DELAWARE GROUP PREMIUM FUND INC, 497, 1996-05-01

DELAWARE GROUP PREMIUM FUND INC
497, 1996-05-01

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<PAGE>
PROSPECTUS
MAY 1, 1996

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, 1996, 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 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. SHARES OF THE FUND 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.

-1-

<PAGE>

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

-2-

<PAGE>

TABLE OF CONTENTS

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

-3-

<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.

-4-

<PAGE>

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.

-5-

<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 obtain from the Fund upon
request at no charge.

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

<PAGE>

Equity/Income Series
--------------------------------------------------------------------------------------
7/28/88(1)
Year Ended through
12/31/95 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> <C>
Net Asset Value, Beginning of Period......... $11.4800 $12.5100 $11.2200 $10.7500 $9.2400 $11.4000 $10.1600 $10.0000

Income From Investment Operations
- ---------------------------------
Net Investment Income........................ 0.4155 0.4121 0.4341 0.4155 0.4502 0.4489 0.2813 0.0934
Net Gains (Losses) on Securities
(both realized and unrealized)..... 3.5745 (0.4221) 1.2659 0.5045 1.5498 (1.9189) 1.0337 0.0666
------ ------- ------ ------ ------- ------ ------ ------
Total From Investment Operations ........ 3.9900 (0.0100) 1.7000 0.9200 2.0000 (1.4700) 1.3150 0.1600
------ ------- ------ ------ ------ ------- ------ ------

Less Distributions
- ------------------
Dividends (from net investment income)....... (0.4300) (0.4200) (0.4100) (0.4500) (0.4900) (0.5600) (0.0750) none
Distributions (from capital gains) .......... (0.2100) (0.6000) none none none (0.1300) none none
Returns of Capital........................... none none none none none none none none
------- ------- ------- ------ ------ ------ ------ ------
Total Distributions...................... (0.6400) (1.0200) (0.4100) (0.4500) (0.4900) (0.6900) (0.0750) none
------- ------- ------- ------- ------- ------- ------- ------

Net Asset Value, End of Period............... $14.8300 $11.4800 $12.5100 $11.2200 $10.7500 $9.2400 $11.4000 $10.1600
======== ======== ======== ======== ======== ======= ======== ========

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

Total Return(2).............................. 36.12% (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) ... $109,003 $72,725 $65,519 $38,278 $38,840 $29,598 $12,959 $1,873
Ratio of Expenses to Average Net Assets...... 0.69% 0.71% 0.75% 0.79% 0.85% 0.96% 1.31% 2.00%
Ratio of Expenses to Average Net Assets
prior to Expense Limitation.............. 0.69% 0.71% 0.76% 0.81% 0.85% 0.96% 1.31% 2.00%
Ratio of Net Investment Income to Average
Net Assets ................................. 3.24% 3.63% 3.95% 3.86% 4.46% 5.80% 5.06% 6.40%
Ratio of Net Investment Income to Average
Net Assets prior to Expense Limitation...... 3.24% 3.63% 3.94% 3.84% 4.46% 5.80% 5.06% 6.40%
Portfolio Turnover Rate...................... 85% 91% 67% 72% 79% 34% 26% ---

</TABLE>

<PAGE>

High Yield Series
--------------------------------------------------------------------------
7/28/88(1)
Year Ended through
12/31/95 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> <C>
Net Asset Value, Beginning of Period........ $8.5400 $9.7700 $9.2900 $9.1300 $7.4800 $9.2000 $9.8600 $10.0000

Income From Investment Operations
- ---------------------------------
Net Investment Income....................... 0.8715 0.9621 0.9758 1.0224 1.0316 1.1135 1.0846 0.4754
Net Gains (Losses) on Securities
(both realized and unrealized)............. 0.4000 (1.2300) 0.4800 0.1600 1.6500 (1.7200) (0.6350) (0.1400)
-------- -------- -------- -------- -------- -------- -------- --------
Total From Investment Operations ........ 1.2715 (0.2679 1.4558 1.1824 2.6816 (0.6065) 0.4496 0.3354
-------- -------- -------- -------- -------- -------- -------- --------

Less Distributions
- ------------------
Dividends (from net investment income)...... (0.8715) (0.9621) (0.9758) (1.0224) (1.0316) (1.1135) (1.0846) (0.4754)
Distributions (from capital gains) ......... none none none none none none (0.0250) none
Returns of Capital.......................... none none none none none none none none
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions...................... (0.8715) (0.9621) (0.9758) (1.0224) (1.0316) (1.1135) (1.1096) (0.4754)
-------- -------- -------- -------- -------- -------- -------- --------

