[PIONEER LOGO]
Pioneer II
ANNUAL REPORT 9/30/97
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Table of Contents
- ------------------------------------------------------
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 23
Report of Independent Public Accountants 29
Trustees, Officers and Service Providers 30
Programs and Services for Pioneer Shareowners 32
Retirement Plans from Pioneer 34
The Pioneer Family of Mutual Funds 36
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Pioneer II
LETTER FROM THE CHAIRMAN 9/30/97
Dear Shareowner,
- ----------------------------------------------------------------------------
I am pleased to introduce this report for Pioneer II, covering its 28th fiscal
year. On behalf of your investment team, I thank you for your interest and this
opportunity to comment on today's investing environment.
As we prepare this report, the world's stock markets have just demonstrated
unprecedented volatility. In the United States, we saw the Dow Jones Industrial
Average take a break from its exhilarating upward climb to experience - in the
space of two days - both its biggest one-day point drop and its biggest one-day
point gain. Asian markets plunged after languishing for months as they digested
currency and economic changes. European markets bounced around, shaken by the
drop in Asia and then heartened by the speedy U.S. rebound. Even Latin American
markets were affected, mostly in a chain reaction from nervous investors.
This fast-paced change offers an important lesson in the value of discipline.
We've just had a powerful demonstration of how difficult, if not impossible, it
is to "time the market" to buy only when prices are lowest and sell only when
prices are highest. We have always believed it is important to buy a stock for
the right reasons and at prices that make sense given a realistic outlook for
the company's prospects. We also believe in holding a stock until its price
rises to what we think is its full value, or we have reason to believe it won't
meet our expectations. While market swings are unnerving, they shouldn't deter
you from long-term strategies designed to meet long-term goals.
I encourage you to read on to learn more about your Fund. Please contact your
investment representative, or us at 1-800-225-6292, if you have questions about
Pioneer II.
Respectfully,
[Signature of John F. Cogan, Jr.]
John F. Cogan, Jr.,
Chairman and President
1
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Pioneer II
PORTFOLIO SUMMARY 9/30/97
Portfolio Diversification
- ----------------------------------------------------------------------------
(As a percentage of total investment portfolio)
[Pie chart begins]
U.S. Common Stocks 88.6%
International Common Stocks 5.7%
Depositary Receipts for International Stocks 5.1%
Short-Term Cash Equivalents 0.5%
U.S. Convertible Securities 0.1%
[Pie chart ends]
Sector Distribution
- ----------------------------------------------------------------------------
(As a percentage of equity holdings)
[Pie chart begins]
Technology 22%
Financial 19%
Consumer Non-Durables 15%
Capital Goods 11%
Basic Industries 10%
Services 6%
Energy 5%
Utilities 5%
Consumer Durables 4%
Transportation 3%
[Pie chart ends]
10 Largest Holdings
- ---------------------------------------------------------------------------
(As a percentage of equity holdings)
1. AMBAC Inc. 3.47% 6. IBP, Inc. 2.64%
2. Arrow Electronics, Inc. 3.42 7. Trinity Industries, Inc. 2.49
3. The Chase Manhattan 2.90 8. Philips Electronics NV 2.46
Corp. (NY Shares)
4. Dominion Resources, Inc. 2.85 9. Intel Corp. 2.45
5. Brunswick Corp. 2.64 10. AGCO Corp. 2.17
Fund holdings will vary for other periods.
2
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Pioneer II
PERFORMANCE UPDATE 9/30/97 CLASS A SHARES
Share Prices and Distributions
- ----------------------------------------------------------------------------
Net Asset Value
per Share 9/30/97 9/30/96
$27.85 $20.94
Distributions per Share Income Short-Term Long-Term
(9/30/96 -9/30/97) Dividends Capital Gains Capital Gains
$0.152 $0.236 $1.698
Investment Returns
- ----------------------------------------------------------------------------
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, 1997)
Net Asset Public Offering
Period Value Price*
10 Years 12.14% 11.48%
5 Years 20.02 18.61
1 Year 45.95 37.55
* Reflects deduction of the maximum 5.75% sales charge at the beginning of the
period and assumes reinvestment of distributions at net asset value.
[Graphic Chart for Class A shares begins]
Growth of $10,000
Pioneer II* Standard & Poor's 500 Index
9/87 $ 9425 $10000
8290 8757
9/89 10491 11637
8690 10563
9/91 10829 13843
11903 15365
9/93 14063 17353
15099 17999
9/95 18107 23334
20312 28063
9/97 29646 39398
[Graphic Chart for Class A shares ends]
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 9/30/97 CLASS B SHARES
Share Prices and Distributions
- ----------------------------------------------------------------------------
Net Asset Value
per Share 9/30/97 9/30/96
$27.52 $20.89
Distributions per Share Income Short-Term Long-Term
(9/30/96 -9/30/97) Dividends Capital Gains Capital Gains
$0.132 $0.236 $1.698
Investment Returns
- ----------------------------------------------------------------------------
The mountain chart on the right shows the growth of a $10,000 investment made
in Pioneer II, compared to the growth of the Standard & Poor's 500 Index.
Average Annual Total Returns
(As of September 30, 1997)
If If
Period Held Redeemed*
Life-of-Fund 36.08% 33.11%
(7/1/96)
1 Year 44.58 40.58
* 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.
[Graphic Chart for Class B shares begins]
Growth of $10,000
Pioneer II* Standard & Poor's 500 Index
7/1/96 $10000 $10000
9304 9468
9815 9647
9/96 10165 10227
10433 10494
11392 11264
12/96 11403 11078
12081 11757
12033 11827
3/97 11419 11377
11740 12041
12775 12747
6/97 13165 13359
14297 14403
14132 13575
9/97 14298 14358
[Graphic Chart for Class B shares ends]
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.
