DELAWARE GROUP PREMIUM FUND INC, 497, 1995-05-05

DELAWARE GROUP PREMIUM FUND INC
497, 1995-05-05

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<PAGE>

PROSPECTUS
MAY 1, 1995

DELAWARE GROUP PREMIUM FUND, INC.
1818 Market Street, Philadelphia, PA 19103

Delaware Group Premium Fund, Inc. (the "Fund") is a diversified, open-end
management investment company which is intended to meet a wide range of
investment objectives with its various separate Portfolios. Each Portfolio
("Series") is in effect a separate fund issuing its own shares. The shares of
the Fund are sold only to separate accounts of life insurance companies ("life
companies"). The separate accounts are used in conjunction with variable annuity
contracts and variable life insurance policies ("variable contracts"). The
separate accounts invest in shares of the various Series in accordance with
allocation instructions received from contract owners. The investment objectives
and principal policies of the Series are described below. See Investment
Objectives and Policies. Although each Series will constantly strive to attain
its objective, there can be no assurance that it will be attained.

This Prospectus describes the six Series available for investment by Variable
Accounts A and B of American International Life Assurance Company of New York
and Variable Accounts I and II of AIG Life Insurance Company and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. A Statement of Additional Information ("Part B" of the
Fund's registration statement), dated May 1, 1995, 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. 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 1-800-441-7468. The
Series' financial statements appear in the Fund's Annual Report, which will
accompany any response to requests for Part B.

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 TRUST 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 PRINCIPAL. SHARES OF THE TRUST ARE NOT BANK
OR CREDIT UNION DEPOSITS.
- --------------------------------------------------------------------------------

EQUITY/INCOME SERIES--seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. This Series has the same
objective and investment disciplines as the Decatur Total Return Fund of
Delaware Group Decatur Fund, Inc., a separate Delaware Group fund, in that it
invests generally, but not exclusively, in common stocks and income-producing
securities convertible into common stocks, consistent with the Series'
objective.

HIGH YIELD SERIES--seeks as high a current income as possible by investing in
rated and unrated corporate bonds (including high-yield bonds commonly known as
junk bonds), U.S. Government securities and commercial paper. This Series has
the same objective and investment disciplines as Delaware Group Delchester High-
Yield Bond Fund, Inc., a separate Delaware Group fund. An investment in this
Series may involve greater risks than an investment in a portfolio comprised
primarily of investment grade bonds.

<PAGE>

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.

MONEY MARKET SERIES--seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. This Series has the same objective and investment
disciplines as Delaware Group Cash Reserve, Inc., a separate Delaware Group
fund. THE SHARES OF THE MONEY MARKET SERIES ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE SERIES
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10.00 PER SHARE.

GROWTH SERIES--seeks long-term capital appreciation by investing its assets in
a diversified portfolio of securities exhibiting the potential for significant
growth. This Series has the same objective and investment disciplines as
Delaware Group DelCap Fund, Inc., a separate Delaware Group fund, in that it
invests in common stocks and other securities including but not limited to,
convertible securities, warrants, preferred stocks, bonds and foreign
securities, consistent with the Series' objective.

MULTIPLE STRATEGY 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. This Series has the same
objective and investment disciplines as the Delaware Fund of Delaware Group
Delaware Fund, Inc., a separate Delaware Group fund, in that, as a "balanced"
fund, the Series, consistent with its objective, invests at least 25% of its
assets in fixed income securities and the remainder primarily in equity
securities.

- --------------------------------------------------------------------------------
TABLE OF CONTENTS

Cover Page................................................................. 23
Summary Information........................................................ 25
Financial Highlights....................................................... 26
Investment Objectives and Policies......................................... 30
Introduction............................................................. 30
Equity/Income Series..................................................... 30
High Yield Series........................................................ 30
Capital Reserves Series.................................................. 32
Money Market Series...................................................... 34
Growth Series............................................................ 34
Multiple Strategy Series................................................. 35
Other Considerations..................................................... 36
Purchase and Redemption.................................................... 40
Dividends and Distributions................................................ 40
Taxes...................................................................... 41
Calculation of Offering Price and Net Asset Value Per Share................ 41
Management of the Fund..................................................... 41
Performance Information.................................................. 44
Distribution and Service................................................. 44
Expenses................................................................. 44
Description of Fund Shares............................................... 45
Appendix A--Ratings for High Yield Series.................................. 46

<PAGE>

SUMMARY INFORMATION

CAPITALIZATION

The Fund has a present authorized capitalization of five hundred million
shares of capital stock with a $.01 par value per share, with fifty million
shares allocated to each of the Fund's Series. See Description of Fund Shares
under Management of the Fund.

INVESTMENT MANAGER

Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to the Equity/Income, High Yield, Capital Reserves, Money
Market, Growth and Multiple Strategy Series, subject to the supervision and
direction of the Fund's Board of Directors. Under the Investment Management
Agreement between the Manager and these Series, the annual compensation paid to
the Manager is equal to, respectively, .60%, .60%, .60%, .50%, .75% and .60% of
the average daily net assets of the Series, less a proportionate share of all
directors' fees paid to the unaffiliated directors of the Fund. The Manager has
elected voluntarily to waive its management fee and to reimburse the respective
Series to the extent necessary to maintain a limit on the total operating
expenses of each of these Series for a limited period. See Management of the
Fund.

INVESTMENT OBJECTIVES AND POLICIES

Each of the Fund's Series has a different investment objective and seeks to
achieve its objective by pursuing different investment strategies. See Cover
Page of this Prospectus and Investment Objectives and Policies.

OPEN-END INVESTMENT COMPANY

The Fund, which was organized as a Maryland corporation in 1987, is an open-
end registered management investment company. The Series operate as diversified
funds for purposes of the Investment Company Act of 1940 (the "1940 Act").

PURCHASE AND REDEMPTION

Shares of the Series are sold only to separate accounts of life insurance
companies. Purchases and redemptions are made at the net asset value calculated
after receipt of the purchase or redemption order. None of the Series nor
Delaware Distributors, L.P. (the "Distributor") assesses a charge for purchases
or redemptions. See Purchase and Redemption.

SPECIAL CONSIDERATIONS AND RISK FACTORS

Prospective investors should consider a number of factors depending upon
the Series in which they propose to invest:

1. Each Series may invest a portion of its assets in securities issued by non-
United States companies. Investing in securities of non-United States companies
which are generally denominated in foreign currencies, and utilization of
forward foreign currency exchange contracts in connection with transactions in
such securities involve certain considerations comprising both risk and
opportunity not typically associated with investing in United States companies.
See Foreign Securities under Other Considerations.

2. Each Series has the right to engage in certain options transactions for
hedging purposes to counterbalance portfolio volatility. The Series do not
engage in such activities for speculative purposes, but there are certain risks
associated with the use of options which a prospective investor should consider.
See Options under Other Considerations.

3. The objective of the High Yield Series is to seek the highest current
income which the Manager believes is consistent with prudent investment
management. The assets of the Series may be invested primarily in high-yield
securities (junk bonds) and greater risks may be involved in an investment in
the Series than in an investment in a mutual fund comprised primarily of
investment grade bonds. See Risk Factors under High Yield Series.

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights are derived from the financial statements of
Delaware Group Premium Fund, Inc. and have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes, and the report of Ernst & Young LLP covering such
financial information and highlights, all of which are incorporated by reference
into Part B. Further information about each Series' performance is contained in
the Fund's Annual Report to shareholders. A copy of the Fund's Annual Report
(including the report of Ernst & Young LLP) may be obtained from the Fund upon
request at no charge.

<TABLE>
<CAPTION>
EQUITY/INCOME SERIES
------------------------------------------------------------------------------
7/28/88/1/
YEAR ENDED THROUGH
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $12.5100 $11.2200 $10.7500 $ 9.2400 $11.4000 $10.1600 $10.0000

INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income............................. 0.4121 0.4341 0.4155 0.4502 0.4489 0.2813 0.0934
Net Gains or Losses on Securities (both realized
and unrealized)................................. (0.4221) 1.2659 0.5045 1.5498 (1.9189) 1.0337 0.0666
-------- -------- -------- -------- -------- -------- --------
Total From Investment Operations................ (0.0100) 1.7000 0.9200 2.0000 (1.4700) 1.3150 0.1600
-------- -------- -------- -------- -------- -------- --------

LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income)............ (0.4200) (0.4100) (0.4500) (0.4900) (0.5600) (0.0750) none
Distributions (from capital gains)................ (0.6000) none none none (0.1300) none none
Returns of Capital................................ none none none none none none none
-------- -------- -------- -------- -------- -------- --------
Total Distributions............................. (1.0200) (0.4100) (0.4500) (0.4900) (0.6900) (0.0750) none
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.................... $11.4800 $12.5100 $11.2200 $10.7500 $ 9.2400 $11.4000 $10.1600
======== ======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return/2/................................... (0.20%) 15.45%/3/ 8.82%/3/ 22.32% (13.31%) 13.04% 3.77%
- ------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (000's omitted)......... $72,725 $65,519 $38,278 $34,840 $29,598 $12,959 $1,873
Ratio of Expenses to Average Daily Net Assets..... 0.71% 0.75% 0.79% 0.85% 0.96% 1.31% 2.00%
Ratio of Expenses to Average Daily Net Assets
prior to Expense Limitation..................... 0.71% 0.76% 0.81% 0.85% 0.96% 1.31% 2.00%
Ratio of Net Investment Income to Average Daily
Net Assets...................................... 3.63% 3.95% 3.86% 4.46% 5.80% 5.06% 6.40%
Ratio of Net Investment Income to Average Daily
Net Assets prior to Expense Limitation.......... 3.63% 3.94% 3.84% 4.46% 5.80% 5.06% 6.40%
Portfolio Turnover Rate........................... 91% 67% 72% 79% 34% 26% --
</TABLE>

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

/1/ Date of initial public offering; ratios and total return have been
annualized.

/2/ Total return does not reflect expenses that apply to the Separate Accounts
or to the related insurance policies and inclusion of these charges would
reduce total return figures for all periods shown.

/3/ Total return reflects the expense limitation referenced in Expenses under
Management of the Fund.

<PAGE>

<TABLE>
<CAPTION>
HIGH YIELD SERIES
------------------------------------------------------------------------------
7/28/88/1/
YEAR ENDED THROUGH
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $9.7700 $9.2900 $9.1300 $7.4800 $9.2000 $9.8600 $10.0000

INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income........................... 0.9621 0.9758 1.0224 1.0316 1.1135 1.0846 0.4754
Net Gains or Losses on Securities
(both realized and unrealized)................ (1.2300) 0.4800 0.1600 1.6500 (1.7200) (0.6350) (0.1400)
------- ------- ------- ------- ------- ------- --------
Total From Investment Operations.............. (0.2679) 1.4558 1.1824 2.6816 (0.6065) 0.4496 0.3354
------- ------- ------- ------- ------- ------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income).......... (0.9621) (0.9758) (1.0224) (1.0316) (1.1135) (1.0846) (0.4754)
Distributions (from capital gains).............. none none none none none (0.0250) none
Returns of Capital.............................. none none none none none none none
------- ------- ------- ------- ------- ------- --------
Total Distributions........................... (0.9621) (0.9758) (1.0224) (1.0316) (1.1135) (1.1096) (0.4754)
------- ------- ------- ------- ------- ------- --------
Net Asset Value, End of Period.................. $8.5400 $9.7700 $9.2900 $9.1300 $7.4800 $9.2000 $ 9.8600
======= ======= ======= ======= ======= ======= ========
- --------------------------------------------------------------------------------------------------------------------------------
Total Return/2/................................. (2.87%) 16.36%/3/ 13.44%/3/ 37.53%/3/ (7.13%)/3/ 4.62%/3/ 8.15%/3/
- ------------
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (000's omitted)....... $43,686 $34,915 $11,311 $5,918 $5,092 $4,427 $2,425
Ratio of Expenses to Average Daily Net Assets... 0.72% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Expenses to Average Daily Net Assets
prior to Expense Limitation................... 0.72% 0.82% 0.94% 1.06% 1.17% 1.50% 1.21%
Ratio of Net Investment Income to Average
Daily Net Assets.............................. 10.56% 10.05% 10.93% 12.05% 13.30% 11.21% 11.00%
Ratio of Net Investment Income to Average
Daily Net Assets prior to Expense Limitation.. 10.56% 10.03% 10.79% 11.80% 12.93% 10.50% 10.58%
Portfolio Turnover Rate......................... 47% 43% 73% 70% 115% 19% 31%

<CAPTION>
CAPITAL RESERVES SERIES
-------------------------------------------------------------------------------
7/28/88/1/
YEAR ENDED THROUGH
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $10.2600 $10.2000 $10.2300 $10.0400 $ 9.9800 $9.9700 $10.0000

INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income............................ 0.6355 0.6357 0.6474 0.6687 0.7325 0.8402 0.3293
Net Gains or Losses on Securities (both
realized and unrealized)....................... (0.9050) 0.1450 0.0600 0.1900 0.0600 0.0100 (0.0300)
-------- -------- -------- -------- -------- ------- --------
Total From Investment Operations............... (0.2695) 0.7807 0.7074 0.8587 0.7925 0.8502 0.2993
-------- -------- -------- -------- -------- ------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income)........... (0.6355) (0.6357) (0.6474) (0.6687) (0.7325) (0.8402) (0.3293)
Distributions (from capital gains)............... (0.0550) (0.0850) (0.0900) none none none none
Returns of Capital............................... none none none none none none none
-------- -------- -------- -------- -------- ------- --------
Total Distributions............................ (0.6905) (0.7207) (0.7374) (0.6687) (0.7325) (0.8402) (0.3293)
-------- -------- -------- -------- -------- ------- --------
Net Asset Value, End of Period................... $ 9.3000 $10.2600 $10.2000 $10.2300 $10.0400 $9.9800 $ 9.9700
======== ======== ======== ======== ======== ======= ========
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN/2/.................................. (2.68%) 7.85%/3/ 7.20%/3/ 8.85%/3/ 8.23%/3/ 8.86%/3/ 7.20%/3/
- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (000's omitted)........ $25,975 $24,173 $9,790 $4,392 $4,093 $2,575 $1,784
Ratio of Expenses to Average Daily Net Assets.... 0.74% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Expenses to Average Daily Net Assets
prior to Expense Limitation.................... 0.74% 0.85% 0.98% 1.15% 1.49% 1.80% 1.26%
Ratio of Net Investment Income to Average
Daily Net Assets............................... 6.57% 6.20% 6.39% 6.62% 7.32% 8.41% 7.63%
Ratio of Net Investment Income to Average
Daily Net Assets prior to Expense Limitation... 6.57% 6.15% 6.21% 6.27% 6.62% 7.41% 7.16%
Portfolio Turnover Rate.......................... 219% 198% 241% 95% 38% -- --
</TABLE>

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

/1/ Date of initial public offering; ratios and total return have been
annualized.

/3/ Total return reflects the expense limitation referenced in Expenses under
Management of the Fund.

<PAGE>

<TABLE>
<CAPTION>
MULTIPLE STRATEGY SERIES
-------------------------------------------------------------------------------
7/28/88/1/
YEAR ENDED THROUGH
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $13.3300 $13.5500 $12.9800 $10.8400 $11.8000 $10.1600 $10.0000

INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income........................... 0.4373 0.3280 0.4572 1.0824 0.3411 0.1302 0.0638
Net Gains or Losses on Securities
(both realized and unrealized)................ (0.4473) 0.6920 1.2328 1.6676 (0.3911) 1.5498 0.0962
-------- -------- -------- -------- -------- -------- --------
Total From Investment Operations.............. (0.0100) 1.0200 1.6900 2.7500 (0.0500) 1.6800 0.1600
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income).......... (0.3400) (0.4600) (1.0600) (0.3500) (0.2700) (0.0400) none
Distributions (from capital gains).............. (0.3000) (0.7800) (0.0600) (0.2600) (0.6400) none none
Returns of Capital.............................. none none none none none none none
-------- -------- -------- -------- -------- -------- --------
Total Distributions........................... (0.6400) (1.2400) (1.1200) (0.6100) (0.9100) (0.0400) none
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.................. $12.6800 $13.3300 $13.5500 $12.9800 $10.8400 $11.8000 $10.1600
======== ======== ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN/2/................................. (0.15%) 8.18%/3/ 13.85%/3/ 26.58% (0.18%) 16.60% 3.77%
- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (000's omitted)....... $47,731 $37,235 $15,150 $12,138 $6,137 $3,182 $151
Ratio of Expenses to Average Daily Net Assets... 0.70% 0.80% 0.86% 1.03% 1.35% 1.99% /4/
Ratio of Expenses to Average Daily Net Assets
prior to Expense Limitation................... 0.70% 0.89% 0.94% 1.03% 1.35% 1.99% --
Ratio of Net Investment Income to Average
Daily Net Assets.............................. 3.71% 3.33% 3.60% 11.35% 3.84% 2.22% /4/
Ratio of Net Investment Income to Average
Daily Net Assets prior to Expense Limitation.. 3.71% 3.24% 3.52% 11.35% 3.84% 2.22% --
Portfolio Turnover Rate......................... 140% 162% 202% 1,010% 210% 132% --

<CAPTION>
MONEY MARKET SERIES
-------------------------------------------------------------------------------
7/28/88/1/
YEAR ENDED THROUGH
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $10.0000 $10.0000 $10.0000 $10.0000 $10.0000 $10.0000 $10.0000

INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income........................... 0.3614 0.2451 0.3202 0.5443 0.7306 0.8288 0.3195
Net Gains or Losses on Securities
(both realized and unrealized)................ none none none none none none none
-------- -------- -------- -------- -------- -------- --------
Total From Investment Operations.............. 0.3614 0.2451 0.3202 0.5443 0.7306 0.8288 0.3195
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income).......... (0.3614) (0.2451) (0.3202) (0.5443) (0.7306) (0.8288) (0.3195)
Distributions (from capital gains).............. none none none none none none none
Returns of Capital.............................. none none none none none none none
-------- -------- -------- -------- -------- -------- --------
Total Distributions........................... (0.3614) (0.2451) (0.3202) (0.5443) (0.7306) (0.8288) (0.3195)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.................. $10.0000 $10.0000 $10.0000 $10.0000 $10.0000 $10.0000 $10.0000
======== ======== ======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN/2/................................. 3.68% 2.48%/3/ 3.25%/3/ 5.58%/3/ 7.56%/3/ 8.61%/3/ 7.70%/3/
- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (000's omitted)....... $20,125 $10,245 $7,774 $7,768 $8,174 $2,109 $932
Ratio of Expenses to Average Daily Net Assets... 0.66% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Expenses to Average Daily Net Assets
prior to Expense Limitation................... 0.66% 0.86% 0.85% 0.99% 0.99% 2.01% 2.11%
Ratio of Net Investment Income to Average
Daily Net Assets.............................. 3.79% 2.44% 3.21% 5.45% 7.25% 8.26% 7.50%
Ratio of Net Investment Income to Average
Daily Net Assets prior to Expense Limitation.. 3.79% 2.38% 3.16% 5.26% 7.05% 7.05% 6.19%
Portfolio Turnover Rate......................... -- -- -- -- -- -- --
</TABLE>

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

/1/ Date of initial public offering; ratios and total return have been
annualized.

/3/ Total return reflects the expense limitation referenced in Expenses under
Management of the Fund.

/4/ The ratios of expenses and net investment income to average daily net
assets have been omitted as management believes that such ratios are not
meaningful due to the limited assets of this Series.

