments called collars) will be treated as constructive
sales as provided in Treasury regulations to be published. There are also
certain exceptions that apply for transactions that are closed before the end of
the 30th day after the close of the taxable year.

INVESTMENT IN FOREIGN CURRENCIES AND FOREIGN SECURITIES--The Fund is
authorized to invest certain limited amounts in foreign securities. Such
investments, if made, will have the following additional tax consequences to the
Fund:

Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Fund accrues income
(including dividends), or accrues expenses which are denominated in a foreign
currency, and the time the Fund actually collects such income or pays such
expenses generally are treated as ordinary income or loss. Similarly, on the
disposition of debt securities denominated in a foreign currency and on the
disposition of certain options, futures, forward contracts, gain or loss
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of its disposition are
also treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of the Fund's net investment company taxable income, which, in turn, will affect
the amount of income to be distributed to you by the Fund.

If the Fund's Section 988 losses exceed the Fund's other investment
company taxable income during a taxable year, the Fund generally will not be
able to make ordinary dividend distributions to you for that year, or
distributions made before the losses were realized will be recharacterized as
return of capital distributions for federal income tax purposes, rather than as
an ordinary dividend or capital gain distribution. If a distribution is treated
as a return of capital, your tax basis in your Fund shares will be reduced by a
like amount (to the extent of such basis), and any excess of the distribution
over your tax basis in your Fund shares will be treated as capital gain to you.

The 1997 Act generally requires that foreign income be translated into
U.S. dollars at the average exchange rate for the tax year in which the
transactions are conducted. Certain exceptions apply to taxes paid more than two
years after the taxable year to which they relate. This new law may require the
Fund to track and record adjustments to foreign taxes paid on foreign securities
in which it invests. Under the Fund's old reporting procedure, foreign security
transactions are recorded generally at the time of each transaction using the
foreign currency spot rate available for the date of each transaction. Under the
new law, the Fund is required to record

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at fiscal year end (and at calendar year end for excise tax purposes) an
adjustment that reflects the difference between the spot rates recorded for each
transaction and the year-end average exchange rate for all of the Fund's foreign
securities transactions. There is a possibility that the mutual fund industry
will be given relief from this new provision, in which case no year-end
adjustments will be required.

The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities. If more than 50% of the total assets of the
Fund at the end of its fiscal year are invested in securities of foreign
corporations, the Fund may elect to pass-through to you your pro rata share of
foreign taxes paid by the Fund. If this election is made, you will be: (i)
required to include in your gross income your pro rata share of foreign source
income (including any foreign taxes paid by the Fund); and (ii) entitled to
either deduct your share of such foreign taxes in computing your taxable income
or to claim a credit for such taxes against your U.S. income tax, subject to
certain limitations under the Code. You will be informed by the Fund at the end
of each calendar year regarding the availability of any such foreign tax credits
and the amount of foreign source income (including any foreign taxes paid by the
Fund). If the Fund elects to pass-through to you the foreign income taxes that
it has paid, you will be informed at the end of the calendar year of the amount
of foreign taxes paid and foreign source income that must be included on your
federal income tax return. If the Fund invests 50% or less of its total assets
in securities of foreign corporations, it will not be entitled to pass-through
to you your pro-rata shares of foreign taxes paid by the Fund. In this case,
these taxes will be taken as a deduction by the Fund, and the income reported to
you will be the net amount after these deductions. The 1997 Act also simplifies
the procedures by which investors in funds that invest in foreign securities can
claim tax credits on their individual income tax returns for the foreign taxes
paid by the Fund. These provisions allow investors who pay foreign taxes of $300
or less on a single return or $600 or less on a joint return during any year
(all of which must be reported on IRS Form 1099-DIV from the Fund to the
investor) to claim a tax credit against their U.S. federal income tax for the
amount of foreign taxes paid by the Fund. This process allows you, if you
qualify, to bypass the burdensome and detailed reporting requirements on the
foreign tax credit schedule (Form 1116) and report your foreign taxes paid
directly on page 2 of Form 1040. You should note that this simplified procedure
is not be available until calendar year 1998.

INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANY SECURITIES--The Fund
may invest in shares of foreign corporations which may be classified under the
Code as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. If the Fund receives an "excess distribution" with
respect to PFIC stock, the Fund itself may be subject to U.S. federal income tax
on a portion of the distribution, whether or not the corresponding income is
distributed by the Fund to you. In general, under the PFIC rules, an excess
distribution is treated as having been realized ratably over the period during
which the Fund held the PFIC shares. The Fund itself will be subject to tax on
the portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years, and an interest factor will be added to the tax, as if the
tax had been payable in such prior taxable years. In this case, you would not be
permitted to claim a credit on your own tax return for the tax paid by the Fund.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
distribution might have been classified as capital gain. This may have the
effect of increasing Fund distributions to you that are treated as ordinary
dividends rather than long-term capital gain dividends.

The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are

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received from the PFIC during such period. If this election were made, the
special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, the 1997 Act provides for another
election that would involve marking-to-market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates as prescribed in the Code),
with the result that unrealized gains would be treated as though they were
realized. The Fund would also be allowed an ordinary deduction for the excess,
if any, of the adjusted basis of its investment in the PFIC stock over its fair
market value at the end of the taxable year. This deduction would be limited to
the amount of any net mark-to-market gains previously included with respect to
that particular PFIC security. If the Fund were to make this second PFIC
election, tax at the Fund level under the PFIC rules would generally be
eliminated.

The application of the PFIC rules may affect, among other things, the
amount of tax payable by the Fund (if any), the amounts distributable to you by
the Fund, the time at which these distributions must be made, and whether these
distributions will be classified as ordinary income or capital gain
distributions to you.

You should be aware that it is not always possible at the time shares
of a foreign corporation are acquired to ascertain that the foreign corporation
is a PFIC, and that there is always a possibility that a foreign corporation
will become a PFIC after the Fund acquires shares in that corporation. While the
Fund will generally seek to avoid investing in PFIC shares to avoid the tax
consequences detailed above, there are no guarantees that it will do so and it
reserves the right to make such investments as a matter of its fundamental
investment policy.

Most foreign exchange gains are classified as ordinary income which
will be taxable to you as such when distributed. Similarly, you should be aware
that any foreign exchange losses realized by the Fund, including any losses
realized on the sale of foreign debt securities, are generally treated as
ordinary losses for federal income tax purposes. This treatment could increase
or reduce the Fund's income available for distribution to you, and may cause
some or all of the Fund's previously distributed income to be classified as a
return of capital.

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<PAGE>

PERFORMANCE INFORMATION

From time to time, the Fund may state total return for each Class in
advertisements and other types of literature. Any statements of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life of fund, if applicable) periods. The
Fund may also advertise aggregate and average compounded return information of
each Class over additional periods of time.

In presenting performance information for Class A Shares, the Limited
CDSC, applicable only to certain redemptions of those shares, will not be
deducted from any computations of total return. See the Prospectus for the Fund
Classes for a description of the Limited CDSC and the limited instances in which
it applies. All references to a CDSC in this Performance Information section
will apply to Class B Shares or Class C Shares.

Total return performance of each Class will reflect the appreciation or
depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period, and the impact of the maximum
front-end sales charge or CDSC, if any, paid on the illustrated investment
amount, annualized. The results will not reflect any income taxes, if
applicable, payable by shareholders on the reinvested distributions included in
the calculations. As securities prices fluctuate, an illustration of past
performance should not be considered as representative of future results.

The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1+T) = ERV

Where: P = a hypothetical initial purchase order of $1,000
from which, in the case of only Class A Shares, the
maximum front-end sales charge is deducted;

T = average annual total return;

n = number of years;

ERV = redeemable value of the hypothetical $1,000
purchase at the end of the period after the
deduction of the applicable CDSC, if any, with
respect to Class B Shares and Class C Shares.

Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, the Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.

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From time to time, the Fund may also quote its Classes' actual total
return performance, dividend results and other performance information in
advertising and other types of literature. This information may be compared to
that of other mutual funds with similar investment objectives and to stock, bond
and other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. For example, the performance of the Fund (or Fund Class) maybe compared
to data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or to
the S&P 500 Index or the Dow Jones Industrial Average.

Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed mutual
funds. Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare the Fund's
performance to another fund in appropriate categories over specific time periods
also may be quoted in advertising and other types of literature. The S&P 500
Stock Index and the Dow Jones Industrial Average are industry-accepted unmanaged
indices of stocks which are representative of and used to measure broad stock
market performance. The total return performance reported for these indices will
reflect the reinvestment of all distributions on a quarterly basis and market
price fluctuations. The indices do not take into account any sales charge or
other fees. A direct investment in an unmanaged index is not possible. In
seeking a particular investment objective, the Fund's portfolio may include
common stocks considered by the Manager to be more aggressive than those tracked
by these indices.

The performance of multiple indices compiled and maintained by
statistical research firms, such as Salomon Brothers and Lehman Brothers, may be
combined to create a blended performance result for comparative purposes.
Generally, the indices selected will be representative of the types of
securities in which the Fund may invest and the assumptions that were used in
calculating the blended performance will be described.

Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury bills,
the U.S. rate of inflation (based on the Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is based on
the returns of different indices. The Fund may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with the
security types in any capital market may or may not correspond directly to those
of the Fund. The Fund may also compare performance to that of other compilations
or indices that may be developed and made available in the future.

The Fund may include discussions or illustrations of the potential
investment goals of a prospective investor (including materials that describe
general principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting, questionnaires designed to help create a personal
financial profile, worksheets used to project savings needs based on assumed
rates of inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of the Fund (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments), economic and political conditions, the
relationship between sectors of the economy and the economy as a whole, the
effects of inflation and historical performance of various asset classes,
including but not limited to, stocks, bonds and Treasury bills. From time to
time advertisements, sales

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<PAGE>

literature, communications to shareholders or other materials may summarize the
substance of information contained in shareholder reports (including the
investment composition of the Fund), as well as the views as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund. In addition, selected indices may be used to illustrate
historic performance of selected asset classes. The Fund may also include in
advertisements, sales literature, communications to shareholders or other
materials, charts, graphs or drawings which illustrate the potential risks and
rewards of investment in various investment vehicles, including but not limited
to, stocks, bonds, treasury bills and shares of the Fund. In addition,
advertisements, sales literature, communications to shareholders or other
materials may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund and/or other mutual funds, shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax and retirement planning (such as information on Roth IRAs and
Education IRAs) and investment alternative to certificates of deposit and other
financial instruments. Such sales literature, communications to shareholders or
other materials may include symbols, headlines or other material which highlight
or summarize the information discussed in more detail therein.

Materials may refer to the CUSIP numbers of the Fund and may illustrate
how to find the listings of the Fund in newspapers and periodicals. Materials
may also include discussions of other funds, products, and services.

The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the historical
share price fluctuations or total returns to those of a benchmark. Measures of
benchmark correlation indicate how valid a comparative benchmark may be.
Measures of volatility and correlation may be calculated using averages of
historical data. The Fund may advertise its current interest rate sensitivity,
duration, weighted average maturity or similar maturity characteristics.
Advertisements and sales materials relating to the Fund may include information
regarding the background and experience of its portfolio managers.

Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Fund and other mutual funds in the Delaware
Investments family of funds, will provide general information about investment
alternatives and scenarios that will allow investors to assess their personal
goals. This information will include general material about investing as well as
materials reinforcing various industry- accepted principles of prudent and
responsible financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's overriding investment
philosophy and how that philosophy impacts the Fund's investment disciplines,
and investment disciplines of the funds in the Delaware Investments family,
employed in seeking their objectives. The Distributor may also from time to time
cite general or specific information about the institutional clients of the
Manager, including the number of such clients serviced by the Manager.

DOLLAR-COST AVERAGING
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular

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<PAGE>

interval--for example, monthly or quarterly--as long as you stick to your
regular schedule. Dollar-cost averaging looks simple and it is, but there are
important things to remember.

Dollar-cost averaging works best over longer time periods, and it
doesn't guarantee a profit or protect against losses in declining markets. If
you need to sell your investment when prices are low, you may not realize a
profit no matter what investment strategy you utilize. That's why dollar-cost
averaging can make sense for long-term goals. Since the potential success of a
dollar-cost averaging program depends on continuous investing, even through
periods of fluctuating prices, you should consider your dollar-cost averaging
program a long-term commitment and invest an amount you can afford and probably
won't need to withdraw. You also should consider your financial ability to
continue to purchase shares during periods of high fund share prices. Delaware
Group offers three services -- Automatic Investing Program, Direct Deposit
Program and the Wealth Builder Option -- that can help to keep your regular
investment program on track. See Investing by Electronic Fund Transfer - Direct
Deposit Purchase Plan and Automatic Investing Plan under Investment Plans and
Wealth Builder Option under Investment Plans for a complete description of these
services, including restrictions or limitations.

The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.

NUMBER
INVESTMENT PRICE PER OF SHARES
AMOUNT SHARE PURCHASED

Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $5.00 20
Month 4 $100 $10.00 10
----------------------------------------------------------------
$400 $37.50 48

Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)

This example is for illustration purposes only. It is not intended to
represent the actual performance of the Fund.

THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. The Fund may
include illustrations showing the power of compounding in advertisements and
other types of literature.

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TRADING PRACTICES AND BROKERAGE

Equity Funds II, Inc. selects brokers or dealers to execute
transactions on behalf of the Fund for the purchase or sale of portfolio
securities on the basis of its judgment of their professional capability to
provide the service. The primary consideration is to have brokers or dealers
execute transactions at best price and execution. Best price and execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. Some trades are made
on a net basis where the Fund either buys securities directly from the dealer or
sells them to the dealer. In these instances, there is no direct commission
charged but there is a spread (the difference between the buy and sell price)
which is the equivalent of a commission. When a commission is paid, the Fund
pays reasonably competitive brokerage commission rates based upon the
professional knowledge of its trading department as to rates paid and charged
for similar transactions throughout the securities industry. In some instances,
the Fund pays a minimal share transaction cost when the transaction presents no
difficulty.

The Manager may allocate out of all commission business generated by
all of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software and hardware used in
security analyses; and providing portfolio performance evaluation and technical
market analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.

