<PAGE>
[Pioneer logo]
Pioneer II
A N N U A L R E P O R T 9 / 3 0 / 9 6
<PAGE>
T a b l e o f C o n t e n t s
Letter from the Chairman 1
Portfolio Summary 2
Performance Update 3
Portfolio Management Discussion 6
Schedule of Investments 9
Financial Statements 16
Notes to Financial Statements 22
Report of Independent Public Accountants 28
Tax Treatment of Distributions 29
Trustees' Fees and Share Ownership 30
Results of Shareowner Meeting 31
Trustees, Officers and Service Providers 33
Programs and Services for Pioneer Shareowners 34
Pioneer Family of Mutual Funds 37
<PAGE>
Pioneer II
LETTER FROM THE CHAIRMAN 9/30/96
D e a r S h a r e o w n e r ,
It is with pleasure that I introduce this report for Pioneer II, covering the
year ended September 30, 1996. We wish to welcome the Fund's new shareowners,
particularly those in the Fund's Class B and C Shares, introduced on July 1.
We also wish to thank you for voting on the Proposals put forth earlier in
the year; voting results are on page 31.
As you see, we've given your Fund's annual report a facelift. The new,
improved style reflects what shareowners told us they want to see in fund
reports. Our thanks to all of you who took the time to respond to our
questions. Now you'll find a table of contents and consistent, easy-to-read
summaries of portfolio information and performance. There's also a Portfolio
Management Discussion, where your Fund's portfolio manager offers insights
into market conditions, portfolio strategy and results.
The year was fast-paced, exciting and nerve-racking for stock investors. The
Dow Jones Industrial Average moved to historic highs, although it was a
journey of significant peaks and troughs. And the Dow's upward surge has
continued - on October 14 it closed above 6000 for the first time in its
100-year history. While indicative of few stocks - it includes only 30 large
companies - it is a significant barometer of investor sentiment. In the face
of today's enthusiasm, we urge you to maintain realistic expectations about
the stock market. It doesn't always go up, and certainly not always at the
extraordinary rate of the past few years. There can be significant risks for
those who chase "hot" stocks; we still think a stock should be purchased
because it represents a good value for a company with strong growth prospects
over time.
Please contact your investment representative, or us at 1-800-225-6292, if
you have any questions about your investment in Pioneer II. Thank you for
your continued support.
Respectfully,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.
Chairman and President
1
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Pioneer II
PORTFOLIO SUMMARY 9/30/96
**********************************[PIE CHART]**********************************
P o r t f o l i o D i v e r s i f i c a t i o n
(As a percentage of total investment portfolio)
U.S. Common Stocks 91.4%
International Common Stocks 8.1%
Short-Term Cash Equivalents 0.5%
*******************************************************************************
**********************************[PIE CHART]**********************************
S e c t o r D i s t r i b u t i o n
(As a percentage of equity holdings)
[Typeset representation of pie chart]
Financial 25%
Technology 24%
Basic Industries 11%
Consumer Non-Durables 10%
Services 7%
Utilities 7%
Capital Goods 7%
Consumer Durables 5%
Energy 2%
Transportation 2%
*******************************************************************************
1 0 L a r g e s t H o l d i n g s
(As a percentage of equity holdings)
1. Arrow Electronics, Inc. 3.96% 6. Columbia/HCA Healthcare Corp. 2.89%
2. IBP, Inc. 3.83 7. Trinity Industries, Inc. 2.38
3. Washington Mutual, Inc. 3.39 8. AGCO Corp. 2.07
4. AMBAC, Inc. 3.33 9. Brunswick Corp. 1.93
5. Dominion Resources, Inc. 3.31 10. Intel Corp. 1.92
Fund holdings will vary for other periods.
2
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Pioneer II
PERFORMANCE UPDATE 9/30/96 CLASS A SHARES
S h a r e P r i c e s a n d D i s t r i b u t i o n s
Net Asset Value
per Share 9/30/96 9/30/95
$20.94 $20.66
Distributions per Share Income Short-Term Long-Term
(9/30/95-9/30/96) Dividends Capital Gains Capital Gains
$0.322 $0.258 $1.474
I n v e s t m e n t R e t u r n s
The mountain chart on the right shows the growth of a $10,000 investment made
in Pioneer II at public offering price, compared to the growth of the
Standard & Poor's 500 Index.
Average Annual Total Returns
(As of September 30, 1996)
Period Net Asset Public Offering
Value Price*
10 Years 11.78% 11.12%
5 Years 13.40 12.07
1 Year 12.18 5.73
* Reflects deduction of the maximum 5.75% sales charge at the beginning of
the period and assumes reinvestment of distributions at net asset value.
[Mountain chart]
Growth of $10,000
Pioneer II Standard & Poor's
500 Index
9,425 10,000 9/30/86
11,598 12,809
13,322 14,336 9/30/87
10,870 11,737
11,718 12,554 9/30/88
12,901 13,852
14,829 16,684 9/30/89
14,568 16,509
12,283 15,143 9/30/90
14,463 18,880
15,307 19,846 9/30/91
16,405 20,956
16,825 22,028 9/30/92
18,863 24,139
19,879 24,878 9/30/93
19,927 24,496
21,343 25,803 9/30/94
22,028 28,303
25,594 33,452 9/30/95
27,670 37,360
28,711 40,231 9/30/96
[End Mountain chart]
The Standard & Poor's (S&P) 500 Index is an unmanaged measure of 500 widely
held common stocks listed on the New York Stock Exchange, American Stock
Exchange and the Over-the-Counter market. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees, expenses or
sales charges. You cannot invest directly in the Index.
Past performance does not guarantee future results. Return and share price
fluctuate, and your shares, when redeemed, may be worth more or less than
their original cost.
3
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Pioneer II
PERFORMANCE UPDATE 9/30/96 CLASS B SHARES
S h a r e P r i c e s a n d D i s t r i b u t i o n s
Net Asset Value
per Share 9/30/96 7/1/96
$20.89 $20.55
Distributions per Share Income Short-Term Long-Term
(7/1/96-9/30/96) Dividends Capital Gains Capital Gains
- - -
I n v e s t m e n t R e t u r n s
The table below shows the Fund's total return since its recent inception. A
mountain chart comparing the Fund to the Standard & Poor's 500 Index will
appear once the Fund has a longer performance history.
Cumulative Total Returns
(As of September 30, 1996)
If If
Period Held Redeemed*
Life-of-Fund 1.65% -2.35%
(7/1/96)
* Reflects deduction of the maximum applicable contingent deferred sales
charge (CDSC) at the end of the period and assumes reinvestment of
distributions. The maximum CDSC of 4% declines over six years.
Past performance does not guarantee future results. Return and share price
fluctuate, and your shares, when redeemed, may be worth more or less than
their original cost.
4
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Pioneer II
PERFORMANCE UPDATE 9/30/96 CLASS C SHARES
S h a r e P r i c e s a n d D i s t r i b u t i o n s
Net Asset Value
per Share 9/30/96 7/1/96
$20.88 $20.55
Distributions per Share Income Short-Term Long-Term
(7/1/96-9/30/96) Dividends Capital Gains Capital Gains
- - -
I n v e s t m e n t R e t u r n s
The table below shows the Fund's total return since its recent inception. A
mountain chart comparing the Fund to the Standard & Poor's 500 Index will
appear once the Fund has a longer performance history.