<PAGE>

<TABLE>
<CAPTION>
GROWTH SERIES
------------------------------------------------------
7/12/91/1/
YEAR ENDED THROUGH
12/31/94 12/31/93 12/31/92 12/31/91
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................................. $12.2400 $11.1200 $11.0300 $10.0000

INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net Investment Income................................................. 0.0694 0.0558 0.0225 0.0098
Net Gains or Losses on Securities (both realized and unrealized)...... (0.4994) 1.2142 0.1975 1.0202
-------- -------- -------- --------
Total From Investment Operations.................................... (0.4300) 1.2700 0.2200 1.0300
-------- -------- -------- --------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment income)................................ (0.0600) (0.0200) (1.0100) none
Distributions (from capital gains).................................... none (0.1300) (0.1200) none
Returns of Capital.................................................... none none none none
-------- -------- -------- --------
Total Distributions................................................. (0.0600) (0.1500) (0.1300) none
-------- -------- -------- --------
Net Asset Value, End of Period........................................ $11.7500 $12.2400 $11.1200 $11.0300
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN/2/....................................................... (3.54%)/3/ 11.56%/3/ 1.99%/3/ 21.60%
- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period (000's omitted)............................. $39,344 $33,180 $14,251 $6,950
Ratio of Expenses to Average Daily Net Assets......................... 0.80% 0.80% 0.98% 1.94%
Ratio of Expenses to Average Daily Net Assets prior to
Expense Limitation.................................................. 0.88% 1.00% 1.25% 1.94%
Ratio of Net Investment Income to Average Daily Net Assets............ 0.64% 0.67% 0.28% 0.33%
Ratio of Net Investment Income to Average Daily Net Assets
prior to Expense Limitation......................................... 0.56% 0.47% 0.01% 0.33%
Portfolio Turnover Rate............................................... 43% 57% 52% 40%
</TABLE>

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

/1/ Date of initial public offering; ratios and total return have been
annualized.

/3/ Total return reflects the expense limitation referenced in Expenses under
Management of the Fund.

<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

INTRODUCTION

The Fund, a corporation organized in Maryland on February 19, 1987, is a
diversified, open-end management investment company offering different Series
of shares. The initial public offering of the Growth Series was July 2, 1991.

Each Series' investment objective is a fundamental policy and cannot be
changed without approval by the holders of a "majority" of that Series'
outstanding shares, as defined in the 1940 Act. Although each Series will
constantly strive to attain its objective, there can be no assurance that it
will be attained. In addition to the objective and investment techniques
described below for each Series, see Other Considerations for investment
techniques available to various Series of the Fund. Part B provides more
information on the Series' investment policies and restrictions.

EQUITY/INCOME SERIES

The objective of the Equity/Income Series is to seek to achieve long-term
growth by investing primarily in securities that provide the potential for
income and capital appreciation without undue risk to principal. The Series
seeks to provide shareholders with a current return while allowing them to
participate in the capital gains potential associated with equity
investments.

INVESTMENT STRATEGY

The Series generally invests in common stocks and income-producing
securities that are convertible into common stocks. The portfolio manager
looks for securities having a better dividend yield than the average of the
Standard & Poor's ("S&P") 500 Stock Index, as well as capital gains potential.

All available types of appropriate securities are under continuous study.
The Series may invest in all classes of securities, bonds and preferred and
common stocks in any proportion deemed prudent under existing market and
economic conditions. In seeking to obtain its objective, the Series may hold
securities for any period of time. For temporary, defensive purposes, the
Series may hold a substantial portion of its assets in cash or short-term
obligations.

Income-producing convertible securities include preferred stock and
debentures that pay a stated or variable 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 Series 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 market value of the underlying common stock.

The Series may be suitable for the patient investor interested in long-term
growth. The investor should be willing to accept the risks associated with
investments in common stocks and income-producing securities, including those
that are convertible into common stocks. The Series is suitable for investors
who want a current return with the possibility of capital appreciation.
Naturally, the Series cannot assure a specific rate of return or that principal
will be protected. The value of the Series' shares can be expected to fluctuate
depending upon market conditions. However, through the cautious selection and
supervision of its portfolio, the Series will strive to achieve its objective of
long-term growth through both income and capital appreciation without undue risk
to principal.

HIGH YIELD SERIES

The objective of the High Yield Series is to seek the highest current income
which the Manager believes is consistent with prudent investment management.
The strategy is to invest primarily in those securities having a liberal and
consistent yield and those tending to reduce the risk of market fluctuations.
The Series will invest at least 80% of its assets at the time of purchase in:

(1) Corporate Bonds. The Series will invest in both rated and unrated
bonds. See Appendix A to this Prospectus for information concerning ratings.
Unrated bonds may be more speculative in nature than rated bonds;

(2) Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; and

(3) Commercial paper of companies rated A-1 or A-2 by S&P or rated P-1 or
P-2 by Moody's Investors Service, Inc. ("Moody's").

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INVESTMENT STRATEGY

The Series expects to invest at least 80% of its assets in securities of
the types described above. The Series must invest the remaining assets, if
any, in income-producing securities, including common stocks and preferred
stocks, some of which may have convertible features or attached warrants. For
temporary defensive purposes, the Series may hold a substantial portion of
its assets in cash or short-term obligations. In the long run, the Series'
assets are expected to be invested primarily in unrated corporate bonds and
bonds rated BBB or lower by S&P.

RISK FACTORS

The assets of the High Yield Series may be invested primarily in bonds
rated BBB or lower by S&P or Baa or lower by Moody's and in unrated corporate
bonds. See Appendix A to this Prospectus for more rating information.
Investing in these so-called "junk" or "high-yield" bonds entails certain
risks, including the risk of loss of principal, which may be greater than the
risks involved in investment grade bonds, and which should be considered by
investors contemplating an investment in the Series. Such bonds are sometimes
issued by companies whose earnings at the time of issuance are less than the
projected debt service on the junk bonds. In addition to the considerations
discussed elsewhere in this Prospectus, those risks include the following:

Youth and Volatility of the High-Yield Market. Although the market for
high-yield bonds has been in existence for many years, including periods of
economic downturns, the high-yield market grew rapidly during the long
economic expansion which took place in the United States during the 1980s.
During that economic expansion, the use of high-yield debt securities to fund
highly leveraged corporate acquisitions and restructurings increased
dramatically. As a result, the high-yield market grew substantially during
that economic expansion. Although experts disagree on the impact recessionary
periods have had and will have on the high-yield market, some analysts
believe a protracted economic downturn would severely disrupt the market for
high-yield bonds, would adversely affect the value of outstanding bonds and
would adversely affect the ability of high-yield issuers to repay principal
and interest. Those analysts cite volatility experienced in the high-yield
market in the past as evidence for their position. It is likely that
protracted periods of economic uncertainty would result in increased
volatility in the market prices of high-yield bonds, an increase in the
number of high-yield bond defaults and corresponding volatility in the
Series' net asset value. At times in the past, uncertainty and volatility in
the high-yield market resulted in volatility in the Series' net asset value.

Redemptions. If, as a result of volatility in the high-yield market or other
factors, the Series experiences substantial net redemptions of the Series'
shares for a sustained period of time (i.e., more shares of the Series are
redeemed than are purchased), the Series may be required to sell securities
without regard to the investment merits of the securities to be sold. If the
Series sells a substantial number of securities to generate proceeds for
redemptions, the asset base of the Series will decrease and the Series' expense
ratio may increase.

Liquidity and Valuation. The secondary market for high-yield securities is
currently dominated by institutional investors, including mutual funds and
certain financial institutions. There is generally no established retail
secondary market for high-yield securities. As a result, the secondary market
for high-yield securities is more limited and less liquid than other
secondary securities markets. The high-yield secondary market is particularly
susceptible to liquidity problems when the institutions which dominate it
temporarily cease buying bonds for regulatory, financial or other reasons,
such as the savings and loan crisis. A less liquid secondary market may have
an adverse affect on the Series' ability to dispose of particular issues,
when necessary, to meet the Series' liquidity needs or in response to a
specific economic event, such as the deterioration in the creditworthiness of
the issuer. In addition, a less liquid secondary market makes it more
difficult for the Series to obtain precise valuations of the high-yield
securities in its portfolio. During periods involving such liquidity
problems, judgment plays a greater role in valuing high-yield securities than
is normally the case. The secondary market for high-yield securities is also
generally considered to be more likely to be disrupted by adverse publicity
and investor perceptions than the more established secondary securities
markets. The Series' privately placed high-yield securities are particularly
susceptible to the liquidity and valuation risks outlined above.

31
<PAGE>

Legislative and Regulatory Action and Proposals. There are a variety of
legislative actions which have been taken or which are considered from time
to time by the United States Congress which could adversely affect the market
for high-yield bonds. For example, Congressional legislation limited the
deductibility of interest paid on certain high-yield bonds used to finance
corporate acquisitions. Also, Congressional legislation has, with some
exceptions, generally prohibited federally-insured savings and loan institutions
from investing in high-yield securities. Regulatory actions have also affected
the high-yield market. For example, many insurance companies have restricted or
eliminated their purchases of high-yield bonds as a result of, among other
factors, actions taken by the National Association of Insurance Commissioners.
If similar legislative and regulatory actions are taken in the future, they
could result in further tightening of the secondary market for high-yield
issues, could reduce the number of new high-yield securities being issued and
could make it more difficult for the Series to attain its investment objective.

Zero Coupon Bonds and Pay-in-Kind Bonds. Although the Series does not
generally purchase a substantial amount of zero coupon bonds or pay-in-kind
("PIK") bonds, from time to time the Fund may acquire zero coupon bonds and,
to a lesser extent, PIK bonds. Zero coupon bonds and PIK bonds are generally
considered to be more interest-sensitive than income-bearing bonds, to be
more speculative than interest-bearing bonds, and to have certain tax
consequences which could, under certain circumstances, be adverse to the
Series. For example, the Series accrues, and is required to distribute to
shareholders, income on its zero coupon bonds. However, the Series may not
receive the cash associated with this income until the bonds are sold or
mature. If the Series did not have sufficient cash to make the required
distribution of accrued income, the Series could be required to sell other
securities in its portfolio or to borrow to generate the cash required.

CAPITAL RESERVES SERIES

The Capital Reserves Series' objective is to seek a high stable level of
current income while attempting to minimize fluctuations in principal and
provide maximum liquidity. The Series intends to achieve its objective by
investing its assets in a diversified portfolio of short- and intermediate-term
securities, including securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, instruments secured by such securities and
investment grade corporate notes, bonds and other debt securities. See
Diversification.

The Series is not a money market fund. A money market fund is designed for
stability of principal; consequently, the level of income fluctuates. The
Series is designed for greater stability of income at a relatively higher
level; consequently, the principal value will fluctuate over time.

INVESTMENT STRATEGY

The Series will attempt to provide investors with yields higher than those
available in money market vehicles by extending its portfolio maturities.

MATURITY RESTRICTIONS

The Series seeks to reduce the effects of interest rate volatility on
principal by normally maintaining the average weighted maturity of the
Series' portfolio within the five- to seven-year range and not in excess of
ten years. The decision to position the portfolio at any point within this
permissible maturity range will be guided by the Manager's perception of the
direction of interest rates and the risks in the fixed income markets,
generally. If, in the Manager's judgment, interest rates are relatively high
and borrowing requirements in the economy are weakening, the Manager,
generally, will extend the average weighted maturity of the Series.
Conversely, if, in its judgment, interest rates are relatively low and
borrowing requirements appear to be strengthening, it, generally, will
shorten the average weighted maturity. The Manager has the ability to
purchase individual securities with a remaining maturity of up to 15 years.

QUALITY RESTRICTIONS

The Series will invest in:

(1) securities issued or guaranteed by the U.S. Government (e.g., Treasury
Bills and Notes), its agencies (e.g., Federal Housing Administration) or
instrumentalities (e.g., Federal Home Loan Bank) or government-sponsored
corporations (e.g., Federal National Mortgage Association) and repurchase
agreements collateralized by such securities;

(2) corporate notes, bonds and other debt securities rated investment grade
(e.g., BBB or better by S&P or Baa or better by Moody's) or, if unrated,
those securities considered to be of comparable quality by the Manager;

<PAGE>

(3) mortgage-backed securities, i.e., bonds collateralized by mortgage-backed
pass-through securities such as GNMA, FNMA and FHLMC, rated investment grade
(e.g., BBB or better by S&P or Baa or better by Moody's) or, if unrated, those
securities considered to be of comparable quality by the Manager. See Other
Considerations--Mortgage-Backed Securities;

(4) certificates of deposit and obligations of both U.S. and foreign banks
if they have assets of at least one billion dollars;

(5) commercial paper of companies rated P-1 or P-2 by Moody's and/or A-1 or
A-2 by S&P; and

(6) asset-backed securities, i.e., securities backed by assets such as home
equity loans and credit card receivables rated AAA by S&P or Aaa by Moody's.
See Other Considerations--Asset-Backed Securities.

Debt securities rated in the fourth category of investment grade (e.g., BBB
by S&P or Baa by Moody's) may have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity by issuers of such debt to make principal and interest
payments than is the case with higher rated debt. To the extent that the
rating of a corporate debt security held by the Series falls below such
fourth grade or the Manager determines that an unrated security no longer is
of comparable quality, the Series, as soon as practicable, will dispose of
such security, unless such disposal, in the judgment of the Manager, would be
detrimental to the Series in light of then prevailing market conditions.

The Series may be suitable for the individual who wants relatively stable
and high income flow and the security associated with a portfolio of U.S.
Government- (or agency-) backed and other investment grade investments. The
investor should be willing to accept the risks associated with investing in
these securities. The types of securities in which the Series invests is
subject to fluctuations in net asset value, as well as yield. Therefore, the
Series may not be suitable for people whose overriding objective is stability
of principal. The market value of fixed income securities generally is
affected by changes in the level of interest rates. When interest rates rise,
the share value will tend to fall, and when interest rates fall, the share
value will tend to rise.

As noted above, the Series will invest in securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities or certain corporations
sponsored or established by the U.S. Government. U.S. Treasury securities are
backed by the "full faith and credit" of the United States. Securities issued or
guaranteed by Federal agencies and U.S. Government sponsored instrumentalities
may or may not be backed by the full faith and credit of the United States. In
the case of securities not backed by the full faith and credit of the United
States, the investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the agency
or instrumentality does not meet its commitment. Agencies which are backed by
the full faith and credit of the United States include the Export-Import Bank,
Farmers Home Administration, Federal Financing Bank, and others. Certain
agencies and instrumentalities, such as the Government National Mortgage
Association (GNMA), are, in effect, backed by the full faith and credit of the
United States through provisions in their charters that they may make
"indefinite and unlimited" drawings on the Treasury, if needed to service its
debt. Debt from certain other agencies and instrumentalities, including the
Federal Home Loan Bank and Federal National Mortgage Association (FNMA), are not
guaranteed by the United States, but those institutions are protected by the
discretionary authority for the U.S. Treasury to purchase certain amounts of
their securities to assist the institution in meeting its debt obligations.
Finally, other agencies and instrumentalities, such as the Farm Credit System
and the Federal Home Loan Mortgage Corporation (FHLMC), are federally chartered
institutions under U.S. Government supervision, but their debt securities are
backed only by the creditworthiness of those institutions, not the U.S.
Government.

Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration,
Small Business Administration, and the Tennessee Valley Authority.

<PAGE>

An instrumentality of the U.S. Government agency is a government agency
organized under Federal charter with government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Federal Home Loan
Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Immediate
Credit Banks, and the Federal National Mortgage Associations.

MONEY MARKET SERIES

As a money market fund, this Series' objective is to seek to provide
maximum current income, while preserving principal and maintaining liquidity,
by investing at least 80% of its assets in a diversified portfolio of money
market securities and managing the portfolio to maintain a constant $10 per
share value. While the Series will make every effort to maintain a fixed net
asset value of $10 per share, there can be no assurance that this objective
will be achieved.

QUALITY RESTRICTIONS

The Series limits its investments to those which the Board of Directors has
determined present minimal credit risks and are of high quality and which
will otherwise meet the maturity, quality and diversification conditions with
which taxable money market funds must comply.

The Series' investments include securities issued or guaranteed by the U.S.
Government (e.g., Treasury Bills and Notes) or by the credit of its agencies
or instrumentalities (e.g., Federal Housing Administration and Federal Home
Loan Bank). The Series may invest in the certificates of deposit and
obligations of both U.S. and foreign banks if they have assets of at least
one billion dollars in accordance with the maturity, quality and
diversification conditions with which taxable money market funds must comply.
The Series also may purchase commercial paper and other corporate
obligations; if such a security or, as relevant, its issuer, is considered to
be rated, at the time of the proposed purchase, it or, as relevant, its
issuer, must be so rated in one of the two highest rating categories (e.g.,
for commercial paper, A-2 or better by S&P and P-2 or better by Moody's; and,
for other corporate obligations, AA or better by S&P and Aa or better by
Moody's) by at least two nationally-recognized statistical rating
organizations approved by the Board of Directors or, if such security is not
so rated, the purchase of the security must be approved or ratified by the
Board of Directors in accordance with the maturity, quality and
diversification conditions with which taxable money market funds must comply.
Appendix A of Part B describes the ratings of S&P, Moody's, Duff and Phelps,
Inc. and Fitch Investors Service, Inc., four of the better-known statistical
rating organizations.

MATURITY RESTRICTIONS

The Series maintains an average maturity of not more than 90 days. Also, it
does not purchase any instruments with an effective remaining maturity of
more than 13 months.

INVESTMENT TECHNIQUES

The Series intends to hold its investments until maturity, but may sell
them prior to maturity for a number of reasons. These reasons include: to
shorten or lengthen the average maturity, to increase the yield, to maintain
the quality of the portfolio or to maintain a stable share value.

If there were a national credit crisis, an issuer were to become insolvent or
interest rates were to rise, principal values could be adversely affected.
Investments in foreign banks and overseas branches of U.S. banks may be subject
to less stringent regulations and different risks than U.S. domestic banks.

GROWTH SERIES

The objective of the Series is long-term capital appreciation. The Series'
strategy is to invest primarily in common stocks that, in the judgment of the
Manager, are of superior quality and in securities that are convertible into
such common stocks.

INVESTMENT STRATEGY

The Series will attempt to achieve its objective by purchasing securities
issued by companies whose earnings the Manager believes will grow more
rapidly than the average of those listed in the S&P 500 Stock Index. The
Manager's emphasis will be on the securities of companies that, in its
judgment, have the characteristics supporting such earnings growth. This
judgment will be based on, among other things, the financial strength of the
company, the expertise of its management, the growth potential of the company
within the industry and the growth potential of the industry itself. The
focus will be on those securities of companies the Manager believes have
established themselves within their industry while maintaining growth
potential.

<PAGE>

While management believes its objective may best be achieved by investing
in common stock, the Series may also invest in other securities including,
but not limited to, convertible securities, warrants, preferred stock, bonds
and foreign securities. Any specific investment will be dependent upon the
judgment of the Manager. Investments may be held for any period of time.

The Series may make foreign investments through the purchase and sale of
sponsored or unsponsored American Depository Receipts ("ADRs"). ADRs are
receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation.
"Sponsored" ADRs are issued jointly by the issuer of the underlying security
and a depository, whereas "unsponsored" ADRs are issued without participation
of the issuer of the deposited security. Holders of unsponsored ADRs
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 in respect
of 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 ADR.

Should the market warrant a temporary, defensive approach, the Series may
also invest in fixed income obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, as well as corporate bonds of
investment quality rated Baa or above by Moody's or BBB or above by S&P.

The Series may be suitable for the patient investor interested in long-term
capital appreciation. Providing current income is not an objective of the
Series and any income produced is expected to be minimal. The investor should
be willing to accept the risks associated with investments in domestic and
international securities. Ownership of Series shares reduces the bookkeeping
and administrative inconveniences connected with direct purchases of these
securities. Because the net asset value may fluctuate at times in response to
market conditions, the Series is not appropriate for a short-term investor.

MULTIPLE STRATEGY SERIES

The Multiple Strategy Series seeks to provide a balance of capital
appreciation, income and preservation of capital by strategically allocating
its assets among fixed income and equity securities, that, in the judgment of
the Manager, are believed to have the best potential for achieving the
Series' objective.

INVESTMENT STRATEGY

The Series seeks a balance of capital appreciation, income and preservation
of capital. As a "balanced" fund, the Series will generally invest at least
25% of its assets in fixed income securities, including U.S. Government
securities and corporate bonds. The balance of the portfolio will be
allocated to equity securities principally, including convertible securities,
and also to cash and cash equivalents. If the Series invested in convertible
securities, the value of the convertible security would be allocated to its
fixed income component and its conversion rights component for purposes of
the 25% fixed income allocation.