As provided in the 1934 Act and the Fund's Investment Management
Agreement, higher commissions are permitted to be paid to broker/dealers who
provide brokerage and research services than to broker/dealers who do not
provide such services if such higher commissions are deemed reasonable in
relation to the value of the brokerage and research services provided. Although
transactions are directed to broker/dealers who provide such brokerage and
research services, the Fund believes that the commissions paid to such
broker/dealers are not, in general, higher than commissions that would be paid
to broker/dealers not providing such services and that such commissions are
reasonable in relation to the value of the brokerage and research services
provided. In some instances, services may be provided to the Manager which
constitute in some part brokerage and research services used by the Manager in
connection with its investment decision-making process and constitute in some
part services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In such cases,
the Manager will make a good faith allocation of brokerage and research services
and will pay out of its own resources for services used by the Manager in
connection with administrative or other functions not related to its investment
decision-making process. In addition, so long as no fund is disadvantaged,
portfolio transactions which generate commissions or their equivalent are
allocated to broker/dealers who provide daily portfolio pricing services to the
Fund and to other funds in the Delaware Investments family. Subject to best
price and execution, commissions allocated to brokers providing such pricing
services may or may not be generated by the funds receiving the pricing service.

The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed

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equitable to each account or fund. When a combined order is executed in a series
of transactions at different prices, each account participating in the order may
be allocated an average price obtained from the executing broker. It is believed
that the ability of the accounts to participate in volume transactions will
generally be beneficial to the accounts and funds. Although it is recognized
that, in some cases, the joint execution of orders could adversely affect the
price or volume of the security that a particular account or fund may obtain, it
is the opinion of the Manager and Equity Funds II, Inc.'s Board of Directors
that the advantages of combined orders outweigh the possible disadvantages of
separate transactions.

Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Fund may place orders with broker/dealers that have agreed to
defray certain expenses of the funds in the Delaware Investments family, such as
custodian fees, and may, at the request of the Distributor, give consideration
to sales of shares of a such funds as a factor in the selection of brokers and
dealers to execute Fund portfolio transactions.

PORTFOLIO TURNOVER
Portfolio trading will be undertaken principally to accomplish the
Fund's objective in relation to anticipated movements in the general level of
interest rates. The Fund is free to dispose of portfolio securities at any time,
subject to complying with the Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving the Fund's
investment objective.

The degree of portfolio activity may affect brokerage costs of the Fund
and taxes payable by the Fund's shareholders to the extent of any net realized
capital gains. The Fund's portfolio turnover may exceed 100%. The Fund's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of portfolio securities for the particular fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
particular fiscal year, exclusive of securities whose maturities at the time of
acquisition are one year or less. A turnover rate of 100% would occur, for
example, if all the investments in the Fund's portfolio at the beginning of the
year were replaced by the end of the year.

The Fund may hold securities for any period of time. The Fund's
portfolio turnover will be increased if the Fund writes a large number of call
options which are subsequently exercised. The portfolio turnover rate also may
be affected by cash requirements from redemptions and repurchases of Fund
shares. Total brokerage costs generally increase with higher portfolio turnover
rates.

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PURCHASING SHARES

The Distributor serves as the national distributor for the Fund's four
classes of shares - Class A Shares, Class B Shares, Class C Shares and the
Institutional Class, and has agreed to use its best efforts to sell shares of
the Fund. See the Prospectuses for additional information on how to invest.
Shares of the Fund are offered on a continuous basis, and may be purchased
through authorized investment dealers or directly by contacting Equity Funds II,
Inc. or the Distributor.

The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investment
with respect to Class A Shares will be waived for purchases by officers,
directors and employees of any fund in the Delaware Investments family, the
Manager or any of the Manager's affiliates if the purchases are made pursuant to
a payroll deduction program. Shares purchased pursuant to the Uniform Gifts to
Minors Act or Uniform Transfers to Minors Act and shares purchased in connection
with an Automatic Investing Plan are subject to a minimum initial purchase of
$250 and a minimum subsequent purchase of $25. Accounts opened under the Asset
Planner service are subject to a minimum initial investment of $2,000 per Asset
Planner Strategy selected. There are no minimum purchase requirements for the
Institutional Class, but certain eligibility requirements must be satisfied.

Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares each purchase must be in an amount
that is less than $1,000,000. See Investment Plans for purchase limitations
applicable to retirement plans. Equity Funds II, Inc. will reject any purchase
order of more than $250,000 of Class B Shares and $1,000,000 or more of Class C
Shares. An investor may exceed these limitations by making cumulative purchases
over a period of time. In doing so, an investor should keep in mind, however,
that reduced front-end sales charges apply to investments of $100,000 or more in
Class A Shares, and that Class A Shares are subject to lower annual 12b-1 Plan
expenses than Class B Shares and Class C Shares and generally are not subject to
a CDSC.

Selling dealers are responsible for transmitting orders promptly. Equity
Funds II, Inc. reserves the right to reject any order for the purchase of the
Fund's shares if in the opinion of management such rejection is in the Fund's
best interest.

The NASD has adopted amendments to its Conduct Rules, as amended, relating
to investment company sales charges. Equity Funds II, Inc. and the Distributor
intend to operate in compliance with these rules.

Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. Class A Shares are also subject to annual 12b-1 Plan
expenses.

Class B Shares are purchased at net asset value and are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; (iv) 1% if
shares are redeemed during the sixth year following purchase; and (v) 0%
thereafter. Class B Shares are also subject to annual 12b-1 Plan expenses which
are higher than those to which Class A Shares are subject and are assessed
against Class B Shares for approximately eight years after purchase. Class B
Shares will automatically convert to Class A Shares at the end of approximately
eight years after purchase and, thereafter, be subject to annual 12b-1 Plan
expenses of up to a maximum of 0.30% (no more than 0.25% pursuant to Board
action) of average

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daily net assets of such shares. Unlike Class B Shares, Class C Shares do not
convert to another class. See Automatic Conversion of Class B Shares under
Classes of Shares in the Fund Classes' Prospectus.

Class C Shares are purchased at net asset value and are subject to a CDSC
of 1% if shares are redeemed within 12 months following purchase. Class C Shares
are also subject to annual 12b-1 Plan expenses for the life of the investment
which are equal to those to which Class B Shares are subject. Unlike Class B
Shares, Class C Shares do not convert to another class.

The Distributor has voluntarily elected to waive the payment of 12b-1 Plan
expenses by the Fund from the commencement of public offering through January
31, 1999.

Institutional Class shares are purchased at the net asset value per share
without the imposition of a front-end or contingent deferred sales charge or
12b-1 Plan expenses. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.

Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in the Fund's assets and will receive
a proportionate interest in the Fund's income, before application, as to Class
A, Class B and Class C Shares, of any expenses, if any, under the Fund's 12b-1
Plans.

Certificates representing shares purchased are not ordinarily issued
unless, in the case of Class A Shares or Institutional Class shares, a
shareholder submits a specific request. Certificates are not issued in the case
of Class B Shares or Class C Shares or in the case of any retirement plan
accounts, including self-directed IRAs. However, purchases not involving the
issuance of certificates are confirmed to the investor and credited to the
shareholder's account on the books maintained by Delaware Service Company, Inc.
(the "Transfer Agent"). The investor will have the same rights of ownership with
respect to such shares as if certificates had been issued. An investor that is
permitted to obtain a certificate may receive a certificate representing full
share denominations purchased by sending a letter signed by each owner of the
account to the Transfer Agent requesting the certificate. No charge is assessed
by Equity Funds II, Inc. for any certificate issued. A shareholder may be
subject to fees for replacement of lost or stolen certificates, under certain
conditions, including the cost of obtaining a bond covering the lost or stolen
certificate. Please contact the Fund for further information. Investors who hold
certificates representing any of their shares may only redeem those shares by
written request. The investor's certificate(s) must accompany such request.

ALTERNATIVE PURCHASE ARRANGEMENTS
The alternative purchase arrangements of Class A Shares, Class B Shares
and the Class C Shares permit investors to choose the method of purchasing
shares that is most suitable for their needs given the amount of their purchase,
the length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge and annual 12b-1 Plan expenses of up to a maximum of
0.30% (no more than 0.25% pursuant to Board action) of the average daily net
assets of Class A Shares or to purchase either Class B or Class C Shares and
have the entire initial purchase amount invested in the Fund with the investment
thereafter subject to a CDSC and annual 12b-1 Plan expenses.

CLASS A SHARES
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges and may include a series of purchases over
a 13-month period under a Letter of Intention signed by the purchaser. See
Front-End Sales Charge Alternative in the Fund Classes' Prospectus for a table
illustrating

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reduced front-end sales charges. See Special Purchase Features - Class A Shares,
below, for more information on ways in which investors can avail themselves of
reduced front-end sales charges and other purchase features.

Certain dealers who enter into an agreement to provide extra training and
information on Delaware Investments products and services and who increase sales
of the funds in the Delaware Investments family may receive an additional
commission of up to 0.15% of the offering price in connection with sales of
Class A Shares. Such dealers must meet certain requirements in terms of
organization and distribution capabilities and their ability to increase sales.
The Distributor should be contacted for further information on these
requirements as well as the basis and circumstances upon which the additional
commission will be paid. Participating dealers may be deemed to have additional
responsibilities under the securities laws.

DEALER'S COMMISSION
As described more fully in the Prospectus for the Fund Classes, for
initial purchases of Class A Shares of $1,000,000 or more, a dealer's commission
may be paid by the Distributor to financial advisers through whom such purchases
are effected. See Front-End Sales Charge Alternative - Class A Shares in the
Prospectus for the Fund Classes for the applicable schedule and further details.

CONTINGENT DEFERRED SALES CHARGE - CLASS B SHARES AND CLASS C SHARES
Class B Shares and Class C Shares are purchased without a front-end sales
charge. Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth above and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestment of dividends or capital gains distributions. See Waiver of
Contingent Deferred Sales Charge - Class B and Class C Shares under Redemption
and Exchange in the Prospectus for the Fund Classes for a list of the instances
in which the CDSC is waived.

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the Fund.
See Automatic Conversion of Class B Shares under Classes of Shares in the Fund
Classes' Prospectus. Such conversion will constitute a tax-free exchange for
federal income tax purposes. See Taxes in the Prospectus for the Fund Classes.

PLANS UNDER RULE 12B-1 FOR THE FUND CLASSES
Pursuant to Rule 12b-1 under the 1940 Act, Equity Funds II, Inc. has
adopted a separate plan for each of Class A Shares, Class B Shares and Class C
Shares of the Fund (the "Plans"). Each Plan permits the Fund to pay for certain
distribution, promotional and related expenses involved in the marketing of only
the Class of shares to which the Plan applies. The Plans do not apply to the
Institutional Class of shares. Such shares are not included in calculating the
Plans' fees, and the Plans are not used to assist in the distribution and
marketing of shares of the Institutional Class. Shareholders of the
Institutional Class may not vote on matters affecting the Plans.

The Plans permit the Fund, pursuant to the Distribution Agreement, to pay
out of the assets of Class A Shares, Class B Shares and Class C Shares monthly
fees to the Distributor for its services and expenses in

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distributing and promoting sales of shares of such classes. These expenses
include, among other things, preparing and distributing advertisements, sales
literature and prospectuses and reports used for sales purposes, compensating
sales and marketing personnel, and paying distribution and maintenance fees to
securities brokers and dealers who enter into agreements with the Distributor.
The Plan expenses relating to Class B and Class C Shares are also used to pay
the Distributor for advancing the commission costs to dealers with respect to
the initial sale of such shares.

In addition, the Fund may make payments out of the assets of Class A,
Class B and Class C Shares directly to other unaffiliated parties, such as
banks, who either aid in the distribution of shares of, or provide services to,
such classes.

The maximum aggregate fee payable by the Fund under the Plans, and the
Fund's Distribution Agreement, is on an annual basis up to 0.30% of Class A
Shares' average daily net assets for the year, and up to 1% (0.25% of which are
service fees to be paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each of the Class B
Shares' and the Class C Shares' average daily net assets for the year. Equity
Funds II, Inc.'s Board of Directors may reduce these amounts at any time. The
Board of Directors set the fee for Class A Shares, pursuant to its Plan, at
0.25% of average daily net assets. The Distributor has elected voluntarily to
waive all payments under the 12b-1 Plan for Class A Shares, Class B Shares and
Class C Shares of the Fund during the commencement of the public offering of the
Fund through January 31, 1999.

All of the distribution expenses incurred by the Distributor and others,
such as broker/dealers, in excess of the amount paid on behalf of Class A, Class
B and Class C Shares would be borne by such persons without any reimbursement
from such Fund Classes. Subject to seeking best price and execution, the Fund
may, from time to time, buy or sell portfolio securities from or to firms which
receive payments under the Plans.

From time to time, the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.

The Plans and the Distribution Agreement, as amended, have been approved
by the Board of Directors of Equity Funds II, Inc., including a majority of the
directors who are not "interested persons" (as defined in the 1940 Act) of
Equity Funds II, Inc. and who have no direct or indirect financial interest in
the Plans, by vote cast in person at a meeting duly called for the purpose of
voting on the Plans and such Distribution Agreement. Continuation of the Plans
and the Distribution Agreement, as amended, must be approved annually by the
Board of Directors in the same manner as specified above.

Each year, the directors must determine whether continuation of the Plans
is in the best interest of shareholders of, respectively, Class A Shares, Class
B Shares and Class C Shares and that there is a reasonable likelihood of the
Plan relating to the Fund Class providing a benefit to that Class. The Plans and
the Distribution Agreement, as amended, may be terminated at any time without
penalty by a majority of those directors who are not "interested persons" or by
a majority vote of the outstanding voting securities of the relevant Fund Class.
Any amendment materially increasing the percentage payable under the Plans must
likewise be approved by a majority vote of the outstanding voting securities of
the relevant Fund Class, as well as by a majority vote of those directors who
are not "interested persons." With respect to the Class A Shares' Plan, any
material increase in the maximum percentage payable thereunder must be approved
by a majority of the outstanding voting Class B Shares. Also, any other material
amendment to the Plans must be approved by a majority vote of the directors,
including a majority of the noninterested directors of Equity Funds II, Inc.
having

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<PAGE>

no interest in the Plans. In addition, in order for the Plans to remain
effective, the selection and nomination of directors who are not "interested
persons" of Equity Funds II, Inc. must be effected by the directors who
themselves are not "interested persons" and who have no direct or indirect
financial interest in the Plans. Persons authorized to make payments under the
Plans must provide written reports at least quarterly to the Board of Directors
for their review.