Cumulative Total Returns
(As of September 30, 1996)
If If
Period Held Redeemed*
Life-of-Fund 1.61% 0.61%
(7/1/96)
* Reflects deduction of the 1% contingent deferred sales charge (CDSC) at the
end of the period and assumes reinvestment of distributions.
Past performance does not guarantee future results. Return and share price
fluctuate, and your shares, when redeemed, may be worth more or less than
their original cost.
5
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Pioneer II
PORTFOLIO MANAGEMENT DISCUSSION 9/30/96
D e a r S h a r e o w n e r ,
As portfolio manager for Pioneer II, I welcome the opportunity to discuss in
detail your Fund's performance for its 27th fiscal year, ended September 30,
1996. Allow me first to thank you for your interest in Pioneer II; we hope
you find the Fund's diversified portfolio and focus on well-valued companies
compatible with your financial objectives.
A Year of Stock Market Volatility - and Momentum
The U.S. stock market appreciated significantly throughout most of 1995,
thanks to low inflation, a slow-moving economy and lower-trending interest
rates. These favorable conditions remained intact into the start of 1996; in
fact, the Federal Reserve (the Fed) cut short-term interest rates in December
and January, reflecting its belief that too-fast economic growth and
inflation were not concerns.
The mood changed in February, however, when the monthly employment report
showed the biggest job increase in 12 years. Worries about a fast-growing
economy prompted fears that the Fed would raise short-term rates. These fears
stayed with the market, contributing to instability as the fiscal year
progressed, as did announcements of lower-than-expected earnings from various
companies. However, dramatic price increases in stocks of select, large-sized
companies helped push the market higher; as a result, overall market returns
were strong for the fiscal year. The Dow Jones Industrial Average, comprised
of 30 large-capitalization stocks, posted a total return of 25.66%. The
broader-based Standard & Poor's 500 Index returned 20.26% over the same 12
months. (Total returns assume reinvestment of all distributions.)
Your Fund's one-year total return of 12.18% did not match the general market,
since we purposely avoided many of the stocks responsible for pushing
financial markets higher. In our view, these stocks were too
6
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Pioneer II
expensive - and therefore too risky - to add to the Fund's portfolio; to our
eyes, the companies' growth prospects could not justify their lofty prices.
Instead of being swayed by "market momentum" and inviting unnecessary risk
into the portfolio, we maintained our "value" approach, selecting stocks that
are attractively priced relative to their price-to-earnings ratios and future
growth potential. We expect our approach will prove profitable over the long
term. Additional information about your Fund's performance can be found in
the Performance Updates, which begin on page 3.
Our Search for Value
Pioneer II seeks to provide shareowners with long-term growth and income by
investing in well-managed, well-priced companies that exhibit solid prospects
for future growth. During the year, we saw good value in the financial
sector, including banks, insurance companies, securities firms and savings
and loans. Financial companies continued to consolidate, in many cases
sending stock prices higher. Banks and savings and loans also are benefiting
from cuts in federal insurance premium payments. One of your Fund's most
sizable positions is in Washington Mutual, a Washington-based bank with an
estimated earnings growth rate of 15% to 20% for the next three years. Its
recent acquisition of a savings and loan adds to its appeal. We also like
Chase Manhattan in its new form following a merger with Chemical Bank. In the
financial services area, we see good growth prospects for Merrill Lynch and
Dean Witter Discover.
The Fund also has sizable investments in technology companies. While these
holdings were less rewarding as a group than the Fund's financial stocks over
the past year, we believe they will add value to the portfolio over the
longer term. We especially like Arrow Electronics, which is trading at only
10 times its expected earnings for the next 12 months, with prospects for 15%
to 20% earnings growth over the next five years. We also favor Intel, the
leading computer-chip maker with an impressive international presence.
7
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Pioneer II
PORTFOLIO MANAGEMENT DISCUSSION (continued)
Like Intel, many companies in the portfolio are multinational operators. And,
about 8% of the Fund's portfolio as of September 30 was made up of companies
based overseas. Of course, we consider the same fundamentals when choosing
international securities as we do with U.S.-based holdings, reviewing
attributes such as financial statements and management proficiency.
Inevitably, this leads us to large, well-established enterprises based in the
world's more stable markets. Examples include Nokia and L.M. Ericsson
Telephone. Investing in mature companies and markets also helps minimize
risks ordinarily associated with international investing, such as currency
fluctuations and economic and political instabilities. Detailed information
about your Fund's portfolio appears on page 2.
Moving Forward
Election years have typically been strong for the stock market. While this
appears to be the case for 1996, the year has been volatile, reflecting how
quickly investors have acted on their emotions. Of course, even if prices
remain turbulent over the near term, we think investing based on market
momentum will subside and investors will once again focus their attention on
what really matters - identifying the merits of individual stocks.
We believe Pioneer II is well positioned to benefit from a stock market
driven by company fundamentals. That's one reason why we do not stray from
our investment approach during periods of underperformance; we remain
confident that finding value remains the most effective way to invest for the
long term. We are optimistic that our efforts will ultimately prove rewarding
for shareowners. If you have any questions about Pioneer II, please contact
your investment representative, or call Pioneer at 1-800-225-6292.
Respectfully,
/s/ Francis J. Boggan
Francis J. Boggan,
Portfolio Manager
8
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Pioneer II
SCHEDULE OF INVESTMENTS 9/30/96
S h a r e s V a l u e
COMMON STOCKS - 99.5%
Basic Industries - 11.4%
Aerospace - 0.8%
500,000 Lockheed Martin Corp. $ 45,062,500
335,787 Modi Luft Ltd. 46,624
--------------
$ 45,109,124
--------------
Chemicals - 1.6%
600,000 AKZO N.V. (Sponsored A.D.R.) $ 36,300,000
800,000 Cytec Industries Inc.* 31,100,000
2,400,000 Methanex Corp.* 18,900,000
--------------
$ 86,300,000
--------------
Forest Products - 1.6%
1,478,500 Abitibi-Price Inc. $ 19,035,687
4,346,100 Longview Fibre Co.+ 68,451,075
--------------
$ 87,486,762
--------------
Iron & Steel - 4.1%
1,331,825 A.M. Castle & Co.+ $ 26,802,978
3,005,500 Allegheny Teledyne, Inc. 67,999,438
851,900 Amcast Industrial Corp.+ 16,399,075
1,400,000 British Steel Plc (Sponsored A.D.R.) 42,700,000
2,632,600 National Steel Corp. (Class B)*+ 29,287,675
1,990,500 Rouge Steel Co. (Class A)+ 43,293,375
--------------
$226,482,541
--------------
Metals & Mining - 2.6%
734,500 Ashanti Goldfields Co., Ltd. (Sponsored
G.D.R.) $ 12,302,875
3,862,000 Trinity Industries, Inc.+ 128,894,250
--------------
$141,197,125
--------------
Non-Ferrous Metals - 0.7%
570,000 Phelps Dodge Corp. $ 36,551,250
--------------
Total Basic Industries $623,126,802
--------------
Capital Goods - 6.7%
Construction & Engineering - 2.0%
4,400,000 AGCO Corp.+ $112,200,000
--------------
Producer Goods - 4.7%
1,816,000 Briggs & Stratton Corp.+ $ 80,585,000
2,560,000 Donaldson Co., Inc.+ 70,720,000
The accompanying notes are an integral part of these financial statements.