The Series uses a dividend-oriented valuation strategy to select individual
securities in which it will invest. In seeking capital appreciation, the Series
invests primarily in common stocks of established companies believed to have a
potential for long-term capital growth. In seeking current income and
preservation of capital, in addition to capital appreciation, the Series invests
in various types of fixed income securities, including U.S. Government and
government agency securities and corporate bonds. The Series intends to invest
in bonds that are rated in the top four grades by a nationally-recognized rating
agency (i.e., Moody's or S&P) at the time of purchase, or, if unrated, are
determined to be equivalent to the top four grades in the judgment of the
Manager. The fourth grade is considered medium grade and may have some
speculative characteristics. To the extent that the rating of a security held by
the Series falls below the fourth grade or the Manager determines that an
unrated security no longer is of comparable quality, the Series, as soon as
practicable, will dispose of such security, unless such disposal, in the
judgment of the Manager, would be detrimental in light of then prevailing market
conditions. Typically, the maturity of the bonds will range between five and 30
years. The Series may not concentrate investments in any industry, which means
not investing more than 25% of its assets in any one industry.

<PAGE>

The Series may invest in shares or convertible bonds issued by real estate
investment trusts ("REITS"). REITS invest primarily in income-producing real
estate as well as real estate related loans or interests. A REIT is not taxed
on income distributed to shareholders if it complies with several
requirements relating to its organization, ownership, assets and income, and
a requirement that it distribute to its shareholders at least 95% of its
taxable income (other than net capital gains) for each taxable year. The
Series anticipates investing only in REITS that invest the majority of their
assets directly in real property and derive their income primarily from
rents, which are known as "equity REITS." Equity REITS can also realize
capital gains by selling properties that have appreciated in value.

In pursuing its investment objective, the Series may hold securities for
any period of time. For temporary, defensive purposes, the Series may hold a
substantial portion of its assets in cash or short-term obligations,
including repurchase agreements.

The Series may be suitable for the patient investor interested in long-term
capital appreciation. The investor should be willing to accept the risks
associated with investments in equity and fixed income securities.

The value of the Series' shares can be expected to fluctuate depending upon
market conditions and, thus, an investment in the Series may not be
appropriate for a short-term investor. Investment results of the Series will
be affected by the ability of the Manager to anticipate changes in economic
and market conditions and, consequently, there can be no assurance that the
Series' investment objective will be realized.

OTHER CONSIDERATIONS

WHEN-ISSUED SECURITIES

Consistent with their respective objectives, each Series may invest in U.S.
Government securities and corporate debt obligations on a when-issued basis
("when-issued securities"). These securities involve commitments to buy a new
issue with settlement up to 60 days later. The average settlement date for
when-issued securities purchased by the Series is generally between 30 and 45
days. During the time between the commitment and settlement, the Series do
not accrue interest, but the market value of the bonds may fluctuate. This
can result in a Series' share value increasing or decreasing. The Series will
not ordinarily sell when-issued securities prior to settlement. If a Series
invests in securities of this type, it will maintain a segregated account to
pay for them and mark the account to market daily.

MORTGAGE-BACKED SECURITIES

The Capital Reserves and Multiple Strategy Series may also invest in mortgage-
backed securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or government sponsored corporations or those issued by
certain private, non-government corporations, such as financial institutions, if
the securities are fully collateralized at the time of issuance by securities or
certificates issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Two principal types of mortgage-backed securities are
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs).

CMOs are debt securities issued by U.S. Government agencies or by financial
institutions and other mortgage lenders and collateralized by a pool of
mortgages held under an indenture. CMOs are issued in a number of classes or
series with different maturities. The classes or series are retired in
sequence as the underlying mortgages are repaid. Prepayment may shorten the
stated maturity of the obligation and can result in a loss of premium, if any
has been paid. Certain of these securities may have variable or floating
interest rates and others may be stripped (securities which provide only the
principal or interest feature of the underlying security).

REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured
by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.

CMOs and REMICs issued by private entities are not government securities
and are not directly guaranteed by any government agency. They are secured by
the underlying collateral of the private issuer. The Series will invest in
such private-backed securities only if they are 100% collateralized at the
time of issuance by securities issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities.

<PAGE>

ASSET-BACKED SECURITIES

The Capital Reserves, Multiple Strategy and Money Market Series may also
invest in securities which are backed by assets such as receivables on home
equity and credit card loans, and receivables regarding automobile, mobile
home and recreational vehicle loans, wholesale dealer floor plans and leases.
All such securities must be rated in the highest rating category by a
reputable credit rating agency (e.g., AAA by S&P or Aaa by Moody's). Such
receivables are securitized in either a pass-through or a pay-through
structure. Pass-through securities provide investors with an income stream
consisting of both principal and interest payments in respect of the
receivables in the underlying pool. Pay-through asset-backed securities are
debt obligations issued usually by a special purpose entity, which are
collateralized by the various receivables and in which the payments on the
underlying receivables provide the funds to pay the debt service on the debt
obligations issued. The Series may invest in these and other types of
asset-backed securities that may be developed in the future. It is the
Series' current policy to limit asset-backed investments to those represented
by interests in credit card receivables, wholesale dealer floor plans, home
equity loans and automobile loans.

The rate of principal payment on asset-backed securities generally depends
upon the rate of principal payments received on the underlying assets. Such
rate of payments may be affected by economic and various other factors such
as changes in interest rates. Therefore, the yield may be difficult to
predict and actual yield to maturity may be more or less than the anticipated
yield to maturity. Due to the shorter maturity of the collateral backing such
securities, there is less of a risk of substantial prepayment than with
mortgage-backed securities. See Mortgage-Backed Securities above. Such
asset-backed securities do, however, involve certain risks not associated
with mortgage-backed securities, including the risk that security interests
cannot be adequately or in many cases, ever, established. In addition, with
respect to credit card receivables, a number of state and federal consumer
credit laws give debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the outstanding balance. In the case of
automobile receivables, there is a risk that the holders may not have either
a proper or first security interest in all of the obligations backing such
receivables due to the large number of vehicles involved in a typical
issuance and technical requirements under state laws. Therefore, recoveries
on repossessed collateral may not always be available to support payments on
the securities. For further discussion concerning the risks of investing in
such asset-backed securities, see Part B.

FOREIGN SECURITIES

Each Series may invest up to 25% of its assets in foreign securities.
Foreign markets may be more volatile than U.S. markets. Such investments
involve sovereign risk in addition to the normal risks associated with
American securities. 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.,
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 exchange
control regulations apart from market fluctuations. A Series may also
experience delays in foreign securities settlement.

In connection with investments in foreign securities, a Series may, from
time to time, conduct 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). Investors should be aware that there are costs and risks
associated with such currency transactions. A Series 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. When the Manager believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar or
against other currency, a Series may enter into a forward 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 a Series'
securities denominated in such foreign currency. It is impossible to predict
precisely the market value of portfolio securities at the expiration of the
forward contract. Accordingly, it may be necessary for a Series to purchase
or sell additional foreign currency on the spot market (and bear the expense
of such purchase or sale) if the market value of the security is less than or
greater than the amount of foreign currency a Series is obligated to deliver.

<PAGE>

A Series may incur gains or losses from currency transactions. No type of
foreign currency transactions will eliminate fluctuations in the prices of a
Series' foreign securities or will prevent loss if the prices of such
securities should decline.

OPTIONS

To achieve the Series' objectives, the Series, except for the Money Market
Series, intend to use certain hedging techniques which might not be
conveniently available to individuals.

These techniques will be used at the Manager's discretion to protect a
Series' principal value.

The Series may purchase put options, write covered call options and enter
into closing transactions in connection therewith in respect of securities in
which they may invest. In purchasing put options, the premium paid by the
Series, plus any transaction costs, will reduce any benefit realized by the
Series upon exercise of the option.

A put option gives a Series the right to sell one of its securities for an
agreed price up to an agreed date. The advantage is that the Series can be
protected should the market value of the security decline. However, the
Series must pay a premium for this right, whether it exercises it or not.

A covered call option obligates a Series to sell one of its securities for
an agreed price up to an agreed date. The advantage is that the Series
receives premium income, which may offset the cost of purchasing put options.
However, the Series may lose the potential market appreciation of the
security if the Manager's judgment is wrong and interest rates fall.

Closing transactions essentially let a Series offset a put option or
covered call option prior to its exercise or expiration. If it cannot effect
a closing transaction, it may have to hold a security it would otherwise sell
with a potential decline in net asset value, or deliver a security it might
want to hold.

Each Series will use Exchange-traded options, but reserve the right to use
over-the-counter options upon written notice to shareholders. Certain
over-the-counter options may be illiquid.

The Growth Series also may write call options and purchase put options on
stock indices and enter into closing transactions in connection therewith.
The Series will not engage in transactions on stock indices for speculative
purposes. Writing a call option on stock indices is similar to the writing of
a call option on an individual stock. Purchasing a protective put option on
stock indices is similar to the purchase of protective puts on an individual
stock. Stock indices used will include, but will not be limited to, the S&P
100 and the S&P Over-the-Counter 250. The ability to hedge effectively using
options on stock indices will depend on the degree to which price movements
in the underlying index correlate with price movements in the portfolio sec-
urities of the Growth Series.

BORROWINGS

Each Series may borrow money as a temporary measure for
extraordinary purposes or to facilitate redemptions. The Series will not
borrow money in excess of one-third of the value of their net assets. See
Part B for additional possible restrictions on borrowing. The Series have no
intention of increasing their 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 Series' 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 Series shall, within three days thereafter (not including Sunday or
holidays) or such longer period as the U.S. Securities and Exchange
Commission may prescribe by rules and regulations, reduce the amount of their
borrowings to an extent that the asset coverage of such borrowings shall be
at least 300%. The Series will not pledge more than 15% of their 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 Series has an
outstanding borrowing.

38
<PAGE>

REPURCHASE AGREEMENTS

The Series may also use repurchase agreements which are at least 100%
collateralized by U.S. Government securities. Each Series may enter into
repurchase agreements with broker/dealers or banks which are deemed
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 Series) 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. The value
of the securities subject to the repurchase agreement is marked to market
daily. In the event of a bankruptcy or other default of the seller, the
Series could experience delays and expenses in liquidating the underlying
securities.

The funds in the Delaware Group have obtained an exemption from the
joint-transaction prohibitions of Section 17(d) of the 1940 Act to allow the
Delaware Group funds jointly to invest cash balances. Each Series may invest
cash balances in joint repurchase agreements in accordance with the terms of
the Order and subject to the conditions described above.

PORTFOLIO LOAN TRANSACTIONS

Each Series, except for the Money Market Series, may, from time to time,
lend securities (but not in excess of 25% of its assets) from its portfolio
to brokers, dealers and financial institutions and receive collateral in cash
or short-term U.S. Government securities. While the loan is outstanding, this
collateral will be maintained at all times in an account equal to at least
100% of the current market value of the loaned securities plus accrued
interest. Such cash collateral will be invested in short-term securities, the
income from which will increase the return of the Series.

The major risk to which a Series 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, a Series will only enter into loan arrangements
after a review of all pertinent facts by the Manager, 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 Manager.

LIQUIDITY AND RULE 144A SECURITIES

In order to assure that each Series has sufficient liquidity, as a matter
of fundamental policy, no Series may invest more than 10% of its net assets
in illiquid assets, including restricted securities or repurchase agreements
maturing in more than seven days.

* * *

Each Series' investment objective, the Fund's designation as an open-end
investment company, each Series' designation as a diversified fund, and their
policies concerning portfolio lending, borrowing and purchases of illiquid
securities may not be changed unless authorized by the vote of a majority of the
Series' outstanding voting securities. A "majority vote of the outstanding
voting securities" is the vote by the holders of the lesser of (a) 67% or more
of a Series' voting securities present in person or represented by proxy if the
holders of more than 50% of the outstanding voting securities of such Series are
present or represented by proxy; or b) more than 50% of a Series' outstanding
voting securities. Part B lists other more specific investment restrictions of
the Series which may not be changed without a majority shareholder vote. A brief
discussion of those factors that materially affected the Series' performance
during its most recently completed fiscal year appears in the Series' Annual
Report. The remaining investment policies are not fundamental and may be changed
by the Board of Directors of the Fund without a shareholder vote.

DIVERSIFICATION

The Fund was established as the underlying investment for variable
contracts issued by life companies. Section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), imposes certain diversification
standards on the underlying assets of variable contracts held in the
Portfolios of the Fund. The Code provides that a variable contract shall not
be treated as an annuity contract or life insurance for any period (and any
subsequent period) for which the investments are not, in accordance with
regulations prescribed by the United States Treasury Department ("Treasury
Department"), adequately diversified. Disqualification of the variable
contract would result in the imposition of federal income tax to the contract
owner with respect to earnings allocable to the contract prior to
distributions under the contract (e.g., withdrawals). The Code contains a
safe harbor provision which provides that variable

<PAGE>

contracts meet the diversification requirements if, as of the close of each
quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than 55 percent of the total assets
consist of cash, cash items, U.S. Government securities and securities of
other regulated investment companies.

Treasury Department Regulations (Treas. Reg. Section 1.817-5) provide that
a fund will be deemed to be considered adequately diversified if (i) no more
than 55 percent of the value of the total assets of the fund is represented
by any one investment; (ii) no more than 70 percent of such value is
represented by any two investments; (iii) no more than 80 percent of such
value is represented by any three investments; and (iv) no more than 90
percent of such value is represented by any four investments.

The Technical and Miscellaneous Revenue Act of 1988 provides that for
purposes of determining whether or not the diversification standards imposed
on the underlying assets of variable contracts by Section 817(h) of the Code
have been met, "each United States government agency or instrumentality shall
be treated as a separate issuer."

Each Series of the Fund will be managed in such a manner as to comply with
these diversification requirements.

RATINGS

Appendix A of Part B describes the ratings of S&P, Moody's, Duff and Phelps,
Inc. and Fitch Investors Service, Inc., four of the better-known statistical
rating organizations. Appendix A to this Prospectus includes additional
information concerning the ratings of securities in the High Yield Series.

PURCHASE AND REDEMPTION

Shares are sold only to separate accounts of life companies at net asset
value. (See Calculation of Offering Price and Net Asset Value Per Share.)
Redemptions will be effected by the separate accounts at the net asset value
next determined after receipt of the order to meet obligations under the
variable contracts. The Money Market Series is managed to maintain a constant
$10 per share net asset value although there is no assurance that this
objective can be achieved. Contract owners do not deal directly with the Fund
with respect to the acquisition or redemption of Fund shares.

DIVIDENDS AND DISTRIBUTIONS

Dividends for the High Yield, Capital Reserves and Money Market Series are
declared daily and paid monthly on the first business day after the end of the
month. Short-term capital gains distributions, if any, may be paid with the
daily dividend; otherwise, any distributions from net realized securities
profits normally will be distributed following the close of the fiscal year. The
Fund's fiscal year ends on December 31. For the fiscal year ended December 31,
1994, $0.9621, $0.6355 and $0.3614 per share was paid from the High Yield,
Capital Reserves and Money Market Series' net investment income, respectively.
In addition, $0.0550 per share was paid from the Capital Reserves Series' net
realized securities profits.

For the Equity/Income and Multiple Strategy Series, the Fund will make
payments from the Series' net investment income quarterly. Distributions from
the respective Series' net realized securities profits, if any, normally will be
made following the close of the fiscal year. For the fiscal year ended December
31, 1994, $0.4200 and $0.3400 per share was paid from the Equity/Income and
Multiple Strategy Series' net investment income, respectively. In addition,
$0.6000 and $0.3000 per share was paid from the Equity/Income and Multiple
Strategy Series' net realized securities profits, respectively.

For the Growth Series, the Fund will make payments from the Series' net
income and net realized securities profits, if any, once a year. For the
fiscal year ended December 31, 1994, $0.0600 per share was paid from the
Growth Series' net investment income.

All dividends and distributions are automatically reinvested in additional
Series shares.

<PAGE>

TAXES

The Fund has qualified as a regulated investment company under Subchapter M
of the Internal Revenue Code. As such, the Fund will not be subject to
federal income tax to the extent its earnings are distributed. The Fund
intends to distribute substantially all of the respective Series' net
investment income and net capital gains. Shareholders may be proportionately
liable for taxes on income and gains of the Series but shareholders not
subject to tax on their income will not be required to pay tax on amounts
distributed to them, and the Fund will inform shareholders of the amount and
nature of such income or gains.

CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE

The offering price is the net asset value ("NAV") per share next determined
after an order is received. 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 such exchange is open.

A Series' NAV per share is computed by adding the value of all securities
and other assets in that Series' portfolio, deducting any liabilities of that
Series (expenses and fees are accrued daily) and dividing by the number of
that Series' shares outstanding. The valuation criteria set forth below apply
equally to securities purchased in reliance upon Rule 144A of the Securities
Act of 1933. In determining each Series' total net assets, portfolio
securities listed or traded on a national securities exchange, except for
bonds, are valued at the last sale price on the exchange upon which such
securities are primarily traded. 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. Foreign securities expressed
in foreign currency values will be converted into U.S. dollar values at the
mean between the currencies' bid and offered quotations. Debt securities
(other than short-term investments) are priced at fair value by an
independent pricing service using methods approved by the Fund's Board of
Directors. Short-term investments having a maturity of less than 60 days are
valued at amortized cost, which approximates market value. All securities in
the Money Market Series are valued at amortized cost. Under the direction of
the Board of Directors, certain procedures have been adopted to monitor the
value of the Money Market Series' securities and stabilize the price per
share at $10. All other securities are valued at their fair value as
determined in good faith and in a method approved by the Fund's Board of
Directors.

Each Series may invest a portion of their assets in foreign securities.
From time to time, those securities may be listed primarily on foreign
exchanges which trade on days when the New York Stock Exchange is closed
(such as Saturday). As a result, the net asset value of the Series could be
significantly affected by such trading on days when shareholders have no
access to the Series.

MANAGEMENT OF THE FUND

DIRECTORS

The business and affairs of the Fund are managed under the direction of its
Board of Directors. Part B contains additional information regarding the
directors and officers.

INVESTMENT MANAGER

The Manager furnishes investment management services to each Series of the
Fund described in this Prospectus.

The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On December 31, 1994, the Manager and its
affiliate, Delaware International Advisers Ltd., were supervising in the
aggregate more than $24 billion in assets in the various institutional
(approximately $15,456,416,000) and investment company (approximately
$9,253,901,000) accounts.

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. In connection with the merger, new Investment Management
Agreements between the Fund on behalf of the Series and the Manager were
exectued following shareholder approval. As a result of the merger, DMH and
the Manager became indirect, wholly-owned subsidiaries of and are thus
subject to the ultimate control of Lincoln National. Lincoln National,

<PAGE>

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's address is One Commerce
Square, 2005 Market Street, Philadelphia, PA 19103.

The Manager manages the Series' portfolios and makes investment decisions
which are implemented by the Fund's Trading Department. For these services,
the Manager is paid an annual fee equal to 5/10 of 1% of the average daily
net assets of the Money Market Series, 3/4 of 1% of the average daily net
assets of the Growth Series and 6/10 of 1% of each of the other Series'
average daily net assets, less a proportionate share of all directors' fees
paid to the unaffiliated directors of the Fund. The investment management fee
incurred by each Series for the fiscal year ended December 31, 1994 was as
follows: Equity/Income Series--0.60%; High Yield Series--0.60%; Capital
Reserves Series--0.59%; Money Market Series--0.49%; Growth Series--0.75%; and
Multiple Strategy Series--0.60%, of average daily net assets. After
considering the waiver of fees by the Manager, as described under Expenses on
page 44, the investment management fee paid by each Series was as follows:
Equity/Income Series--0.60%; High Yield Series--0.60%; Capital Reserves
Series--0.59%; Money Market Series--0.49%; Growth Series--0.66%; and Multiple
Strategy Series--0.60%, of average daily net assets.

John B. Fields has primary responsibility for making day-to-day investment
decisions for the Equity/Income Series. He has been the Senior Portfolio
Manager of this Series since 1992. Mr. Fields, who has 24 years experience in
investment management, earned a bachelor's degree and an MBA from Ohio State
University. Before joining the Delaware Group in 1992, he was Director of
Domestic Equity Risk Management at DuPont. Prior to that, he was Director of
Equity Research at Comerica Bank. Mr. Fields is a member of the Financial
Analysts Society.