OTHER PAYMENTS TO DEALERS - CLASS A, CLASS B AND CLASS C SHARES
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Fund Classes exceed certain limits
as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of the funds available from Delaware Investments. In some instances,
these incentives or payments may be offered only to certain dealers who
maintain, have sold or may sell certain amounts of shares. The Distributor may
also pay a portion of the expense of preapproved dealer advertisements promoting
the sale of shares of the funds in the Delaware Investments family.

SPECIAL PURCHASE FEATURES - CLASS A SHARES

BUYING CLASS A SHARES AT NET ASSET VALUE
Class A Shares may be purchased without a front-end sales charge under the
Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.

Current and former officers, directors and employees of Equity Funds II,
Inc., any other fund in the Delaware Investments family, the Manager, the
Manager's affiliates, or any of the Manager's current affiliates and those that
may in the future be created, legal counsel to the funds, and registered
representatives and employees of broker/dealers who have entered into Dealer's
Agreements with the Distributor may purchase Class A Shares of the Fund and any
of the other funds in the Delaware Investments family, including any fund that
may be created, at the net asset value per share. Family members (regardless of
age) of such persons at their direction, and any employee benefit plan
established by any of the foregoing funds, corporations, counsel or
broker/dealers may also purchase shares at net asset value. Class A Shares may
also be purchased at net asset value by current and former officers, directors
and employees (and members of their families) of the Dougherty Financial Group
LLC.

Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charges has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees that provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of the funds in the
Delaware Investments family. Officers, directors and key employees of
institutional clients of the Manager, or any of its affiliates, may purchase
Class A Shares at net asset value. Moreover, purchases may be effected at net
asset value for the benefit of the clients of brokers, dealers and registered
investment advisers affiliated with a broker or dealer, if such broker, dealer
or investment adviser has entered into an agreement with the Distributor
providing specifically for the purchase of Class A Shares in connection with
special investment products, such as wrap accounts or similar fee based
programs. Such purchasers are required to sign a letter stating that the
purchase is for investment only and that the securities may not be resold except
to the issuer. Such purchasers may also be required to sign or deliver

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such other documents as Equity Funds II, Inc. may reasonably require to
establish eligibility for purchase at net asset value.

Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their customers
when they are not eligible to purchase shares of the Institutional Class of the
Fund; and any group retirement plan (excluding defined benefit pension plans),
or such plans of the same employer, for which plan participant records are
maintained on the Retirement Financial Services, Inc. (formerly named Delaware
Investment & Retirement Services, Inc.) proprietary record keeping system that
(i) has in excess of $500,000 of plan assets invested in Class A Shares of the
funds in the Delaware Investments family and any stable value product available
through Delaware Investments, or (ii) is sponsored by an employer that has at
any point after May 1, 1997 had more than 100 employees while such plan has held
Class A Shares of a fund in the Delaware Investments family and such employer
has properly represented to Retirement Financial Services, Inc. in writing that
it has the requisite number of employees and has received written confirmation
back from Retirement Financial Services, Inc.

Purchases of Class A Shares at net asset value may also be made by bank
sponsored retirement plans that are no longer eligible to purchase Institutional
Class shares as a result of a change in distribution arrangements.

Investors in Delaware Investments Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds available from Delaware Investments at net asset value.

Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Investment account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.

Equity Funds II, Inc. must be notified in advance that the trade qualifies
for purchase at net asset value.

LETTER OF INTENTION
The reduced front-end sales charges described above with respect to Class
A Shares are also applicable to the aggregate amount of purchases made within a
13-month period pursuant to a written Letter of Intention provided by the
Distributor and signed by the purchaser, and not legally binding on the signer
or Equity Funds II, Inc., which provides for the holding in escrow by the
Transfer Agent of 5% of the total amount of Class A Shares intended to be
purchased until such purchase is completed within the 13-month period. A Letter
of Intention may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the difference
between the front-end sales charge on Class A Shares purchased at the reduced
rate and the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13- month period, the Transfer Agent will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level designated in
their Letter of Intention) of all their shares of the Fund and of any class of
any of the other mutual funds in the Delaware Investments family (except shares
of any fund in the Delaware Investments family which do not carry a front-end
sales charge or CDSC or Limited CDSC, other than shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a fund in the Delaware Investments family which carried a

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<PAGE>

front-end sales charge, CDSC or Limited CDSC) previously purchased and still
held as of the date of their Letter of Intention toward the completion of such
Letter.

Employers offering a Delaware Investments retirement plan may also
complete a Letter of Intention to obtain a reduced front-end sales charge on
investments of Class A Shares made by the plan. The aggregate investment level
of the Letter of Intention will be determined and accepted by the Transfer Agent
at the point of plan establishment. The level and any reduction in front-end
sales charge will be based on actual plan participation and the projected
investments in funds that are available from Delaware Investments that are
offered with a front-end sales charge, CDSC or Limited CDSC for a 13-month
period. The Transfer Agent reserves the right to adjust the signed Letter of
Intention based on this acceptance criteria. The 13-month period will begin on
the date this Letter of Intention is accepted by the Transfer Agent. If actual
investments exceed the anticipated level and equal an amount that would qualify
the plan for further discounts, any front-end sales charges will be
automatically adjusted. In the event this Letter of Intention is not fulfilled
within the 13-month period, the Plan level will be adjusted (without completing
another Letter of Intention) and the employer will be billed for the difference
in front-end sales charges due, based on the plan's assets under management at
that time. Employers may also include the value (at offering price at the level
designated in their Letter of Intention) of all their shares intended for
purchase that are offered with a front-end sales charge, CDSC or Limited CDSC of
any class. Class B Shares and Class C Shares of the Fund and other fund
available from Delaware Investments which offer corresponding classes of shares
may also be aggregated for this purpose.

COMBINED PURCHASES PRIVILEGE
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Fund, as well as shares of any other class of any of the other
funds in the Delaware Investments family (except shares of any fund in the
Delaware Investments family which do not carry a front-end sales charge, CDSC or
Limited CDSC, other than shares of Delaware Group Premium Fund, Inc.
beneficially owned in connection with the ownership of variable insurance
products, unless they were acquired through an exchange from a fund in the
Delaware Investments family which carried a front-end sales charge, CDSC or
Limited CDSC). In addition, assets held by investment advisory clients of the
Manager or its affiliates in a stable value account may be combined with other
holdings of shares of funds in the Delaware Investments family.

The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).

RIGHT OF ACCUMULATION
In determining the availability of the reduced front-end sales charge with
respect to Class A Shares, purchasers may also combine any subsequent purchases
of Class A Shares, Class B Shares and Class C Shares of the Fund, as well as
shares of any other class of any of the other funds in the Delaware Investments
family which offer such classes (except shares of any funds in the Delaware
Investments family which do not carry a front-end sales charge, CDSC or Limited
CDSC, other than shares of Delaware Group Premium Fund, Inc. beneficially owned
in connection with the ownership of variable insurance products, unless they
were acquired through an exchange from a fund in the Delaware Investments family
which carried a front-end sales charge, CDSC or Limited CDSC). If, for example,
any such purchaser has previously purchased and still holds Class A Shares
and/or shares of any other of the classes described in the previous sentence
with a value of $40,000 and subsequently purchases $60,000 at offering price of
additional shares of Class A Shares, the charge applicable

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to the $60,000 purchase would currently be 3.75%. For the purpose of this
calculation, the shares presently held shall be valued at the public offering
price that would have been in effect were the shares purchased simultaneously
with the current purchase. Investors should refer to the table of sales charges
for Class A Shares to determine the applicability of the Right of Accumulation
to their particular circumstances.

12-MONTH REINVESTMENT PRIVILEGE
Holders of Class A Shares of the Fund (and of Institutional Class shares
which were acquired through an exchange from one of the other mutual funds in
the Delaware Investments family offered with a front-end sales charge) who
redeem such shares have one year from the date of redemption to reinvest all or
part of their redemption proceeds in Class A Shares of the Fund or in Class A
Shares of any of the other funds available from Delaware Investments, subject to
applicable eligibility and minimum purchase requirements, in states where shares
of such other funds may be sold, at net asset value without the payment of a
front-end sales charge. This privilege does not extend to Class A Shares where
the redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds in the
Delaware Investments family offered without a front-end sales charge will be
required to pay the applicable sales charge when purchasing Class A Shares. The
reinvestment privilege does not extend to a redemption of either Class B Shares
or Class C Shares.

Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.

Investors should consult their financial advisers or the Transfer Agent,
which also serves as the Fund's shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Fund Classes' Prospectus) in connection with the
features described above.

GROUP INVESTMENT PLANS
Group Investment Plans which are not eligible to purchase shares of the
Institutional Class may also benefit from the reduced front-end sales charges
for investments in Class A Shares set forth in the table in the Prospectus,
based on total plan assets. If a company has more than one plan investing in the
Delaware Investments family of funds, then the total amount invested in all
plans would be used in determining the applicable front-end sales charge
reduction upon each purchase, both initial and subsequent, upon notification to
the Fund at the time of each such purchase. Employees participating in such
Group Investment Plans may also combine the investments made in their plan
account when determining the applicable front-end sales charge on purchases to
non-retirement investment accounts available from Delaware Investments if they
so notify the Fund in connection with each purchase.

For other retirement plans and special services, see Retirement Plans for
the Fund Classes under Investment Plans.

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THE INSTITUTIONAL CLASS
The Institutional Class of the Fund is available for purchase only by: (a)
retirement plans introduced by persons not associated with brokers or dealers
that are primarily engaged in the retail securities business and rollover
individual retirement accounts from such plans; (b) tax-exempt employee benefit
plans of the Manager or its affiliates and securities dealer firms with a
selling agreement with the Distributor; (c) institutional advisory accounts of
the Manager or its affiliates and those having client relationships with
Delaware Investment Advisers, a division of the Manager, or its affiliates and
their corporate sponsors, as well as subsidiaries and related employee benefit
plans and rollover individual retirement account from such institutional
advisory accounts; (d) a bank, trust company or similar financial institution
investing for its own account or for the account of its trust customers for whom
such financial institution is exercising investment discretion in purchasing
shares of the Class, except where the investment is part of a program that
requires payment to the financial institution of a Rule 12b-1 Plan fee; and (e)
registered investment advisers investing on behalf of clients that consist
solely of institutions and high net-worth individuals having at least $1,000,000
entrusted to the adviser for investment purposes, but only if the adviser is not
affiliated or associated with a broker or dealer and derives compensation for
its services exclusively from its clients for such advisory services.

Shares of the Institutional Class are available for purchase at net asset
value, without the imposition of a front-end or contingent deferred sales charge
and are not subject to Rule 12b-1 expenses.

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INVESTMENT PLANS

REINVESTMENT PLAN/OPEN ACCOUNT
Dividends from net investment income and distributions from realized
securities profits, if any, will be automatically reinvested in additional
shares of the respective Class in which an investor has an account (based on the
net asset value in effect on the reinvestment date) and will be credited to the
shareholder's account on that date. A confirmation of each distribution from
realized securities profits, if any, will be mailed to shareholders in the first
quarter of the fiscal year.

Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the Fund and
Class in which shares are being purchased. Such purchases, which must meet the
minimum subsequent purchase requirements set forth in the Prospectuses and this
Part B, are made for Class A Shares at the public offering price, and for the
Class B Shares and Class C Shares and the Institutional Classes at the net asset
value, at the end of the day of receipt. A reinvestment plan may be terminated
at any time. This plan does not assure a profit nor protect against depreciation
in a declining market.

REINVESTMENT OF DIVIDENDS IN OTHER FUNDS IN THE DELAWARE INVESTMENTS FAMILY
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest their dividends and/or
distributions in any of the mutual funds in the Delaware Investments family,
including the Fund, in states where their shares may be sold. Such investments
will be made at the net asset value per share at the close of business on the
reinvestment date without any front-end sales charge or service fee. The
shareholder must notify the Transfer Agent in writing and must have established
an account in the fund into which the dividends and/or distributions are to be
invested. Any reinvestment directed to a fund in which the investor does not
then have an account, will be treated like all other initial purchases of a
fund's shares. Consequently, an investor should obtain and read carefully the
prospectus for the fund in which the investment is intended to be made before
investing or sending money. The prospectus contains more complete information
about the fund, including charges and expenses. See also Additional Methods of
Adding to Your Investment--Dividend Reinvestment Plan under How to Buy Shares in
the Prospectus for the Fund Classes.

Subject to the following limitations, dividends and/or distributions from
other funds in the Delaware Investments family may be invested in shares of the
Fund provided an account has been established. Dividends from Class A Shares may
not be directed to Class B Shares or Class C Shares. Dividends from Class B
Shares may only be directed to other Class B Shares and dividends from Class C
Shares may only be directed to other Class C Shares.

INVESTING BY ELECTRONIC FUND TRANSFER
Direct Deposit Purchase Plan--Investors may arrange for the Fund to accept
for investment in Class A, Class B or Class C Shares, through an agent bank,
preauthorized government or private recurring payments by Electronic Fund
Transfer. This method of investment assures the timely credit to the
shareholder's account of

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payments such as social security, veterans' pension or compensation benefits,
federal salaries, Railroad Retirement benefits, private payroll checks,
dividends, and disability or pension fund benefits. It also eliminates lost,
stolen and delayed checks.

Automatic Investing Plan--Shareholders of Class A, Class B and Class C
Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.

* * *

Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such plans must be for $25 or more. An investor wishing to take advantage
of either option should contact the Shareholder Service Center at 800-523-1918
for the necessary authorization forms and information. These services can be
discontinued by the shareholder at any time without penalty by giving written
notice.

Payments to the Fund from the federal government or its agencies on behalf
of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
the Fund may liquidate sufficient shares from a shareholder's account to
reimburse the government or the private source. In the event there are
insufficient shares in the shareholder's account, the shareholder is expected to
reimburse the Fund.