9
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Pioneer II
SCHEDULE OF INVESTMENTS 9/30/96 (continued)
S h a r e s V a l u e
Producer Goods - (Continued)
250,000 Giddings & Lewis, Inc. $ 2,968,750
1,406,300 Global Industrial Technologies, Inc.*+ 25,840,763
310,000 Kennametal, Inc. 10,656,250
970,000 Tecumseh Products Co. (Class A) 8,246,875
162,500 Tecumseh Products Co. (Class B) 52,622,500
--------------
$251,640,138
--------------
Total Capital Goods $363,840,138
--------------
Consumer Durables - 5.0%
Motor Vehicles - 5.0%
2,724,600 Breed Technologies, Inc.+ $ 75,948,225
953,200 Cummins Engine Co., Inc. 37,532,250
139,200 Douglas & Lomason Co. 4,297,800
1,130,400 Magna International Inc. (Class A) 54,541,800
1,250,000 Simpson Industries, Inc.+ 12,656,250
993,100 A.O. Smith Corp.+ 24,703,363
2,075,000 Stewart & Stevenson Services, Inc.+ 44,871,875
340,000 Strattec Security Corp.*+ 4,930,000
470,000 Volvo AB (Series B) 10,098,002
--------------
Total Consumer Durables $269,579,565
--------------
Consumer Non-Durables - 10.5%
Agriculture & Food - 4.9%
1,160,500 Hormel Foods Corp. $ 27,126,688
8,925,300 IBP, Inc.+ 207,513,225
2,038,700 Terra Industries Inc. 30,325,662
--------------
$264,965,575
--------------
Consumer Luxuries - 1.9%
4,362,900 Brunswick Corp. $104,709,600
--------------
Home Products - 1.4%
741,900 Bassett Furniture Industries, Inc.+ $ 17,620,125
1,596,500 Lancaster Colony Corp.+ 61,066,125
--------------
$ 78,686,250
--------------
Retail Food - 0.6%
20,000 Nestle S.A. (Registered Shares) $ 22,275,335
375,000 SUPERVALU, Inc. 10,312,500
--------------
$ 32,587,835
--------------
The accompanying notes are an integral part of these financial statements.
10
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Pioneer II
S h a r e s V a l u e
Retail Non-Food - 1.3%
400,000 Fuji Photo Film (A.D.R.) $ 12,250,000
1,980,000 Toys "R" Us, Inc.* 57,667,500
--------------
$ 69,917,500
--------------
Textiles/Clothes - 0.4%
1,683,000 Shaw Industries, Inc. $ 22,510,125
--------------
Total Consumer Non-Durables $573,376,885
--------------
Energy - 2.0%
Oil Refining & Drilling - 1.2%
290,000 Atlantic Richfield Co. $ 36,975,000
1,197,000 YPF S.A. (Sponsored A.D.R.) (Class D) 27,381,375
--------------
$ 64,356,375
--------------
Oil Services - 0.8%
1,172,400 Santa Fe Pacific Pipeline Partners, L.P.+ $ 42,059,850
--------------
Total Energy $106,416,225
--------------
Financial - 24.9%
Commercial Bank - 5.6%
275,500 Banco Comercial Portugues S.A. (A.D.R.) $ 3,340,438
1,075,000 Banco De Santander S.A. 55,891,968
150,000 Banco Popular Espanol S.A. 27,552,926
1,200,000 BankAmerica Corp. 98,550,000
660,000 MBNA Corp. 22,935,000
860,000 Mellon Bank Corp. 50,955,000
342,500 New York Bancorp Inc. 10,831,562
130,000 Wells Fargo & Co. 33,800,000
--------------
$303,856,894
--------------
Financial Services - 8.6%
3,575,000 California Federal Bank*+ $ 83,118,750
84,000 California Federal Bank Goodwill
Certificates* 955,500
1,197,000 Charter One Financial, Inc. 47,880,000
925,000 The Chase Manhattan Corp. 74,115,625
945,000 Dean Witter Discover & Co. 51,975,000
1,157,800 First USA, Inc. 64,113,175
1,670,000 GreenPoint Financial Corp. 63,668,750
1,225,000 Merrill Lynch & Co., Inc. 80,390,625
The accompanying notes are an integral part of these financial statements.
11
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Pioneer II
SCHEDULE OF INVESTMENTS 9/30/96 (continued)
S h a r e s V a l u e
Financial Services - (Continued)
96,700 North American Mortgage Co. $ 1,837,300
--------------
$ 468,054,725
--------------
Finance/Miscellaneous - 2.3%
110,000 Advanta Corp. (Class A) $ 5,060,000
500,000 Advanta Corp. (Class B) 21,375,000
478,200 Bay View Capital Corp.+ 17,035,875
1,300,000 Countrywide Credit Industries, Inc. 33,312,500
425,000 Franklin Resources, Inc. 28,209,375
1,369,600 Resource Bancshares Mortgage Group, Inc.+ 17,804,800
--------------
$ 122,797,550
--------------
Insurance - General - 4.9%
3,237,700 AMBAC Inc.+ $ 180,501,775
881,200 MBIA Inc. 75,562,900
707,600 Western National Corp. 13,179,050
--------------
$ 269,243,725
--------------
Savings & Loan - 3.5%
155,000 Coastal Savings Financial, Inc.* $ 4,960,000
4,925,000 Washington Mutual, Inc.+ 183,456,250
--------------
$ 188,416,250
--------------
Total Financial $1,352,369,144
--------------
Services - 7.0%
Health & Personal Care - 3.3%
400,000 Apria Healthcare Group, Inc.* $ 7,500,000
2,750,000 Columbia/HCA Healthcare Corp. 156,406,250
496,800 GranCare, Inc.* 9,563,400
131,800 OrNda HealthCorp* 3,608,025
110,000 Tenet Healthcare Corp.* 2,447,500
--------------
$ 179,525,175
--------------
Pharmaceuticals - 0.6%
845,000 Astra AB (Series A Free) $ 35,672,823
--------------
Services - 3.1%
3,158,900 Kelly Services Inc. (Class A)+ $ 89,633,787
2,336,500 Manpower, Inc. 77,688,625
--------------
$ 167,322,412
--------------
Total Services $ 382,520,410
--------------
The accompanying notes are an integral part of these financial statements.