In making investment decisions for the Equity/Income Series, Mr. Fields
works with a team of 12 portfolio managers and analysts, each of whom
specializes in a different industry sector and makes recommendations
accordingly. Mr. Fields also regularly consults with Wayne A. Stork and
Richard G. Unruh, Jr. Mr. Stork, Chairman of the Manager and the Fund's Board
of Directors, is a graduate of Brown University and attended New York
University's Graduate School of Business Administration. Mr. Stork joined the
Delaware Group in 1962 and has served in various executive capacities at
different times within the Delaware organization. Mr. Unruh is a graduate of
Brown University, and received his MBA from the University of Pennsylvania's
Wharton School. He joined the Delaware Group in 1982 after 19 years of
investment management experience with Kidder, Peabody & Co. Inc. Mr. Unruh
was named an executive vice president of the Fund in 1994. He is also a
member of the Board of Directors of the Manager and was named an executive
vice president of the Manager in 1994.

Paul A. Matlack, Gerald T. Nichols and James R. Raith, Jr. have primary
responsibility for making day-to-day investment decisions for the High Yield
Series. Mr. Matlack and Mr. Nichols have been members of this Series' management
team since 1990, and were named co-managers of this Series in January 1993. Mr.
Raith was named co-manager in January 1994. A Chartered Financial Analyst, Mr.
Matlack is a graduate of the University of Pennsylvania with an MBA in Finance
from George Washington University. He began his career at Mellon Bank as a
credit specialist, and later served as a corporate loan officer for Mellon Bank
and then Provident National Bank.

Mr. Nichols is a graduate of the University of Kansas, where he received a
BS in Business Administration and an MS in Finance. Prior to joining the
Delaware Group, he was a high-yield credit analyst at Waddell & Reed, Inc.
and subsequently the investment officer for a private merchant banking firm.
He is a Chartered Financial Analyst.

Mr. Raith is a 1973 graduate of Holy Cross University and received his MBA
in Finance from Tulane University in 1975. Before joining the Delaware Group
in 1987, he held portfolio management positions in both fixed income and
equity management including managing life insurance reserves at ICH
Corporation and managing high-yield pension assets for Firestone Tire and
Rubber. Prior to being named co-manager of the Series, Mr. Raith managed
separate accounts for the Delaware Group's institutional clients using the
same strategy employed in managing the Series.

In making investment decisions for the High Yield Series, Mr. Matlack, Mr.
Nichols and Mr. Raith regularly consult with Paul E. Suckow. Mr. Suckow is
the Manager's Chief Investment Officer for Fixed Income. A Chartered
Financial Analyst, he is a graduate of Bradley University with an MBA from
Western Illinois University. Mr. Suckow was a fixed income portfolio manager
at the Delaware Group from 1981 to 1985. He returned to the Delaware Group in
1993 after eight years with Oppenheimer Management Corporation.

<PAGE>

Gary A. Reed has primary responsibility for making investment decisions for
the Capital Reserves and Money Market Series. He has been each Series' senior
portfolio manager since 1989. He holds an AB in Economics from the University
of Chicago and an MA in Economics from Columbia University. He began his
career in 1978 with the Equitable Life Assurance Company in New York City,
where he specialized in credit analysis. Prior to joining the Delaware Group
in 1989, Mr. Reed was Vice President and Manager of the fixed income
department at Irving Trust Company in New York. In making investment
decisions for the Capital Reserves and Money Market Series, Mr. Reed
regularly consults with Paul E. Suckow.

Edward N. Antoian has primary responsibility for making day-to-day
investment decisions for the Growth Series. He has been the Series' senior
portfolio manager since its inception. A graduate of The State University of
New York at Albany with an MBA in Finance from the University of
Pennsylvania's Wharton School, Mr. Antoian began his career with Price
Waterhouse. Prior to joining the Delaware Group in June 1984, he worked in
the Institutional Equity Department of E.F. Hutton in Philadelphia. A Chartered
Financial Analyst, Mr. Antoian is a member of the Philadelphia Finance
Association and the Philadelphia Securities Association.

In making investment decisions for the Series, Mr. Antoian regularly
consults with Wayne A. Stork, David C. Dalrymple, William H. Miller and other
members of the Delaware Group's equity department. Mr. Dalrymple is a Senior
Portfolio Manager. He is a CFA, has been working with Mr. Antoian since 1991,
and is a graduate of Clarkson University with an MBA from Cornell's Johnson
School of Management. Mr. Miller is an Assistant Portfolio Manager. He holds
a BA in Economics from Trinity College. Prior to joining the Delaware Group
in 1995, he worked as a technology analyst for Janney Montgomery Scott in
Philadelphia and he has also served as an institutional salesman for
Rutherford Brown & Catherwood.

George H. Burwell and Gary A. Reed have primary responsibility for making
day-to-day investment decisions for the Multiple Strategy Series. Mr.
Burwell, who has been the Multiple Strategy Series' senior portfolio manager
for equities since 1992, holds a BA from the University of Virginia. Prior to
joining the Delaware Group in 1992, Mr. Burwell was a portfolio manager for
Midlantic Bank in Edison, New Jersey, where he managed an equity mutual fund
and three commingled funds. Mr. Burwell is a Chartered Financial Analyst. Mr.
Reed has been the Multiple Strategy Series' senior portfolio manager for
fixed income since 1989.

In making investment decisions for the Multiple Strategy Series, Mr. Burwell
and Mr. Reed regularly consult with Wayne A. Stork, Richard G. Unruh, Jr. and
Paul E. Suckow.

PORTFOLIO TRADING PRACTICES

The Series normally will not invest for short-term trading purposes.
However, the Series 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 Series. Given the respective Series' investment objectives, the
annual portfolio turnover rates are not expected to exceed 100% for the
Equity/Income, High Yield and Growth Series, and 200% for the Capital
Reserves and Multiple Strategy Series. The portfolio turnover rates for the
fiscal years ended December 31, 1993 and 1994 for the Equity/Income, High
Yield, Capital Reserves, Multiple Strategy and Growth Series were 67% and
91%, respectively, 43% and 47%, respectively, 198% and 219%, respectively,
162% and 140%, respectively, and 57% and 43%, respectively.

Best efforts are used 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 their
respective advisory clients. These services may be used by the Manager in
servicing any of their respective accounts. Subject to best price and
execution, the Manager may consider a broker/dealer's sales of variable
contracts in placing portfolio orders, and may place orders with
broker/dealers that have agreed to defray certain Series expenses such as
custodian fees.

43
<PAGE>

PERFORMANCE INFORMATION

EQUITY/INCOME, HIGH YIELD, CAPITAL RESERVES, GROWTH AND MULTIPLE STRATEGY SERIES

From time to time, the Fund may quote the above listed Series' total return
performance 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. Each presentation will include the
average annual total return for one-, five- and ten-year (or life of Series,
if applicable) periods. The Fund may also advertise aggregate and average
total return information concerning the Series over additional periods of
time.

From time to time, the Fund may also quote the High Yield and Capital
Reserves Series' yield or total return performance in advertising and other
types of literature. The current yield for both Series will be calculated by
dividing the annualized net investment income earned by the Series during a
recent 30-day period by the maximum offering price per share on the last day
of the period. The yield formula provides for semi-annual compounding which
assumes that net investment income is earned and reinvested at a constant
rate and annualized at the end of a six-month period.

Because securities' prices fluctuate, investment results of the Series will
fluctuate and past performance should not be considered as a representation
of future results.

MONEY MARKET SERIES

From time to time, the Fund may publish the Series' "yield" and "effective
yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "yield" of the Series refers to
the income generated by an investment in the Series over a specified
seven-day period. This income is then "annualized," which means the amount of
income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated in a similar manner but, when
annualized, the income earned by an investment in the Series is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The Fund may
also publish aggregate and average annual total return information concerning
the Series which will reflect the compounded rate of return of an investment
in the Series over a specified period of time and will assume the investment
of all distributions at net asset value. Yield fluctuates and is not
guaranteed. Past performance is not an indication of future results.

DISTRIBUTION AND SERVICE

The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), serves as the national distributor
for each Series under Distribution Agreements dated April 3, 1995. It bears
all of the costs of promotion and distribution.

Delaware Service Company, Inc. (the "Transfer Agent") serves as the
shareholder servicing, dividend disbursing and transfer agent for the
Equity/Income, High Yield, Capital Reserves, Multiple Strategy and Growth
Series under the Amended and Restated Shareholders Services Agreement dated
December 13, 1993 and for the Money Market Series under the Shareholders
Services Agreement dated June 29, 1988.

The Distributor and the Transfer Agent are also indirect, wholly-owned
subsidiaries of DMH.

EXPENSES

Each Series is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreements and those
borne by the Distributor under the Distribution Agreements.

With respect to the High Yield, Capital Reserves and Money Market Series,
the Manager elected voluntarily to waive its fee and reimburse those Series
to limit certain expenses of those Series to 8/10 of 1% of average daily net
assets for six months following their initial public offering. This waiver
has been extended through December 31, 1995. For the fiscal year ended
December 31, 1994, the High Yield, Capital Reserves and Money Market Series'
ratio of expenses to average daily net assets were 0.72%, 0.74% and 0.66%,
respectively.

44
<PAGE>

With respect to the Equity/Income, Multiple Strategy and Growth Series, the
Manager has elected voluntarily to waive its fee and reimburse those Series
to the extent necessary to limit certain expenses of each Series to 8/10 of
1% of each Series' average daily net assets for the period July 1, 1992
through June 30, 1993. This waiver has been extended through December 31,
1995. For the fiscal year ended December 31, 1994, the Equity/Income,
Multiple Strategy and Growth Series' ratios of expenses to average daily net
assets were 0.71%, 0.70% and 0.80%, respectively. The expense ratio for the
Growth Series reflects the waiver of fees described above.

DESCRIPTION OF FUND SHARES

Shares of the Fund are sold only to separate accounts of life companies.
Currently, the shares of the Fund are sold only to Variable Accounts A and B
of American International Life Assurance Company of New York, Variable
Accounts I and II of AIG Life Insurance Company and Separate Accounts VA-K,
VEL II and Inheiritage of State Mutual Life Assurance Company of America and
Separate Accounts VA-K, VEL, VEL II and Inheiritage of SMA Life Assurance
Company. In the future, shares of the Fund may be sold to separate accounts
of other affiliated or unaffiliated life companies to fund variable
contracts. The Fund's Board of Directors will monitor events in order to
identify any material irreconcilable conflicts which may possibly arise and
to determine what action, if any, should be taken in response thereto. An
irreconcilable conflict that is not resolved might result in the withdrawal
of a substantial amount of assets, causing a negative impact on net asset value.

As a "series" type of mutual fund, the Fund issues separate classes or
series of stock. Additional series may be established in the future. An
interest in the Fund is limited to the assets of the particular Series in
which shares are held, and shareholders of each Series are entitled to a
pro-rata share of all dividends and distributions arising from an investment
in such Series.

The Fund was organized as a Maryland corporation on February 19, 1987. The
authorized capital stock of the Fund consists of five hundred million shares
of common stock, $.01 par value. Each Series is currently allocated fifty
million shares. The Fund may establish additional series and may allocate its
shares either to such new classes or to any of the existing Series.

Each Series' shares have equal voting rights and are equal in all other
respects. Each Series will vote separately on any matter which affects only
that Series. Shareholders get one vote for each share held; fractional shares
are voted. The Fund will hold annual meetings as necessary for shareholder
matters to be voted under the 1940 Act or otherwise. Shares of each Series
will have a priority over shares of any other Series of the Fund in the
assets and income of that Series.

Because of current federal securities law requirements, the Fund expects that
its life company shareholders will offer their contract owners the opportunity
to instruct them as to how Series shares allocable to their variable contracts
will be voted with respect to certain matters, such as approval of investment
advisory agreements. An insurance company will vote all Series shares held in a
separate account in the same proportion as it receives instructions from
contract owners in that separate account. Under certain circumstances, which are
described more fully in the accompanying prospectuses for the separate accounts
which invest in the Fund, the voting instructions received from contract owners
may be disregarded.

45
<PAGE>

APPENDIX A--RATINGS FOR HIGH YIELD SERIES

The High Yield Series' assets are invested primarily in bonds rated BBB or
lower by S&P or Baa or lower by Moody's and in unrated corporate bonds. These
credit ratings evaluate only the safety of principal and interest and do not
consider the market value risk associated with high-yield securities. The
table set forth below shows the percentage of the Series' securities included
in each of the specified rating categories and shows the percentage of the
Series' assets held in United States Government securities. Certain
securities may not be rated because the rating agencies were either not asked
to provide ratings (e.g., many issuers of privately placed bonds do not seek
ratings) or because the rating agencies declined to provide a rating for some
reason, such as insufficient data. The table below shows the percentage of
the Series' securities which are not rated. The information contained in the
table was prepared based on a dollar weighted average of the Series'
portfolio composition based on month end data for the Series' fiscal year
ended December 31, 1994. The paragraphs following the table contain excerpts
from Moody's and S&P's ratings descriptions.

<TABLE>
<CAPTION>
Rating Moody's Average Weighted
and/or Percentage of
S&P Portfolio
-------------------- ----------------
<S> <C>
United States
Treasury Obligations 0.00%
Aaa/AAA 0.00%
Aa/AA 0.00%
A/A 1.56%
Baa/BBB 7.64%
Ba/BB 9.71%
B/B 72.40%
Caa/CCC 6.85%
Not Rated 1.84%
</TABLE>

General Rating Information

BONDS

Excerpts from Moody's description of its bond ratings: Aaa--judged to be
the best quality. They carry the smallest degree of investment risk;
Aa--judged to be of high quality by all standards; A--possess favorable
attributes and are considered "upper medium" grade obligations;
Baa--considered as medium grade obligations. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time; Ba--judged to have speculative elements; their future cannot be considered
as well assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class; B--
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small; Caa--are of poor standing. Such
issues may be in default or there may be present elements of danger with respect
to principal or interest; Ca--represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings;
C--the lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.

46
<PAGE>

Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.

COMMERCIAL PAPER

Excerpts from Moody's description of its two highest commercial paper
ratings: P-1--the highest grade possessing greatest relative strength; P-2--
second highest grade possessing less relative strength than the highest grade.

Excerpts from S&P's description of its two highest commercial paper
ratings: A-1--judged to be the highest investment grade category possessing
the highest relative strength; A-2--investment grade category possessing less
relative strength than the highest rating.

<PAGE>

DELAWARE GROUP PROSPECTUS
PREMIUM FUND, INC. May 1, 1995
INTERNATIONAL EQUITY SERIES

------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103

This Prospectus describes the International Equity Series (the "Series") of
Delaware Group Premium Fund, Inc. (the "Fund"). The Series' objective is to
achieve long-term growth without undue risk to principal. The Series seeks to
achieve this objective by investing primarily in equity securities of foreign
issuers that provide the potential for capital appreciation and income. This
Series has the same objective and investment discipline as a separate Delaware
Group fund, the International Equity Series of Delaware Group Global &
International Funds, Inc. in that it invests in a broad range of equity
securities of foreign issuers, including common stocks, preferred stocks,
convertible securities and warrants consistent with the Series' objective.

The shares of the Fund are sold only to separate accounts of life insurance
companies ("life companies"). The separate accounts are used in conjunction
with variable annuity contracts and variable life insurance policies
("variable contracts"). The separate accounts invest in shares of the Series
in accordance with allocation instructions received from contract owners.
Although the Series will constantly strive to attain its objective, there can
be no assurance that it will be attained.

This Prospectus describes the International Equity Series and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. Part B of the Fund's registration statement, dated May
1, 1995, as it may be amended from time to time, contains additional information
about the Series and has been filed with the Securities and Exchange Commission.
Part B is incorporated by reference into this Prospectus and is available,
without charge, by writing to Delaware Distributors, L.P. (the "Distributor") at
the above address or by calling 1-800-441-7468. The Series' financial statements
appear in the Fund's Annual Report, which will accompany any response to
requests for Part B.

TABLE OF CONTENTS
Cover Page.................................................................. 1
Financial Highlights........................................................ 2
Investment Objectives and Policies.......................................... 3
Introduction.............................................................. 3
Investment Strategy....................................................... 3
Other Considerations...................................................... 4
Special Risk Factors...................................................... 7
Purchase and Redemption..................................................... 8
Dividends and Distributions................................................. 8
Taxes....................................................................... 8
Calculation of Offering Price and
Net Asset Value Per Share................................................. 9
Management of the Fund...................................................... 9
Performance Information................................................... 10
Distribution and Service.................................................. 10
Expenses.................................................................. 10
Description of Fund Shares................................................ 10

- --------------------------------------------------------------------------------
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 PRINCIPAL.
- --------------------------------------------------------------------------------

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights are derived from the financial statements of
Delaware Group Premium Fund, Inc.-International Equity Series and have been
audited by Ernst & Young LLP, independent auditors. The data should be read in
conjunction with the financial statements, related notes, and the report of
Ernst & Young LLP covering such financial information and highlights, all of
which are incorporated by reference into Part B. Further information about the
Series' performance is contained in the Fund's Annual Report to shareholders. A
copy of the Fund's Annual Report (including the report of Ernst & Young LLP) may
be obtained from the Fund upon request at no charge.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
International Equity Series
------------------------------------
Period
10/29/92/1/
Year Ended through
12/31/94 12/31/93 12/31/92
<S> <C> <C> <C>
Net Asset Value, Beginning of Period..................................................... $11.6200 $10.0300 $10.0000

Income From Investment Operations
- ---------------------------------
Net Investment Income.................................................................... 0.2198 0.0523 0.0153
Net Gains or Losses on Securities (both realized and unrealized)......................... 0.0802 1.5477 0.0147
-------- -------- --------
Total From Investment Operations....................................................... 0.3000 1.6000 0.0300
-------- -------- --------

Less Distributions
- ------------------
Dividends (from net investment income)................................................... (0.0700) (0.0100) none
Distributions (from capital gains)....................................................... (0.0100) none none
Returns of Capital....................................................................... none none none
-------- -------- --------
Total Distributions.................................................................... (0.0800) (0.0100) none
-------- -------- --------
Net Asset Value, End of Period........................................................... $11.8400 $11.6200 $10.0300
======== ======== ========

- -------------------------------------------------------------------------------------------------------------------------------
Total Return/2/.......................................................................... 2.57% 15.97% 1.73%
- ------------

- -------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period (000's omitted)................................................ $57,649 $16,664 $177
Ratio of Expenses to Average Daily Net Assets............................................ 0.80% 0.80% /3/
Ratio of Expenses to Average Daily Net Assets prior to Expense Limitation................ 1.01% 1.85% --
Ratio of Net Investment Income to Average Daily Net Assets............................... 2.63% 1.85% /3/
Ratio of Net Investment Income to Average Daily Net Assets prior to Expense Limitation... 2.42% 0.80% --
Portfolio Turnover Rate.................................................................. 13% 9% --
</TABLE>

/1/ Date of initial public offering; total return has been annualized.
/2/ Total return does not reflect expenses that apply to the Separate Accounts
or to the related insurance policies and inclusion of these charges would
reduce total return figures for all periods shown. Total return reflects the
expense limitation referenced in Expenses under Management of the Fund.
/3/ The ratios of expenses and net investment income to average daily net assets
have been omitted as management believes that such ratios are not meaningful
due to the limited net assets of this Series.
<PAGE>

INVESTMENT OBJECTIVE
AND POLICIES

INTRODUCTION

The Fund, a corporation organized in Maryland on February 19, 1987, is a
diversified, open-end management investment company offering multiple Series of
shares. This Prospectus offers shares of the International Equity Series.

The Series' investment objective is a fundamental policy and cannot be changed
without approval by the holders of a "majority" of the Series' outstanding
shares, as defined in the Investment Company Act of 1940 ("1940 Act"). Although
the Series will constantly strive to attain its objective, there can be no
assurance that it will be attained. In addition to the objective and investment
techniques described under Investment Strategy below, see Other Considerations
for other techniques available to the Series in pursuit of its objective. Part B
provides more information on the Series' investment policies and restrictions.

The objective of the Series is to achieve long-term growth without undue risk
to principal. The Series seeks to achieve this objective by investing primarily
in securities that provide the potential for capital appreciation and income.
The Series is an international fund. As such, it may invest in securities issued
in any currency and may hold foreign currency. Under normal circumstances, at
least 65% of the Series' assets will be invested in the securities of issuers
organized or having a majority of their assets in or deriving a majority of
their operating income in at least three different countries outside of the
United States. Securities of issuers within a given country may be denominated
in the currency of another country or in multinational currency units such as
the European Currency Unit ("ECU"). The Series will operate as a diversified
fund for purposes of the 1940 Act.