DIRECT DEPOSIT PURCHASES BY MAIL
Shareholders may authorize a third party, such as a bank or employer, to
make investments directly to their Fund accounts. The Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Equity Funds II, Inc. for
proper instructions.

WEALTH BUILDER OPTION
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Investments family. Shareholders of the Fund Classes may
elect to invest in one or more of the other mutual funds in the Delaware
Investments family through the Wealth Builder Option. See Wealth Builder Option
and Redemption and Exchange in the Prospectus for the Fund Classes.

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Under this automatic exchange program, shareholders can authorize regular
monthly investments (minimum of $100 per fund) to be liquidated from their
account and invested automatically into other mutual funds in the Delaware
Investments family, subject to the conditions and limitations set forth in the
Fund Classes' Prospectus. The investment will be made on the 20th day of each
month (or, if the fund selected is not open that day, the next business day) at
the public offering price or net asset value, as applicable, of the fund
selected on the date of investment. No investment will be made for any month if
the value of the shareholder's account is less than the amount specified for
investment.

Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation in Wealth Builder at
any time by giving written notice to the fund from which exchanges are made.

ASSET PLANNER
To invest in the funds in the Delaware Investments family using the Asset
Planner asset allocation service, you should complete a Asset Planner Account
Registration Form, which is available only from a financial adviser or
investment dealer. Effective September 1, 1997, the Asset Planner Service is
only available to financial advisers or investment dealers who have previously
used this service. The Asset Planner service offers a choice of four predesigned
asset allocation strategies (each with a different risk/reward profile) in
predetermined percentages in Delaware Investments funds. With the help of a
financial adviser, you may also design a customized asset allocation strategy.

The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Investments accounts into the Asset Planner service may be made at net asset
value under the circumstances described under Investing by Exchange in the
Prospectus. Also see Buying Class A Shares at Net Asset Value under Classes of
Shares. The minimum initial investment per Strategy is $2,000; subsequent
investments must be at least $100. Individual fund minimums do not apply to
investments made using the Asset Planner service. Class A, Class B and Class C
Shares are available through the Asset Planner service. Generally, only shares
within the same class may be used within the same Strategy. However, Class A
Shares of the Fund and of other funds available from Delaware Investments may be
used in the same Strategy with consultant class shares that are offered by
certain other funds in the Delaware Investments family.

An annual maintenance fee, currently $35 per Strategy, is due at the time
of initial investment and by September 30 of each subsequent year. The fee,
payable to Delaware Service Company, Inc. to defray extra costs associated with
administering the Asset Planner service, will be deducted automatically from one
of the funds within your Asset Planner account if not paid by September 30.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. Investors who utilize the Asset Planner for an IRA

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will continue to pay an annual IRA fee of $15 per Social Security number.
Investors will receive a customized quarterly Strategy Report summarizing all
Asset Planner investment performance and account activity during the prior
period. Confirmation statements will be sent following all transactions other
than those involving a reinvestment of distributions.

Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.

RETIREMENT PLANS FOR THE FUND CLASSES
An investment in the Fund may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including the 401(k) deferred compensation plan, Individual Retirement Account
("IRA") and the new Roth IRA and Education IRA.

Among the retirement plans that Delaware Investments offers, Class B
Shares are available for investment only by Individual Retirement Accounts,
SIMPLE IRAs, Roth IRAs, Education IRAs, Simplified Employee Pension Plans,
Salary Reduction Simplified Employee Pension Plans and 403(b) and 457 Deferred
Compensation Plans. The CDSC may be waived on certain redemptions of Class B
Shares and Class C Shares. See Waiver of Contingent Deferred Sales Charge under
Redemption and Exchange in the Prospectus for Class B Shares and Class C Shares
for a list of the instances in which the CDSC is waived.

Purchases of Class B Shares are subject to a maximum purchase limitation
of $250,000 for retirement plans. Purchases of Class C Shares must be in an
amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.

Minimum investment limitations generally applicable to other investors do
not apply to retirement plans other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25 regardless of which Class is selected. Retirement plans may be
subject to plan establishment fees, annual maintenance fees and/or other
administrative or trustee fees. Fees are based upon the number of participants
in the plan as well as the services selected. Additional information about fees
is included in retirement plan materials. Fees are quoted upon request. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such plans.

Certain shareholder investment services available to non-retirement plan
shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase Institutional Class Shares. For
additional information on any of the Plans and Delaware's retirement services,
call the Shareholder Service Center telephone number.

It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these plans, contact your investment dealer or the Distributor.

Taxable distributions from the retirement plans described below may be
subject to withholding.

Please contact your investment dealer or the Distributor for the special
application forms required for the plans described below.

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PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLANS
Prototype Plans are available for self-employed individuals, partnerships,
corporations and other eligible forms of organizations. These plans can be
maintained as Section 401(k), profit sharing or money purchase pension plans.
Contributions may be invested only in Class A Shares and Class C Shares.

INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A document is available for an individual who wants to establish an IRA
and make contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year; however, participation
may be restricted based on certain income limits.

IRA DISCLOSURES
The Taxpayer Relief Act of 1997 provides new opportunities for investors.
Individuals have five types of tax-favored IRA accounts that can be utilized
depending on the individual's circumstances. A new Roth IRA and Education IRA
are available in addition to the existing deductible IRA and non-deductible IRA.

DEDUCTIBLE AND NON-DEDUCTIBLE IRAS
An individual can contribute up to $2,000 in his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income ("AGI") and whether the taxpayer is an active participant
in an employer sponsored retirement plan. Even if a taxpayer is an active
participant in an employer sponsored retirement plan, the full $2,000 is still
available if the taxpayer's AGI is below $30,000 ($50,000 for taxpayers filing
joint returns) for years beginning after December 31, 1997. A partial deduction
is allowed for married couples with income between $50,000 and $60,000, and for
single individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available for
contributions to IRAs by taxpayers whose AGI after IRA deductions exceeds the
maximum income limit established for each year and who are active participants
in an employer sponsored retirement plan.

Taxpayers who are not allowed deductions on IRA contributions still can
make non-deductible IRA contributions of as much as $2,000 for each working
spouse and defer taxes on interest or other earnings from the IRAs.

Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined AGI is
below $150,000. The maximum deductible IRA contribution for a married individual
who is not an active participant, but whose spouse is, is phased out for
combined AGI between $150,000 and $160,000.

CONDUIT (ROLLOVER) IRAS
Certain individuals who have received or are about to receive eligible
rollover distributions from an employer-sponsored retirement plan or another IRA
may rollover the distribution tax-free to a Conduit IRA. The rollover of the
eligible distribution must be completed by the 60th day after receipt of the
distribution; however, if the rollover is in the form of a direct
trustee-to-trustee transfer without going through the distributee's hand, the
60-day limit does not apply.

A distribution qualifies as an "eligible rollover distribution" if it is
made from a qualified retirement plan, a 403(b) plan or another IRA and does not
constitute one of the following:

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(i) Substantially equal periodic payments over the employee's life or life
expectancy or the joint lives or life expectancies of the employee and his/her
designated beneficiary;

(ii) Substantially equal installment payments for a period certain of 10
or more years;

(iii) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;

(iv) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the employee; and

(v) A distribution of after-tax contributions which is not includable in
income.

ROTH IRAS

For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA. As a
result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the
"1998 Act") the $2,000 annual limit will not be reduced by any contributions to
a deductible or nondeductible IRA for the same year. The maximum contribution
that can be made to a Roth IRA is phased out for single filers with AGI between
$95,000 and $110,000, and for couples filing jointly with AGI between $150,000
and $160,000. Qualified distributions from a Roth IRA would be exempt from
federal taxes. Qualified distributions are distributions (1) made after the
five-taxable year period beginning with the first taxable year for which a
contribution was made to a Roth IRA and (2) that are (a) made on or after the
date on which the individual attains age 59 1/2, (b) made to a beneficiary on or
after the death of the individual, (c) attributed to the individual being
disabled, or (d) for a qualified special purpose (e.g., first time homebuyer
expenses).

Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated earnings.

Taxpayers with AGI of $100,000 or less are eligible to convert an existing
IRA (deductible, nondeductible and conduit) to a Roth IRA. Earnings and
contributions from a deductible IRA are subject to a tax upon conversion;
however, no 10% excise tax for early withdrawal would apply. If the conversion
is done prior to January 1, 1999, then the income from the conversion can be
included in income ratably over a four-year period beginning with the year of
conversion.

EDUCATION IRAS
For taxable years beginning after December 31, 1997, an Education IRA has
been created exclusively for the purpose of paying qualified higher education
expenses. Taxpayers can make non-deductible contributions up to $500 per year
per beneficiary. The $500 annual limit is in addition to the $2,000 annual
contribution limit applicable to IRAs and Roth IRAs. Eligible contributions must
be in cash and made prior to the date the beneficiary reaches age 18. Similar to
the Roth IRA, earnings would accumulate tax-free. There is no requirement that
the contributor be related to the beneficiary, and there is no limit on the
number of beneficiaries for whom one contributor can establish Education IRAs.
In addition, multiple Education IRAs can be created for the same beneficiaries,
however, the contribution limit of all contributions for a single beneficiary
cannot exceed $500 annually.

This $500 annual contribution limit for Education IRAs is phased out
ratably for single contributors with modified AGI between $95,000 and $110,000,
and for couples filing jointly with modified AGI of between

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<PAGE>

$150,000 and $160,000. Individuals with modified AGI above the phase-out range
are not allowed to make contributions to an Education IRA established on behalf
of any other individual.

Distributions from an Education IRA are excludable from gross income to
the extent that the distribution does not exceed qualified higher education
expenses incurred by the beneficiary during the year the distribution is made
regardless of whether the beneficiary is enrolled at an eligible educational
institution on a full-time, half-time, or less than half-time basis.

Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of such a
distribution will be includible in gross income of the beneficiary and subject
to an additional 10% penalty tax if the distribution is not for qualified higher
educations expenses. Tax-free (and penalty-free) transfers and rollovers of
account balances from one Education IRA benefiting one beneficiary to another
Education IRA benefiting a different beneficiary (as well as redesignations of
the named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or rollover is
made before the time the old beneficiary reaches age 30 and the new beneficiary
reaches age 18.

A company or association may establish a Group IRA or Group Roth IRA for
employees or members who want to purchase shares of the Fund.

Investments generally must be held in the IRA until age 59 1/2 in order to
avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. For information concerning the applicability of a CDSC upon
redemption of Class B Shares and Class C Shares, see Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectus for Class B Shares and Class C Shares.

Effective January 1, 1997, the 10% premature distribution penalty will not
apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks. In addition, effective January 1, 1998, the new law allows for premature
distribution without a 10% penalty if (i) the amounts are used to pay qualified
higher education expenses (including graduate level courses) of the taxpayer,
the taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer, taxpayer's
spouse or any child or grandchild of the taxpayer or the taxpayer's spouse. A
qualified first-time homebuyer is someone who has had no ownership interest in a
residence during the past two years. The aggregate amount of distribution for
first-time home purchases cannot exceed a lifetime cap of $10,000.

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SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions on behalf of all
eligible employees. Each of the Classes is available for investment by a
SEP/IRA.

SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION PLAN ("SAR/SEP")
Although new SAR/SEP plans may not be established after December 31, 1996,
existing plans may continue to be maintained by employers having 25 or fewer
employees. An employer may elect to make additional contributions to such
existing plans.

PROTOTYPE 401(K) DEFINED CONTRIBUTION PLAN
Section 401(k) of the Code permits employers to establish qualified plans
based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans. Plan
documents are available to enable employers to establish a plan. An employer may
also elect to make profit sharing contributions and/or matching contributions
with investments in only Class A Shares and Class C Shares or certain other
funds in the Delaware Investments family. Purchases under the Plan may be
combined for purposes of computing the reduced front-end sales charge applicable
to Class A Shares as set forth in the table in the Prospectus for the Fund
Classes.

DEFERRED COMPENSATION PLAN FOR PUBLIC SCHOOLS AND NON-PROFIT ORGANIZATIONS
("403(B)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase shares
of any of the Classes in conjunction with such an arrangement. Applicable
front-end sales charges with respect to Class A Shares for such purchases are
set forth in the table in the Prospectus for the Fund Classes.

DEFERRED COMPENSATION PLAN FOR STATE AND LOCAL GOVERNMENT EMPLOYEES ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of the Fund. Although investors may use their
own plan, there is available a Delaware Investments 457 Deferred Compensation
Plan. Interested investors should contact the Distributor or their investment
dealers to obtain further information. Applicable front-end sales charges for
such purchases of Class A Shares are set forth in the table in the Prospectus
for the Fund Classes.

SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a 401(k) Plan but
is easier to administer than a typical 401(k) Plan. It requires employers to
make contributions on behalf of their employees and also has a salary deferral
feature that permits employees to defer a portion of their salary into the plan
on a pre-tax basis. A SIMPLE IRA is available only to plan sponsors with 100 or
fewer employees.

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SIMPLE 401(K)
A SIMPLE 401(k) is like a regular 401(k) except that it is available only
to plan sponsors 100 or fewer employees and, in exchange for mandatory plan
sponsor contributions, discrimination testing is not required.

DETERMINING OFFERING PRICE AND NET ASSET VALUE

Orders for purchases of Class A Shares are effected at the offering price
next calculated by the Fund after receipt of the order by the Fund, its agent,
or certain other authorized persons. See Distribution and Service under
Investment Management Agreement. Orders for purchases of Class B Shares, Class C
Shares and Institutional Class Shares are effected at the net asset value per
share next calculated by the Fund after receipt of the order by the Fund, its
agent, or other authorized persons. Selling dealers are responsible for
transmitting orders promptly.

The offering price for Class A Shares consists of the net asset value per
share plus any applicable front-end sales charges. Offering price and net asset
value are computed as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.
The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for the days when the following holidays are
observed: New Year's Day, Martin Luther King, Jr.'s Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. When the New York Stock Exchange is closed, the Fund will generally
be closed, pricing calculations will not be made and purchase and redemption
orders will not be processed.

An example showing how to calculate the net asset value per share and, in
the case of Class A Shares, the offering price per share, will be included in
the Fund's financial statements which are incorporated by reference into this
Part B.