4
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Pioneer II
PERFORMANCE UPDATE 9/30/97 CLASS C SHARES
Share Prices and Distributions
- ----------------------------------------------------------------------------
Net Asset Value
per Share 9/30/97 9/30/96
$27.55 $20.88
Distributions per Share Income Short-Term Long-Term
(9/30/96 -9/30/97) Dividends Capital Gains Capital Gains
$0.086 $0.236 $1.698
Investment Returns
- ----------------------------------------------------------------------------
The mountain chart on the right shows the growth of a $10,000 investment made
in Pioneer II, compared to the growth of the Standard & Poor's 500 Index.
Average Annual Total Returns
(As of September 30, 1997)
If If
Period Held Redeemed*
Life-of-Fund 35.97% 35.97%
(7/1/96)
1 Year 44.51 44.51
* Assumes reinvestment of distributions. The 1% contingent deferred sales charge
(CDSC) applies to redemptions made within one year of purchase.
[Graphic Chart for Class C shares begins]
Growth of $10,000
Pioneer II* Standard & Poor's 500 Index
7/1/96 $10000 $10000
9304 9468
9815 9647
9/96 10161 10227
10433 10494
11397 11264
12/96 11400 11078
12077 11757
12023 11827
3/97 11410 11377
11720 12041
12753 12747
6/97 13142 13359
14278 14403
14118 13575
9/97 14683 14358
[Graphic Chart for Class C shares ends]
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.
5
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Pioneer II
PORTFOLIO MANAGEMENT DISCUSSION 9/30/97
Dear Shareowner,
- ----------------------------------------------------------------------------
Pioneer II completed its 28th fiscal year on September 30, 1997. The Fund
rewarded shareowners with exceptional performance over the past 12 months.
Class A Shares of your Fund posted a total return of 45.95%, handily
outdistancing the 35.76% average total return of the 576 funds in Lipper
Analytical Service's Growth and Income Funds category. Pioneer II's performance
also propelled it past the 40.44% total return of the Standard & Poor's 500
Index, a commonly used measure of large-company stock performance and the
best-performing major market index over the year ended September 30, 1997.
A Strong Year for Stocks
In the United States and internationally, investors continued to pour money
into stocks, fueling market performance. This worked to the advantage of
Pioneer II, whose diversified portfolio has the flexibility to invest in
companies of any size, in nearly any industry, anywhere in the world.
When the fiscal year began, large U.S. stocks, especially those in the Dow
Jones Industrial Average, were leading the pack. Investors were still smarting
from a correction in the U.S. stock market that had occurred in the summer of
1996, led by a sell-off in smaller growth stocks, particularly technology
stocks. Money went mostly to larger stocks presumed to offer stability and
predictable earnings growth. The Dow rose substantially in the last few months
of 1996, and larger stocks continued to outperform smaller stocks.
The pace of the U.S. economy picked up in the first calendar quarter of 1997,
rising at nearly double the expected rate, prompting the Federal Reserve to
raise short-term interest rates by one-quarter of a percentage point on March
25. Investors anticipated the Fed's move, causing a downturn in the stock
market, which lasted through the rate increase but seemed to have little drag
on the momentum of larger stocks. Near the end of April, the economy began to
slow, and enthusiasm for U.S. stocks swelled to include smaller and mid-size
stocks. (A slowing economy can be bad news for larger companies because it can
lead to slower
6
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Pioneer II
earnings growth.) While their growth did slow somewhat, larger stocks continued
to perform fairly well through most of the summer. Small and mid-size stocks
rallied in May and maintained positive results through most of the summer.
Concerns about economic growth and the possibility of a Fed interest rate hike
caused increased stock price volatility in August. When the Fed didn't raise
rates, most indexes rose in September.
Over the 12 months ended September 30, European markets generally thrived in an
environment of low inflation and stable interest rates. Major European
economies strengthened, driven by stronger corporate earnings and improved
consumer confidence. Latin American emerging markets outpaced Asian emerging
markets, and Japan languished. Overall, the highest gains came to large
multinational companies doing business in established markets.
A Value-Driven, Long-Term Portfolio
For Pioneer II, we use a value management style to pursue long-term growth and
income for shareowners, picking stocks that are inexpensive relative to what we
think the companies are really worth. We look at a variety of fundamental
factors when deciding which stocks to add and keep in the portfolio, including
cash flow, price-to-earnings ratios and future growth prospects. We also like
to see management with a stake in the business.
We set price targets for buying and selling stocks, and - as long as the
company's fundamentals don't change - we stick to them. Our long-term emphasis
is best illustrated by the list of the Fund's 10 largest holdings as of
September 30, 1997; eight of these companies were on the list a year ago. One
stock that dropped off the list was Columbia HCA/Healthcare. This multifaceted
healthcare provider came under government scrutiny and received some bad press
over the past year, resulting in a change in the company's profitability and
steady decline in the stock's price. The Fund's average cost for the stock was
about $19; when we sold some of the position, the Fund's low cost basis resulted
in gains even after the market had punished the stock. One of our current
favorites is Netherlands-based consumer electronics manufacturer Philips
Electronics, which has increased its profitability by selectively selling parts
of its business.
7
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Pioneer II
PORTFOLIO MANAGEMENT DISCUSSION 9/30/97(continued)
Viewing Portfolio Sectors
Pioneer II's largest sector weightings are in the technology and financial
areas. As a group, technology holdings helped boost performance. Arrow
Electronics features excellent earnings growth prospects, while computer-chip
giant Intel continues to dominate its niche globally. We reduced financial
stocks from 25% to 19% of equities over the year, taking profits in bank stocks
when they reached our valuation targets. We doubled holdings in The Chase
Manhattan Corp., which was a strong performer over the period. Priced at about
12 times its projected earnings, it is one of the most reasonably valued
high-quality banks on the market, in our opinion. In insurance, we added
Allstate, which has undertaken an ambitious effort to increase market share. We
substantially increased holdings in AMBAC, while reducing the position in MBIA.