Net Asset Value, End of Period.............. $8.9400 $8.5400 $9.7700 $9.2900 $9.1300 $7.4800 $9.2000 $9.8600
======= ======= ======= ======= ======= ======= ======= =======

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

Total Return(2)............................. 15.50% (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) .. $56,605 $43,686 $34,915 $11,311 $5,918 $5,092 $4,427 $2,425
Ratio of Expenses to Average Net Assets..... 0.69% 0.72% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Expenses to Average Net Assets
prior to Expense Limitation............. 0.69% 0.72% 0.82% 0.94% 1.06% 1.17% 1.50% 1.21%
Ratio of Net Investment Income to Average
Net Assets................................ 9.87% 10.56% 10.05% 10.93% 12.05% 13.30% 11.21% 11.00%
Ratio of Net Investment Income to Average
Net Assets prior to Expense Limitation.... 9.87% 10.56% 10.03% 10.79% 11.80% 12.93% 10.50% 10.58%
Portfolio Turnover Rate..................... 74% 47% 43% 73% 70% 115% 19% 31%

</TABLE>

<PAGE>

Capital Reserves Series
-------------------------------------------------------------------------
7/28/88(1)
Year Ended through
12/31/95 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> <C>
Net Asset Value, Beginning of Period........ $9.3000 $10.2600 $10.2000 $10.2300 $10.0400 $9.9800 $9.9700 $10.0000

Income From Investment Operations
Net Investment Income....................... 0.6431 0.6355 0.6357 0.6474 0.6687 0.7325 0.8402 0.3293
Net Gains (Losses) on Securities
(both realized and unrealized)............ 0.6300 (0.9050) 0.1450 0.0600 0.1900 0.0600 0.0100 (0.0300)
--------- ------- -------- -------- -------- -------- -------- --------
Total From Investment Operations ........ 1.2731 (0.2695) 0.7807 0.7074 0.8587 0.7925 0.8502 0.2993
--------- ------- -------- -------- -------- -------- -------- --------

Less Distributions
Dividends (from net investment income)...... (0.6431) (0.6355) (0.6357) (0.6474) (0.6687) (0.7325) (0.8402) (0.3293)
Distributions (from capital gains) ......... none (0.0550) (0.0850) (0.0900) none none none none
Returns of Capital.......................... none none none none none none none none
--------- ------- -------- -------- -------- -------- -------- --------
Total Distributions...................... (0.6431) (0.6905) (0.7207) (0.7374) (0.6687) (0.7325) (0.8402) (0.3293)
--------- ------- -------- -------- -------- -------- -------- --------

Net Asset Value, End of Period.............. $9.9300 $9.3000 $10.2600 $10.2000 $10.2300 $10.0400 $9.9800 $9.9700
======= ======= ======== ======== ======== ======== ======= =======

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

Total Return(2)............................. 14.08% (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) .. $27,935 $25,975 $24,173 $9,790 $4,392 $4,093 $2,575 $1,784
Ratio of Expenses to Average Net Assets..... 0.71% 0.74% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Expenses to Average Net Assets
prior to Expense Limitation............... 0.71% 0.74% 0.85% 0.98% 1.15% 1.49% 1.80% 1.26%
Ratio of Net Investment Income to Average
Net Assets ............................... 6.64% 6.57% 6.20% 6.39% 6.62% 7.32% 8.41% 7.63%
Ratio of Net Investment Income to Average
Net Assets prior to Expense Limitation..... 6.64% 6.57% 6.15% 6.21% 6.27% 6.62% 7.41% 7.16%
Portfolio Turnover Rate...................... 145% 219% 198% 241% 95% 38% --- ---
</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.

Money Market Series
---------------------------------------------------------------------------
7/28/88(1)
Year Ended through
12/31/95 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> <C>
Net Asset Value, Beginning of Period........$10.0000 $10.0000 $10.0000 $10.0000 $10.0000 $10.0000 $10.0000 $10.0000

Income From Investment Operations
- ---------------------------------
Net Investment Income....................... 0.5349 0.3614 0.2451 0.3202 0.5443 0.7306 0.8288 0.3195
Net Gains (Losses) on Securities
(both realized and unrealized).... none none none none none none none none
------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations ....... 0.5349 0.3614 0.2451 0.3202 0.5443 0.7306 0.8288 0.3195
------ ------ ------ ------ ------ ------ ------ ------