The Fund's net asset value per share is computed by adding the value of
all the Fund's securities and other assets, deducting any liabilities of the
Fund, and dividing by the number of Fund shares outstanding. Expenses and fees
are accrued daily. Portfolio securities, except for bonds, which are primarily
traded on a national or foreign securities exchange are valued at the last sale
price on that exchange. Options are valued at the last reported sales price or,
if no sales are reported, at the mean between bid and asked prices. Foreign
securities and the prices of foreign securities denominated in foreign
currencies are translated into U.S. dollars at the mean between the bid and
offer quotations of such currencies based on rates in effect as of the close of
the London Stock Exchange. Securities not traded on a particular day,
over-the-counter securities and government and agency securities are valued at
the mean value between bid and asked prices. Money market instruments having a
maturity of less than 60 days are valued at amortized cost. Debt securities
(other than short-term obligations) are valued on the basis of valuations
provided by a pricing service when such prices are believed to reflect the fair
value of such securities. Use of a pricing service has been approved by the
Board of Directors. Subject to the foregoing, securities for which market
quotations are not readily available and other assets are valued at fair value
as determined in good faith and in a method approved by the Board of Directors.

Each Class of the Fund will bear, pro-rata, all of the common expenses of
the Fund. The net asset values of all outstanding shares of each Class of the
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by the Fund will be borne
on a pro-rata basis by each outstanding share of

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a Class, based on each Class' percentage in the Fund represented by the value of
shares of such Classes, except that the Institutional Class will not incur any
of the expenses under the Fund's 12b-1 Plans and Class A, Class B and Class C
Shares alone will bear the 12b-1 Plan expenses payable under their respective
Plans. Due to the specific distribution expenses and other costs that will be
allocable to each Class, the net asset value of each Class of the Fund will
vary.

REDEMPTION AND REPURCHASE

Any shareholder may require the Fund to redeem shares by sending a WRITTEN
REQUEST, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares and Institutional Class shares only if a shareholder specifically
requests them. Certificates are not issued for Class B Shares or Class C Shares.
If stock certificates have been issued for shares being redeemed, they must
accompany the written request. For redemptions of $50,000 or less paid to the
shareholder at the address of record, the request must be signed by all owners
of the shares or the investment dealer of record, but a signature guarantee is
not required. When the redemption is for more than $50,000, or if payment is
made to someone else or to another address, signatures of all record owners are
required and a signature guarantee may be required. A signature guarantee can be
obtained from a commercial bank, a trust company or a member of a securities
transfer association medallion program. A signature guarantee cannot be provided
by a notary public. A signature guarantee is designed to protect the
shareholders, the Fund and its agents from fraud. The Fund reserves the right to
reject a signature guarantee supplied by an institution based on its
creditworthiness. The Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its creditworthiness. The Fund may
request further documentation from corporations, retirement plans, executors,
administrators, trustees or guardians.

In addition to redemption of Fund shares by the Fund, the Distributor,
acting as agent of the Fund, offers to repurchase Fund shares from
broker/dealers acting on behalf of shareholders. The redemption or repurchase
price, which may be more or less than the shareholder's cost, is the net asset
value per share next determined after receipt of the request in good order by
the Fund, its agent or certain other authorized persons (see Distribution and
Service under Investment Management Agreement), subject to any applicable CDSC
or Limited CDSC. This is computed and effective at the time the offering price
and net asset value are determined. See Determining Offering Price and Net Asset
Value. The Fund and the Distributor end their business days at 5 p.m., Eastern
time. This offer is discretionary and may be completely withdrawn without
further notice by the Distributor.

Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.

Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased

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<PAGE>

at Net Asset Value under Redemption and Exchange in the Prospectus for the Fund
Classes. Redemptions of Class B Shares made within three years of purchase are
subject to a CDSC of 2% during the first two years of purchase and 1% during the
third year of purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge--Class B Shares and Class C Shares under Classes of Shares in the
Prospectus for the Fund Classes. Except for the applicable CDSC or Limited CDSC
and, with respect to the expedited payment by wire described below, for which,
in the case of the Fund Classes, there is currently a $7.50 bank wiring cost,
neither the Fund nor its Distributor charges a fee for redemptions or
repurchases, but such fees could be charged at any time in the future.

Payment for shares redeemed will ordinarily be mailed the next business
day, but no later than seven days, after receipt of a redemption request in good
order by the Fund or certain other authorized persons (see Distribution and
Service under Investment Management Agreement); provided, however, that each
commitment to mail or wire redemption proceeds by a certain time, as described
below, is modified by the qualifications described in the next paragraph.

The Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already been
settled. The Fund will honor the redemption requests as to shares for which a
check was tendered as payment, but the Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared.The hold period
against a recent purchase may be up to but not in excess of 15 days, depending
upon the origin of the investment check. Dividends will continue to be earned
until the redemption is processed. This potential delay can be avoided by making
investments by wiring Federal Funds.

If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund will automatically redeem from the shareholder's account the Fund's shares
purchased by the check plus any dividends earned thereon. Shareholders may be
responsible for any losses to the Fund or to the Distributor.

In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably
practical, or it is not reasonably practical for the Fund fairly to value its
assets, or in the event that the Commission has provided for such suspension for
the protection of shareholders, the Fund may postpone payment or suspend the
right of redemption or repurchase. In such case, the shareholder may withdraw
the request for redemption or leave it standing as a request for redemption at
the net asset value next determined after the suspension has been terminated.

Payment for shares redeemed or repurchased may be made either in cash or
in kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, Equity Funds
II, Inc. has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder.

The value of the Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to the Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.

-43-

<PAGE>

SMALL ACCOUNTS
Before the Fund involuntarily redeems shares from an account that, under
the circumstances listed in the relevant Prospectus, has remained below the
minimum amounts required by the Fund's Prospectuses and sends the proceeds to
the shareholder, the shareholder will be notified in writing that the value of
the Fund shares in the account is less than the minimum required and will be
allowed 60 days from the date of notice to make an additional investment to meet
the required minimum. See The Conditions of Your Purchase under How to Buy
Shares in the Fund's Prospectuses. Any redemption in an inactive account
established with a minimum investment may trigger mandatory redemption. No CDSC
or Limited CDSC will apply to the redemptions described in this paragraph.

* * *

The Fund has made available certain special redemption privileges, as
described below. The Fund reserves the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.

EXPEDITED TELEPHONE REDEMPTIONS
Shareholders of the Fund Classes or their investment dealers of record
wishing to redeem any amount of Fund shares of $50,000 or less for which
certificates have not been issued may call the Shareholder Service Center at
800-523-1918 or, in the case of shareholders of the Institutional Class, their
Client Services Representative at 800-828-5052 prior to the time the offering
price and net asset value are determined, as noted above, and have the proceeds
mailed to them at the address of record. Checks payable to the shareholder(s) of
record will normally be mailed the next business day, but no later than seven
days, after the receipt of the redemption request. This option is only available
to individual, joint and individual fiduciary-type accounts.

In addition, redemption proceeds of $1,000 or more can be transferred to
your predesignated bank account by wire or by check by calling the phone numbers
listed above. An authorization form must have been completed by the shareholder
and filed with the Fund before the request is received. Payment will be made by
wire or check to the bank account designated on the authorization form as
follows:

1. PAYMENT BY WIRE: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption from Class A Shares, Class B Shares and Class C Shares. If
the proceeds are wired to the shareholder's account at a bank which is not a
member of the Federal Reserve System, there could be a delay in the crediting of
the funds to the shareholder's bank account.

2. PAYMENT BY CHECK: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, from the date of the
telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.

REDEMPTION REQUIREMENTS: In order to change the name of the bank and the
account number it will be necessary to send a written request to the Fund and a
signature guarantee may be required. Each signature guarantee must be supplied
by an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness.

-44-

<PAGE>

To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.

If expedited payment under these procedures could adversely affect the
Fund, the Fund may take up to seven days to pay the shareholder.

Neither the Fund nor its Transfer Agent is responsible for any shareholder
loss incurred in acting upon written or telephone instructions for redemption or
exchange of Fund shares which are reasonably believed to be genuine. With
respect to such telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone are genuine
(including verification of a form of personal identification) as, if it does
not, the Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.

SYSTEMATIC WITHDRAWAL PLANS
Shareholders of Class A Shares, Class B Shares and Class C Shares who own
or purchase $5,000 or more of shares at the offering price, or net asset value,
as applicable, for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Fund does not recommend any specific
amount of withdrawal. This $5,000 minimum does not apply for the Fund's
prototype retirement plans. Shares purchased with the initial investment and
through reinvestment of cash dividends and realized securities profits
distributions will be credited to the shareholder's account and sufficient full
and fractional shares will be redeemed at the net asset value calculated on the
third business day preceding the mailing date.

Checks are dated either the 1st or the 15th of the month, as selected by
the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital and the share balance
may in time be depleted, particularly in a declining market.

The sale of shares for withdrawal payments constitutes a taxable event and
a shareholder may incur a capital gain or loss for federal income tax purposes.
This gain or loss may be long-term or short-term depending on the holding period
for the specific shares liquidated. Premature withdrawals from retirement plans
may have adverse tax consequences.

Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is a participant in one of our
retirement plans or is investing in funds in the Delaware Investments family
which do not carry a sales charge. Redemptions of Class A Shares pursuant to a
Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase was
made at net asset value and a dealer's commission has been paid on that
purchase. Redemptions of Class B Shares or Class C Shares pursuant to a
Systematic Withdrawal Plan may be subject to a CDSC, unless the annual amount

-45-

<PAGE>

selected to be withdrawn is less than 12% of the account balance on the date
that the Systematic Withdrawal Plan was established. See Waiver of Contingent
Deferred Sales Charge - Class B and Class C Shares and Waiver of Limited
Contingent Deferred Sales Charge - Class A Shares under Redemption and Exchange
in the Prospectus for the Fund Classes. Shareholders should consult their
financial advisers to determine whether a Systematic Withdrawal Plan would be
suitable for them.

An investor wishing to start a Systematic Withdrawal Plan must complete an
authorization form. If the recipient of Systematic Withdrawal Plan payments is
other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.

The Systematic Withdrawal Plan is not available with respect to the
Institutional Class.

-46-

<PAGE>

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As such, the Fund will not be subject to federal
income tax on net investment income and net realized capital gains which are
distributed to shareholders.

Each Class of shares of the Fund will share proportionately in the
investment income and expenses of the Fund, except that Class A Shares, Class B
Shares and Class C Shares alone will incur distribution fees under their
respective 12b-1 Plans.

The Fund intends to pay dividends from net investment income on an annual
basis. Distributions of net capital gains, if any, realized on sales of
investments will be distributed annually during the quarter following the close
of the fiscal year.

All dividends and any capital gains distributions will be automatically
credited to the shareholder's account in additional shares of the same Class
unless, in the case of shareholders in the Fund Classes, the shareholder
requests in writing that such dividends and/or distributions be paid in cash.
Dividend payments of $1.00 or less will be automatically reinvested,
notwithstanding a shareholder's election to receive dividends in cash. If such a
shareholder's dividends increase to greater than $1.00, the shareholder would
have to file a new election in order to begin receiving dividends in cash again.

Any check in payment of dividends or other distributions which cannot be
delivered by the United States Post Office or which remains uncashed for a
period of more than one year may be reinvested in the shareholder's account at
the then-current net asset value and the dividend option may be changed from
cash to reinvest. The Fund may deduct from a shareholder's account the costs of
the Fund's effort to locate a shareholder if a shareholder's mail is returned by
the Post Office or the Fund is otherwise unable to locate the shareholder or
verify the shareholder's mailing address. These costs may include a percentage
of the account when a search company charges a percentage fee in exchange for
their location services. See also Other Tax Requirements under Accounting and
Tax Issues.

Persons not subject to tax will not be required to pay taxes on
distributions.

Dividends from investment income and short-term capital gains
distributions are treated by shareholders as ordinary income for federal income
tax purposes, whether received in cash or in additional shares. Distributions of
long-term capital gains, if any, are taxable to shareholders as long-term
capital gains, regardless of the length of time an investor has held such
shares, and these gains are currently taxed at long-term capital gain rates
described below. The tax status of dividends and distributions paid to
shareholders will not be affected by whether they are paid in cash or in
additional shares. The Fund is treated as a single tax entity and capital gains
for the Fund will be calculated separately from the other funds of Equity Funds
II, Inc..

Under the Taxpayer Relief act of 1997 (the "1997 Act"), as revised by the
1998 Act, the Fund is required to track its sales of portfolio securities and to
report its capital gain distributions to you according to the following
categories of holding periods:

-47-
<PAGE>

"MID-TERM CAPITAL GAINS" OR "28 PERCENT RATE GAIN": securities sold
by the Fund after July 28, 1997 that were held more than one year
but not more than 18 months. These gains will be taxable to
individual investors at a maximum rate of 28%.
"1997 ACT LONG-TERM CAPITAL GAINS" OR "20 PERCENT RATE GAIN":
securities sold by the Fund between May 7, 1997 and July 28, 1997
that were held for more than 12 months, and securities sold by the
Fund after July 28, 1997 that were held for more than 18 months. As
revised by the 1998 Act, this rate applies to securities held for
more than 12 months for tax years beginning after December 31,
1997. These gains will be taxable to individual investors at a
maximum rate of 20% for investors in the 28% or higher federal
income tax brackets, and at a maximum rate of 10% for investors in
the 15% federal income tax bracket.

"QUALIFIED 5-YEAR GAINS": For individuals in the 15% bracket,
qualified 5-year gains are net gains on securities held for more
than 5 years which are sold after December 31, 2000. For
individuals who are subject to tax at higher rate brackets,
qualified 5-year gains are net gains on securities which are
purchased after December 31, 2000 and are held for more than 5
years. Taxpayers subject to tax at a higher rate brackets may also
make an election for shares held on January 1, 2001 to recognize
gain on their shares (any loss is disallowed) in order to qualify
such shares as qualified 5-year property as though purchased after
December 31, 2000. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or
higher federal income tax brackets, and at a maximum rate of 8% for
investors in the 15% federal income tax bracket when sold after the
5 year holding period.