In the basic industries sector, we continue to favor Trinity Industries, a
dominant railcar builder showing strong profit margins and excellent future
prospects.
A Look Ahead
We are pleased with the Fund's performance over the past 12 months, and we will
continue to use the same discipline and methodology. Strong market performance
such as we have seen over the past few years is not the norm, however, and you
should not expect to see such Herculean returns on an ongoing basis. That said,
we believe we have a good group of stocks assembled in the portfolio, and we
will continue to do the research to find strong investment opportunities. Value
stocks sell for less than their true worth, so they can also offer greater
price stability in a stock market downturn. Value investing is a long-term
strategy, and we believe we can continue to reward investors who keep a
long-term perspective.
Respectfully,
[Signature of Francis J. Boggan]
Francis J. Boggan,
Portfolio Manager
8
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Pioneer II
SCHEDULE OF INVESTMENTS 9/30/97
Principal
Amount Value
INVESTMENT IN SECURITIES - 99.5%
CONVERTIBLE CORPORATE BOND - 0.1%
$4,000,000 Halter Marine Group Inc., Exchangable Note,
4.5%, 09/15/04+ $ 4,602,520
---------------
TOTAL CONVERTIBLE CORPORATE BOND
(Cost $4,000,000) $ 4,602,520
---------------
Shares
COMMON STOCKS - 99.4%
Basic Industries - 9.5%
Chemicals - 2.6%
375,000 AKZO NV (Sponsored A.D.R.) $ 32,109,375
1,123,800 Cytec Industries Inc.* 53,801,925
1,503,700 Lyondell Petrochemicals Co. 39,378,144
2,150,000 Methanex Corp.* 18,006,250
2,428,200 Mississippi Chemical Corp.+ 47,349,900
150,000 Monsanto Co. 5,850,000
---------------
$ 196,495,594
---------------
Containers - 0.7%
650,000 Owens-Illinois, Inc.* $ 22,059,375
2,000,000 Vitro SA (Sponsored A.D.R.) 30,750,000
---------------
$ 52,809,375
---------------
Forest Products - 0.8%
3,166,400 Longview Fibre Co.+ $ 62,932,200
---------------
Iron & Steel - 2.1%
1,112,825 A.M. Castle & Co.+ $ 28,933,450
851,900 Amcast Industrial Corp.+ 20,871,550
1,788,900 British Steel Plc (Sponsored A.D.R.) 52,101,713
1,542,400 National Steel Corp. (Class B)* 27,570,400
1,990,500 Rouge Industries, Inc.+ 31,101,562
---------------
$ 160,578,675
---------------
Metals & Mining - 2.5%
3,883,900 Trinity Industries, Inc.+ $ 187,398,175
---------------
Non-Ferrous Metals - 0.8%
750,000 Phelps Dodge Corp. $ 58,218,750
---------------
Total Basic Industries $ 718,432,769
---------------
The accompanying notes are an integral part of these financial statements. 9
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 9/30/97 (continued)
Shares Value
Capital Goods - 10.7%
Aerospace - 0.6%
440,000 Lockheed Martin Corp. $ 46,915,000
---------------
Construction & Engineering - 5.6%
5,149,000 AGCO Corp.+ $ 163,158,937
4,000,000 Champion Enterprises, Inc.*+ 76,500,000
4,058,600 Clayton Homes, Inc. 75,337,763
1,000,000 Hanson Plc (Sponsored A.D.R.) 24,125,000
2,956,200 Oakwood Homes Corp.+ 83,882,175
---------------
$ 423,003,875
---------------
Producer Goods - 3.3%
1,942,900 Briggs & Stratton Corp.+ $ 96,052,119
2,446,100 Donaldson Co., Inc.+ 117,718,562
1,907,900 Global Industrial Technologies, Inc.*+ 39,588,925
---------------
$ 253,359,606
---------------
Telecommunications - 1.2%
2,700,000 Ascend Communications, Inc.* $ 87,412,500
---------------
Total Capital Goods $ 810,690,981
---------------
Consumer Durables - 3.9%
Motor Vehicles - 3.9%
2,625,000 Breed Technologies, Inc.+ $ 63,000,000
1,100,000 Chrysler Corp. 40,493,750
200,000 General Motors Corp. 13,387,500
1,150,000 Magna International Inc. 79,493,750
617,600 New Holland NV 18,219,200
1,410,000 Simpson Industries, Inc.+ 16,303,125
1,074,800 Smith (A.O.) Corp.+ 42,588,950
375,000 Stewart & Stevenson Services, Inc. 9,023,437
327,000 Strattec Security Corp.*+ 9,094,688
---------------
Total Consumer Durables $ 291,604,400
---------------
Consumer Non-Durables - 15.0%
Agriculture & Food - 3.3%
8,400,000 IBP, Inc.+ $ 198,450,000
3,634,300 Terra Industries Inc. 49,063,050
---------------
$ 247,513,050
---------------
Consumer Luxuries - 2.6%
5,640,100 Brunswick Corp.+ $ 198,813,525
---------------
10 The accompanying notes are an integral part of these financial
statements.