Less Distributions
- ------------------
Dividends (from net investment income)...... (0.5349) (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 none
Returns of Capital.......................... none none none none none none none none
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions..................... (0.5349) (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 $10.0000
======== ======== ======== ======== ======== ======== ======== ========

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

Total Return(2)............................. 5.48% 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) .. $16,338 $20,125 $10,245 $7,774 $7,768 $8,174 $2,109 $932
Ratio of Expenses to Average Net Assets..... 0.62% 0.66% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Expenses to Average Net Assets
prior to Expense Limitation................ 0.62% 0.66% 0.86% 0.85% 0.99% 0.99% 2.01% 2.11%
Ratio of Net Investment Income to Average
Net Assets................................. 5.35% 3.79% 2.44% 3.21% 5.45% 7.25% 8.26% 7.50%
Ratio of Net Investment Income to Average
Net Assets prior to Expense Limitation.... 5.35% 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.
(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.

Growth Series
-----------------------------------------------------------------
7/12/91(1)
Year Ended through
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $11.7500 $12.2400 $11.1200 $11.0300 $10.0000

Income From Investment Operations
- ---------------------------------
Net Investment Income.................................... 0.0720 0.0694 0.0558 0.0225 0.0098
Net Gains (Losses) on Securities
(both realized and unrealized)................. 3.3780 (0.4994) 1.2142 0.1975 1.0202
------ ------- ------ ------ ------
Total From Investment Operations .................... 3.4500 (0.4300) 1.2700 0.2200 1.0300
------ ------- ------ ------ ------

Less Distributions
- ------------------
Dividends (from net investment income)................... (0.0700) (0.0600) (0.0200) (0.0100) none
Distributions (from capital gains) ...................... none none (0.1300) (0.1200) none
Returns of Capital....................................... none none none none none
------ ------- ------ ------ ------
Total Distributions.................................. (0.0700) (0.0600) (0.1500) (0.1300) none
------ ------- ------ ------ ------

Net Asset Value, End of Period........................... $15.1300 $11.7500 $12.2400 $11.1200 $11.0300
======== ======== ======== ======== ========

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

Total Return(2).......................................... 29.53%(3) (3.54%)(3) 11.56%(3) 1.99%(3) 21.60%
- ------------

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

Ratios/Supplemental Data
- ------------------------

Net Assets, End of Period (000's omitted) ............... $58,123 $39,344 $33,180 $14,251 $6,950
Ratio of Expenses to Average Net Assets.................. 0.80% 0.80% 0.80% 0.98% 1.94%
Ratio of Expenses to Average Net Assets
prior to Expense Limitation.......................... 0.85% 0.88% 1.00% 1.25% 1.94%
Ratio of Net Investment Income to Average
Net Assets............................................. 0.61% 0.64% 0.67% 0.28% 0.33%
Ratio of Net Investment Income to Average
Net Assets prior to Expense Limitation................. 0.56% 0.56% 0.47% 0.01% 0.33%
Portfolio Turnover Rate.................................. 73% 43% 57% 52% 40%
</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>

Multiple Strategy Series
-----------------------------------------------------------------------------------------
7/28/88(1)
Year Ended through
12/31/95 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> <C>
Net Asset Value, Beginning of Period.......$12.6800 $13.3300 $13.5500 $12.9800 $10.8400 $11.8000 $10.1600 $10.0000

Income From Investment Operations
- ---------------------------------
Net Investment Income..................... 0.5088 0.4373 0.3280 0.4572 1.0824 0.3411 0.1302 0.0638
Net Gains (Losses) on Securities
(both realized and unrealized).......... 2.7612 (0.4473) 0.6920 1.2328 1.6676 (0.3911) 1.5498 0.0962
------- ------- ------- ------- ------- ------- ------- --------
Total From Investment Operations ..... 3.2700 (0.0100) 1.0200 1.6900 2.7500 (0.0500) 1.6800 0.1600
------- ------- ------- ------- ------- ------- ------- --------
Less Distributions
- ------------------
Dividends (from net investment income).... (0.4500) (0.3400) (0.4600) (1.0600) (0.3500) (0.2700) (0.0400) none
Distributions (from capital gains) ....... none (0.3000) (0.7800) (0.0600) (0.2600) (0.6400) none none
Returns of Capital........................ none none none none none none none none
Total Distributions................... (0.4500) (0.6400) (1.2400) (1.1200) (0.6100) (0.9100) (0.0400) none
------- ------- ------- ------- ------- ------- ------- --------
Net Asset Value, End of Period............ $15.5000 $12.6800 $13.3300 $13.5500 $12.9800 $10.8400 $11.8000 $10.1600
======== ======== ======== ======== ======== ======== ======== ========