A portion of the Fund's dividends may qualify for the dividends-received
deduction for corporations provided in the federal income tax law. The portion
of dividends paid by the Fund that so qualifies will be designated each year in
a notice mailed to Fund shareholders, and cannot exceed the gross amount of
dividends received by such Fund from domestic (U.S.) corporations that would
have qualified for the dividends-received deduction in the hands of the Fund if
the Fund was a regular corporation. The availability of the dividends-received
deduction is subject to certain holding period and debt financing restrictions
imposed under the Code on the corporation claiming the deduction. Under the 1997
Act, the amount that the Fund may designate as eligible for the
dividends-received deduction will be reduced or eliminated if the shares on
which the dividends earned by the Fund were debt-financed or held by the Fund
for less than a 46-day period during a 90-day period beginning 45 days before
the ex-dividend date and ending 45 days after the ex-dividend date. Similarly,
if your Fund shares are debt-financed or held by you for less than a 46-day
period during a 90-day period beginning 45 days before the ex-dividend date and
ending 45 days after the ex-dividend date, then the dividends-received deduction
for Fund dividends on your shares may also be reduced or eliminated. Even if
designated as dividends eligible for the dividends-received deduction, all
dividends (including any deducted portion) must be included in your alternative
minimum taxable income calculation.

Shareholders will be notified annually by Equity Funds II, Inc. as to the
federal income tax status of dividends and distributions paid by the Fund.

-48-

<PAGE>

INVESTMENT MANAGEMENT AGREEMENT

The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to the Fund, subject to the supervision
and direction of Equity Funds II, Inc.'s Board of Directors.

The Manager and its predecessors have been managing the funds in Delaware
Investments since 1938. On July 31, 1998, the Manager and its affiliates within
Delaware Investments, including Delaware International Advisers Ltd., were
managing in the aggregate more than $43 billion in assets in the various
institutional or separately managed (approximately $25,873,990,000) and
investment company (approximately $17,929,500,000) accounts.

The Investment Management Agreement for the Fund is dated September 14,
1998 and was approved by shareholders on September 14, 1998. The Agreement has
an initial term of two years and may be renewed each year only so long as such
renewal and continuance are specifically approved at least annually by the Board
of Directors or by vote of a majority of the outstanding voting securities of
the Fund, and only if the terms of and renewal thereof have been approved by the
vote of a majority of the directors of Equity Funds II, Inc. who are not parties
thereto or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement is terminable
without penalty on 60 days' notice by the directors of Equity Funds II, Inc. or
by the Manager. The Agreement will terminate automatically in the event of its
assignment.

Under the Investment Management Agreement for the Fund, the Manager is
paid an annual fee equal to 0.65% on the first $500 million of average daily net
assets, 0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50%
on the average daily net assets in excess of $2.5 billion.

The Manager has elected voluntarily to waive that portion, if any, of the
annual management fees payable by the Fund and to pay certain expenses of the
Fund to the extent necessary to ensure that the Total Operating Expenses of the
Fund (exclusive of 12b-1 Plan expenses, taxes, interest, brokerage commissions
and extraordinary expenses) do not exceed, on an annualized basis, 0.75% of the
average daily net assets of each Class from the commencement of the public
offering of Classes through January 31, 1999.

Under the general supervision of the Board of Directors, the Manager
manages the Fund's portfolio in accordance with the Fund's stated investment
objective and policy and makes and implements all investment decisions on behalf
of the Fund. The Manager pays the salaries of all directors, officers and
employees of Equity Funds II, Inc. who are affiliated with the Manager. The Fund
pays all of its other expenses, including its proportionate share of rent and
certain other administrative expenses.

DISTRIBUTION AND SERVICE
The Distributor, Delaware Distributors, L.P., located at 1818 Market
Street, Philadelphia, PA 19103, serves as the national distributor of Fund
shares under a Distribution Agreement dated September 14, 1998. The Distributor
is an affiliate of the Manager and bears all of the costs of promotion and
distribution, except for payments by the Fund on behalf of the Class A Shares,
Class B Shares and Class C Shares under their respective 12b-1 Plans.

The Transfer Agent, Delaware Service Company, Inc., another affiliate of
the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as the
Fund's shareholder servicing, dividend disbursing and

-49-

<PAGE>

transfer agent pursuant to an Amended and Restated Shareholders Services
Agreement dated September 14, 1998. The Transfer Agent also provides accounting
services to the Fund pursuant to the terms of a separate Fund Accounting
Agreement. The Transfer Agent is also an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc.

The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders in addition to the Transfer Agent. Such brokers
are authorized to designate other intermediaries to accept purchase and
redemption orders on the behalf of the Fund. For purposes of pricing, the Fund
will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. Investors may be charged a fee when effecting transactions through a
broker or agent.

-50-

<PAGE>

OFFICERS AND DIRECTORS

The business and affairs of Equity Funds II, Inc. are managed under the
direction of its Board of Directors.

Certain officers and directors of Equity Funds II, Inc. hold identical
positions in each of the other funds in the Delaware Investments family. On
August 31, 1998, Equity Funds II, Inc.'s officers and directors, as a group,
owned less than 1% of the outstanding shares of the Class A Shares, Class B
Shares, Class C Shares and the Institutional Class of Decatur Income Fund and
Decatur Total Return Fund, respectively, less than 1% of the Class A Shares,
Class B Shares and Class C Shares of Blue Chip Fund and Social Awareness Fund,
respectively and approximately 2% of the outstanding shares of the Institutional
Class of Blue Chip Fund and Social Awareness Fund, respectively.

As of August 31, 1998, management believes the following accounts held of
record 5% or more of the outstanding shares of, the Class A Shares, Class B
Shares, Class C Shares and the Institutional Class of Decatur Income Fund,
Decatur Total Return Fund, Blue Chip Fund and Social Awareness Fund. Management
has no knowledge of beneficial ownership of these shares:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Decatur Income B Class MLPF&S For the Sole Benefit of its
Customers SEC#97FA4
Attention: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 892,891 11.46%

Decatur Income Fund C Class MLPF&S for the Sole Benefit of Its
Customers SEC#97HY6
Attention: Fund Administration
4600 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 290,716 27.02%

Decatur Income Fund The Northern Trust Co.
Institutional Class Cust. J Paul Getty Trust
26-00813/2-25543
401 Wilshire Blvd, Ste. 1000
Santa Monica, CA 90401 3,352,895 29.42%

RS 401(k) Plan
Price Waterhouse LLP Savings Plan
c/o DELPAC 16th Floor
1818 Market Street
Philadelphia, PA 19103 3,180,796 29.91%

</TABLE>

-51-

<PAGE>

<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Decatur Income Fund RS 401(k) Plan
Institutional Class Day & Zimmerman Start
Attn: Retirement Dept.
1818 Market Street
Philadelphia, PA 19103 1,673,727 14.68%

Grace S&W Linton Nelson
Foundation Incorporation 7/5/84
c/o Fred C. Aldridge, Jr.
940 W. Valley Road, Suite 1601
Wayne, PA 19087 1,159,835 10.17%

Decatur Total Return Merrill Lynch, Pierce, Fenner & Smith
Fund B Class For the Sole Benefit of its
Customers SEC#97FA5
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 1,174,941 10.69%

Decatur Total Return Fund Merrill Lynch, Pierce, Fenner & Smith
C Class For the Sole Benefit of its
Customers SEC#97HY7
Attn: Fund Administration
4600 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246 426,185 17.40%

Decatur Total Return Fund Federated Life Insurance Company
Institutional Class Separate Sub-Account A
Attn: Tom Koch
P.O. BOX 328
Owatonna, MN 55060 1,732,753 29.77%

First Trust NA
Trust Northern States Power
Employee Retirement Savings Plan
Mutual Funds A/C 21736111
P.O. Box 64482
St. Paul, MN 55164 1,673,699 28.76%

Lincoln National Life Insurance Co.
Attn: Karen Gerk 4C01
1300 Clinton Street
Fort Wayne, IN 46802 1,612,752 27.71%
</TABLE>

-52-

<PAGE>

<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Blue Chip Fund B Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 26,090 6.99%

Blue Chip Fund C Class Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 7,284 7.91%

NSFC FEBO # APW-641294
NFSC/FMTC IRA
FBO Robert G. Lutz
138 Canyon Road
Montpelier, ID 83254 5,429 5.90%

Blue Chip Fund RS DMTC 401(k) Plan
Institutional Class AERO Corporation 401(k) Plan
Attn: Retirement Plans
1818 Market Street
Philadelphia, PA 19103 72,210 76.98%

RS DMC Employee Profit Sharing Plan
Delaware Management Company
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103 20,658 22.02%
</TABLE>

-53-

<PAGE>

<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Social Awareness Fund Reliance Trust Co. Cust.
A Class FBO Sisters of Mercy NC
P.O. Box 48449
Atlanta, GA 30362 293,852 10.00%

Social Awareness Fund MLPF&S
C Class For the Sole Benefit of its Customers
Attn: Fund Administration SEC#97NN3 4800
Deer Lake Drive East, 2nd Fl.
Jacksonville, Fl 32246 41,270 6.83%

Social Awareness Fund RS DMC Employee Profit Sharing Plan
Institutional Class Delaware Management Co.
Employee Profit Sharing Trust
c/o Rick Seidel
1818 Market Street
Philadelphia, PA 19103 23,864 97.71%
</TABLE>

DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust), Delaware
Management Company, Inc. , Delaware Investment Advisers (a series of Delaware
Management Business Trust), Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Management Trust Company,
Delaware International Holdings Ltd., Founders Holdings, Inc., Delaware
International Advisers Ltd., Delaware Capital Management, Inc. and Retirement
Financial Services, Inc. are direct or indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.

Certain officers and directors of Equity Funds II, Inc. hold identical
positions in each of the other funds in the Delaware Investments family.
Directors and principal officers of Equity Funds II, Inc. are noted below along
with their ages and their business experience for the past five years. Unless
otherwise noted, the address of each officer and director is One Commerce
Square, Philadelphia, PA 19103.

-54-

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
*WAYNE A. STORK (61)
Chairman and Director and/or Trustee of Equity Funds II, Inc., 33 other investment companies in the
Delaware Investments family and Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer and Director of DMH Corp., Delaware Distributors, Inc.
and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer and Director/Trustee of
Delaware Management Company, Inc. and Delaware Management Business Trust
Chairman, President, Chief Executive Officer and Chief Investment Officer of Delaware Management
Company (a series of Delaware Management Business Trust)
Chairman, Chief Executive Officer and Chief Investment Officer of Delaware Investment Advisers
(a series of Delaware Management Business Trust)
Chairman, Chief Executive Officer and Director of Delaware International Advisers Ltd., Delaware
International Holdings Ltd. and Delaware Management Holdings, Inc.
President and Chief Executive Officer of Delvoy, Inc.
Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Retirement Financial Services, Inc.
During the past five years, Mr. Stork has served in various executive capacities at different times
within the Delaware organization.

*JEFFREY J. NICK (45)
President, Chief Executive Officer and Director of Equity Funds II, Inc. and 33 other investment
companies in the Delaware Investments family
President and Director of Delaware Management Holdings, Inc.
President, Chief Executive Officer and Director of Lincoln National Investment Companies, Inc.
President of Lincoln Funds Corporation
Director of Delaware International Advisers Ltd.
From 1992 to 1996, Mr. Nick was Managing Director of Lincoln National UK plc and from 1989 to 1992,
he was Senior Vice President responsible for corporate planning and development for Lincoln
National Corporation.

RICHARD G. UNRUH, JR. (58)
Executive Vice President of Equity Funds II, Inc., 33 other investment companies in the Delaware
Investments family, Delaware Management Holdings, Inc., Delaware Management Company (a series
of Delaware Management Business Trust) and Delaware Capital Management, Inc.
President of Delaware Investment Advisers (a series of Delaware Management Business Trust)
Executive Vice President and Director/Trustee of Delaware Management Company, Inc. and Delaware
Management Business Trust
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive capacities at different times
within the Delaware organization.
</TABLE>
- ----------------------
*Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.

-55-

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
PAUL E. SUCKOW (51)
Executive Vice President/Chief Investment Officer, Fixed Income of Equity Funds II, Inc., 33 other
investment companies in the Delaware Investments family, Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business Trust) and Delaware Management
Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc. and Delaware Management Business
Trust
Director of Founders CBO Corporation
Director of HYPPCO Finance Company Ltd.
Before returning to Delaware Investments in 1993, Mr. Suckow was Executive Vice President and
Director of Fixed Income for Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio manager for Delaware Investments.

DAVID K. DOWNES (58)
Executive Vice President, Chief Operating Officer, Chief Financial Officer of Equity Funds II, Inc., 33
other investment companies in the Delaware Investments family, Delaware Management Holdings,
Inc., Founders CBO Corporation, Delaware Capital Management, Inc., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware Distributors, L.P.
Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Trustee of
Delaware Management Business Trust
Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director of
Delaware Management Company, Inc., DMH Corp., Delaware Distributors, Inc., Founders
Holdings, Inc. and Delvoy, Inc.
President, Chief Executive Officer, Chief Financial Officer and Director of Delaware Service
Company, Inc.
President, Chief Operating Officer, Chief Financial Officer and Director of Delaware International
Holdings Ltd.
Chairman, Chief Executive Officer and Director of Delaware Management Trust Company and Retirement
Financial Services, Inc.
Director of Delaware International Advisers Ltd.
Vice President of Lincoln Funds Corporation
During the past five years, Mr. Downes has served in various executive capacities at different times
within the Delaware organization.

WALTER P. BABICH (70)
Director and/or Trustee of Equity Funds II, Inc. and 33 other investment companies in the Delaware
Investments family.
460 North Gulph Road, King of Prussia, PA 19406
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and from 1988 to 1991, he was a
partner of I&L Investors.
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
<S> <C>
JOHN H. DURHAM (61)
Director and/or Trustee of Equity Funds II, Inc. and 18 other investment companies in the Delaware
Investments family.
120 Gibraltar Road, Horsham, PA 19044
Partner, Complete Care Services
Mr. Durham served as Chairman of the Board of each fund in the Delaware Investments family from
1986 to 1991; President of each fund from 1977 to 1990; and Chief Executive Officer of each
fund from 1984 to 1990. Prior to 1992, with respect to Delaware Management Holdings, Inc.,
Delaware Management Company, Delaware Distributors, Inc. and Delaware Service Company, Inc.,
Mr. Durham served as a director and in various executive capacities at different times.