<PAGE>
Pioneer II
Shares Value
Home Products - 4.3%
2,015,000 Lancaster Colony Corp.+ $ 107,046,875
2,200,000 Philips Electronics NV (NY Shares) 184,800,000
1,150,000 Tupperware Corp. 32,343,750
---------------
$ 324,190,625
---------------
Retail Food - 0.4%
20,000 Nestle SA (Registered Shares) $ 27,860,286
---------------
Retail Non-Food - 2.8%
600,000 Federated Department Stores, Inc.* $ 25,875,000
410,000 Fuji Photo Film (A.D.R.) 16,963,750
1,626,500 J.C. Penney Co., Inc. 94,743,625
182,100 Pillowtex Corp. 5,189,850
1,900,000 Toys "R" Us, Inc.* 67,450,000
---------------
$ 210,222,225
---------------
Textiles/Clothes - 1.6%
2,300,000 Nike, Inc. (Class B) $ 121,900,000
---------------
Total Consumer Non-Durables $1,130,499,711
---------------
Energy - 4.7%
Oil & Gas Extraction - 0.5%
425,000 Amoco Corp. $ 40,959,375
---------------
Oil Refining & Drilling - 2.6%
1,040,000 Atlantic Richfield Co. $ 88,855,000
1,000,000 Global Marine, Inc.* 33,250,000
700,000 Reading & Bates Corp.* 29,093,750
1,230,000 YPF SA (Sponsored A.D.R.) (Class D) 45,356,250
---------------
$ 196,555,000
---------------
Oil Services - 1.6%
1,000,000 Ensco International, Inc. $ 39,437,500
375,000 Pennzoil Co. 29,882,813
1,359,300 Santa Fe Pacific Pipeline Partners, L.P.+ 53,012,700
---------------
$ 122,333,013
---------------
Total Energy $ 359,847,388
---------------
Financial - 18.9%
Commercial Banks - 2.1%
400,000 ABN Amro Holding NV (Sponsored A.D.R.) $ 8,150,000
2,425,000 Banco de Santander SA 79,441,616
The accompanying notes are an integral part of these financial statements. 11
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 9/30/97 (continued)
Shares Value
Commercial Banks - (continued)
400,000 Mellon Bank Corp. $ 21,900,000
694,066 New York Bancorp Inc. 20,778,601
220,000 RCSB Financial, Inc. 11,990,000
314,010 Summit Bancorp 13,953,819
---------------
$ 156,214,036
---------------
Financial Services - 4.8%
1,850,000 The Chase Manhattan Corp. $ 218,300,000
321,500 GreenPoint Financial Corp. 20,375,062
1,500,000 Merrill Lynch & Co., Inc. 111,281,250
474,300 North American Mortgage Co. 13,636,125
---------------
$ 363,592,437
---------------
Finance/Miscellaneous - 3.9%
1,450,000 Banc One Corp. $ 80,928,125
28,300 CFX Corp. 606,681
3,500,000 Countrywide Credit Industries, Inc. 127,531,250
677,500 Franklin Resources, Inc. 63,092,188
1,600,000 Resource Bancshares Mortgage Group, Inc.+ 20,900,000
---------------
$ 293,058,244
---------------
Insurance - 4.3%
475,000 Allstate Corp. $ 38,178,125
6,426,200 AMBAC Inc.+ 261,466,012
235,800 MBIA Inc. 29,578,163
---------------
$ 329,222,300
---------------
Savings & Loan - 3.8%
2,045,000 Charter One Financial, Inc. $ 120,910,625
625,000 Washington Federal, Inc. 18,515,625
2,100,000 Washington Mutual, Inc. 146,475,000
---------------
$ 285,901,250
---------------
Total Financial $1,427,988,267
---------------
Services - 6.4%
Health & Personal Care - 2.0%
640,500 Apria Healthcare Group, Inc.* $ 8,646,750
804,700 Beckman Instruments, Inc. 34,250,044
2,600,000 Columbia/HCA Healthcare Corp. 74,750,000
1,800,000 RoTech Medical Corp.*+ 34,650,000
---------------
$ 152,296,794
---------------
12 The accompanying notes are an integral part of these financial
statements.
<PAGE>
Pioneer II
Shares Value
Broadcasting & Media - 0.0%
154,800 Comcast UK Cable Partners Ltd.* $ 1,586,700
---------------
Pharmaceuticals - 2.0%
1,367,500 Amgen Inc. $ 65,554,531
2,253,333 Astra AB (Series A Free) 41,591,401
400,000 Merck & Co., Inc. 39,975,000
---------------
$ 147,120,932
---------------
Miscellaneous Services - 2.4%
3,018,900 Kelly Services Inc. (non-voting) $ 101,133,150
2,060,500 Manpower, Inc. 81,389,750
---------------
$ 182,522,900
---------------
Total Services $ 483,527,326
---------------
Technology - 22.0%
Computer Services - 3.6%
1,800,000 Compaq Computer Corp.* $ 134,550,000
1,000,000 International Business Machines Corp. 105,937,500
1,225,000 Network General Corp.* 23,734,375
200,000 Parametric Technology Corp.* 8,825,000
---------------
$ 273,046,875
---------------
Electronics - 17.6%
1,700,000 Adaptec, Inc.* $ 79,475,000
650,000 Applied Materials, Inc.* 61,912,500
4,436,900 Arrow Electronics, Inc.*+ 257,340,200
1,570,000 Cisco Systems, Inc.* 114,708,125
1,500,000 EMC Corp.* 87,562,500
1,725,000 Etec Systems, Inc.*+ 98,325,000