The Series may be suitable for the patient investor interested in long-term
growth through investments that provide the potential for capital appreciation
and income. The investor should be willing to accept the risks associated with
investments in foreign equity securities in which the Series may invest, as well
as the special investment techniques in which the Series may engage. Naturally,
the Series cannot assure a specific rate of return or that principal will be
protected. The value of the Series' shares can be expected to fluctuate
depending upon market conditions. However, through the cautious selection and
supervision of its portfolio, the Series will strive to achieve its objective of
long-term growth. See Special Risk Factors.

INVESTMENT STRATEGY

The Series will attempt to achieve its objective by investing in a broad range
of equity securities including common stocks, preferred stocks, convertible
securities and warrants. Delaware International Advisers Ltd. ("Delaware
International"), the Series' investment manager, will employ a dividend discount
analysis across country boundaries and will also use a purchasing power parity
approach to identify currencies and markets that are overvalued or undervalued
relative to the U.S. dollar.

With a dividend discount analysis, Delaware International looks at future
anticipated dividends and discounts the value of those dividends back to what
they would be worth if they were being paid today. Delaware International uses
this technique to attempt to compare the value of different investments. With a
purchasing power parity approach, Delaware International attempts to identify
the amount of goods and services that a dollar will buy in the United States and
compare that to the amount of a foreign currency required to buy the same amount
of goods and services in another country. When the dollar buys less, the foreign
currency may be considered to be overvalued. When the dollar buys more, the
currency may be considered to be undervalued. Eventually, currencies should
trade at levels that should make it possible for the dollar to buy the same
amount of goods and services overseas as in the United States. The Series may
also invest in sponsored or unsponsored American Depository Receipts or European
Depository Receipts.

While the Series may purchase securities in any foreign country, developed and
underdeveloped, or emerging market countries, it is currently anticipated that
the countries in which the Series may invest will include, but not be limited
to, Canada, Germany, the United Kingdom, France, the Netherlands, Belgium,
Spain, Switzerland, Japan, Australia, Hong Kong, and Singapore/Malaysia. With
respect to certain countries, investments by an investment company may only be
made through investments in closed-end investment companies that in turn are
authorized to invest in the securities of such countries. Any investment the
Series may make in other investment companies is limited in amount by the 1940
Act and would involve the indirect payment of a portion of the expenses,
including advisory fees, of such other investment companies.

For temporary, defensive purposes, the Series may invest all or a substantial
portion of its assets in high quality debt instruments issued by foreign
governments, their agencies, instrumentalities or political subdivisions, the
U.S. Government, its agencies or instrumentalities and which are backed by the
full faith and credit of the U.S. Government, or issued by foreign or U.S.
companies. Any corporate debt obligations will be rated AA or better by Standard
& Poor's Corporation ("S&P"), or Aa or better by Moody's Investors Service, Inc.
("Moody's") or, if unrated, will be de termined to be of comparable quality by
Delaware International. See Appendix A of Part B for a description of these
ratings and those of other nationally-recognized statistical rating
organizations. For example, the Series may enter the global fixed income markets
when Delaware International believes that the global equity markets are
excessively volatile or overvalued so that the Series' objective cannot be
achieved in such markets. In addition, the Series may invest in the U.S. fixed
income markets for temporary, defensive purposes when Delaware International
believes that the international equity and fixed income markets are evidencing
such excessive volatility or overvaluation. The Series may also invest in the
securities listed for defensive investing pending investment of proceeds from
new sales of Series shares and to maintain sufficient cash to meet redemption
requests.
<PAGE>

OTHER CONSIDERATIONS

Foreign Currency Transactions

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Series 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 Series 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 Series will convert currency on a
spot basis from time to time, and investors should be aware of the costs of
currency conversion.

The Series 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 Series 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 Delaware International believes that the currency of a particular country
may suffer a significant decline against the U.S. dollar or against another
currency, the Series 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 Series'
securities denominated in such foreign currency.

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

At the maturity of a forward contract, the Series 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 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 Series may realize a gain or loss from currency
transactions.

The Series also may purchase and write put and call options on foreign
currencies (traded on U.S. and foreign exchanges or over-the-counter) for
hedging purposes to protect against declines in the U.S. dollar cost of foreign
securities held by the Series and against increases in the U.S. dollar cost of
such securities to be acquired. Call options on foreign currency written by the
Series will be covered, which means that the Series will own the underlying
foreign currency. With respect to put options on foreign currency written by the
Series, the Series will establish a segregated account with its custodian bank
consisting of cash, U.S. Government securities or other high-grade liquid debt
securities in an amount equal to the amount the Series will be required to pay
upon exercise of the put. See Special Risk Factors.

When-Issued Securities

Consistent with its investment objective, the Series may invest in U.S.
Government securities and corporate debt obligations on a when-issued basis
("when-issued securities"). These securities involve commitments to buy a new
issue with settlement up to 60 days later. The average settlement date for when-
issued securities purchased by the Series is generally between 30 and 45 days.
During the time between the commitment and settlement, the Series does not
accrue interest, but the market value of the bonds may fluctuate. This can
result in the Series' share value increasing or decreasing. The Series will not
ordinarily sell when-issued securities prior to settlement. If the Series
invests in securities of this type, it will maintain a segregated account to pay
for them and mark the account to market daily.

Repurchase Agreements

The Series may also use repurchase agreements which are at least 100%
collateralized by U.S. Government securities. The Series may enter into
repurchase agreements with broker/dealers or banks which are deemed creditworthy
by Delaware International under guidelines approved by the Board of Directors. A
repurchase agreement is a short-term investment in which the purchaser (i.e.,
the Series) 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. The value of the securities
subject to the repurchase agreement is marked to market daily. In the event of a
bankruptcy or other default of the seller, the Series could experience delays
and expenses in liquidating the underlying securities.

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

Portfolio Loan Transactions

The Series may, from time to time, lend securities (but not in excess of 25%
of its assets) from its portfolio to brokers, dealers and financial institutions
and receive collateral in cash or short-term U.S. Government securities. While
the loan is outstanding, this collateral will be maintained at all times in an
account equal to at least 100% of the current market value of the loaned
securities plus accrued interest. Such cash collateral will be invested in
short-term securities, the income from which will increase the return of the
Series.

The major risk to which the Series 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 Series will only enter into loan arrangements
after a review of all pertinent facts by Delaware International, 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 Delaware International.
<PAGE>

Borrowings

The Series may borrow money as a temporary measure for extraordinary purposes
or to facilitate redemptions. The Series will not borrow money in excess of one-
third of the value of its net assets. See Part B for additional possible
restrictions on borrowing. The Series 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 Series' 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 Series shall, within three days
thereafter (not including Sunday or holidays) or such longer period as the U.S.
Securities and Exchange Commission may prescribe by rules and regulations,
reduce the amount of its borrowings to an extent that the asset coverage of such
borrowings shall be at least 300%. The Series will not pledge more than 15% 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 Series
has an outstanding borrowing.

Liquidity and Rule 144A Securities

In order to assure that the Series has sufficient liquidity, as a matter of
fundamental policy, the Series may not invest more than 10% of its net assets in
illiquid assets, including restricted securities and repurchase agreements
maturing in more than seven days. However, subject to the following paragraphs,
this policy shall not limit the Series' acquisition of securities eligible for
resale without registration pursuant to Rule 144A ("Rule 144A Securities") under
the Securities Act of 1933 ("1933 Act"). Rule 144A permits many privately placed
and legally restricted securities to be freely traded among certain
institutional buyers such as the Series. Investing in Rule 144A Securities could
have the effect of increasing the level of illiquidity of the Series to the
extent that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.

While maintaining oversight, the Board of Directors has delegated to Delaware
International the day-to-day functions of determining whether or not individual
Rule 144A Securities are liquid for purposes of the Series' 10% limitation on
investments in illiquid assets. The Board has instructed Delaware International
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; (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 Delaware International determines that a Rule 144A Security which was
previously determined to be liquid, is no longer liquid and, as a result, the
Series' holdings of illiquid securities exceed the Series' 10% limit on
investment in such securities, Delaware International will determine what action
shall be taken to ensure that the Series continues to adhere to such limitation.

Options

To achieve the Series' objectives, the Series intends to use certain hedging
techniques which might not be conveniently available to individuals.

These techniques will be used at Delaware International's discretion to
protect the Series' principal value.

The Series may purchase put options, write covered call options, purchase call
options and enter into closing transactions in connection therewith in respect
of securities in which the Series may invest. In purchasing put and call
options, the premium paid by the Series, plus any transaction costs, will reduce
any benefit realized by the Series upon exercise of the option.

A put option gives the Series the right to sell one of its securities for an
agreed price up to an agreed date. The advantage is that the Series can be
protected should the market value of the security decline. However, the Series
must pay a premium for this right, whether it exercises it or not.

A covered call option obligates the Series to sell one of its securities for
an agreed price up to an agreed date. The advantage is that the Series receives
premium income, which may offset the cost of purchasing put options. However,
the Series may lose the potential market appreciation of the security if
Delaware International's judgment is wrong and interest rates fall.

A call option enables the purchaser, in return for the premium paid, to
purchase securities from the writer of the option at an agreed upon date. The
advantage is that the purchaser may hedge against an increase in the price of
securities it ultimately wishes to buy.

Closing transactions essentially let the Series offset a put option or call
option prior to its exercise or expiration. If it cannot effect a closing
transaction, it may have to hold a security it would otherwise sell with a
potential decline in net asset value, or deliver a security it might want to
hold.

The Series may use both Exchange-traded and over-the-counter options. Certain
over-the-counter options may be illiquid. The Series will only invest in such
options to the extent consistent with its 10% limit on investment in illiquid
securities.

The Series also may write and purchase call options and purchase put options
on stock indices and enter into closing transactions in connection therewith.
The Series will not engage in transactions on stock indices for speculative
purposes. Writing or purchasing a call option on stock indices is similar to the
writing or purchasing of a call option on an individual stock. Purchasing a
protective put option on stock indices is similar to the purchase of protective
puts on an individual stock. Stock indices used will include, but will not be
limited to, the S&P 100 and the S&P Over-the-Counter 250. The ability to hedge
effectively using options on stock indices will depend on the degree to which
price movements in the underlying index correlate with price movements in the
Series' portfolio securities.
<PAGE>

Futures Contracts and Options on Futures Contracts

The Series may enter into contracts for the purchase or sale for future
delivery of securities or foreign currencies. The principal purpose of the
purchase or sale of futures contracts for the Series is to protect the Series
against the fluctuations in interest or exchange rates which otherwise might
adversely affect the value of the Series' portfolio securities or adversely
affect the prices of securities which the Series intends to purchase at a later
date without actually buying or selling such securities.

For hedging purposes, the Series may enter into futures contracts relating to
securities, securities indices or interest rates. In addition, the Series may
enter into futures transactions relating to foreign currency.

A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, 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, in the case of the majority of interest rate
and foreign currency futures contracts, the fixed-income securities or currency
underlying the contract are delivered by the seller and paid for by the
purchaser, or on which, in the case of securities index futures contracts and
certain interest rate and foreign currency 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. 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 contract more or less valuable, a
process known as "marking to the market."

A futures contract may be purchased or sold only on an exchange, known as a
"contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid on
each completed purchase and sale transaction. The contract market clearing house
guarantees the performance of each party to a futures contract, by in effect
taking the opposite side of such contract. 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. At that time, a final determination of variation
margin is made and any loss experienced by the trader is required to be paid to
the contract market clearing house while any profit due to the trader must be
delivered to it.

Interest rate futures contracts currently are traded on a variety of fixed-
income securities, including long-term U.S. Treasury Bonds, U.S. Treasury Notes,
GNMA modified pass-through mortgage-backed securities, U.S. Treasury Bills, bank
certificates of deposit and commercial paper. In addition, interest rate futures
contracts include contracts on indexes of municipal securities. Foreign currency
futures contracts currently are traded on the British pound, Canadian dollar,
Japanese yen, Swiss franc, German mark and on Eurodollar deposits.

A securities index or municipal bond index futures contract provides for the
making and acceptance of a cash settlement in much the same manner as the
settlement of an option on a securities index. The types of indexes underlying
securities index futures contracts are essentially the same as those underlying
securities index options, as described above. The index underlying a municipal
bond index futures contract is a broad based index of municipal securities
designed to reflect movements in the municipal securities market as a whole. The
index assigns weighted values to the securities included in the index and its
composition is changed periodically.

The Series may also purchase and write options on the types of futures
contracts that the Series could invest in.

A call option on a futures contract provides the holder with the right to
purchase, or enter into a "long" position in, the underlying futures contract. A
put option on a futures contract provides the holder with the right to sell, or
enter into a "short" position in, the underlying futures contract. In both
cases, the option provides for a fixed exercise price up to a stated expiration
date. Upon exercise of the option by the holder, the contract market clearing
house establishes a corresponding short position for the writer of the option,
in the case of a call option, or a corresponding long position in the case of a
put option and the writer delivers to the holder the accumulated balance in the
writer's margin account which represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. 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 market 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.

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 the availability of a liquid 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
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
<PAGE>

An option, whether based on a futures contract, a securities index, a security
or foreign currency, becomes worthless to the holder when it expires. Upon
exercise of an option, the exchange or contract market clearing house assigns
exercise notices on a random basis to those of its members which have written
options of the same series and with the same expiration date. A brokerage firm
receiving such notices then assigns them on a random basis to those of its
customers which have written options of the same series and expiration date. A
writer therefore has no control over whether an option will be exercised against
it, nor over the timing of such exercise.

To the extent that interest or exchange rates or securities prices move in an
unexpected direction, the Series may not achieve the anticipated benefits of
investing in futures contracts and options thereon, or may realize a loss. To
the extent that the Series 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 secondary market could prevent the
Series from closing out its positions relating to futures.

SPECIAL RISK FACTORS

Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Series, nor can
there be any assurance that the Series' investment objective will be attained.

The Series has the right to purchase securities in any foreign country,
developed and underdeveloped, or emerging market countries. 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 control (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. In addition, in many countries there is 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. Further, the
Series 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. 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. The foreign securities markets of
many of the countries in which the Series may invest may also be smaller, less
liquid, and subject to greater price volatility than those in the United States.

Compared to the United States and other developed countries, underdeveloped
countries may have relatively unstable governments, economies based on only a
few industries, and securities markets that trade a small number of securities.
Prices on these exchanges 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. Further, investments by
foreign investors are subject to a variety of restrictions in many
underdeveloped countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the types of companies in which foreigners may invest.
Additional restrictions may be imposed at any time by these or other countries
in which the Series invests. In addition, 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. Although these restrictions may in the future make it
undesirable to invest in underdeveloped countries, the Series' investment
manager does not believe that any current repatriation restrictions would affect
its decision to invest in such countries.

As in the case of other kinds of options, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received, and the Series could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although, in the event of rate movements
adverse to the Series' position, the Series may forfeit the entire amount of the
premium plus related transaction costs.

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 portfolio securities at the
expiration of the contract. Accordingly, it may be necessary for the Series 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 Series 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 the portfolio security if its market value exceeds the
amount of foreign currency the Series is obligated to deliver.

* * *
<PAGE>

The Series' investment objective, the Fund's designation as an open-end
investment company, the Series' designation as a diversified fund, and its
policies concerning portfolio lending, borrowing and purchases of illiquid
securities may not be changed unless authorized by the vote of a majority of the
Series' outstanding voting securities. A "majority vote of the outstanding
voting securities" is the vote by the holders of the lesser of (a) 67% or more
of the Series' voting securities present in person or represented by proxy if
the holders of more than 50% of the outstanding voting securities of such Series
are present or represented by proxy; or b) more than 50% of the Series'
outstanding voting securities. Part B lists other more specific investment
restrictions of the Series which may not be changed without a majority
shareholder vote. A brief discussion of those factors that materially affected
the Series' performance during its most recently completed fiscal year appears
in the Series' Annual Report. The remaining investment policies are not
fundamental and may be changed by the Board of Directors of the Fund without a
shareholder vote. See Special Risk Factors.

Diversification

The Fund was established as the underlying investment for variable contracts
issued by life companies. Section 817(h) of the Internal Revenue Code of 1986,
as amended (the "Code"), imposes certain diversification standards on the
underlying assets of variable contracts held in the Portfolios of the Fund. The
Code provides that a variable contract shall not be treated as an annuity
contract or life insurance for any period (and any subsequent period) for which
the investments are not, in accordance with regulations prescribed by the United
States Treasury Department ("Treasury Department"), adequately diversified.
Disqualification of the variable contract would result in the imposition of
federal income tax to the contract owner with respect to earnings allocable to
the contract prior to distributions under the contract (e.g., withdrawals). The
Code contains a safe harbor provision which provides that variable contracts
meet the diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than 55 percent of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.

Treasury Department Regulations (Treas. Reg. Section 1.817-5) provide that a
fund will be deemed to be considered adequately diversified if (i) no more than
55 percent of the value of the total assets of the fund is represented by any
one investment; (ii) no more than 70 percent of such value is represented by any
two investments; (iii) no more than 80 percent of such value is represented by
any three investments; and (iv) no more than 90 percent of such value is
represented by any four investments.

The Technical and Miscellaneous Revenue Act of 1988 provides that for purposes
of determining whether or not the diversification standards imposed on the
underlying assets of variable contracts by Section 817(h) of the Code have been
met, "each United States government agency or instrumentality shall be treated
as a separate issuer."

The Series will be managed in such a manner as to comply with these
diversification requirements.

Ratings

Appendix A of Part B describes the ratings of S&P, Moody's, Duff and Phelps,
Inc. and Fitch Investors Service, Inc., four of the better-known statistical
rating organizations.

PURCHASE AND REDEMPTION

Shares are sold only to separate accounts of life companies at net asset
value. (See Calculation of Offering Price and Net Asset Value Per Share.)
Redemptions will be effected by the separate accounts at the net asset value
next determined after receipt of the order to meet obligations under the
variable contracts. Contract owners do not deal directly with the Fund with
respect to the acquisition or redemption of Fund shares.

DIVIDENDS AND DISTRIBUTIONS

The Series will normally make payments from net investment income on a
quarterly basis. Payments from net realized securities profits, if any, normally
will be distributed following the close of the fiscal year. The Fund's fiscal
year ends on December 31. For the fiscal year ended December 31, 1994, dividends
totaling $0.07 per share were paid from the Series' net investment income and a
distribution of $0.01 per share was paid from the Series' realized securities
profits.

Both dividends and distributions, if any, are automatically reinvested in
additional Series shares.

TAXES

The Fund has qualified as a regulated investment company under Subchapter M of
the Internal Revenue Code. As such, the Fund will not be subject to federal
income tax to the extent its earnings are distributed. The Fund intends to
distribute substantially all of the respective Series' net investment income and
net capital gains. Shareholders may be proportionately liable for taxes on
income and gains of the Series but shareholders not subject to tax on their
income will not be required to pay tax on amounts distributed to them, and the
Fund will inform shareholders of the amount and nature of such income or gains.
<PAGE>

CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE

The Series' NAV per share is computed by adding the value of all securities
and other assets in the Series' portfolio, deducting any liabilities of the
Series (expenses and fees are accrued daily) and dividing by the number of the
Series' shares outstanding. The valuation criteria set forth below apply equally
to securities purchased in reliance upon Rule 144A of the 1933 Act. In
determining the Series' total net assets, portfolio securities listed or traded
on a national securities exchange, except for bonds, are valued at the last sale
price on the exchange upon which such securities are primarily traded.
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. Foreign securities expressed in foreign currency values will be
converted into U.S. dollar values at the mean between the currencies' bid and
offered quotations. Debt securities (other than short-term investments) are
priced at fair value by an independent pricing service using methods approved by
the Fund's Board of Directors. 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 the Fund's Board of Directors.

The Series' portfolio will be comprised primarily of foreign securities. From
time to time, those securities may be listed primarily on foreign exchanges
which trade on days when the New York Stock Exchange is closed (such as
Saturday). As a result, the net asset value of the Series may be significantly
affected by such trading on days when shareholders have no access to the Series.