ANTHONY D. KNERR (59)
Director and/or Trustee of Equity Funds II, Inc. and 33 other investment companies in the Delaware
Investments family.
500 Fifth Avenue, New York, NY 10110
Founder and Managing Director, Anthony Knerr & Associates
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance and Treasurer of Columbia
University, New York. From 1987 to 1989, he was also a lecturer in English at the University.
In addition, Mr. Knerr was Chairman of The Publishing Group, Inc., New York, from 1988 to
1990. Mr. Knerr founded The Publishing Group, Inc. in 1988.

ANN R. LEVEN (57)
Director and/or Trustee of Equity Funds II, Inc. and 33 other investment companies in the Delaware
Investments family.
785 Park Avenue, New York, NY 10021
Treasurer, National Gallery of Art
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer of the Smithsonian Institution,
Washington, DC, and from 1975 to 1992, she was Adjunct Professor of Columbia Business School.

W. THACHER LONGSTRETH (77)
Director and/or Trustee of Equity Funds II, Inc. and 33 other investment companies in the Delaware
Investments family.
City Hall, Philadelphia, PA 19107
Philadelphia City Councilman.

THOMAS F. MADISON (62)
Director and/or Trustee of Equity Funds II, Inc. and 33 other investment companies in the Delaware
Investments family.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402
President and Chief Executive Officer, MLM Partners, Inc.
Mr. Madison has also been Chairman of the Board of Communications Holdings, Inc. since 1996.
From February to September 1994, Mr. Madison served as Vice Chairman--Office of the CEO
of The Minnesota Mutual Life Insurance Company and from 1988 to 1993, he was President of
U.S. WEST Communications--Markets.
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CHARLES E. PECK (72)
Director and/or Trustee of Equity Funds II, Inc. and 33 other investment companies in the Delaware
Investments family.
P.O. Box 1102, Columbia, MD 21044
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of The Ryland Group, Inc.,
Columbia, MD.

GEORGE M. CHAMBERLAIN, JR. (51)
Senior Vice President, Secretary and General Counsel of Equity Funds II, Inc. and 33 other investment
companies in the Delaware Investments family.
Senior Vice President and Secretary of Delaware Distributors, L.P., Delaware Management Company
(a series of Delaware Management Business Trust), Delaware Investment Advisers (a series of
Delaware Management Business Trust) and Delaware Management
Holdings, Inc.
Senior Vice President, Secretary and Director/Trustee of DMH Corp., Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Service Company, Inc., Founders Holdings, Inc., Retirement
Financial Services, Inc., Delaware Capital Management, Inc., Delvoy, Inc. and Delaware
Management Business Trust
Executive Vice President, Secretary and Director of Delaware Management Trust Company
Senior Vice President and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Secretary of Lincoln Funds Corporation
Attorney.
During the past five years, Mr. Chamberlain has served in various executive capacities at different
times within the Delaware organization.

JOSEPH H. HASTINGS (48)
Senior Vice President/Corporate Controller of Equity Funds II, Inc., 33 other investment companies in
the Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware Management Holdings, Inc.,
DMH Corp., Delaware Management Company, Inc., Delaware Management Company (a series
of Delaware Management Business Trust), Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., Delaware Capital Management, Inc., Delaware
International Holdings Ltd., Delvoy, Inc. and Delaware Management Business Trust
Chief Financial Officer/Treasurer of Retirement Financial Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware Management Trust Company
Senior Vice President/Assistant Treasurer of Founders CBO Corporation
Treasurer of Lincoln Funds Corporation
During the past five years, Mr. Hastings has served in various executive capacities at different
times within the Delaware organization.
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
<S> <C>
MICHAEL P. BISHOF (36)
Senior Vice President/Treasurer of Equity Funds II, Inc., 33 other investment companies in the
Delaware Investments family and Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware Management Business
Trust) and Delaware Service Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting of Delaware Distributors, L.P.
and Delaware Investment Advisers (a series of Delaware Management Business Trust)
Senior Vice President and Manager of Investment Accounting of Delaware International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation
Before joining Delaware Investments in 1995, Mr. Bishof was a Vice President for Bankers Trust, New
York, NY from 1994 to 1995, a Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for Equitable Capital Management
Corporation, New York, NY from 1987 to 1993.

PAUL J. DOKAS (38)
Vice President/Portfolio Manager of the Equity Funds II, Inc. and 2 other investment companies in the
Delaware Investments family.
Before joining the Delaware Group in 1997, Mr. Dokas was a Director of Trust Investments for Bell
Atlantic Corporation in Philadelphia, where he held various positions from 1985 to 1997.
</TABLE>

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<PAGE>

The following is a compensation table listing for each director/trustee
entitled to receive compensation, the aggregate compensation received from the
Equity Funds II, Inc. and the total compensation received from all investment
companies in the Delaware Investments family for which he or she serves as a
director or trustee for the fiscal year ended November 30, 1997 and an estimate
of annual benefits to be received upon retirement under the Delaware Group
Retirement Plan for Directors/Trustees as of August 31, 1998. Only the
independent directors/trustees of the Equity Funds II, Inc. receive compensation
from the Equity Funds II, Inc.

<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT ESTIMATED FROM THE
BENEFITS ANNUAL INVESTMENT
AGGREGATE ACCRUED AS BENEFITS COMPANIES IN
COMPENSATION PART OF EQUITY FUND UPON DELAWARE
NAME FROM THE FUND II, INC. EXPENSES RETIREMENT(1) INVESTMENTS(2)
<S> <C> <C> <C> <C>
W. Thacher Longstreth $8,414 None $38,500 $59,243
Ann R. Leven $9,554 None $38,500 $64,452
Walter P. Babich $9,335 None $38,500 $63,452
Anthony D. Knerr $9,335 None $38,500 $63,452
Charles E. Peck $8,311 None $38,500 $56,057
Thomas F. Madison(3) $4,997 None $38,500 $37,225
John H. Durham (4) N/A None $31,000 N/A
</TABLE>

(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee who, at the time
of his or her retirement from the Board, has attained the age of 70 and
served on the Board for at least five continuous years, is entitled to
receive payments from each investment company in the Delaware Investments
family for which he or she serves as a director or trustee for a period
equal to the lesser of the number of years that such person served as a
director or trustee or the remainder of such person's life. The amount of
such payments will be equal, on an annual basis, to the amount of the
annual retainer that is paid to directors/trustees of each investment
company at the time of such person's retirement. If an eligible
director/trustee retired as of August 31, 1998, he or she would be
entitled to annual payments totaling the amount noted above, in the
aggregate, from all of the investment companies in the Delaware
Investments family for which he or she served as director or trustee,
based on the number of investment companies in the Delaware Investments
family as of that date.
(2) Each independent director/trustee (other than John H. Durham) currently
receives a total annual retainer fee of $38,500 for serving as a director
or trustee for all 34 investment companies in Delaware Investments, plus
$3,145 for each Board Meeting attended. John H. Durham currently receives
a total annual retainer fee of $31,000 for serving as a director or
trustee for 19 investment companies in Delaware Investments, plus
$1,757.50 for each Board Meeting attended. Ann R. Leven, Walter P. Babich,
Anthony D. Knerr and Thomas F. Madison serve on Equity Funds II, Inc.'s
audit committee; Ms. Leven is the chairperson. Members of the audit
committee currently receive additional annual compensation of $5,000, in
the aggregate, from all investment companies, with the exception of the
chairperson, who receives $6,000.

(3) Thomas F. Madison joined the Board of Directors on April 30, 1997.
(4) John H. Durham joined the Board of Directors of Equity Funds II, Inc. and
18 other investment companies in Delaware Investments on April 16, 1998.

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EXCHANGE PRIVILEGE

The exchange privileges available for shareholders of the Classes and for
shareholders of classes of other funds in the Delaware Investments family are
set forth in the relevant prospectuses for such classes. The following
supplements that information. The Fund may modify, terminate or suspend the
exchange privilege upon 60 days' notice to shareholders.

All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting an exchange will be sent a current prospectus
and an authorization form for any of the other mutual funds in the Delaware
Investments family. Exchange instructions must be signed by the record owner(s)
exactly as the shares are registered.

An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.

In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Investments family on behalf of their clients by telephone
or other expedited means. This service may be discontinued or revised at any
time by the Transfer Agent. Such exchange requests may be rejected if it is
determined that a particular request or the total requests at any time could
have an adverse effect on any of the funds. Requests for expedited exchanges may
be submitted with a properly completed exchange authorization form, as described
above.

TELEPHONE EXCHANGE PRIVILEGE
Shareholders owning shares for which certificates have not been issued or
their investment dealers of record may exchange shares by telephone for shares
in other mutual funds in the Delaware Investments family. This service is
automatically provided unless the Fund receives written notice from the
shareholder to the contrary.

Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523- 1918 or, in the case of shareholders of
the Institutional Class, their Client Services Representative at 800-828- 5052
to effect an exchange. The shareholder's current Fund account number must be
identified, as well as the registration of the account, the share or dollar
amount to be exchanged and the fund into which the exchange is to be made.
Requests received on any day after the time the offering price and net asset
value are determined will be processed the following day. See Determining
Offering Price and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration, shareholder information
and dividend option as the account from which the shares were exchanged. The
exchange requirements of the fund into which the exchange is being made, such as
sales charges, eligibility and investment minimums, must be met. (See the
prospectus of the fund desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds are not available
for retirement plans.

The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Investments family. Telephone exchanges may be subject to
limitations as to amounts or

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frequency. The Transfer Agent and the Fund reserve the right to record exchange
instructions received by telephone and to reject exchange requests at any time
in the future.

As described in the Fund's Prospectuses, neither the Fund nor its Transfer
Agent is responsible for any shareholder loss incurred in acting upon written or
telephone instructions for redemption or exchange of Fund shares which are
reasonably believed to be genuine.

RIGHT TO REFUSE TIMING ACCOUNTS
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), the Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) of shares
of the funds in the Delaware Investments family from timing firms. The Fund
reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any person whose
transactions seem to follow a timing pattern who: (i) makes an exchange request
out of the Fund within two weeks of an earlier exchange request out of the Fund,
or (ii) makes more than two exchanges out of the Fund per calendar quarter, or
(iii) exchanges shares equal in value to at least $5 million, or more than 1/4
of 1% of the Fund's net assets. Accounts under common ownership or control,
including accounts administered so as to redeem or purchase shares based upon
certain predetermined market indicators, will be aggregated for purposes of the
exchange limits.

RESTRICTIONS ON TIMED EXCHANGES
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight funds in the Delaware Investments
family: (1) Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware
Fund, (4) Limited-Term Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash
Reserve, (7) Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other funds
in the Delaware Investments family are available for timed exchanges. Assets
redeemed or exchanged out of Timing Accounts in funds in the Delaware
Investments family not listed above may not be reinvested back into that Timing
Account. The Fund reserves the right to apply these same restrictions to the
account(s) of any person whose transactions seem to follow a time pattern (as
described above).

The Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if the
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.

Except as noted above, only shareholders and their authorized brokers of
record will be permitted to make exchanges or redemptions.

* * *

Following is a summary of the investment objectives of the other funds in
the Delaware Investments family:

DELAWARE FUND seeks long-term growth by a balance of capital appreciation,
income and preservation of capital. It uses a dividend-oriented valuation
strategy to select securities issued by established companies that

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are believed to demonstrate potential for income and capital growth. DEVON FUND
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.

TREND FUND seeks long-term growth by investing in common stocks issued by
emerging growth companies exhibiting strong capital appreciation potential.

SMALL CAP VALUE FUND seeks capital appreciation by investing primarily in
common stocks whose market values appear low relative to their underlying value
or future potential.

DELCAP FUND seeks long-term capital growth by investing in common stocks
and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.

DECATUR INCOME FUND seeks the highest possible current income by investing
primarily in common stocks that provide the potential for income and capital
appreciation without undue risk to principal. DECATUR TOTAL RETURN FUND seeks
long-term growth by investing primarily in securities that provide the potential
for income and capital appreciation without undue risk to principal. BLUE CHIP
FUND seeks to achieve long-term capital appreciation. Current income is a
secondary objective. It seeks to achieve these objectives by investing primarily
in equity securities and any securities that are convertible into equity
securities. SOCIAL AWARENESS FUND seeks to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium- to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.

DELCHESTER FUND seeks as high a current income as possible by investing
principally high yield, high risk in corporate bonds, and also in U.S.
government securities and commercial paper. STRATEGIC INCOME FUND seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities. HIGH-YIELD OPPORTUNITIES FUND seeks to provide
investors with total return and, as a secondary objective, high current income.

U.S. GOVERNMENT FUND seeks high current income by investing primarily in
long-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.

DELAWARE CASH RESERVE seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.

LIMITED-TERM GOVERNMENT FUND seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. GOVERNMENT MONEY FUND seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.

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<PAGE>

REIT FUND seeks to achieve maximum long-term total return with capital
appreciation as a secondary objective. It seeks to achieve its objectives by
investing in securities of companies primarily engaged in the real estate
industry.

TAX-FREE USA FUND seeks high current income exempt from federal income tax
by investing in municipal bonds of geographically-diverse issuers. TAX-FREE
INSURED FUND invests in these same types of securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due. TAX-FREE USA INTERMEDIATE FUND seeks a high level of current
interest income exempt from federal income tax, consistent with the preservation
of capital by investing primarily in municipal bonds.

TAX-FREE MONEY FUND seeks high current income, exempt from federal income
tax, by investing in short-term municipal obligations, while maintaining a
stable net asset value.

TAX-FREE NEW JERSEY FUND seeks a high level of current interest income
exempt from federal income tax and New Jersey state and local taxes, consistent
with preservation of capital. TAX-FREE OHIO FUND seeks a high level of current
interest income exempt from federal income tax and Ohio state and local taxes,
consistent with preservation of capital. TAX-FREE PENNSYLVANIA FUND seeks a high
level of current interest income exempt from federal income tax and Pennsylvania
state and local taxes, consistent with the preservation of capital.