2,000,000 Intel Corp. 184,625,000
887,000 KLA-Tencor Corp.* 59,927,937
440,000 Lam Research Corp.* 20,460,000
1,100,000 L.M. Ericsson Telephone Co. (Sponsored
A.D.R.) (Class B) 52,731,250
300,000 LSI Logic Corp.* 9,637,500
1,169,700 MEMC Electronic Materials, Inc.* 35,091,000
496,100 MTS Systems Corp.+ 18,107,650
1,300,000 Nokia Corp. (Sponsored A.D.R.) 121,956,250
3,357,200 Read-Rite Corp.*+ 82,251,400
950,000 Storage Technology Corp.* 45,421,875
---------------
$1,329,533,187
---------------
The accompanying notes are an integral part of these financial statements. 13
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 9/30/97 (continued)
Shares Value
Photo/Instrumentation - 0.8%
1,188,000 Dionex Corp.*+ $ 64,077,750
---------------
Total Technology $1,666,657,812
---------------
Transportation - 2.9%
Air Transport - 0.3%
185,000 AMR Corp.* $ 20,477,188
---------------
Railroad & Bus - 1.2%
1,550,000 CSX Corp. $ 90,675,000
140,900 Westinghouse Air Brake Co. 3,258,313
---------------
$ 93,933,313
---------------
Ships & Shipping - 1.4%
775,000 APL Ltd. $ 24,800,000
1,688,800 Halter Marine Group Inc.*+ 81,695,700
---------------
$ 106,495,700
---------------
Total Transportation $ 220,906,201
---------------
Utilities - 5.4%
Electric Utility - 5.4%
5,655,000 Dominion Resources, Inc. $ 214,183,125
2,595,500 DTE Energy Co. 79,000,531
2,993,263 Hawaiian Electric Industries, Inc.+ 112,060,284
136,400 Union Electric Co. 5,242,875
---------------
Total Utilities $ 410,486,815
---------------
TOTAL COMMON STOCKS
(Cost $5,028,672,286) $7,520,641,670
---------------
RIGHTS - 0.0%
65,034 New York Bancorp, 10/14/97* $ 0
---------------
TOTAL RIGHTS
(Cost $0) $ 0
---------------
TOTAL INVESTMENT IN SECURITIES
(Cost $5,032,672,286) $7,525,244,190
---------------
14 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
Principal
Amount Value
TEMPORARY CASH INVESTMENT - 0.5%
Commercial Paper - 0.5%
$36,008,000 Household Finance Corp., 6.15%, 10/1/97 $ 36,008,000
---------------
TOTAL TEMPORARY CASH INVESTMENT
(Cost $36,008,000) $ 36,008,000
---------------
TOTAL INVESTMENT IN SECURITIES AND
TEMPORARY CASH INVESTMENT - 100%
(Cost $5,068,680,286) (a) $7,561,252,190
---------------
* Non-income producing security.
+ Investment held by the Fund representing 5% or more of the outstanding voting
stock of such company.
(a) At September 30, 1997, the net unrealized gain on investments based on cost
for federal income tax purposes of $5,072,111,160 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $2,585,733,431
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (96,592,401)
--------------
Net unrealized gain $2,489,141,030
--------------
</TABLE>
Purchases and sales of securities (excluding temporary cash investments)
for the year ended September 30, 1997 aggregated approximately $2,954,836,000
and $3,231,284,000 respectively.
The accompanying notes are an integral part of these financial statements. 15
<PAGE>
Pioneer II
BALANCE SHEET 9/30/97
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment in securities, at value (including temporary cash
investment of $36,008) (cost $5,068,680) $7,561,252
Cash 2
Foreign currencies, at value 412
Receivables -
Investment securities sold 37,116
Fund shares sold 3,969
Dividends, interest and foreign taxes withheld 4,568
Other 186
----------
Total assets $7,607,505
----------
LIABILITIES:
Payables -
Investment securities purchased $ 40,985
Fund shares repurchased 6,116
Due to affiliates 8,473
Accrued expenses 343
----------
Total liabilities $ 55,917
----------
NET ASSETS:
Paid-in capital $4,272,824
Accumulated undistributed net investment income 18,804
Accumulated undistributed net realized gain on investments and
foreign currency transactions 767,398
Net unrealized gain on investments 2,492,572
Net unrealized loss on forward foreign currency contracts and other
assets and liabilities denominated in foreign currencies (10)
----------
Total net assets $7,551,588
----------
NET ASSET VALUE PER SHARE:
(Unlimited number of shares authorized)
Class A (based on $7,534,010/270,491,170 shares) $ 27.85
----------
Class B (based on $15,311/556,435 shares) $ 27.52
----------
Class C (based on $2,267/82,273 shares) $ 27.55
----------
MAXIMUM OFFERING PRICE:
Class A $ 29.55
----------
</TABLE>
16 The accompanying notes are an integral part of these financial
statements.