12
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Pioneer II
S h a r e s V a l u e
Technology - 23.6%
Broadcasting & Media - 0.2%
1,130,000 Comcast UK Cable Partners Ltd.* $ 11,441,250
--------------
Computer Services - 1.7%
150,000 FileNet Corp.* $ 3,825,000
725,000 International Business Machines Corp. 90,262,500
--------------
$ 94,087,500
--------------
Electronics - 19.1%
650,000 Analog Devices, Inc.* $ 17,631,250
1,800,000 Applied Materials, Inc.* 49,725,000
4,817,000 Arrow Electronics, Inc.*+ 214,356,500
1,350,000 Cypress Semiconductor Corp.* 16,875,000
3,570,000 EMC Corp.* 80,771,250
325,000 Hewlett-Packard Co. 15,843,750
1,090,000 Intel Corp. 104,026,875
800,000 Kemet Corp.* 16,100,000
2,000,000 Lam Research Corp.*+ 53,250,000
1,500,000 L.M. Ericsson Telephone Co. (Sponsored
A.D.R.) (Class B) 38,062,500
960,000 LSI Logic Corp.* 22,320,000
250,500 Marshall Industries* 7,546,313
1,375,000 MEMC Electronic Materials, Inc.* 31,796,875
900,000 Motorola, Inc. 46,462,500
497,000 MTS Systems Corp.+ 9,815,750
360,000 Nokia Corp. (Class A) 16,059,333
2,000,000 Nokia Corp. (Class A) (Sponsored A.D.R.) 88,500,000
1,000,000 SGS-Thomson Microelectronics N.V. (NY
shares)* 47,375,000
1,947,000 Stratus Computers, Inc.*+ 38,453,250
3,050,000 Tencor Instruments*+ 55,090,625
3,776,500 Teradyne, Inc.* 62,784,312
253,700 Watkins-Johnson Co. 5,137,425
--------------
$1,037,983,508
--------------
Photo/Instrumentation - 2.6%
1,188,000 Dionex Corp.*+ $ 45,144,000
2,025,000 Varian Associates, Inc.+ 97,200,000
--------------
$ 142,344,000
--------------
Total Technology $1,285,856,258
--------------
The accompanying notes are an integral part of these financial statements.
13
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Pioneer II
SCHEDULE OF INVESTMENTS 9/30/96 (continued)
S h a r e s V a l u e
Transportation - 1.6%
Railroad & Bus - 1.2%
1,290,900 CSX Corp. $ 65,190,450
--------------
Ships & Shipping - 0.4%
981,100 APL Ltd. $ 21,093,650
--------------
Total Transportation $ 86,284,100
--------------
Utilities - 6.8%
Electric Utility - 6.6%
4,750,000 Dominion Resources, Inc. $ 179,312,500
1,550,000 Detroit Edison Co. 43,400,000
150,000 Endesa (Empresa Nacional de Electridad S.A.) 8,826,276
2,953,863 Hawaiian Electric Industries, Inc.+ 100,800,575
778,300 Union Electric Co. 28,699,813
--------------
$ 361,039,164
--------------
Gas Utility - 0.1%
341,600 Washington Gas Light Co. $ 7,515,200
--------------
Telecommunications - 0.1%
102,200 Telefonos de Mexico S.A. (Sponsored A.D.R.) $ 3,283,175
--------------
Total Utilities $ 371,837,539
--------------
TOTAL COMMON STOCKS
(Cost $4,533,042,398) $5,415,207,066
--------------
Principal
Amount TEMPORARY CASH INVESTMENT - 0.5%
Commercial Paper - 0.5%
$28,498,000 Prudential Funding Corp., 5.65%, 10/1/96 $ 28,498,000
--------------
TOTAL TEMPORARY CASH INVESTMENT
(Cost $28,498,000) $ 28,498,000
--------------
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $4,561,540,398) (a) $5,443,705,066
--------------
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Pioneer II
* Non-income producing security.
+ Investments held by the Fund representing 5% or more of the outstanding
voting stock of such company.
(a) At September 30, 1996, the net unrealized gain on investments based on
cost for federal income tax purposes of $4,562,541,824 was as follows:
Aggregate gross unrealized gain for all investments in
which there is an excess of value over tax cost $1,102,860,105
Aggregate gross unrealized loss for all investments in
which there is an excess of tax cost over value (221,696,863)
--------------
Net unrealized gain $ 881,163,242
--------------
Purchases and sales of securities (excluding temporary cash investments) for
the year ended September 30, 1996 aggregated approximately $3,424,456,000 and
$3,415,338,000, respectively.
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
Pioneer II
BALANCE SHEET 9/30/96
(Dollars in Thousands Except Per Share Amounts)
ASSETS:
Investment in securities, at value (including temporary cash
investments of $28,498) (cost $4,561,540) $5,443,705
Foreign currencies, at value 760
Receivables -
Investment securities sold 23,211
Fund shares sold 2,342
Dividends, interest and foreign taxes withheld 4,115
Forward foreign currency settlement contracts - net 35
Other 119
------------
Total assets $5,474,287
------------
LIABILITIES:
Payables -
Investment securities purchased $ 27,380
Fund shares repurchased 7,520
Due to affiliates 5,962
Accrued expenses 550
------------
Total liabilities $ 41,412
------------
NET ASSETS:
Paid-in capital $4,048,846
Accumulated undistributed net investment income 15,395
Accumulated undistributed net realized gain on investments
and foreign currency transactions 486,508
Net unrealized gain on investments 882,165
Net unrealized loss on forward foreign currency contracts
and other assets and liabilities denominated in foreign
currencies (39)
------------
Total net assets $5,432,875
------------
NET ASSET VALUE PER SHARE:
(Unlimited number of shares authorized)
Class A (based on $5,431,797/259,441,620 shares) $ 20.94
------------
Class B (based on $864/41,347 shares) $ 20.89
------------
Class C (based on $214/10,250 shares) $ 20.88
------------
MAXIMUM OFFERING PRICE:
Class A $ 22.22
------------
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
Pioneer II
STATEMENT OF OPERATIONS
For the Year Ended 9/30/96
(Dollars in Thousands)
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of
$2,321) $103,560
Interest (net of foreign taxes withheld of $39) 4,800
----------
Total investment income $108,360
-----------
EXPENSES:
Management fees
Basic fee $ 27,156
Performance adjustment (1,047)
Transfer agent fees
Class A 10,564
Class B 1
Class C 1
Distribution fees
Class A 10,059
Class B 1
Class C 1
Accounting 284
Custodian fees 651
Registration fees 155
Professional fees 199
Printing 186
Fees and expenses of nonaffiliated trustees 72
Miscellaneous 226
----------
Total expenses $ 48,509
Less fees paid indirectly (976)
-----------
Net expenses $ 47,533
-----------
Net investment income $ 60,827
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments $570,794
Forward foreign currency contracts and other
assets and liabilities denominated in foreign
currencies (630) $570,164
---------- -----------
Change in net unrealized gain or loss from:
Investments $(25,831)
Forward foreign currency contracts and other
assets and liabilities denominated in foreign
currencies 136 $(25,695)
---------- -----------
Net gain on investments and foreign currency
transactions $544,469
-----------
Net increase in net assets resulting from
operations $605,296
-----------
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
Pioneer II
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended 9/30/96 and 9/30/95
(Dollars in Thousands Except Share Amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/96 9/30/95
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 60,827 $ 87,027
Net realized gain on investments and foreign currency
transactions 570,164 402,697
Change in net unrealized gain or loss on investments and
foreign currency transactions (25,695) 377,142
----------- ------------
Net increase in net assets resulting from operations $ 605,296 $ 866,866
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A ($0.32 and $0.30 per share, respectively) $ (81,721) $ (71,692)
Net realized gain:
Class A ($1.73 and $1.81 per share, respectively) (424,185) (415,685)
----------- ------------
Total distributions to shareholders $ (505,906) $ (487,377)
----------- ------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 327,727 $ 272,715
Reinvestment of distributions 480,912 463,968
Cost of shares repurchased (590,117) (510,434)
----------- ------------
Net increase in net assets resulting from fund share
transactions $ 218,522 $ 226,249
----------- ------------
Net increase in net assets $ 317,912 $ 605,738
NET ASSETS:
Beginning of year $5,114,963 $4,509,225
----------- ------------
End of year (including accumulated undistributed net
investment income of $15,395 and $36,402, respectively) $5,432,875 $5,114,963
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