MANAGEMENT OF THE FUND

Directors

The business and affairs of the Fund are managed under the direction of its
Board of Directors. Part B contains additional information regarding the
directors and officers.

Investment Manager

Delaware International Advisers Ltd. furnishes investment management services
to the Series. Delaware International is affiliated with Delaware Management
Company, Inc. ("Delaware Management").

Delaware Management and its predecessors have been managing the funds in the
Delaware Group since 1938. On December 31, 1994, Delaware International and its
affiliate, Delaware Management, were supervising in the aggregate more than $24
billion in assets in the various institutional (approximately $15,456,416,000)
and investment company (approximately $9,253,901,000) accounts.

Delaware Management is an indirect, wholly-owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). Delaware International is also controlled by
DMH through several subsidiaries. On April 3, 1995, a merger between DMH and a
wholly-owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. In connection with the merger, a new Investment Management Agreement
between the Fund on behalf of the Series and Delaware International was executed
following shareholder approval. As a result of the merger, DMH, Delaware
Management and Delaware International became indirect, wholly-owned subsidiaries
of and are thus 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. Delaware Management's address is
One Commerce Square, 2005 Market Street, Philadelphia, PA 19103. Delaware
International's address is Veritas House, 125 Finsbury Pavement, London, England
EC2A 1NQ.

Delaware International manages the International Equity Series portfolio and
implements investment decisions on behalf of the Series. For these services,
Delaware International is paid an annual fee equal to .75% of the average daily
net assets of the International Equity Series, less the Series' proportionate
share of all directors' fees paid to the unaffiliated directors of the Fund. See
Expenses for a discussion of a voluntary waiver of its management fee undertaken
by Delaware International.

The investment management fee incurred by the Series for the fiscal year ended
December 31, 1994 was 0.74% of average daily net assets. After considering the
waiver of fees by Delaware International, 0.53% of average daily net assets was
paid by the Series.
<PAGE>

Clive A. Gillmore has primary responsibility for making day-to-day investment
decisions for the International Equity Series. He has been the senior portfolio
manager for the Series since its inception. A graduate of the University of
Warwick and having begun his career at Legal and General Investment Management,
Mr. Gillmore joined the Delaware Group in 1990 after eight years of investment
experience. His most recent position prior to joining the Delaware Group was as
a Pacific Basin equity analyst and senior portfolio manager for Hill Samuel
Investment Advisers Ltd. Mr. Gillmore completed the London Business School
Investment program.

In making investment decisions for the Series, Mr. Gillmore regularly consults
with an international equity team of seven members, three of whom research the
Pacific Basin and four of whom research the European Markets. Mr. Gillmore also
regularly consults with David G. Tilles. Mr. Tilles, who is Chief Investment
Officer for Delaware International, is a graduate of the University of Warwick
with a BS in management sciences. Before joining the Delaware Group in 1990, he
was Chief Investment Officer of Hill Samuel Investment Advisers Ltd. He is a
member of the Institute of Investment Management & Research and the Operational
Research Society.

Portfolio Trading Practices

The Series normally will not invest for short-term trading purposes. However,
the Series 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
Series. Given the Series' investment objective, the annual portfolio turnover
rate is not expected to exceed 100%. Delaware International uses its best
efforts to obtain the best available price and most favorable execution for
Series portfolio transactions. Orders may be placed with brokers or dealers who
provide brokerage and research services to Delaware International or its
respective advisory clients. These services may be used by Delaware
International in servicing any of its accounts. Subject to best price and
execution, Delaware International may consider a broker/dealer's sales of
variable contracts in placing portfolio orders, and may place orders with
broker/dealers that have agreed to defray certain Series expenses such as
custodian fees. The portfolio turnover rate for the Series for the fiscal years
ended December 31, 1993 and 1994 were 9% and 13%, respectively.

PERFORMANCE INFORMATION

From time to time, the Series may quote total return performance 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. Each presentation will include the average annual total
return for one-, five- and ten-year (or life of Series, if applicable) periods.
The Series may also advertise aggregate and average total return information
over additional periods of time.

Because securities' prices fluctuate, investment results of the Series will
fluctuate over time and past performance should not be considered as a
representation of future results.

DISTRIBUTION AND SERVICE

The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), serves as the national distributor for
the Series' shares under a Distribution Agreement dated April 3, 1995. It bears
all of the costs of promotion and distribution.

Delaware Service Company, Inc. (the "Transfer Agent") serves as the Fund's
shareholders servicing, dividend disbursing and transfer agent under the Amended
and Restated Shareholders Services Agreement dated December 13, 1993.

The Distributor and the Transfer Agent are also indirect, wholly-owned
subsidiaries of DMH.

EXPENSES

The Series is responsible for all of its own expenses other than those borne
by Delaware International under the Investment Management Agreement and those
borne by the Distributor under the Distribution Agreement.

Delaware International has elected voluntarily to waive its fee and to
reimburse the Series to the extent necessary to limit certain expenses to .80%
of average daily net assets for the period from commencement of the public
offering for the Series through June 30, 1993. This waiver has been extended
through December 31, 1995. For the fiscal year ended December 31, 1994, the
Series' ratio of expenses to average daily net assets was 0.80%, reflecting the
waiver.

DESCRIPTION OF FUND SHARES

Shares of the Fund are sold only to separate accounts of life companies.
Currently, the shares of the Fund are sold only to Variable Accounts A and B of
American International Life Assurance Company of New York, Variable Accounts I
and II of AIG Life Insurance Company, Separate Accounts VA-K, VEL II and
Inheiritage of State Mutual Life Assurance Company of America and Separate
Accounts VA-K, VEL, VEL II and Inheiritage of SMA Life Assurance Company. In the
future, shares of the Fund may be sold to separate accounts of other affiliated
or unaffiliated life companies to fund variable contracts. The Fund's Board of
Directors will monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. An irreconcilable conflict that is not resolved
might result in the withdrawal of a substantial amount of assets, causing a
negative impact on net asset value.

The Series' shares have equal voting rights and are equal in all other
respects. Shareholders get one vote for each share held; fractional shares are
voted. The Fund will hold annual meetings as necessary for shareholder matters
to be voted under the 1940 Act or otherwise. Shareholders of the Series are
entitled to a pro-rata share of all dividends and distributions arising from an
investment in the Series.

Because of current federal securities law requirements, the Fund expects that
its life company shareholders will offer their contract owners the opportunity
to instruct them as to how Series shares allocable to their variable contracts
will be voted with respect to certain matters, such as approval of investment
advisory agreements. An insurance company will vote all Series shares held in a
separate account in the same proportion as it receives instructions from
contract owners in that separate account. Under certain circumstances, which are
described more fully in the accompanying prospectus for the separate account
which invests in the Fund, the voting instructions received from contract owners
may be disregarded.
<PAGE>

- --------------------------------------------------------------------------------
DELAWARE GROUP
- --------------------------------------------------------------------------------
PREMIUM FUND
- --------------------------------------------------------------------------------
INTERNATIONAL
- --------------------------------------------------------------------------------
EQUITY SERIES
- --------------------------------------------------------------------------------

PART B

Statement of
Additional Information
- --------------------------------------------------------------------------------
MAY 1, 1995

DELAWARE
GROUP
========

INVESTMENT MANAGER
Delaware International Advisers Ltd.
Veritas House
125 Finsbury Pavement
London, England EC2A 1NQ

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

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

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

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

CUSTODIAN
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260

<PAGE>

- --------------------------------------------------------------------------------
PART B--STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
- --------------------------------------------------------------------------------
DELAWARE GROUP
- --------------------------------------------------------------------------------
PREMIUM FUND, INC.
- --------------------------------------------------------------------------------
1818 MARKET STREET
PHILADELPHIA, PA 19103
- --------------------------------------------------------------------------------

TABLE OF CONTENTS
- --------------------------------------------------------------------------------
COVER PAGE 1
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 2
- --------------------------------------------------------------------------------
ACCOUNTING AND TAX ISSUES 8
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION 9
- --------------------------------------------------------------------------------
TRADING PRACTICES AND BROKERAGE 12
- --------------------------------------------------------------------------------
OFFERING PRICE 13
- --------------------------------------------------------------------------------
DIVIDENDS AND REALIZED SECURITIES PROFITS
DISTRIBUTIONS 13
- --------------------------------------------------------------------------------
TAXES 13
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT AGREEMENT 14
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS 14
- --------------------------------------------------------------------------------
GENERAL INFORMATION 17
- --------------------------------------------------------------------------------
APPENDIX A--DESCRIPTION OF RATINGS 19
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS 20
- --------------------------------------------------------------------------------

Delaware Group Premium Fund, Inc. ("Premium Fund" or the "Fund") is a
diversified, open-end management investment company which is intended to meet
a wide range of investment objectives with multiple separate Portfolios. Each
Series is in effect a separate fund issuing its own shares.

The shares of the Fund are sold only to separate accounts of life insurance
companies ("life companies"). The separate accounts are used in conjunction
with variable annuity contracts and variable life insurance policies
("variable contracts"). The separate accounts invest in shares of the various
Series in accordance with allocation instructions received from contract owners.

This Statement of Additional Information ("Part B" of the registration
statement) supplements the information contained in the current Prospectus
of the International Equity Series (the "Series") of the Fund dated May 1,
1995, as may be amended from time to time, and describes only the Series. It
should be read in conjunction with the Prospectuses for the variable contract
and the Series. Part B is not itself a Prospectus but is, in its entirety,
incorporated by reference into the Series' Prospectus. The Series' Prospectus
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.

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B-Page 2

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Series is long-term growth without undue
risk to principal. The Series seeks to achieve this objective by investing
primarily in securities that provide the potential for capital appreciation
and income. The Series is an international fund. As such, it may invest in
securities issued in any currency and may hold foreign currency. Under normal
circumstances, at least 65% of the Series' assets will be invested in the
securities of issuers organized or having a majority of their assets in or
deriving a majority of their operating income in at least three different
countries outside of the United States. There can be no assurance that the
objective of the Series will be realized. The Series has the same objective
and investment disciplines as the International Equity Series of Delaware
Group Global & International Funds, Inc., a separate Delaware Group fund.

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions for the Series which, along
with its investment objective, may not be amended without approval of a
majority of the outstanding voting securities of the Series, which is the
lesser of more than 50% of the outstanding voting securities or 67% of the
voting securities of the Series present at a shareholder meeting if 50% or
more of the voting securities are present in person or represented by proxy.
The percentage limitations contained in the restrictions and policies set
forth herein apply at the time of purchase of securities. The Series will not:

1. Invest more than 5% of the value of its assets in securities of any one
issuer (other than obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities). This restriction shall apply to only 75%
of the assets of the Series.

2. Purchase more than 10% of the voting securities of any company, or
invest in any company for the purpose of exercising control or management.

3. Purchase or retain securities of a company which has an officer or
director who is an officer or director of the Fund, or an officer or director of
its investment manager if such persons, each owning beneficially more than 1/2
of 1% of the shares of the company, own in the aggregate more than 5% thereof.

4. Purchase any security issued by any other investment company (except in
connection with a merger, consolidation or offer of exchange) if after such
purchase it would: (a) own more than 3% of the voting stock of such company,
(b) own securities of such company having a value in excess of 5% of the
Series' assets or (c) own securities of investment companies having an
aggregate value in excess of 10% of the Series' assets. Any such purchase
shall be at the customary brokerage commission. The limitations set forth in
this restriction do not apply to purchases by the Series of securities issued
by closed-end investment companies, all of which must be at the customary
brokerage commission.

5. Make any investment in real estate unless necessary for office space or
the protection of investments already made. (This restriction does not
preclude the Series' purchase of securities secured by real estate or
interests therein, or securities issued by companies which invest in real
estate or interests therein, including real estate investment trusts.)

6. Purchase securities on margin, make short sales of securities or
maintain a net short position (except that the Series may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities). This restriction shall not prohibit the
Series from satisfying margin requirements with respect to futures transactions.

7. Invest in interests in oil, gas or other mineral exploration or
development programs, commodities or commodities contracts. This restriction
shall not prohibit the Series from entering into futures contracts or options
thereon, to the extent that not more than 5% of its assets are required as
futures contract margin deposits and premiums on options and only to the
extent that obligations under such contracts and transactions represent not
more than 20% of the Series' assets.

8. Borrow money in excess of one-third of the value of its net assets and
then only as a temporary measure for extraordinary purposes or to facilitate
redemptions. The Series 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 Series' assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Series shall, within three days thereafter (not
including Sunday and holidays) or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce the amount
of its borrowings to an extent that the asset coverage of such borrowings
shall be at least 300%. The Series will not pledge more than 15% of its net
assets. The Series shall not issue senior securities as defined in the
Investment Company Act of 1940, except for notes to banks.

9. Make loans, except to the extent that purchases of debt obligations
(including repurchase agreements) in accordance with the Series' investment
objective and policies are considered loans and except that the Series 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.

10. Invest more than 5% of the value of its total assets in securities of
companies less than three years old. Such three-year period shall include the
operation of any predecessor company or companies.

11. Invest more than 25% of its total assets in any particular industry,
except that the Series may invest more than 25% of the value of its total
assets in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, certificates of deposit and bankers'
acceptances of banks with over one billion dollars in assets or bank holding
companies whose securities are rated A-2 or better by Standard & Poor's
Corporation

2
<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B-Page 3

("S&P") or P-2 or better by Moody's Investors Service, Inc. ("Moody's").

12. Act as an underwriter of securities of other issuers, except that the
Series may acquire restricted or not readily-marketable securities under
circumstances where, if such securities are sold, the Series might be deemed
to be an underwriter for the purposes of the Securities Act of 1933.

While the Series is permitted under certain circumstances to borrow money,
it does not normally do so. No investment securities will be purchased while
the Series has an outstanding borrowing. The Fund has undertaken, for so long
as required by California Regulatory Authority and so long as insurance
policy premiums or proceeds of contracts sold in California are used to
purchase Series shares, the Series will not borrow money in excess of 25% of
the value of its net assets.

FOREIGN SECURITIES

Investors should recognize that investing in securities of foreign issuers
involves certain considerations, including those set forth in the Prospectus,
which are not typically associated with investing in United States issuers.
Since the stocks of foreign companies are frequently denominated in foreign
currencies, and since the Series may temporarily hold uninvested reserves in
bank deposits in foreign currencies, the Series will be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and may incur costs in connection with conversions between various
currencies. The investment policies of the Series permit it to enter into
forward foreign currency exchange contracts and various related currency
transactions in order to hedge the Series' holdings and commitments against
changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a
price set at the time of the contract.

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 Series. Payment of such
interest equalization tax, if imposed, would reduce the Series' 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 Series 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
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 non-equity 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 (the "Code"), as amended, 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 Series may make or enter into
will be subject to the special currency rules described above.

FOREIGN CURRENCY TRANSACTIONS

In connection with the Series' investment in foreign securities, the Series
may purchase or sell currencies and/or engage in forward foreign currency
transactions in order to expedite settlement of portfolio transactions and to
minimize currency value fluctuations.

Forward foreign currency contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks)
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. The Series will
account for forward contracts by marking to market each day at daily exchange
rates.

When the Series enters into a forward 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 Series' assets denominated in
such foreign currency, the Series' custodian bank or subcustodian will place
cash or liquid high grade debt securities in a separate account of the Series
in an amount not less than the value of the Series' total assets committed to
the consummation of such forward contracts. If the additional cash or
securities placed in the separate account declines, additional cash or
securities will be placed in the account on a daily basis so that the value
of the account will equal the amount of the Series' commitments with respect
to such contracts.

3
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Delaware Group Premium Fund-International Equity Series-Part B-Page 4

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

FUTURES CONTRACTS--As noted in the Prospectus, the Series may enter into
futures contracts relating to securities, securities indices or interest
rates. In addition, the Series may enter into foreign currency futures
contracts. (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.

Purchases or sales of stock or bond index futures contracts are used for
hedging purposes to attempt to protect the Series' current or intended
investments from broad fluctuations in stock or bond prices. For example, the
Series may sell stock or bond index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
the Series' 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 Series is not fully invested
in the securities market and anticipates a significant market advance, it may
purchase stock or bond 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 Series intends to purchase. As such purchases are made,
the corresponding positions in stock or bond index futures contracts will be
closed out.

Interest rate futures contracts are purchased or sold for hedging purposes
to attempt to protect against the effects of interest rate changes on the
Series' current or intended investments in fixed income securities. For
example, if the Series owned long-term bonds and interest rates were expected
to increase, the Series might sell interest rate futures contracts. Such a
sale would have much the same effect as selling some of the long-term bonds
in the Series' portfolio. However, since the futures market is more liquid
than the cash market, the use of interest rate futures contracts as a hedging
technique allows the Series to hedge its interest rate risk without having to
sell its portfolio securities. If interest rates did increase, the value of
the debt securities in the portfolio would decline, but the value of the
Series' interest rate futures contracts would be expected to increase at
approximately the same rate, thereby keeping the net asset value of the
Series from declining as much as it otherwise would have. On the other hand,
if interest rates were expected to decline, interest rate futures contracts
could be purchased to hedge in anticipation of subsequent purchases of
long-term bonds at higher prices. Because the fluctuations in the value of
the interest rate futures contracts should be similar to those of long-term
bonds, the Series could protect itself against the effects of the anticipated
rise in the value of long-term bonds without actually buying them until
necessary cash became available or the market had stabilized. At that time,
the interest rate futures contracts could be liquidated and the Series' cash
reserve could then be used to buy long-term bonds on the cash market.

As noted in the Prospectus, the Series may purchase and sell foreign currency
futures contracts for hedging purposes to attempt to protect its current or
intended investments 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 Series 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 contacts. However, if the value of the foreign currency
increases relative to the dollar, the Series' 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 the value as a result of
the change in exchange rates.

Conversely, the Series 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 Series 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 Series 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 Series may also engage in currency "cross hedging" when, in the opinion
of the Series' investment manager, Delaware International Advisers Ltd.
("Delaware International"), the historical relationship among foreign
currencies suggests that the Series may achieve protection against
fluctuations in currency exchange rates similar to that described above at a
reduced cost through the use of a futures contract relating to a currency
other than the U.S. dollar or the currency in which the foreign security is
denominated. Such "cross hedging" is subject to the same risks as those
described above with respect to an unanticipated increase or decline in the
value of the subject currency relative to the dollar.

OPTIONS ON FUTURES CONTRACTS--As noted in the Prospectus, the Series may
purchase and write options on the types of futures contracts the Series could
invest in.

The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the securities in the Series' portfolio. If
the futures price at expiration of the option is below the exercise price,
the Series will retain the full amount of the option premium,

4
<PAGE>

which provides a partial hedge against any decline that may have occurred in
the Series' 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 Series will retain the full amount of the
option premium, which provides a partial hedge against any increase in the
price of securities which the Series intends to purchase. If a put or call
option the Series has written is exercised, the Series 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
Series' losses from exercised options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.

The Series 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 marketwide decline or changes in interest or
exchange rates, the Series 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 Series 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
Series will increase prior to acquisition, due to a market advance or changes
in interest or exchange rates, the Series 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
Series will suffer a loss equal to the price of the call, but the securities
which the Series intends to purchase may be less expensive.

OPTIONS ON FOREIGN CURRENCIES

The Series may purchase and write options on foreign currencies for hedging
purposes in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized. For example, a decline in
the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against
such diminutions in the value of portfolio securities, the Series may
purchase put options on the foreign currency. If the value of the currency
does decline, the Series will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing
the cost of such securities, the Series may purchase call options thereon.
The purchase of such options could offset, at least partially, the effects of
the adverse movement in exchange rates. As in the case of other types of
options, however, the benefit to the Series deriving from purchases of
foreign currency options will be reduced by the amount of the premium and
related transaction costs. In addition, where currency exchange rates do not
move in the direction or to the extent anticipated, the Series could sustain
losses on transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in such rates.

The Series may write options on foreign currencies for the same
types of hedging purposes. For example, where the Series anticipates a
decline in the dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates, it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised, and the diminution in
the value of portfolio securities will be offset by the amount of the premium
received.