<PAGE>
Pioneer II
STATEMENT OF OPERATIONS
For the Year Ended 9/30/97
(Dollars in Thousands)
<TABLE>
INVESTMENT INCOME:
<S> <C> <C>
Dividends (net of foreign taxes withheld of $1,844) $ 101,375
Interest (net of foreign taxes withheld of $2) 3,926
Other 58
----------
Total investment income $ 105,359
----------
EXPENSES:
Management fees
Basic fee $ 38,530
Performance adjustment (1,075)
Transfer agent fees
Class A 10,192
Class B 26
Class C 4
Distribution fees
Class A 12,668
Class B 79
Class C 10
Accounting 359
Custodian fees 389
Registration fees 114
Professional fees 209
Printing 237
Fees and expenses of nonaffiliated trustees 74
Miscellaneous 204
----------
Total expenses $ 62,020
Less fees paid indirectly (1,056)
----------
Net expenses $ 60,964
----------
Net investment income $ 44,395
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments $ 776,078
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies (87) $ 775,991
---------- ----------
Change in net unrealized gain or loss from:
Investments $1,610,407
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 29 $1,610,436
---------- ----------
Net gain on investments and foreign currency transactions $2,386,427
----------
Net increase in net assets resulting from operations $2,430,822
----------
</TABLE>
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 9/30/97 and 9/30/96
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
Year Ended Year Ended
<S> <C> <C>
FROM OPERATIONS: 9/30/97 9/30/96
Net investment income $ 44,395 $ 60,827
Net realized gain on investments and foreign currency
transactions 775,991 570,164
Change in net unrealized gain or loss on investments
and foreign currency transactions 1,610,436 (25,695)
----------- ----------
Net increase in net assets resulting from operations $2,430,822 $ 605,296
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A ($0.15 and $0.32 per share, respectively) $ (40,342) $ (81,721)
Class B ($0.13 and $0.00 per share, respectively) (27) -
Class C ($0.09 and $0.00 per share, respectively) (2) -
Net realized gain:
Class A ($1.93 and $1.73 per share, respectively) (495,328) (424,185)
Class B ($1.93 and $0.00 per share, respectively) (350) -
Class C ($1.93 and $0.00 per share, respectively) (38) -
----------- ----------
Total distributions to shareholders $ (536,087) $ (505,906)
----------- ----------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 489,132 $ 327,727
Reinvestment of distributions 507,766 480,912
Cost of shares repurchased (772,920) (590,117)
----------- ----------
Net increase in net assets resulting from fund
share transactions $ 223,978 $ 218,522
----------- ----------
Net increase in net assets $2,118,713 $ 317,912
NET ASSETS:
Beginning of year 5,432,875 5,114,963
----------- ----------
End of year (including accumulated undistributed net
investment income of $18,804 and $15,395,
respectively) $7,551,588 $5,432,875
----------- ----------
</TABLE>
18 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<TABLE>
<S> <C> <C> <C> <C>
CLASS A '97 Shares '97 Amount '96 Shares '96 Amount
Shares sold 19,868,390 $ 471,321 16,110,239 $ 326,689
Reinvestment of distributions 23,606,020 507,363 24,810,556 480,912
Less shares repurchased (32,424,860) (768,414) (29,020,381) (590,116)
------------ ---------- ------------ -----------
Net increase 11,049,550 $ 210,270 11,900,414 $ 217,485
------------ ---------- ------------ -----------
CLASS B*
Shares sold 664,822 $ 15,937 41,389 $ 834
Reinvestment of distributions 17,328 368 - -
Less shares repurchased (167,062) (4,296) (42) (1)
------------ ---------- ------------ -----------
Net increase 515,088 $ 12,009 41,347 $ 833
------------ ---------- ------------ -----------
CLASS C*
Shares sold 78,505 $ 1,874 10,250 $ 204
Reinvestment of distributions 1,653 35 - -
Less shares repurchased (8,135) (210) - -
------------ ---------- ------------ -----------
Net increase 72,023 $ 1,699 10,250 $ 204
------------ ---------- ------------ -----------
</TABLE>
*Class B and C shares were first publicly offered on July 1, 1996.
The accompanying notes are an integral part of these financial statements. 19
<PAGE>
FINANCIAL HIGHLIGHTS 9/30/97
Pioneer II
<TABLE>
Year Ended Year Ended
9/30/97 9/30/96
<S> <C> <C>
CLASS A
Net asset value, beginning of year $ 20.94 $ 20.66
------------ ------------
Increase from investment operations:
Net investment income $ 0.16 $ 0.23
Net realized and unrealized gain on investments and foreign
currency transactions 8.83 2.10
------------ ------------
Net increase from investment operations $ 8.99 $ 2.33
Distributions to shareholders:
Net investment income (0.15) (0.32)
Net realized gain (1.93) (1.73)
------------ ------------
Net increase (decrease) in net asset value $ 6.91 $ 0.28
------------ ------------
Net asset value, end of year $ 27.85 $ 20.94
------------ ------------
Total return* 45.95% 12.18%
Ratio of net expenses to average net assets 0.96%+ 0.92%+
Ratio of net investment income to average net assets 0.68%+ 1.13%+
Portfolio turnover rate 47% 66%
Average commission rate paid (1) $ 0.0585 $ 0.0424
Net assets, end of year (in thousands) $7,534,010 $5,431,797
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.95% 0.90%
Net investment income 0.69% 1.15%
</TABLE>
<TABLE>
Year Ended Year Ended Year Ended
9/30/95 9/30/94 9/30/93
<S> <C> <C> <C>
CLASS A
Net asset value, beginning of year $ 19.38 $ 20.55 $ 18.86
------------ ----------- -----------
Increase from investment operations:
Net investment income $ 0.35 $ 0.36 $ 0.38
Net realized and unrealized gain on investments and foreign
currency transactions 3.04 1.05 2.85
------------ ----------- -----------
Net increase from investment operations $ 3.39 $ 1.41 $ 3.23
Distributions to shareholders:
Net investment income (0.30) (0.33) (0.39)
Net realized gain (1.81) (2.25) (1.15)
------------ ----------- -----------
Net increase (decrease) in net asset value $ 1.28 $ (1.17) $ 1.69
------------ ----------- -----------
Net asset value, end of year $ 20.66 $ 19.38 $ 20.55
------------ ----------- -----------
Total return* 19.92% 7.37% 18.15%
Ratio of net expenses to average net assets 0.93%+ 0.90%++ 0.96%++
Ratio of net investment income to average net assets 1.85%+ 1.59%++ 1.89%++
Portfolio turnover rate 63% 68% 66%
Average commission rate paid (1) - - -
Net assets, end of year (in thousands) $5,114,963 $4,509,225 $4,347,672
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.91% 0.90% 0.95%
Net investment income 1.87% 1.59% 1.90%
</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 sales charges were taken into
account.
+ Ratio includes expenses paid through third party brokerage/service and
certain expense offset arrangements.
++ Ratios for 1994 and 1993 have been restated to conform 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.