'96 Shares '96 Amount '95 Shares '95 Amount
<S> <C> <C> <C> <C>
Class A
Shares sold 16,110,239 $ 326,689 14,703,193 $ 272,715
Reinvestment of distributions 24,810,556 480,912 27,336,288 463,968
Less shares repurchased (29,020,381) (590,116) (27,190,398) (510,434)
------------- ----------- ------------- ------------
Net increase 11,900,414 $ 217,485 14,849,083 $ 226,249
------------- ----------- ------------- ------------
Class B*
Shares sold 41,389 $ 834
Reinvestment of distributions - -
Less shares repurchased (42) (1)
------------- -----------
Net increase 41,347 $ 833
------------- -----------
Class C*
Shares sold 10,250 $ 204
Reinvestment of distributions - -
Less shares repurchased - -
------------- -----------
Net increase 10,250 $ 204
------------- -----------
</TABLE>
*Class B and Class C shares were first publicly offered on July 1, 1996.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 9/30/96
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
9/30/96 9/30/95 9/30/94 9/30/93 9/30/92
<S> <C> <C> <C> <C> <C>
CLASS A
Net asset value, beginning
of year $ 20.66 $ 19.38 $ 20.55 $ 18.86 $ 18.22
----------- ----------- ----------- ----------- -----------
Increase from investment
operations:
Net investment income $ 0.23 $ 0.35 $ 0.36 $ 0.38 $ 0.44
Net realized and
unrealized gain on
investments and foreign
currency transactions 2.10 3.04 1.05 2.85 1.27
----------- ----------- ----------- ----------- -----------
Net increase from
investment operations $ 2.33 $ 3.39 $ 1.41 $ 3.23 $ 1.71
Distributions to
shareholders from:
Net investment income (0.32) (0.30) (0.33) (0.39) (0.47)
Net realized gain (1.73) (1.81) (2.25) (1.15) (0.60)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net asset value $ 0.28 $ 1.28 $ (1.17) $ 1.69 $ 0.64
----------- ----------- ----------- ----------- -----------
Net asset value, end of
year $ 20.94 $ 20.66 $ 19.38 $ 20.55 $ 18.86
----------- ----------- ----------- ----------- -----------
Total return* 12.18% 19.92% 7.37% 18.15% 9.92%
Ratio of net expenses to
average net assets 0.92%+ 0.93%+ 0.90% ++ 0.96%++ 0.94%++
Ratio of net investment
income to average net
assets 1.13%+ 1.85%+ 1.59% ++ 1.89%++ 2.31%++
Portfolio turnover rate 66% 63% 68% 66% 64%
Average commission rate
paid (1) $ 0.0424 - - - -
Net assets, end of year
(in thousands) $5,431,797 $5,114,963 $4,509,225 $4,347,672 $3,974,712
Ratios assuming reduction
for fees paid
indirectly:
Net expenses 0.90% 0.91% 0.90% 0.95% 0.93%
Net investment income 1.15% 1.87% 1.59% 1.90% 2.32%
</TABLE>
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions, the complete redemption of the
investment at net asset value at the end of each period and no sales
charges. Total return would be reduced if sale charges were taken into
account.
+ Ratio includes expenses paid through third party brokerage/service and
certain expense offset arrangements.
++ Ratios for 1994, 1993 and 1992 have been modified to comply with certain
provisions of SEC Release No. 33-7197: Payment for Investment Company
Services with Brokerage Commissions.
(1) Amount may fluctuate from period to period as a result of portfolio
transactions executed in different markets where trading practices and
commission rate structures may vary.
The accompanying notes are integral part of these financial statements.
19
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 9/30/96
7/1/96 to
9/30/96
CLASS B (a)
Net asset value, beginning of period $ 20.55
------------
Increase (decrease) from investment operations:
Net investment loss $ (0.01)
Net realized and unrealized gain on investments and
foreign currency transactions 0.35
------------
Net increase from investment operations $ 0.34
------------
Net increase in net asset value $ 0.34
------------
Net asset value, end of period $ 20.89
------------
Total return* 1.65%
Ratio of net expenses to average net assets 2.03%**+
Ratio of net investment loss to average net assets (0.25)%**+
Portfolio turnover rate 66%
Average commission rate paid (1) $0.0424
Net assets, end of period (in thousands) $ 864
Ratios assuming reduction for fees paid indirectly:
Net expenses 2.02%**
Net investment loss (0.24)%**
(a) Class B shares were first publicly offered on July 1, 1996.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions, the complete redemption of the
investment at net asset value at the end of each period and no sales
charges. Total return would be reduced if sale charges were taken into
account.
** Annualized.
+ Ratio includes expenses paid through third party brokerage/service and
certain expense offset arrangements.
(1) Amount may fluctuate from period to period as a result of portfolio
transactions executed in different markets where trading practices and
commission rate structures may vary.
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 9/30/96
7/1/96 to
CLASS C (a) 9/30/96
Net asset value, beginning of period $ 20.55
------------
Increase (decrease) from investment operations:
Net investment loss $ (0.01)
Net realized and unrealized gain on investments and
foreign currency transactions 0.34
------------
Net increase from investment operations $ 0.33
------------
Net increase in net asset value $ 0.33
------------
Net asset value, end of period $ 20.88
------------
Total return* 1.61%
Ratio of net expenses to average net assets 2.02%**+
Ratio of net investment loss to average net assets (0.15)%**+
Portfolio turnover rate 66%
Average commission rate paid (1) $0.0424
Net assets, end of period (in thousands) $ 214
Ratios assuming reduction for fees paid indirectly:
Net expenses 2.01%**
Net investment loss (0.14)%**
(a) Class C shares were first publicly offered on July 1, 1996.
* Assumes initial investment at net asset value at the beginning of each
period, reinvestment of distributions, the complete redemption of the
investment at net asset value at the end of each period and no sales
charges. Total return would be reduced if sale charges were taken into
account.
** Annualized.
+ Ratio includes expenses paid through third party brokerage/service and
certain expense offset arrangements.
(1) Amount may fluctuate from period to period as a result of portfolio
transactions executed in different markets where trading practices and
commission rate structures may vary.
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/96
1. Organization and Significant Accounting Policies
Pioneer II (the Fund) is a Delaware business trust registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. The investment objectives of the Fund are reasonable
income and growth of capital.
The Fund offers three classes of shares - Class A, Class B and Class C
shares. Class B and Class C shares were first publicly offered on July 1,
1996. Shares issued and outstanding prior to July 1, 1996 were designated as
Class A shares. Shares of Class A, Class B and Class C each represent an
interest in the same portfolio of investments of the Fund and have equal
rights to voting, redemptions, dividends and liquidation, except that each
class of shares can bear different transfer agent and distribution fees and
have exclusive voting rights with respect to the distribution plans that have
been adopted by Class A, Class B and Class C shareholders, respectively.
The Fund's financial statements have been prepared in conformity with
generally accepted accounting principles that require the management of the
Fund to, among other things, make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies consistently followed by the Fund, which
are in conformity with those generally accepted in the investment company
industry:
A. Security Valuation
Security transactions are recorded on trade date. Each day, securities are
valued at the last sale price on the principal exchange where they are
traded. Securities that have not traded on the date of valuation, or
securities for which sale prices are not generally reported, are valued at
the mean between the last bid and asked prices. Securities for which
market quotations are not readily available are valued at their fair
values as determined by, or under the direction of, the Board of Trustees.
Trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Dividend income is recorded
on the ex-dividend date, except that certain dividends from foreign
securities where the ex-dividend date may have passed are recorded as soon
22
<PAGE>
Pioneer II
as the Fund is informed of the ex-dividend date. Interest income is
recorded on the accrual basis, net of unrecoverable foreign taxes withheld
at the applicable country rates. Temporary cash investments are valued at
amortized cost.
Gains and losses on sales of investments are calculated on the identified
cost method for both financial reporting and federal income tax purposes.
It is the Fund's practice to first select for sale those securities that
have the highest cost and also qualify for long-term capital gain or loss
treatment for tax purposes.
B. Foreign Currency Translation
The books and records of the Fund are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars using
current exchange rates.
Net realized gains and losses on foreign currency transactions represent,
among other things, the net realized gains and losses on foreign currency
contracts, disposition of foreign currencies and the difference between
the amount of income accrued and the U.S. dollars actually received.
Further, the effects of changes in foreign currency exchange rates on
investments are not segregated in the statement of operations from the
effects of changes in market price of those securities but are included
with the net realized and unrealized gain or loss on investments.
C. Forward Foreign Currency Contracts
The Fund enters into forward foreign currency contracts (contracts) for
the purchase or sale of a specific foreign currency at a fixed price on a
future date as a hedge or cross-hedge against either specific investment
transactions (settlement hedges) or portfolio positions (portfolio
hedges). All contracts are marked to market daily at the applicable
exchange rates, and any resulting unrealized gains or losses are recorded
in the Fund's financial statements. The Fund records realized gains and
losses at the time a portfolio hedge is offset by entry into a closing
transaction or extinguished by delivery of the currency. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of the contract and from unanticipated
movements in the value of foreign currencies relative to the U.S. dollar.
As of September 30, 1996, the Fund had no outstanding portfolio hedges.
The Fund's gross forward foreign currency settlement contracts receivable
and payable were approximately $8,751,000 and
23
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS (continued)
$8,716,000, respectively, resulting in a net receivable of approximately
$35,000 as of September 30, 1996.
D. Taxes
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income and net realized capital gains, if
any, to its shareholders. Therefore, no federal income tax provision is
required.
In addition to the requirements of the Internal Revenue Code, the Fund may
also be required to pay local taxes on net realized capital gains in
certain countries. The required capital gains taxes, if any, are
determined in accordance with local tax laws. In determining daily net
asset value, the Fund estimates the reserve for capital gains taxes, if
any, associated with net unrealized gains on certain portfolio securities.
The estimated reserve for capital gains taxes, if any, is based on the
holding periods of such securities and the related tax rates, tax loss
carryforward (if applicable) and other such factors. During the year ended
September 30, 1996, the Fund paid no capital gains taxes on the sale of
certain foreign securities.
The characterization of distributions to shareholders for financial
reporting purposes is determined in accordance with federal income tax
rules. Therefore, the source of the Fund's distributions may be shown in
the accompanying financial statements as either from or in excess of net
investment income or net realized gain on investment transactions, or from
paid-in capital, depending on the type of book/tax differences that may
exist.
At September 30, 1996, the Fund has reclassified approximately $113,000
from accumulated undistributed net investment income to accumulated
undistributed net realized gain on investments and foreign currency
transactions. The reclassification has no impact on the net asset value of
the Fund and is designed to present the Fund's capital accounts on a tax
basis.
E. Fund Shares
The Fund records sales and repurchases of its shares on trade date. Net
losses, if any, as a result of cancellations are absorbed by Pioneer Funds
Distributor, Inc. (PFD), the principal underwriter for the Fund and an
indirect subsidiary of The Pioneer Group, Inc. (PGI). PFD earned
approximately $1,578,000 in underwriting commissions on the sale of fund
shares during the year ended September 30, 1996.
24
<PAGE>
Pioneer II
F. Class Allocations
Distribution fees are calculated based on the average daily net asset
value attributable to Class A, Class B and Class C shares of the Fund,
respectively. Shareholders of each class share all expenses and fees paid
to the transfer agent, Pioneering Services Corporation (PSC), for their
services, which are allocated based on the number of accounts in each
class and the ratable allocation of related out-of-pocket expense (see
Note 3). Income, common expenses and realized and unrealized gains and
losses are calculated at the Fund level and allocated daily to each class
of shares based on the respective percentage of adjusted net assets at the
beginning of the day.
Distributions to shareholders are recorded as of the ex-dividend date.
Distributions paid by the Fund with respect to each class of shares are
calculated in the same manner, at the same time, and in the same amount,
except that Class A, Class B and Class C shares can bear different
transfer agent and distribution fees.
2. Management Agreement
Pioneering Management Corporation (PMC), the Fund's investment adviser,
manages the Fund's portfolio and is a wholly owned subsidiary of PGI. PMC
receives a basic fee that is calculated at the annual rate of 0.60% of the
Fund's average daily net assets. The basic fee is subject to a performance
adjustment up to a maximum of +/-0.10% based on the Fund's investment
performance as compared with the Lipper Growth & Income Funds Index. For the
year ended September 30, 1996, the aggregate performance adjustment resulted
in a reduction to the basic fee of approximately $1,047,000.
Prior to May 1, 1996, management fees were calculated daily at the annual
rate of 0.50% of the Fund's average daily net assets up to $250 million;
0.48% of the next $50 million; and 0.45% of the excess over $300 million. For
the year ended September 30, 1996, the net management fee was equivalent to
0.49% of average daily net assets.
In addition, under the management agreement, certain other services and
costs, including accounting, regulatory reporting and insurance premiums, are
paid by the Fund. At September 30, 1996, approximately $2,537,000 was payable
to PMC related to management fees and certain other services.
25
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS (continued)
3. Transfer Agent
PSC, a wholly owned subsidiary of PGI, provides substantially all transfer
agent and shareholder services to the Fund at negotiated rates. Included in
due to affiliates is approximately $900,000 in transfer agent fees payable to
PSC at September 30, 1996.
4. Distribution Plans
The Fund adopted a Plan of Distribution for each class of shares (Class A
Plan, Class B Plan and Class C Plan) in accordance with Rule 12b-1 of the
Investment Company Act of 1940. Pursuant to the Class A Plan, the Fund pays
PFD a service fee of up to 0.25% of the Fund's average daily net assets in
reimbursement of its actual expenditures to finance activities primarily
intended to result in the sale of Class A shares. On qualifying investments
made prior to August 19, 1991, the Class A Plan provides for reimbursement of
such expenditures in an amount not to exceed 0.15%. Pursuant to the Class B
Plan and Class C Plan, the Fund pays PFD 1.00% of the average daily net
assets attributable to each class of shares. The fee consists of a 0.25%
service fee and a 0.75% distribution fee paid as compensation for personal
services and/or account maintenance services or distribution services with
regard to Class B and Class C shares. Included in due to affiliates is
approximately $2,525,000 in distribution fees payable to PFD at September 30,
1996.
In addition, redemptions of each class of shares may be subject to a
contingent deferred sales charge (CDSC). A CDSC of 1.00% may be imposed on
redemptions of certain net asset value purchases of Class A shares within one
year of purchase. Class B shares that are redeemed within six years of
purchase are subject to a CDSC at declining rates beginning at 4.0%, based on
the lower of cost or market value of shares being redeemed. Redemptions of
Class C shares within one year of purchase are subject to a CDSC of 1.00%.