Similarly, instead of purchasing a call option to hedge against the
anticipated increase in the dollar cost of securities to be acquired, the
Series could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Series to
hedge such increased costs up to the value of the premium. As in the case of
other types of options, however, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the premium, and
only if rates move in the expected direction. If this does not occur, the
option may be exercised and the Series would be required to purchase or sell
the underlying currency at a loss which may not be offset by the amount of
the premium. Through the writing of options on foreign currencies, the Series
also may be required to forego all or a portion of the benefit which might
otherwise have been obtained from favorable movements in exchange rates.

The Series intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Series is "covered" if the
Series owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held in a
segregated account by the Series' custodian bank) upon conversion or exchange
of other foreign currency held in its portfolio. A call option is also
covered if the Series has a call on the same foreign currency and in the same
principle amount as the call written where the exercise price of the call
held (a) is equal to less than the exercise price of the call written, or (b)
is greater than the exercise price of the call written if the difference is
maintained by the Series in cash, U.S. Government securities or other
high-grade liquid debt securities in a segregated account with its custodian
bank.

With respect to writing put options, at the time the put is written, the
Series will establish a segregated account with its custodian bank consisting
of cash, U.S. Government securities or other high-grade liquid debt securities
in

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 6

an amount equal in value to the amount the Series will be required to pay
upon exercise of the put. The account will be maintained until the put is
exercised, has expired, or the Series has purchased a closing put of the same
series as the one previously written.

REPURCHASE AGREEMENTS

The Series may, from time to time, enter into repurchase transactions.
Repurchase agreements are instruments under which securities are purchased
from a bank or securities dealer with an agreement by the seller to
repurchase the securities. Under a repurchase agreement, the purchaser
acquires ownership of the security but the seller agrees, at the time of
sale, to repurchase it at a mutually agreed-upon time and price. The Series
will take custody of the collateral under repurchase agreements. Repurchase
agreements may be construed to be collateralized loans by the purchaser to
the seller secured by the securities transferred. The resale price is in
excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate or maturity of the purchase security. Such
transactions afford an opportunity for the Series to invest temporarily
available cash. The Series' risk is limited to the seller's ability to buy
the security back at the agreed-upon sum at the agreed-upon time, since the
repurchase agreement is secured by the underlying obligation. Should such an
issuer default, the investment manager believes that, barring extraordinary
circumstances, the Series will be entitled to sell the underlying securities
or otherwise receive adequate protection for its interest in such securities,
although there could be a delay in recovery. The Series considers the
creditworthiness of the bank or dealer from whom it purchases repurchase
agreements. The Series will monitor such transactions to assure that the
value of the underlying securities subject to repurchase agreements is at
least equal to the repurchase price. The underlying securities will be
limited to those described above.

The funds in the Delaware Group have obtained an exemption from the joint-
transaction prohibitions of Section 17(d) of the Investment Company Act of 1940
to allow the Delaware Group funds jointly to invest cash balances. The Series
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.

PORTFOLIO LOAN TRANSACTIONS

The Series 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 Delaware International that
the staff of the Securities and Exchange Commission 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 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 Series; 3) the Series must be able to terminate the loan after notice,
at any time; 4) the Series 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 Series 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 the Fund 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 Series 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 Series will only enter into loan arrangements
after a review of all pertinent facts by Delaware International, 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 Delaware International.

OPTIONS

The Series may write and purchase call options and purchase put options on
a covered basis only and may enter into closing transactions with respect to
such options transactions. The Series will not engage in option transactions
for speculative purposes.

The Series may invest in options that are Exchange listed and traded
over-the-counter. The Series will enter into an option position only if there
appears to be a liquid market for such options. However, there can be no
assurances that a liquid secondary market will be maintained. Thus, it may
not be possible to close option positions and this may have an adverse impact
on the Series' ability to effectively hedge its securities.

A. COVERED CALL WRITING--The Series may write covered call options from
time to time on such portion of its portfolio, without limit, as Delaware
International determines is appropriate in seeking to obtain the Series'
investment objective. A call option gives the purchaser of such option the
right to buy, and the writer, in this case the Series, has the obligation to
sell the underlying security at the exercise price during the option period.
The advantage to the Series of writing covered calls is that the Series
receives a premium which is additional income. However, if the security rises
in value, the Series 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.

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B-Page 7

With respect to such options, the Series may enter into closing purchase
transactions. A closing purchase transaction is one in which the Series, when
obligated as a writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written.

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
Series to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Series 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 Series 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 Series 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.

A Series will write call options only on a covered basis, which means that
the Series will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Series 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 Series 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.

B. PURCHASING PUT OPTIONS--The Series may invest up to 2% of its total
assets in the purchase of put options. The Series will, at all times during
which it holds a put option, own the security covered by such option.

A put option purchased by the Series gives it the right to sell one of its
securities for an agreed price up to an agreed date. The Series intends to
purchase put options in order to protect against a decline in 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
Series to protect unrealized gain in an appreciated security in its portfolio
without actually selling the security. If the security does not drop in value,
the Series will lose the value of the premium paid. The Series 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 Series may sell a put option purchased on individual portfolio securities.
Additionally, the Series may enter into closing sale transactions. A closing
sale transaction is one in which the Series, 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.

C. PURCHASING CALL OPTIONS--The Series may purchase call options to the
extent that premiums paid by the Series do not aggregate more than 2% of the
Series' total assets. When the Series purchases a call option, in return for
a premium paid by the Series to the writer of the option, the Series 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 Series may alter portfolio characteristics and modify portfolio
maturities without incurring the cost associated with portfolio transactions.

The Series may, following the purchase of a call option, liquidate its
position by effecting a closing sale transaction. This is accomplished by
selling an option of the same series as the option previously purchased. The
Series 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 Series 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 Series 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 exist. In such event, it may not be possible to effect
closing transactions in particular options, with the result that the Series
would have to exercise its 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 Series may
expire without any value to the Series.

D. OPTIONS ON STOCK INDICES--The Series also may write call options and
purchase put options on certain

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 8

stock indices and enter into closing transactions in connection therewith. 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 Series 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 Series may offset positions in stock index
options prior to expiration by entering into a closing transaction on an
Exchange or 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 or the New York Stock Exchange Composite Index, or
a narrower market index such as the Standard & Poor's 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 Series' ability to hedge effectively all or a portion of its securities
through transactions in options on stock indices depends on the degree to
which price movements in the underlying index correlate with price movements
in the Series' portfolio securities. Since the Series' portfolio will not
duplicate the components of an index, the correlation will not be exact.
Consequently, the Series 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.

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 Series' ability to effectively
hedge its securities. The Series will enter into an option position only if
there appears to be a liquid secondary market for such options.

The Series 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.

ACCOUNTING AND TAX ISSUES

When the Series writes a call, or purchases a put option, an amount equal
to the premium received or paid by it is included in the Series' assets and
liabilities as an asset and as an equivalent liability.

In writing a call, 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
Series has written expires on its stipulated expiration date, the Series
recognizes a capital gain. If the Series enters into a closing purchase
transaction with respect to an option which the Series has written, the
Series 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. If a call option which the Series has written
is exercised, the Series realizes a capital gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the
premium originally received.

The premium paid by the Series for the purchase of a put option is recorded
in the Series' assets and liabilities as an investment and subsequently
adjusted daily to the current market value of the option. For example, if the
current market value of the option exceeds the premium paid, the excess would
be unrealized appreciation and, conversely, if the premium exceeds the
current market value, such excess would be unrealized depreciation. The
current market value of a purchased 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
Series has purchased expires on the stipulated expiration date, the Series
realizes a short-term or long-term capital loss for federal income tax
purposes in the amount of the cost of the option. If the Series exercises a
put option, it 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 will be decreased by
the premium originally paid.

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B-Page 9

OPTIONS ON CERTAIN STOCK INDICES. Accounting for options on certain stock
indices will be in accordance with generally accepted accounting principles. The
amount of any realized gain or loss on closing out such a position will result
in a realized gain or loss for tax purposes. Such options held by the Series at
the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes. Sixty percent of any net gain or loss recognized on
such deemed sales or on any actual sales will be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss.

OTHER TAX REQUIREMENTS--The Series has qualified, and intends to continue
to qualify, as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended. The Series must meet several
requirements to achieve or maintain its status as a regulated investment
company. Among these requirements are that at least 90% of the Series'
investment company taxable income be derived from dividends, interest,
payment with respect to securities loans and gains from the sale or
disposition of securities; that at the close of each quarter of its taxable
year at least 50% of the value of the Series' assets consists of cash and
cash items, government securities, securities of other regulated investment
companies and, subject to certain diversification requirements, other
securities; and that less than 30% of the Series' gross income be derived
from sales of securities held for less than three months.

The requirement that not more than 30% of the Series' gross income be
derived from gains from the sale or other disposition of securities held for
less than three months may restrict the Series in its ability to write
covered call options on securities which it has held less than three months,
to write options which expire in less than three months, to sell securities
which have been held less than three months and to effect closing purchase
transactions with respect to options which have been written less than three
months prior to such transactions. Consequently, in order to avoid realizing
a gain within the three-month period, the Series may be required to defer the
closing out of a contract beyond the time when it might otherwise be
advantageous to do so. The Series may also be restricted in the sale of
purchased put options and the purchase of put options for the purpose of
hedging underlying securities because of the application of the short sale
holding period rules with respect to such underlying securities.

The straddle rules of Section 1092 may apply. Generally, the straddle rules
provide that a loss on a position of a straddle may be recognized only to the
extent it exceeds the unrecognized gain at year-end in other positions of the
straddle. Losses which are deferred to the extent of unrecognized gains will
be carried over to the succeeding taxable year subject to the same general
limitations.

PERFORMANCE INFORMATION

From time to time, the Fund may state the Series' total return in
advertisements and other types of literature. Any statements of total return
performance data will be accompanied by information on the Series' average
annual total rate of return over the most recent one-, five-, and ten-year
periods. The Fund may also advertise aggregate and average total return
information of the Series over additional periods of time. Advertisements of
performance of the underlying Series, if any, will be accompanied by a
statement of performance of the separate account.

The Series' average annual total rate of return 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:

P(1+T)/n/ = ERV

Where: P = a hypothetical initial purchase order of
$1,000;

T = average annual total return;

n = number of years;

ERV = redeemable value of the hypothetical
$1,000 purchase at the end of the period.

Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes all distributions are
reinvested at net asset value.

The performance of the Series, as shown below, is the average annual total
return quotations for the one-year period ended December 31, 1994 and for the
period October 29, 1992 (date of initial public offering) through December
31, 1994. Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.

AVERAGE ANNUAL TOTAL RETURN*

1 YEAR ENDED PERIOD 10/29/92**
12/31/94 TO 12/31/94
2.57% 8.46%

*Delaware International elected to waive voluntarily the portion of its
annual compensation under its Investment Management Agreement to limit the
operating expenses of the Series to .80%. In the absence of such voluntary
waiver, performance would have been affected negatively.

**Date of initial public offering.

COMPARATIVE INFORMATION

From time to time, performance of the Series may be compared to various
industry indices.

The Fund may quote the Series' actual total return performance, dividend
results and other performance information in advertising and other types of
literature and may compare that information to, or may separately

<PAGE>

Delaware Premium Fund-International Equity Series-Part B-Page 10

illustrate similar information reported by the Standard and Poor's 500 Stock
Index and the Dow Jones Industrial Average and other unmanaged indices. The
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average are
industry-accepted unmanaged indices of generally-conservative securities used
for measuring general market performance. The total return performance
reported will reflect the reinvestment of all distributions on a quarterly
basis and market price fluctuations. The indices do not take into account any
sales charges or other fees. In seeking the Series' investment objective, the
Series' portfolio may include common stocks considered by Delaware
International to be more aggressive than those tracked by these indices.

The Series' total return performance will be computed by adding all
reinvested income and realized securities profits distributions plus the
change in net asset value during a specific period and dividing by the
offering price at the beginning of the period. It will also reflect the
maximum sales charge paid, if any, for the illustrated investment amount, but
not any income taxes payable by shareholders on the reinvested distributions
included in the calculation. Because security prices fluctuate, past
performance should not be considered as a representation of the results which
may be realized from an investment in the Series in the future.

The Fund may also state the Series' total return performance in the form of
an average annual return. The average annual return figure will be computed
by taking the sum of the Series' annual return, then dividing that figure by
the number of years in the overall period indicated. The computation will
reflect the impact of the maximum sales charge paid, if any, on the
illustrated investment amount against the first year's return.

From time to time, the Fund may quote actual total return performance for
the Series in advertising and other types of literature compared to indices
or averages of alternative financial products available to prospective
investors. For example, the performance comparisons may include the average
return of various bank instruments, some of which may carry certain return
guarantees offered by leading banks and thrifts as monitored by Bank Rate
Monitor, and those of generally-accepted corporate bond and government
security price indices of various durations prepared by Lehman Brothers and
Salomon Brothers, Inc. These indices are not managed for any investment goal.

Comparative information on the Consumer Price Index and representative mutual
fund indices maintained by CDA Technologies, Inc. may also be used. The Consumer
Price Index, as prepared by the U.S. Bureau of Labor Statistics, is the most
commonly used measure of inflation. It indicates the cost fluctuations of a
representative group of consumer goods. It does not represent a return from an
investment. CDA Technologies, Inc. is a performance evaluation service that
maintains a statistical database of performance, as reported by a diverse
universe of independently-managed mutual funds.

Statistical and performance information and various indices compiled and
maintained by organizations such as the following may also be used in
preparing exhibits comparing certain industry trends and competitive mutual
fund performance to comparable Series activity and performance and in
illustrating general financial planning principles. From time to time,
certain mutual fund performance ranking information, calculated and provided
by these organizations, may also be used in the promotion of sales in the
Fund. Any indices used are not managed for any investment goal.

CDA Technologies, Inc., Lipper Analytical Services, Inc. and Morningstar,
Inc. are performance evaluation services that maintain statistical
performance databases, as reported by a diverse universe of independently-
managed mutual funds.

Ibbotson Associates, Inc. is a consulting firm that provides a variety of
historical data including total return, capital appreciation and income on
the stock market as well as other investment asset classes, and inflation.
With their permission, this information will be used primarily for
comparative purposes and to illustrate general financial planning principles.

Interactive Data Corporation is a statistical access service that maintains a
database of various international industry indicators, such as historical and
current price/earning information, individual equity and fixed income price
and return information.

Compustat Industrial Databases, a service of Standard & Poor's, may also be
used in preparing performance and historical stock and bond market exhibits.
This firm maintains fundamental databases that provide financial, statistical
and market information covering more than 7,000 industrial and non-industrial
companies.

Russell Indexes is an investment analysis service that provides both current
and historical stock performance information, focusing on the business
fundamentals of those firms issuing the security.

Salomon Brothers and Lehman Brothers are statistical research firms that
maintain databases of international market, bond market, corporate and
government-issued securities of various maturities. This information, as well
as unmanaged indices compiled and maintained by these firms, will be used in
preparing comparative illustrations.

10
<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 11

Morgan Stanley Capital International is a statistical and research firm that
maintains a statistical database of international securities. This firm also
compiles and maintains a number of unmanaged indices of international
securities. These indices are designed to measure the performance of the
stock markets of the USA, Europe, Canada, Mexico, Australia and the Far East,
and that of international industry groups.

FT-Actuaries World Indices are jointly compiled by The Financial Times, Ltd.;
Goldman, Sachs & Co.; and Wood Mackenzie & Co., Ltd. in conjunction with the
Institute of Actuaries and the Faculty of Actuaries. Indices maintained by
this group primarily focus on compiling statistical information on
international financial markets and industry sectors, stock and bond issues
and certain fundamental information about the companies issuing the
securities. Statistical information on international currencies is also
maintained.

Current interest rate and yield information on government debt obligations
of various durations, as reported weekly by the Federal Reserve (Bulletin
H.15), may also be used. As well, current industry rate and yield information
on all industry available fixed income securities, as reported weekly by the
Bond Buyer, may be used in preparing comparative illustrations.

The following table is an example, for purposes of illustration only, of
cumulative total return performance for the Series for the three-, six- and
nine-month periods ended December 31, 1994, for the one-year period ended
December 31, 1994 and for the life of the Series. For these purposes, the
calculations assume the reinvestment of any realized profits distributions
and income dividends paid during the indicated periods.

CUMULATIVE TOTAL RETURN*
<TABLE>
<S> <C>
3 months ended 12/31/94 (0.9%)
6 months ended 12/31/94 1.0%
9 months ended 12/31/94 2.3%
1 year ended 12/31/94 2.6%
Period 10/29/92** through 12/31/94 19.3%
</TABLE>

**Date of initial public offering.

Because every investor's goals and risk threshold are different, certain
advertising and other related literature may 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 personal 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, information may be provided discussing Delaware
International's overriding investment philosophy and how that philosophy
affects the Series', and other Delaware Group funds', investment disciplines
employed in meeting their objectives.

THE POWER OF COMPOUNDING

As part of your VARIABLE ANNUITY contract, any earnings from your investment
selection are automatically reinvested to purchase additional shares of the
Series. This gives your investment yet another opportunity to grow. It's called
the Power of Compounding and the following charts illustrate just how powerful
that can be.

COMPOUNDED RETURNS

Results of various assumed fixed rates of return on a $10,000 investment
compounded quarterly for 10 years:

[BAR GRAPH APPEARS HERE]

6% Rate of Interest 8% Rate of Interest 10% Rate of Interest 12% Rate of Interest
------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Jan_85 $10,000 $10,000 $10,000 $10,000
Dec_85 10,614 10,824 11,038 11,255
Dec_86 10,265 11,717 12,184 12,668
Dec_87 11,956 12,682 13,449 14,258
Dec_88 12,690 13,728 14,845 16,047
Dec_89 13,468 14,859 16,386 18,061
Dec_90 14,295 16,084 18,087 20,328
Dec_91 15,172 17,410 19,965 22,879
Dec_92 16,103 18,845 22,038 25,751
Dec_93 17,091 20,399 24,326 28,983
Dec_94 18,140 22,080 26,851 32,620
</TABLE>

These figures are calculated assuming a fixed constant investment return and
assume no fluctuation in the value of principal. These figures do not reflect
payment of applicable taxes, are not intended to be a projection of investment
results and do not reflect the actual performance results of the Series.

11
<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 12

TRADING PRACTICES AND BROKERAGE

Delaware International selects brokers or dealers to execute transactions
on behalf of the Series 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 banks, 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. The Fund pays
reasonably competitive brokerage commission rates based upon the professional
knowledge of Delaware International, 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. Some trades are made on a net basis where the Fund either buys
the 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 in the equivalent of a
commission.

From October 29, 1992 (date of initial public offering) to December 31,
1992, there were no brokerage commissions paid by the Series. During the
fiscal years ended December 31, 1993 and 1994, the aggregate dollar amounts
of brokerage commissions paid by the Series were $29,430 and $167,836,
respectively.

Delaware International 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 Delaware International 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.

For the fiscal year ended December 31, 1994, portfolio transactions in the
amount of $36,304,952, resulting in brokerage commissions of $125,707, were
directed to brokers for brokerage and research services provided.

As provided in the Securities Exchange Act of 1934 and the Series' 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
Delaware International which constitute in some part brokerage and research
services used by Delaware International in connection with its investment
decision-making process and constitute in some part services it uses in
connection with administrative or other functions not related to its investment
decision-making process. In such cases, Delaware International will make a good
faith allocation of brokerage and research services and will pay out of its own
resources for services it uses 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
Group. 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.

Delaware International 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 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 Delaware International and the Fund's Board of Directors that
the advantages of combined orders outweigh the possible disadvantages of
separate transactions.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution,
the Fund may place orders with broker/dealers that have agreed to defray
certain Series expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of the variable contracts as a
factor in the selection of brokers and dealers to execute Series portfolio
transactions.

12
<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 13

PORTFOLIO TURNOVER

The rate of portfolio turnover will not be a limiting factor when portfolio
changes are deemed appropriate for the Series. Given the Series' investment
objective, the Fund anticipates that the annual rate of portfolio turnover
will not generally exceed 100% for the Series. It is possible that in any
particular year market conditions or other factors might result in portfolio
activity at a greater rate than anticipated. The portfolio turnover rate of
the Series 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 Series during the
particular fiscal year, exclusive of securities whose maturities at the time
of acquisition are one year or less.