20 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 9/30/97
<TABLE>
Year Ended 7/1/96 to
9/30/97(a) 9/30/96
<S> <C> <C>
CLASS B
Net asset value, beginning of period $ 20.89 $ 20.55
-------- --------
Increase (decrease) from investment operations:
Net investment loss $ (0.07) $ (0.01)
Net realized and unrealized gain on investments
and foreign currency transactions 8.76 0.35
-------- --------
Net increase from investment operations $ 8.69 $ 0.34
Distributions to shareholders:
Net investment income (0.13) -
Net realized gain (1.93) -
-------- --------
Net increase in net asset value $ 6.63 $ 0.34
-------- --------
Net asset value, end of period $ 27.52 $ 20.89
-------- --------
Total return* 44.58% 1.65%
Ratio of net expenses to average net assets 1.94%+ 2.03%**+
Ratio of net investment loss to average net assets (0.32)%+ (0.25)%**+
Portfolio turnover rate 47% 66%
Average commission rate paid(1) $0.0585 $0.0424
Net assets, end of period (in thousands) $15,311 $ 864
Ratios assuming reduction for fees paid indirectly:
Net expenses 1.90% 2.02%**
Net investment loss (0.28)% (0.24)%**
</TABLE>
(a) The per share data presented above is based upon the average shares
outstanding for the period presented.
* 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 sales 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
FINANCIAL HIGHLIGHTS 9/30/97
<TABLE>
<CAPTION>
Year Ended 7/1/96 to
9/30/97(a) 9/30/96
<S> <C> <C>
CLASS C
Net asset value, beginning of period $ 20.88 $ 20.55
-------- --------
Increase (decrease) from investment operations:
Net investment loss $ (0.08) $ (0.01)
Net realized and unrealized gain on investments
and foreign currency transactions 8.77 0.34
-------- --------
Net increase from investment operations $ 8.69 $ 0.33
Distributions to shareholders:
Net investment income (0.09) -
Net realized gain (1.93) -
-------- --------
Net increase in net asset value $ 6.67 $ 0.33
-------- --------
Net asset value, end of period $ 27.55 $ 20.88
-------- --------
Total return* 44.51% 1.61%
Ratio of net expenses to average net assets 1.99%+ 2.02%**+
Ratio of net investment loss to average net assets (0.39)%+ (0.15)%**+
Portfolio turnover rate 47% 66%
Average commission rate paid(1) $0.0585 $0.0424
Net assets, end of period (in thousands) $ 2,267 $ 214
Ratios assuming reduction for fees paid indirectly:
Net expenses 1.95% 2.01%**
Net investment loss (0.35)% (0.14)%**
</TABLE>
(a) The per share data presented above is based upon the average shares
outstanding for the period presented.
* 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 sales 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.
22 The accompanying notes are an integral part of these financial
statements.
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/97
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.
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 as the Fund is
informed of the ex-dividend data in the exercise of reasonable diligence.
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.
23
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/97 (continued)
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. dollar 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, 1997,
the Fund had no outstanding settlement or portfolio hedges.
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.
24
<PAGE>
Pioneer II
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, 1997, 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, 1997 the Fund has reclassified approximately $615,000 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.
In order to comply with federal income tax regulations, the Fund has
designated approximately $715,736,000 as a capital gain dividend for
purposes of the dividend paid deduction.
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 $2,139,000 in underwriting commissions on the sale of fund
shares during the year ended September 30, 1997.
25
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/97 (continued)
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), 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, 1997, the aggregate performance
adjustment resulted in a reduction to the basic fee of approximately
$1,075,000.
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, 1997, the net management fee was equivalent to 0.58% of
average 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, 1997, approximately $3,989,000 was payable to PMC
related to management fees and certain other services.
26
<PAGE>
Pioneer II
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 $835,000 in transfer agent fees payable to PSC
at September 30, 1997.
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 $3,649,000 in distribution fees payable to
PFD at September 30, 1997.
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. For the year ended September 30, 1997, CDSCs in the
amount of approximately $16,000 were 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, 1997, the Fund's expenses were reduced by
approximately $1,056,000 under such arrangements.
27
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/97 (continued)
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, 1997 (amounts in thousands):
<TABLE>
<CAPTION>
Dividend
Affiliates Purchases Sales Income Value
- -------------------------------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
A.M. Castle & Co. $ - $ 5,091 $ 827 $ 28,933
A.O. Smith Corp. 14,817 14,306 826 42,589
AGCO Corp. 31,797 9,791 186 163,159
AMBAC Inc. 17,712 20,920 2,191 261,466
Amcast Industrial Corp. - - 477 20,872
Arrow Electronics, Inc. 6,230 28,244 - 257,340
Breed Technologies, Inc. 1,875 4,300 558 63,000
Briggs & Stratton Corp. 5,653 25 2,103 96,052
Brunswick Corp. 34,878 - 2,503 198,814
Champion Enterprises, Inc. 74,095 - - 76,500
Dionex Corp. - - - 64,078
Donaldson Co., Inc. - 4,257 900 117,719
Etec Systems, Inc. 54,035 6,644 - 98,325
Global Industrial Technologies, Inc. 10,265 - - 39,589
Halter Marine Group Inc. 10,426 - - 86,298
Hawaiian Electric Industries, Inc. 3,617 2,309 7,354 112,060
IBP, Inc. 2,399 15,005 885 198,450
Lancaster Colony Corp. 17,317 - 1,364 107,047
Longview Fibre Co. - 23,774 2,516 62,932
Mississippi Chemical Corp. 57,695 - 509 47,350
MTS Systems Corp. 736 1,056 202 18,108
Oakwood Homes Corp. 62,663 1,345 67 83,882
Read-Rite Corp. 76,008 - - 82,251
Resource Bancshares Mortgage
Group, Inc. 3,834 - 169 20,900
RoTech Medical Corp. 33,841 - - 34,650
Rouge Industries, Inc. - - 239 31,102
Santa Fe Pacific Pipeline Partners,
L.P. 6,865 - 3,807 53,013
Simpson Industries, Inc. 1,597 - 550 16,303
Strattec Security Corp. 221 701 - 9,095
Trinity Industries, Inc. 6,368 8,340 2,709 187,398
--------- --------- -------- -----------
$534,944 $146,108 $30,942 $2,679,275
--------- --------- -------- -----------
</TABLE>
28
<PAGE>
Pioneer II
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareowners and the Board of Trustees of Pioneer II:
We have audited the accompanying balance sheet, including the schedule of
investments, of Pioneer II as of September 30, 1997, 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, 1997 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, 1997, 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, 1997
29
<PAGE>
Pioneer II
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
Trustees Officers
John F. Cogan, Jr. John F. Cogan, Jr., Chairman and
Richard H. Egdahl, M.D. President
Margaret B.W. Graham David D. Tripple, Executive Vice President
John W. Kendrick Francis J. Boggan, Vice President
Marguerite A. Piret William H. Keough, Treasurer
David D. Tripple Joseph P. Barri, Secretary
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 LLP
Shareowner Services and Transfer Agent
Pioneering Services Corporation
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This page for your notes.