Proceeds from the CDSC are paid to PFD.
5. Expense Offsets
The Fund has entered into certain directed brokerage and expense offset
arrangements resulting in a reduction in the Fund's total expenses. For the
year ended September 30, 1996, the Fund's expenses were reduced by
approximately $976,000 under such arrangements.
26
<PAGE>
Pioneer II
6. Affiliated Companies
The Fund's investments in certain companies exceed 5% of the outstanding
voting stock. Such companies are deemed affiliates of the Fund for financial
reporting purposes. The following summarizes transactions with affiliates of
the Fund as of September 30, 1996 (amounts in thousands):
Dividend
Affiliates Purchases Sales Income Value
-------------------------- ---------- --------- -------- -----------
A.M. Castle & Co. $ 2,984 $ 3,631 $ 693 $ 26,803
A.O. Smith Corp. 20,417 - 436 24,703
AGCO Corp. 23,405 11,746 148 112,200
AMBAC Inc. 12,960 6,939 1,905 180,502
Amcast Industrial Corp. 354 - 469 16,399
Arrow Electronics, Inc. 167,460 - - 214,357
Bassett Furniture
Industries, Inc. 2,710 1,146 554 17,620
Bay View Capital Corp. 6,806 1,834 356 17,036
Breed Technologies, Inc. 36,475 4,507 704 75,948
Briggs & Stratton Corp. 1,713 15,692 1,953 80,585
California Federal Bank 17,210 13,054 - 83,119
Dionex Corp. - 385 - 45,144
Donaldson Co., Inc. 23,364 - 758 70,720
Global Industrial
Technologies, Inc. 19,746 3,461 - 25,841
Hawaiian Electric
Industries, Inc. 75,169 - 5,232 100,801
IBP, Inc. 60,068 41,903 861 207,513
Lam Research Corp. 80,293 4,096 - 16,100
Lancaster Colony Corp. 19,551 - 983 61,066
Longview Fibre Co. 26,363 1,747 2,681 68,451
MTS Systems Corp. - - 159 9,816
National Steel Corp.
(Class B) 12,784 1,998 - 29,288
Resource Bancshares
Mortgage Group, Inc. 18,609 - 38 17,805
Rouge Steel Co. (Class A) - 69 239 43,293
Santa Fe Pacific Pipeline
Partners, L.P. 902 312 3,283 42,060
Simpson Industries, Inc. 11,467 - 245 12,656
Stewart & Stevenson
Services, Inc. 48,041 9,507 627 44,872
Strattec Security Corp. - 3,151 - 4,930
Stratus Computers, Inc. 12,001 9,702 - 38,453
Tencor Instruments 68,700 - - 55,091
Trinity Industries, Inc. 55,579 1,280 2,269 128,894
Varian Associates, Inc. 65,568 22,182 552 97,200
Washington Mutual, Inc. 59,895 15,310 3,490 183,456
---------- --------- -------- -----------
$950,594 $173,652 $28,635 $2,152,722
---------- --------- -------- -----------
27
<PAGE>
Pioneer II
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
T o t h e S h a r e h o l d e r s a n d t h e B o a r d o f
T r u s t e e s o f P i o n e e r I I :
We have audited the accompanying balance sheet, including the schedule of
investments, of Pioneer II as of September 30, 1996, and the related
statement of operations, the statements of changes in net assets, and the
financial highlights for the periods presented. These financial statements
and the financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1996 by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pioneer II as of September 30, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 31, 1996
28
<PAGE>
Pioneer II
TAX TREATMENT OF DISTRIBUTIONS
Made during the Year Ended 9/30/96
During the year ended September 30, 1996, Pioneer II paid the following
distributions per share to Class A shareholders:
Net Net
Investment Realized Gain
Record Date Payment Date Income Short-Term Long-Term
12/21/95 12/28/95 $0.152 $0.258 $1.474
6/20/96 6/28/96 0.170 - -
---------- ----------- -----------
Total $0.322 $0.258 $1.474
---------- ----------- -----------
On a per share basis, distributions of $0.258 from short-term capital gain
should be reported as ordinary income.
Corporate shareholders may deduct up to 70% of qualifying dividends received
during the year. For purposes of computing the exclusion, 100% of the
distributions from net investment income represents qualifying dividends.
Shareholders who elected to take the Capital Gain Distribution in additional
shares of the Fund should report the distribution as explained above. The tax
cost of the shares received on December 28, 1995 is $19.30 for Class A.
The Fund hereby designates $493,695,696 as a capital gain dividend for the
purposes of the dividend paid deduction.
29
<PAGE>
Pioneer II
TRUSTEES' FEES AND SHARE OWNERSHIP 9/30/96
T r u s t e e s ' F e e s , P r i n c i p a l S h a r e h o l d e r s
a n d S h a r e O w n e r s h i p o f T r u s t e e s a n d
O f f i c e r s ( U n a u d i t e d )
The aggregate remuneration paid by the Fund to nonaffiliated trustees and
officers during the year ended September 30, 1996 was approximately $69,000,
plus expenses incurred in attending trustees meetings of approximately
$3,000. Fees of trustees who are affiliated with or "interested persons" of
Pioneering Management Corporation and Pioneer Funds Distributor, Inc.,
investment adviser and principal underwriter, respectively, of the Fund
($1,000 in 1996) are reimbursed to the Fund by Pioneering Management
Corporation in accordance with the management agreement with the Fund. At
September 30, 1996, the trustees and officers of the Fund owned beneficially
approximately 142,000 of Class A shares of the Fund (approximately 0.1% of
the outstanding Class A shares). The Pioneer Group, Inc., the parent company
of Pioneering Management Corporation and Pioneer Funds Distributor, Inc., is
a publicly held corporation of which Mr. Cogan, Chairman and President of the
Fund, owned approximately 14% of the outstanding shares of capital stock at
September 30, 1996.
30
<PAGE>
Pioneer II
RESULTS OF SHAREOWNER MEETING
On April 30, 1996, Pioneer II held a special meeting of shareowners. All
Proposals were passed by shareowner vote. Following are the detailed results
of the vote for each Proposal presented.
Proposal 1 -- Elect eight Trustees to serve on the Board of Trustees.
Nominee Affirmative Withheld
John F. Cogan, Jr. 140,415,114.060 5,283,782.486
Richard H. Egdahl, M.D. 140,059,378.314 5,639,518.232
Margaret B.W. Graham 140,168,993.583 5,529,902.963
John W. Kendrick 140,296,233.352 5,402,663.194
Marguerite A. Piret 140,167,528.737 5,531,367.809
David D. Tripple 140,557,985.967 5,140,910.579
Stephen K. West 140,141,096.261 5,557,800.285
John Winthrop 140,556,985.041 5,141,911.505
Proposal 2 -- Approve a new management contract with Pioneering Management
Corporation (PMC), including a performance-based management fee.
Affirmative Against Abstain
117,556,655.753 18,631,550.626 9,510,690.167
Proposal 3 -- Allow the Fund to be reorganized as a Delaware business trust.
Affirmative Against Abstain
127,665,117.179 9,028,718.990 9,005,060.377
Proposal 4 -- Ratify the selection of Arthur Andersen LLP as the Fund's
independent public accountants for the fiscal year ending September 30, 1996.