The degree of portfolio activity may affect brokerage costs incurred by the
Series. A turnover rate of 100% would occur, for example, if all the investments
in the Series' portfolio at the beginning of the year were replaced by the end
of the year. In investing to achieve its objective, the Series may hold
securities for any period of time. Portfolio turnover will also be increased if
the Series writes a large number of call options which are subsequently
exercised. The turnover rate also may be affected by cash requirements from
redemptions and repurchases of Series' shares. The portfolio turnover rate for
the fiscal years ended December 31, 1993 and 1994 were 9% and 13%.

OFFERING PRICE

The offering price of shares is the net asset value per share next to be
determined after an order is received. The purchase of shares becomes
effective at the close of business on the day on which the investment is
received from the life company and after any dividend is declared. Dividends,
if any, begin to accrue on the next business day. There is no sales charge.

The purchase will be effected at the net asset value next computed after
the receipt of Federal Funds provided they are received by the close of
regular trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern
time) on days when such exchange is open. The New York Stock Exchange is
scheduled to be open Monday through Friday throughout the year except for New
Year's Day, 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. In the event
of changes in Securities and Exchange Commission requirements or the Fund's
change in time of closing, the Fund reserves the right to price at a
different time, to price more often than once daily or to make the offering
price effective at a different time.

An example showing how to calculate the net asset value per share is included
in the Series' financial statements which are incorporated by reference into
this Part B.

The net asset value per share is computed by adding the value of all
securities and other assets in the Series' portfolio, deducting any
liabilities of the Series and dividing by the number of the Series' shares
outstanding. Expenses and fees are accrued daily. The Prospectus describes
how securities are valued.

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 Series of securities owned by it is not reasonably practical, or
it is not reasonably practical for the Series fairly to value its assets, or in
the event that the Securities and Exchange 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 a request for redemption or leave it standing as a request for
redemption at the net asset value determined next after the suspension has been
terminated.

DIVIDENDS AND REALIZED SECURITIES PROFITS DISTRIBUTIONS

The Series normally will make payments from its net investment income on a
quarterly basis. Payments from the Series' net realized securities profits,
if any, normally will be made following the close of the fiscal year. All
dividends and distributions are automatically reinvested.

For the fiscal year ended December 31, 1994, dividends totaling $0.07 per
share of the Series were paid from net investment income. In addition, a
distribution of $0.01 per share was paid from the Series' realized securities
profits.

TAXES

The Fund has qualified, and intends to continue to qualify, as a regulated
investment company under Subchapter M of the Internal Revenue Code, as
amended. As such, the Fund will not be subject to federal income tax to the
extent its earnings are distributed.

Each Series of the Fund is treated as a single tax entity, and any capital
gains and losses for each Series are calculated separately. It is each
Series' policy to pay out substantially all net investment income and net
realized gains to relieve the Fund of federal income tax liability on that
portion of its income paid to shareholders under the Internal Revenue Code.

Each Series has no fixed policy with regard to distributions of realized
securities profits when such realized securities profits may be offset by
capital losses carried forward. Presently, however, each Series intends to
offset realized securities profits to the extent of the capital losses
carried forward.

13
<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 14

INVESTMENT MANAGEMENT AGREEMENT

Delaware International, Veritas House, 125 Finsbury Pavement, London,
England EC2A 1NQ, furnishes investment management services to the Series.
Such services are provided subject to the supervision and direction of the
Fund's Board of Directors. Delaware International is affiliated with Delaware
Management Company, Inc. ("Delaware Management").

Delaware Management and its predecessors have been managing the funds in
the Delaware Group since 1938. The aggregate assets of these funds on
December 31, 1994 were approximately $9,253,901,000. Investment advisory
services are also provided to institutional accounts with assets on December 31,
1994 of approximately $15,456,416,000.

The Investment Management Agreement between the Fund on behalf of the
International Equity Series and Delaware International, dated April 3, 1995,
was approved by shareholders on March 29, 1995, and will remain in effect for
an initial period of two years. The Agreement may be renewed only if such
renewal and continuance is specifically approved at least annually by the
Board of Directors or by vote of a majority of the outstanding voting
securities of the Series, and only if the terms and the renewal thereof have
been approved by the vote of a majority of the directors of the Fund 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 the Fund
or by Delaware International. The Agreement will terminate automatically in
the event of an assignment.

Delaware International manages the Series' investments. The annual
compensation paid by the Series is equal to 3/4 of 1% of its average daily
net assets, less the Series' proportionate share of all directors' fees paid
to the unaffiliated directors of the Fund. On December 31, 1994, the total
net assets of the Series were $57,649,238. For the period October 29, 1992
(date of initial public offering) to December 31, 1992 and for the fiscal
year ended December 31, 1993, the investment management fees earned relating
to the Series amounted to $88 and $32,209, respectively, and no amounts were
paid by the Series due to the waiver of fees described below. For the fiscal
year ended December 31, 1994, the investment management fee relating to the
Series amounted to $294,997 of which $209,618 was paid and $85,379 was waived
after consideration of the waiver described below.

Except for those borne by Delaware International under the Investment
Management Agreement and the Distributor under the Distribution Agreement, the
Series is responsible for all of its own expenses. Among others, these include
the Series' proportionate share of rent and certain other administrative
expenses; the investment management fees; transfer and dividend disbursing agent
fees and costs; custodian expenses; federal securities registration fees; proxy
costs; and the costs of preparing prospectuses and reports sent to shareholders.
Delaware International has voluntarily elected to waive its fee and reimburse
the Series to the extent the Series' annual operating expenses, exclusive of
taxes, interest, brokerage commissions and extraordinary expenses exceed .80%
for the period from the commencement of the Series' operations through December
31, 1993. This waiver has been extended through December 31, 1995. The ratio of
expenses to average daily net assets for the Series for the fiscal year ended
December 31, 1994 was 0.80%, reflecting the waiver described above.

DISTRIBUTION AND SERVICE

Delaware Distributors, L.P. (which formerly conducted business as Delaware
Distributors, Inc.), located at 1818 Market Street, Philadelphia, PA 19103,
serves as the national distributor of the Series' shares under a Distribution
Agreement dated April 3, 1995. It is an affiliate of Delaware Management and
Delaware International and bears all of the costs of promotion and
distribution. Prior to January 3, 1995, Delaware Distributors, Inc. ("DDI")
served as the national distributor of the Series' shares. On that date,
Delaware Distributors, L.P., a newly formed limited partnership, succeeded to
the business of DDI. All officers and employees of DDI became officers and
employees of Delaware Distributors, L.P. DDI is the corporate general partner
of Delaware Distributors, L.P. and both DDI and Delaware Distributors, L.P.
are indirect, wholly-owned subsidiaries of Delaware Management Holdings, Inc.

The Transfer Agent, Delaware Service Company, Inc., another affiliate of
Delaware Management and Delaware International located at 1818 Market Street,
Philadelphia, PA 19103, serves as the Fund's shareholder servicing, dividend
disbursing and transfer agent for the Series pursuant to the Amended and
Restated Shareholders Services Agreement dated December 13, 1993. The
Transfer Agent is also an indirect, wholly-owned subsidiary of Delaware
Management Holdings, Inc.

OFFICERS AND DIRECTORS

The business and affairs of the Fund are managed under the direction of its
Board of Directors.

Certain officers and directors of the Fund hold identical positions in each
of the other funds in the Delaware Group.

DMH Corp., Delaware Management Company, Inc., 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. and Delaware Investment
Counselors, 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. In connection with the merger, a new
Investment Management Agreement between the Fund on behalf of the Series and
Delaware International was executed following shareholder approval. As a
result of the merger,

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 15

DMH, Delaware Management and Delaware International became indirect,
wholly-owned subsidiaries of and are thus 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.

Directors and principal officers of the Fund 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.

*WAYNE A. STORK (57)
Chairman, Director and/or Trustee of the Fund and each of the other 16 Funds
in the Delaware Group.
Chairman, Chief Executive Officer, Chief Investment Officer and Director of
Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware Management
Holdings, Inc., DMH Corp., Delaware International Advisers Ltd., Delaware
International Holdings Ltd. and Founders Holdings, Inc.
Chairman and Director of Delaware Management Trust Company.
Director of Delaware Distributors, Inc., Delaware Service Company, Inc. and
Delaware Investment Counselors, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware organization.

BRIAN F. WRUBLE (52)
President and Chief Executive Officer of the Fund and 15 other Funds in the
Delaware Group (which excludes Delaware Pooled Trust, Inc.).
Director of Delaware International Advisers Ltd. and Delaware Investment
Counselors, Inc.
President, Chief Operating Officer and Director of Delaware Management
Holdings, Inc., DMH Corp. and Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware Service Company,
Inc.
Chairman and Director of Delaware Distributors, Inc.
Chairman of Delaware Distributors, L.P.
President of Founders Holdings, Inc.
From 1992 to 1995, Mr. Wruble was a director of the Fund and a director and/or
trustee of each of the other funds in the Delaware Group. Before joining the
Delaware Group in 1992, Mr. Wruble was Chairman, President and Chief
Executive Officer of Equitable Capital Management Corporation from July 1985
through April 1992 and was Executive Vice President of Equitable Life
Assurance Society of the United States from September 1984 through April
1992 and Chief Investment Officer from April 1991 through April 1992. Mr.
Wruble has previously held executive positions with Smith Barney, Harris
Upham, and H.C. Wainwright & Co.

WINTHROP S. JESSUP (49)
Executive Vice President of the Fund and 15 other Funds in the Delaware Group
(which excludes Delaware Pooled Trust, Inc.).
President and Chief Executive Officer of Delaware Pooled Trust, Inc.
President and Director of Delaware Investment Counselors, Inc.
Executive Vice President and Director of Delaware Management Holdings, Inc.,
DMH Corp., Delaware Management Company, Inc., Delaware Management Trust
Company, Delaware International Holdings Ltd. and Founders Holdings, Inc.
Vice Chairman and Director of Delaware Distributors, Inc.
Vice Chairman of Delaware Distributors, L.P.
Director of Delaware Service Company, Inc. and Delaware International Advisers
Ltd.
During the past five years, Mr. Jessup has served in various executive
capacities at different times within the Delaware organization.

RICHARD G. UNRUH, JR. (55)
Executive Vice President of the Fund and each of the other 16 Funds in the
Delaware Group.
Executive Vice President and Director of Delaware Management Company, Inc.
Senior Vice President of Delaware Management Holdings, Inc.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware organization.

WALTER P. BABICH (67)
Director and/or Trustee of the Fund and each of the other 16 Funds in the
Delaware Group.
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.

ANTHONY D. KNERR (56)
Director and/or Trustee of the Fund and each of the other 16 Funds in the
Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Consultant, 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.

15
<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 16

ANN R. LEVEN (54)
Director and/or Trustee of the Fund and each of the other 16 Funds in the
Delaware Group.
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 1994, she was
Adjunct Professor of Columbia Business School.

W. THACHER LONGSTRETH (74)
Director and/or Trustee of the Fund and each of the other 16 Funds in the
Delaware Group.
1617 John F. Kennedy Boulevard, Philadelphia, PA 19103.
Vice Chairman, Packquisition Corp., a financial printing, commercial printing
and information processing firm.
Philadelphia City Councilman.
President, MLW, Associates.
Director, Tasty Baking Company.
Director, Healthcare Services Group.

CHARLES E. PECK (69)
Director and/or Trustee of the Fund and each of the other 16 Funds in the
Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive Officer of The
Ryland Group, Inc., Columbia, MD.

DAVID K. DOWNES (55)
Senior Vice President/Chief Administrative Officer/Chief Financial Officer of
the Fund, each of the other 16 Funds in the Delaware Group and Delaware
Management Company, Inc.
President/Chief Executive Officer and Director of Delaware Management Trust
Company.
Senior Vice President/Chief Administrative Officer/Chief Financial
Officer/Treasurer of Delaware Management Holdings, Inc.
Senior Vice President/Chief Financial Officer/Treasurer and Director of DMH
Corp.
Senior Vice President/Chief Administrative Officer and Director of Delaware
Distributors, Inc.
Senior Vice President/Chief Administrative Officer of Delaware Distributors,
L.P.
Senior Vice President/Chief Administrative Officer/Chief Financial Officer and
Director of Delaware Service Company, Inc.
Chief Financial Officer and Director of Delaware International Holdings Ltd.
Senior Vice President/Chief Financial Officer/Treasurer of Delaware Investment
Counselors, Inc.
Senior Vice President/Chief Financial Officer and Director of Founders
Holdings, Inc.
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief Administrative
Officer, Chief Financial Officer and Treasurer of Equitable Capital
Management Corporation, New York, from December 1985 through August 1992,
Executive Vice President from December 1985 through March 1992, and Vice
Chairman from March 1992 through August 1992.

GEORGE M. CHAMBERLAIN, JR. (48)
Senior Vice President and Secretary of the Fund, each of the other 16 Funds in
the Delaware Group, Delaware Management Holdings, Inc. and Delaware
Distributors, L.P.
Senior Vice President, Secretary and Director of DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, Inc., Delaware Service
Company, Inc., Delaware Management Trust Company and Founders Holdings, Inc.
Secretary and Director of Delaware International Holdings Ltd.
Senior Vice President and Secretary of Delaware Investment Counselors, Inc.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various capacities
at different times within the Delaware organization.

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 17

JOSEPH H. HASTINGS (45)
Vice President/Corporate Controller of the Fund, each of the other 16 Funds in
the Delaware Group, Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc. and Founders Holdings,
Inc.
Vice President/Corporate Controller/Treasurer of Delaware Management Trust
Company.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief Financial
Officer for Prudential Residential Services, L.P., New York, NY from 1989 to
1992. Prior to that, Mr. Hastings served as Controller and Treasurer for
Fine Homes International, L.P., Stamford, CT from 1987 to 1989.

EUGENE J. CICHANOWSKY (48)
Vice President/Corporate Tax of the Fund, each of the other 16 Funds in the
Delaware Group, Delaware Management Holdings, Inc., DMH Corp., Delaware
Management Company, Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc., Founders Holdings, Inc.
and Delaware Management Trust Company.
1818 Market Street, Philadelphia, PA 19103.
During the past five years, Mr. Cichanowsky has served in various capacities
at different times within the Delaware organization.

THERESA M. MESSINA (33)
Vice President/Treasurer of the Fund, each of the other 16 Funds in the
Delaware Group and Delaware Service Company, Inc.
Vice President/Treasurer of Founders Holdings, Inc.
Vice President/Assistant Treasurer of Delaware Management Company, Inc.,
Delaware Distributors, L.P., and Delaware Distributors, Inc.
Vice President of Delaware International Holdings, Ltd.
Before joining the Delaware Group in 1994, Ms. Messina was Vice
President/Treasurer for Capital Holdings, Frazer, PA. Prior to that, Ms.
Messina was Vice President/Fund Accounting for SEI Corporation, Wayne, PA
from 1988 to 1994.

The following is a compensation table listing for each director entitled to
receive compensation, the aggregate compensation received from the Fund, the
total compensation received from all Delaware Group funds and an estimate of
annual benefits to be received upon retirement under the Delaware Group
Retirement Plan as of December 31, 1994.

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT ESTIMATED TOTAL
BENEFITS ANNUAL COMPENSATION
AGGREGATE ACCRUED BENEFITS FROM ALL 17
COMPENSATION AS PART OF UPON DELAWARE
NAME FROM FUND FUND EXPENSES RETIREMENT* GROUP FUNDS
<S> <C> <C> <C> <C>
W. Thacher Longstreth $1,447.74 None $18,100 $37,132.69
Ann R. Leven $1,747.44 None $18,100 $45,268.64
Walter P. Babich $1,718.91 None $18,100 $44,268.65
Anthony D. Knerr $1,723.41 None $18,100 $44,268.72
Charles E. Peck $1,447.74 None $18,100 $37,132.69
</TABLE>

*Under the terms of the Delaware Group Retirement Plan for directors/trustees,
each disinterested director 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 the Fund for a period
equal to the lesser of the number of years that such person served as a
director 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 of the Fund at the time of such person's retirement. If an
eligible director retired as of December 31, 1994, he or she would be entitled
to annual payments totaling $18,100, in the aggregate, from all of the funds in
the Delaware Group, based on the number of funds in the Delaware Group as of
that date.

GENERAL INFORMATION

Delaware International is the investment manager for the Series and several
other funds in the Delaware Group. Delaware Management, its affiliate,
manages the other funds in the Delaware Group. Delaware Management, through a
separate division, also manages private investment accounts. While investment
decisions of the Fund are made independently from those of the other funds
and accounts, they may make investment decisions at the same time.

Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the Investment Company Act of
1940, who provide services to Delaware Management, Delaware International 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 is
received; (3) certain persons are prohibited from investing in initial public
offerings of securities and other restrictions apply to

17
<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 18

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.

Delaware Distributors, L.P. acts as the national distributor for the Series
and for all of the other mutual funds in the Delaware Group.

In addition, Delaware Service Company, Inc., an affiliate of Delaware
Management, acts as shareholder servicing, dividend disbursing and transfer
agent for the Fund and for the other mutual funds in the Delaware Group.
Compensation is fixed each year and approved by the Board of Directors,
including a majority of the disinterested directors.

Delaware Management and its affiliates own the name "Delaware Group." Under
certain circumstances, including the termination of the Fund's advisory
relationship with Delaware Management or its distribution relationship with
Delaware Distributors, Inc., Delaware Management and its affiliates could
cause the Fund to delete the words "Delaware Group" from the Fund's name.

The legality of the issuance of the shares offered hereby, pursuant to
registration under the Investment Company Act Rule 24f-2, has been passed
upon for the Fund by Messrs. Stradley, Ronon, Stevens & Young, Philadelphia,
Pennsylvania.

The Series commenced operations on October 29, 1992.

CAPITALIZATION

The Fund has a present authorized capitalization of five hundred million
shares of capital stock with a $.01 par value per share. The Board of Directors
has allocated fifty million shares to the Series. While all shares have equal
voting rights on matters affecting the entire Fund, the Series would vote
separately on any matter which affects only that Series, such as investment
objective and policy or action to dissolve the Series, and as otherwise
prescribed by the Investment Company Act of 1940. Shares of the Series have a
priority in that Series' assets, and in gains on and income from the portfolio
of that Series. Shares have no preemptive rights, are fully transferable and,
when issued, are fully paid and nonassessable. All shares participate equally in
dividends, and upon liquidation would share equally.

NONCUMULATIVE VOTING

THESE SHARES HAVE NONCUMULATIVE VOTING RIGHTS WHICH MEANS THAT THE HOLDERS
OF MORE THAN 50% OF THE SHARES OF THE FUND 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 ("SEC"). Shareholders may obtain a copy of the Registration Statement
by contacting the SEC in Washington, DC.

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 19

APPENDIX A--DESCRIPTION OF RATINGS

COMMERCIAL PAPER

Excerpts from S&P's description of its two highest commercial paper ratings:
A-1--judged to be the highest investment grade category possessing the highest
relative strength; A-2--investment grade category possessing less relative
strength than the highest rating.

Excerpts from Duff and Phelps, Inc.'s description of its two highest
ratings: CATEGORY 1--TOP GRADE: Duff 1-Plus--Highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
ready access to alternative sources of funds, is clearly outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations. Duff 1--
Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.
Duff 1-Minus--High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. CATEGORY 2--GOOD GRADE: Duff 2--Good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing
internal funds' needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.

Excerpts from Fitch Investor Service, Inc.'s description of its two highest
ratings: F-1--Highest grade commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment. F-2--Very
good grade issues assigned this rating reflect an assurance of timely payment
only slightly less in degree than the strongest issues.

BONDS

Excerpts from Moody's description of its bond ratings: Aaa--judged to be the
best quality. They carry the smallest degree of investment risk; Aa--judged to
be of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class; B--generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small; Caa--are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest; Ca--represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings; C--the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

<PAGE>

Delaware Group Premium Fund-International Equity Series-Part B--Page 20

FINANCIAL STATEMENTS

The Series' Statement of Net Assets, Statement of Operations, Statement of
Changes in Net Assets and Notes to Financial Statements, as well as the report
of Ernst & Young LLP, independent auditors, for the fiscal year ended December
31, 1994, are included in the Series' Annual Report to shareholders. The
financial statements and the report of Ernst & Young LLP listed above are
incorporated by reference from the Annual Report into this Part B.