FOUNDATION FUNDS are "fund of funds" which invest in other funds in the
Delaware Investments family (referred to as "Underlying Funds"). FOUNDATION
FUNDS INCOME PORTFOLIO seeks a combination of current income and preservation of
capital with capital appreciation by investing in primarily a mix of fixed
income and domestic equity securities, including fixed income and domestic
equity Underlying Funds. FOUNDATION FUNDS BALANCED PORTFOLIO seeks capital
appreciation with current income as a secondary objective by investing primarily
in domestic equity and fixed income securities, including domestic equity and
fixed income Underlying Funds. FOUNDATION FUNDS GROWTH PORTFOLIO seeks long term
capital growth by investing primarily in equity securities, including equity
Underlying Funds, and, to a lesser extent, in fixed income securities, including
fixed-income Underlying Funds.

INTERNATIONAL EQUITY FUND seeks to achieve long-term growth without undue
risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. GLOBAL BOND FUND
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. GLOBAL EQUITY FUND seeks to achieve
long-term total return by investing in global securities that provide the
potential for capital appreciation and income. EMERGING MARKETS FUND seeks
long-term capital appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries.

U.S. GROWTH FUND seeks to maximize capital appreciation by investing in
companies of all sizes which have low dividend yields, strong balance sheets and
high expected earnings growth rates relative to their industry. OVERSEAS EQUITY
FUND seeks to maximize total return (capital appreciation and income),
principally through investments in an internationally diversified portfolio of
equity securities. NEW PACIFIC FUND seeks long-term capital appreciation by
investing primarily in companies which are domiciled in or have their principal
business activities in the Pacific Basin.

DELAWARE GROUP PREMIUM FUND, INC. offers 16 funds available exclusively as
funding vehicles for certain insurance company separate accounts. DECATUR TOTAL
RETURN SERIES seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than

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average dividend income. DELCHESTER SERIES seeks as high a current income as
possible by investing in rated and unrated corporate bonds, U.S. government
securities and commercial paper. CAPITAL RESERVES SERIES seeks a high stable
level of current income while minimizing fluctuations in principal by investing
in a diversified portfolio of short- and intermediate-term securities. CASH
RESERVE SERIES seeks the highest level of income consistent with preservation of
capital and liquidity through investments in short-term money market
instruments. DELCAP SERIES seeks long-term capital appreciation by investing its
assets in a diversified portfolio of securities exhibiting the potential for
significant growth. DELAWARE SERIES seeks a balance of capital appreciation,
income and preservation of capital. It uses a dividend-oriented valuation
strategy to select securities issued by established companies that are believed
to demonstrate potential for income and capital growth. INTERNATIONAL EQUITY
SERIES seeks long-term growth without undue risk to principal by investing
primarily in equity securities of foreign issuers that provide the potential for
capital appreciation and income. SMALL CAP VALUE SERIES seeks capital
appreciation by investing primarily in small-cap common stocks whose market
values appear low relative to their underlying value or future earnings and
growth potential. Emphasis will also be placed on securities of companies that
may be temporarily out of favor or whose value is not yet recognized by the
market. TREND SERIES seeks long-term capital appreciation by investing primarily
in small- cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective. GLOBAL BOND
SERIES seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed-income securities that may also
provide the potential for capital appreciation. STRATEGIC INCOME SERIES seeks
high current income and total return by using a multi-sector investment
approach, investing primarily in three sectors of the fixed-income securities
markets: high-yield, higher risk securities; investment grade fixed-income
securities; and foreign government and other foreign fixed-income securities.
DEVON SERIES seeks current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on common stocks that
the investment manager believes have the potential for above-average dividend
increases over time. EMERGING MARKETS SERIES seeks to achieve long-term capital
appreciation by investing primarily in equity securities of issuers located or
operating in emerging countries. CONVERTIBLE SECURITIES SERIES seeks a high
level of total return on its assets through a combination of capital
appreciation and current income by investing primarily in convertible
securities. SOCIAL AWARENESS SERIES seeks to achieve long-term capital
appreciation by investing primarily in equity securities of medium to
large-sized companies expected to grow over time that meet the Series' "Social
Criteria" strategy. REIT SERIES seeks to achieve maximum long-term total return,
with capital appreciation as a secondary objective, by investing in securities
of companies primarily engaged in the real estate industry.

DELAWARE-VOYAGEUR US GOVERNMENT SECURITIES FUND seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.

DELAWARE-VOYAGEUR TAX-FREE ARIZONA INSURED FUND seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR
MINNESOTA INSURED FUND seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.

DELAWARE-VOYAGEUR TAX-FREE MINNESOTA INTERMEDIATE FUND seeks to provide a
high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of

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capital. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.

DELAWARE-VOYAGEUR TAX-FREE CALIFORNIA INSURED FUND seeks to provide a high
level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
DELAWARE-VOYAGEUR TAX-FREE FLORIDA INSURED FUND seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
DELAWARE-VOYAGEUR TAX-FREE FLORIDA FUND seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. DELAWARE-VOYAGEUR
TAX-FREE KANSAS FUND seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas intangible
personal property tax, consistent with the preservation of capital.
DELAWARE-VOYAGEUR TAX-FREE MISSOURI INSURED FUND seeks to provide a high level
of current income exempt from federal income tax and the Missouri personal
income tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR
TAX-FREE NEW MEXICO FUND seeks to provide a high level of current income exempt
from federal income tax and the New Mexico personal income tax, consistent with
the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE OREGON INSURED FUND
seeks to provide a high level of current income exempt from federal income tax
and the Oregon personal income tax, consistent with the preservation of capital.
DELAWARE-VOYAGEUR TAX-FREE UTAH FUND seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. DELAWARE-VOYAGEUR TAX-FREE WASHINGTON INSURED FUND seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.

DELAWARE-VOYAGEUR TAX-FREE FLORIDA INTERMEDIATE FUND seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund will seek to select investments that will
enable its shares to be exempt from the Florida intangible personal property
tax. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.

DELAWARE-VOYAGEUR TAX-FREE ARIZONA FUND seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE
CALIFORNIA FUND seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. DELAWARE-VOYAGEUR TAX-FREE IOWA FUND seeks to provide a
high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital. DELAWARE-
VOYAGEUR TAX-FREE IDAHO FUND seeks to provide a high level of current income
exempt from federal income tax and the Idaho personal income tax, consistent
with the preservation of capital. DELAWARE-VOYAGEUR MINNESOTA HIGH YIELD
MUNICIPAL BOND FUND seeks to provide a high level of current income exempt from
federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. NATIONAL HIGH YIELD
MUNICIPAL FUND seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. DELAWARE-VOYAGEUR TAX-FREE NEW YORK FUND seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. DELAWARE-VOYAGEUR TAX-FREE WISCONSIN FUND seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.

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<PAGE>

DELAWARE-VOYAGEUR TAX-FREE COLORADO FUND seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal income
tax, consistent with the preservation of capital.

AGGRESSIVE GROWTH FUND seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
GROWTH STOCK FUND has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. TAX-EFFICIENT EQUITY FUND seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.

DELAWARE-VOYAGEUR TAX-FREE MINNESOTA FUND seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax, consistent with the preservation of capital. DELAWARE-VOYAGEUR TAX-FREE
NORTH DAKOTA FUND seeks to provide a high level of current income exempt from
federal income tax and the North Dakota personal income tax, consistent with the
preservation of capital.

For more complete information about any of the funds in the Delaware
Investments family, including charges and expenses, you can obtain a prospectus
from the Distributor. Read it carefully before you invest or forward funds.

Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).

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GENERAL INFORMATION

The Manager is the investment manager of the Fund. The Manager also
provides investment management services to certain of the other funds in the
Delaware Investments family. While investment decisions of the Fund are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for the Fund.

The Manager, or its affiliate Delaware International Advisers Ltd., also
manages the investment options for Delaware Medallion(sm) III Variable Annuity.
Medallion is issued by Allmerica Financial Life Insurance and Annuity Company
(First Allmerica Financial Life Insurance Company in New York and Hawaii).
Delaware Medallion offers different investment series ranging from domestic
equity funds, international equity and bond funds and domestic fixed income
funds. Each investment series available through Medallion utilizes an investment
strategy and discipline the same as or similar to one of the Delaware
Investments mutual funds available outside the annuity. See Delaware Group
Premium Fund, Inc., above.

Access persons and advisory persons of the funds in the Delaware
Investments family, as those terms are defined in SEC Rule 17j-1 under the 1940
Act, who provide services to the Manager, Delaware International Advisers Ltd.
or their affiliates, are permitted to engage in personal securities transactions
subject to the exceptions set forth in Rule 17j-1 and the following general
restrictions and procedures: (1) certain blackout periods apply to personal
securities transactions of those persons; (2) transactions must receive advance
clearance and must be completed on the same day as the clearance was received;
(3) certain persons are prohibited from investing in initial public offerings of
securities and other restrictions apply to investments in private placements of
securities; (4) opening positions may only be closed-out at a profit after a
60-day holding period has elapsed; and (5) the Compliance Officer must be
informed periodically of all securities transactions and duplicate copies of
brokerage confirmations and account statements must be supplied to the
Compliance Officer.

The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Fund and for the other
mutual funds in the Delaware Group. The Transfer Agent is paid a fee by the Fund
for providing these services consisting of an annual per account charge of $5.50
plus transaction charges for particular services according to a schedule.
Compensation is fixed each year and approved by the Board of Directors,
including a majority of the unaffiliated directors. The Transfer Agent also
provides accounting services to the Fund. Those services include performing all
functions related to calculating the Fund's net asset value and providing all
financial reporting services, regulatory compliance testing and the related
accounting services. For its services, the Transfer Agent is paid a fee based on
total assets of all funds in the Delaware Investments family for which it
provides such accounting services. Such fee is equal to 0.25% multiplied by the
total amount of assets in the complex for which the Transfer Agent furnishes
accounting services, where such aggregate complex assets are $10 billion or
less, and 0.20% of assets if such aggregate complex assets exceed $10 billion.
The fees are charged to each fund, including the Fund, on an aggregate pro-rata
basis. The asset-based fee payable to the Transfer Agent is subject to a minimum
fee calculated by determining the total number of investment portfolios and
associated classes.

The Manager and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of Equity Funds II, Inc.'s
advisory relationship with the Manager or its distribution relationship with the
Distributor, the Manager and its affiliates could cause Equity Funds II, Inc. to
delete the words "Delaware Group" from Equity Funds II, Inc.'s name.

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<PAGE>

The Chase Manhattan Bank ("Chase"), 4 Chase Metrotech Center, Brooklyn, NY
11245 is custodian of the Fund's securities and cash. As custodian for the Fund,
Chase maintains a separate account or accounts for the Fund; receives, holds and
releases portfolio securities on account of the Fund; receives and disburses
money on behalf of the Fund; and collects and receives income and other payments
and distributions on account of the Fund's portfolio securities.

CAPITALIZATION
Equity Funds II, Inc. has a present authorized capitalization of
1,200,000,000 shares of capital stock with a $1.00 par value per share.

The Board of Directors has allocated the following number of shares to
each fund of Equity Funds II, Inc. and their respective classes:

<TABLE>
<CAPTION>
<S> <C>
Diversified Value Fund 200 million
Diversified Value Fund A Class 100 million
Diversified Value Fund B Class 25 million
Diversified Value Fund C Class 25 million
Diversified Value Fund Institutional Class 50 million

Decatur Income Fund 350 million
Decatur Income Fund A Class 200 million
Decatur Income Fund B Class 50 million
Decatur Income Fund C Class 50 million
Decatur Income Fund Institutional Class 50 million

Decatur Total Return Fund 250 million
Decatur Total Return Fund A Class 100 million
Decatur Total Return Fund B Class 50 million
Decatur Total Return Fund C Class 50 million
Decatur Total Return Fund Institutional Class 50 million

Blue Chip Fund 200 million
Blue Chip Fund A Class 100 million
Blue Chip Fund B Class 25 million
Blue Chip Fund C Class 25 million
Blue Chip Fund Institutional Class 50 million

Social Awareness Fund 200 million
Social Awareness Fund A Class 100 million
Social Awareness Fund B Class 25 million
Social Awareness Fund C Class 25 million
Social Awareness Fund Institutional Class 50 million

</TABLE>

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<PAGE>

While shares of Equity Funds II, Inc. have equal voting rights on
matters affecting the funds, each fund would vote separately on any matter which
it is directly affected by, such as any change in its fundamental investment
policies and as otherwise prescribed by the 1940 Act. Shares of the Fund have a
priority in the Fund's assets, and in gains on and income from the portfolio of
the Fund.

All shares have no preemptive rights, are fully transferable and, when
issued, are fully paid and nonassessable.

Each Class of the Fund represents a proportionate interest in the
assets of the Fund and each has the same voting and other rights and preferences
as the other classes except that shares of the Institutional Class may not vote
on matters affecting the Fund's Classes' Plans under Rule 12b-1. Similarly, as a
general matter, shareholders of Class A Shares, Class B Shares and Class C
Shares may vote only on matters affecting the 12b-1 Plan that relates to the
class of shares that they hold. However, Class B Shares may vote on any proposal
to increase materially the fees to be paid by the Fund under the Plan relating
to Class A Shares. General expenses of the Fund will be allocated on a pro-rata
basis to the classes according to asset size, except that expenses of the Rule
12b-1 Plans of Class A, Class B Shares and Class C Shares will be allocated
solely to those classes.

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<PAGE>

NONCUMULATIVE VOTING
EQUITY FUNDS II, INC. SHARES HAVE NONCUMULATIVE VOTING RIGHTS WHICH
MEANS THAT THE HOLDERS OF MORE THAN 50% OF THE SHARES OF EQUITY FUNDS II, INC.
VOTING FOR THE ELECTION OF DIRECTORS CAN ELECT ALL THE DIRECTORS IF THEY CHOOSE
TO DO SO, AND, IN SUCH EVENT, THE HOLDERS OF THE REMAINING SHARES WILL NOT BE
ABLE TO ELECT ANY DIRECTORS.

This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission.

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FINANCIAL STATEMENTS

Ernst & Young LLP serves as the independent auditors for Equity Funds
II, Inc. and, in its capacity as such, will audit the financial statements
contained in the Fund's Annual Report.

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