Affirmative Against Abstain
136,087,946.149 2,067,320.794 7,543,629.603
Proposal 5a -- Eliminate the Fund's fundamental investment restriction
regarding repurchase agreements.
Affirmative Against Abstain
126,309,454.391 7,917,434.184 11,472,007.971
Proposal 5b -- Amend the Fund's fundamental investment restriction regarding
underwriting.
Affirmative Against Abstain
125,664,381.647 8,119,277.364 11,915,237.535
31
<PAGE>
Pioneer II
RESULTS OF SHAREOWNER MEETING (continued)
Proposal 5c -- Amend the Fund's fundamental investment restriction regarding
commodities.
Affirmative Against Abstain
122,144,981.571 11,668,867.712 11,885,047.263
Proposal 5d -- Eliminate the Fund's fundamental investment restriction
regarding restricted securities.
Affirmative Against Abstain
122,863,653.699 10,775,000.472 12,060,242.375
Proposal 5e -- Eliminate the Fund's fundamental investment restriction
regarding "unseasoned" issuers.
Affirmative Against Abstain
121,740,592.114 11,589,533.742 12,368,770.690
Proposal 5f -- Eliminate the Fund's fundamental investment restriction
regarding affiliates of affiliates of the Fund.
Affirmative Against Abstain
121,885,492.244 11,258,744.670 12,554,659.632
Proposal 5g -- Amend the Fund's fundamental investment restriction regarding
loans.
Affirmative Against Abstain
123,694,338.954 10,210,003.991 11,794,553.601
Proposal 5h -- Amend the Fund's fundamental investment restriction regarding
borrowing.
Affirmative Against Abstain
122,519,712.975 11,287,310.839 11,891,872.732
Proposal 5i -- Add a new fundamental investment restriction regarding "senior
securities."
Affirmative Against Abstain
125,571,442.948 7,875,583.386 12,251,870.212
32
<PAGE>
Pioneer II
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
Trustees Officers
John F. Cogan, Jr. John F. Cogan, Jr., Chairman and President
Richard H. Egdahl, M.D. David D. Tripple, Executive Vice President
Margaret B.W. Graham Francis J. Boggan, Vice President
John W. Kendrick William H. Keough, Treasurer
Marguerite A. Piret Joseph P. Barri, Secretary
David D. Tripple
Stephen K. West
John Winthrop
Investment Adviser
Pioneering Management Corporation
Custodian
Brown Brothers Harriman & Co.
Independent Public Accountants
Arthur Andersen LLP
Principal Underwriter
Pioneer Funds Distributor, Inc.
Legal Counsel
Hale and Dorr
Shareholder Services and Transfer Agent
Pioneering Services Corporation
33
<PAGE>
Programs and Services for Pioneer Shareowners
Your investment representative can give you additional information on
Pioneer's programs and services. If you want to order literature on any of
the following items directly, simply call Pioneer at 1-800-225-6292.
FactFone(SM)
Our automated account information service, available to you 24 hours a day,
seven days a week. FactFone gives you a quick and easy way to check fund
share prices, yields, dividends and distributions, as well as information
about your own account. Simply call 1-800-225-4321. For specific account
information, have your 13-digit account number and four-digit personal
identification number at hand.
90-Day Reinstatement Privilege (for Class A Shares)
Enables you to reinvest all or a portion of the money you redeem from your
Pioneer account - without paying a sales charge - within 90 days of your
redemption. You have the choice of investing in any Pioneer fund, as long as
you meet its minimum investment requirement.
Investomatic Plan
An easy and convenient way for you to invest on a regular basis. All you need
to do is authorize a set amount of money to be moved out of your bank account
into the Pioneer fund of your choice. Investomatic also allows you to change
the dollar amount, frequency and investment date right over the phone. By
putting aside affordable amounts of money regularly, you can build a
long-term investment - without sacrificing your current standard of living.
Payroll Investment Program (PIP)
Lets you invest in a Pioneer fund directly through your paycheck. All that's
involved is for your employer to fill out an authorization form allowing
Pioneer to deduct from participating employees' paychecks. You specify the
dollar amount you want to invest into the Pioneer fund(s) of your choice.
34
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Automatic Exchange Program
A simple way to move money from a money market or bond fund into a stock fund
over a period of time. Just invest a lump sum in a Pioneer money market fund
or bond fund. Then, select the Pioneer equity fund or funds you wish to
invest in, and choose the amounts and dates for Pioneer to sell shares of
your money market or bond fund and use the proceeds to buy shares of the
Pioneer equity fund you have chosen. Over time, your original investment will
be shifted to your Pioneer equity fund.
Directed Dividends
Lets you invest cash dividends from one Pioneer fund to an account in another
Pioneer fund with no sales charge or fee. Simply fill out the applicable
information on a Pioneer Account Options Form. (This program is available for
dividend payments only; capital gains distributions are not eligible at this
time.)
Direct Deposit
Lets you move money into your bank account using electronic funds transfer
(EFT). EFT moves your money faster than you would receive a check, eliminates
unnecessary paper and mail, and avoids lost checks. Simply fill out a Pioneer
Direct Deposit Form, giving your instructions.
Systematic Withdrawal Plan (SWP)
Lets you establish automatic withdrawals from your account at set intervals.
You decide the frequency and the day of the month you want. Pioneer will send
the proceeds by check to the address you designate, or electronically to your
bank account. You also can authorize Pioneer to make the redemptions payable
to someone else. (SWPs are available only for accounts with a value of
$10,000 or more.)
35
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This page for your notes.
36
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THE PIONEER FAMILY OF MUTUAL FUNDS
Growth Funds Income Funds
Global/International Taxable
Pioneer Emerging Markets Fund Pioneer America Income Trust
Pioneer Europe Fund Pioneer Bond Fund
Pioneer Gold Shares Pioneer Income Fund
Pioneer India Fund Pioneer Short-Term Income Trust*
Pioneer International Growth Fund
Pioneer World Equity Fund Tax-Exempt
Pioneer Intermediate Tax-Free Fund
United States Pioneer Tax-Free Income Fund
Pioneer Capital Growth Fund
Pioneer Growth Shares Money Market Fund
Pioneer Mid-Cap Fund Pioneer Cash Reserves Fund
Pioneer Small Company Fund
Growth and Income Funds
Pioneer Equity-Income Fund
Pioneer Fund
Pioneer Real Estate Shares
Pioneer II
*Offers Class A and B Shares only
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HOW TO CONTACT PIONEER
We are pleased to offer a variety of convenient ways for you to contact us
for assistance or information.
You can call us for:
Account information, including existing
accounts, new accounts, prospectuses,
applications and service forms 1-800-225-6292
FactFone(SM) for automated fund yields,
prices, account information and transactions 1-800-225-4321
Retirement plans information 1-800-622-0176
Telecommunications Device for the Deaf (TDD) 1-800-225-1997
Or write to us at:
Pioneering Services Corporation
60 State Street
Boston, Massachusetts 02109
Our toll-free fax 1-800-225-4240
Our Internet e-mail address [email protected]
(for general questions about Pioneer only)
This report must be preceded or accompanied
by a current Fund prospectus.
[Pioneer logo]
Pioneer Funds Distributor, Inc. 1196-3692
60 State Street (C) Pioneer Funds Distributor, Inc.
Boston, Massachusetts 02109 [recycle logo] Printed on Recycled Paper