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

Total Return(2)........................... 26.58% (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) $63,215 $47,731 $37,235 $15,150 $12,138 $6,137 $3,182 $151
Ratio of Expenses to Average Net Assets... 0.69% 0.70% 0.80% 0.86% 1.03% 1.35% 1.99% (4)
Ratio of Expenses to Average Net Assets
prior to Expense Limitation........... 0.69% 0.70% 0.89% 0.94% 1.03% 1.35% 1.99% (4)
Ratio of Net Investment Income to Average
Net Assets .............................. 3.75% 3.71% 3.33% 3.60% 11.35% 3.84% 2.22% (4)
Ratio of Net Investment Income to Average
Net Assets prior to Expense Limitation... 3.75% 3.71% 3.24% 3.52% 11.35% 3.84% 2.22% (4)
Portfolio Turnover Rate................... 106% 140% 162% 202% 1,010% 210% 132% (4)
</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.
(4) The ratios of expenses and net investment income to average net assets and
portfolio turnover have been omitted as management believes that such
ratios are not meaningful due to the limited net assets of this Series.

<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 various 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.

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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").

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.

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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.

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

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<PAGE>

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;
(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.

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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.
An instrumentality of the U.S. Government agency is a government agency
organized under Federal charter with government supervision. Instrumentalities

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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.

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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.
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.

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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.
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.

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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.

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

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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

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<PAGE>

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.
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 securities 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

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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.

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

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<PAGE>

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 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.

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<PAGE>

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.

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<PAGE>

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.
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 Growth Series, the Fund will make payments from the Series' net
income and net realized securities profits, if any, once a year.
All dividends and distributions are automatically reinvested in additional
Series shares.

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<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.

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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 the 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.

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<PAGE>

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, 1995, the Manager and its affiliate,
Delaware International Advisers Ltd., were supervising in the aggregate more
than $28 billion in assets in the various institutional (approximately
$17,606,321,000) and investment company (approximately $10,522,726,000)
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. DMH and the Manager are now wholly-owned subsidiaries, and subject to
the ultimate control, of Lincoln National. Lincoln National, with headquarters
in Fort Wayne, Indiana, is a diversified organization with operations in many
aspects of the financial services industry, including insurance and investment
management. In connection with the merger, new Investment Management Agreements
between the Fund on behalf of the Series and the Manager were executed following
shareholder approval. 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, as a
percentage of average daily net assets, incurred by each Series for the year
ended December 31, 1995 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%
Multiple Strategy Series 0.60%

After considering the waiver of fees by the Manager, as described under
the caption Expenses, the investment management fee, as a percentage of average
daily net assets, 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 0.70%
Multiple Strategy Series 0.60%

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 25 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.

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<PAGE>

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 and Gerald T. Nichols 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. 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.
In making investment decisions for the High Yield Series, Mr. Matlack and
Mr. Nichols 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.
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.

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<PAGE>

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, William H. Miller and other members of the
Delaware Group's equity department. 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 past two
years were as follows:

Year Ended Year Ended
Series December 31, 1994 December 31, 1995
- ------ ----------------- -----------------

Equity/
Income
Series 91% 85%

High
Yield
Series 47% 74%

Capital
Reserves
Series 219% 145%

Multiple
Strategy
Series 140% 106%

Growth
Series 43% 73%

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.

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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 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 these 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 May 1, 1996
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.

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<PAGE>

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 June 30, 1996. For the year ended December 31, 1995, the High
Yield, Capital Reserves and Money Market Series' ratio of expenses to average
daily net assets were 0.69%, 0.71% and 0.62%, respectively.
With respect to the Equity/Income, Multiple Strategy and Growth Series,
the Manager had 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 June 30, 1996. For the year
ended December 31, 1995, the Equity/Income, Multiple Strategy and Growth Series'
ratios of expenses to average daily net assets were 0.69%, 0.69% 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 Annuity Account C
and Flexible Premium Variable Life Account K of Lincoln National Life Insurance
Company, 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.
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

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<PAGE>

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.

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<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' year ended December 31, 1995. The
paragraphs following the table contain excerpts from Moody's and S&P's ratings
descriptions.

Rating Moody's Average Weighted
and/or Percentage of
S&P Portfolio
-------------- ----------------

United States
Treasury Obligations 0.00%
Aaa/AAA 0.00%
Aa/AA 0.00%
A/A 0.00%
Baa/BBB 0.00%
Ba/BB 38.05%
B/B 49.52%
Caa/CCC 0.00%
Not Rated 12.43%

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.
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

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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.