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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.
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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.)
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RETIREMENT PLANS FROM PIONEER
Pioneer has a long history of helping people work toward their retirement
goals, offering plans suited to the individual investor and businesses of all
sizes. For more information on Pioneer retirement plans, contact your
investment professional, or call Pioneer at 1-800-622-0176.
Individual Retirement Account (IRA)
An IRA is a tax-favored account that allows anyone under age 70-1/2 with earned
income to contribute up to $2,000 annually. Spouses may contribute up to $2,000
annually into a separate IRA, for a total of $4,000 per year for a married
couple. Earnings are tax-deferred, and contributions may be tax-deductible.
Roth IRA
The Roth IRA came about as part of the Taxpayer Relief Act of 1997 and is
available to investors in 1998. Contributions, up to $2,000 a year, are not
tax-deductible, but earnings are tax-free for qualified withdrawals.
401(k) Plan
The traditional 401(k) plan allows employees to make pre-tax contributions
through payroll deduction, up to $9,500 per year or 25% of pay, whichever is
less. Employers may contribute.
SIMPLE (Savings Incentive Match PLan for Employees)
401(k) or IRA Plan
Businesses with 100 or fewer eligible employees can establish either plan; both
resemble the traditional 401(k), but with less testing and lower administration
costs. Employees can make pre-tax contributions of up to $6,000 per year, and
an employer contribution is required.
Most retirement plan withdrawals must meet
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403(b) Plan
Also known as a Tax-Sheltered Account (TSA), a 403(b) plan is available only to
employees of public schools, not-for-profit hospitals and other tax-exempt
organizations. A 403(b) plan lets employees set aside a portion of their
salary, before taxes, through payroll deduction.
Simplified Employee Pension Plan (SEP)
SEPs let self-employed people and small-business owners make tax-deductible
contributions of up to 15% of their income. Employers must contribute the same
percentage of pay for themselves and any eligible employees; contributions are
made directly to employees' IRAs. SEPs are easy to administer and can be an
especially good choice for firms with few or no employees.
Profit Sharing Plan
Profit sharing plans offer companies considerable flexibility, allowing them to
decide each year whether a contribution will be made and how much, up to 15% of
each participant's pay. These plans can include provisions for loans and
vesting schedules.
Age-Weighted Profit Sharing Plan
Like traditional profit sharing plans, employer contributions are flexible, but
age-weighted plans allocate contributions based on both age and salary. Age-
weighted plans are designed for employers who want to maximize their own
contributions while keeping contributions to employees affordable.
Money Purchase Pension Plan (MPP)
Money purchase plans are similar to profit-sharing plans, but allow for higher
annual contributions - up to 25% of pay. MPPs aren't as flexible as profit
sharing plans; a fixed percentage of pay must be contributed each year,
determined when the plan is established. Businesses often set up both MPPs and
profit sharing plans.
specific conditions to avoid penalties.
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THE PIONEER FAMILY OF MUTUAL FUNDS
For information about any Pioneer mutual fund, please contact your investment
professional, or call Pioneer at 1-800-225-6292. Ask for a free fund
information kit, which includes a fund prospectus. Please read the prospectus
carefully before you invest or send money.
Growth Funds Global/International
Pioneer Emerging Markets Fund Invests for long-term growth of capital primarily
from stocks of companies located in countries with emerging economies.
Pioneer Europe Fund Invests for long-term growth of capital primarily from
stocks of both Eastern and Western European companies.
Pioneer Gold Shares Invests for long-term capital appreciation from stocks of
companies engaged in the mining, processing, refining or sale of gold or other
precious metals.
Pioneer India Fund Invests for long-term growth of capital primarily from
stocks of Indian companies.
Pioneer International Growth Fund Invests for long-term growth of capital from
a broadly diversified portfolio primarily of stocks of companies in both
established and emerging markets.
Pioneer World Equity Fund Invests for long-term growth of capital from a
diversified portfolio of large- and mid-sized companies located throughout the
world.
Growth Funds United States
Pioneer Capital Growth Fund Invests for long-term capital appreciation from a
diversified portfolio of securities, primarily common stocks, that exhibit
undervalued, undiscovered or turnaround characteristics.
Pioneer Growth Shares Invests for long-term capital appreciation primarily from
common stocks of companies believed to have better-than-average earnings growth
potential and well-established market positions.
Pioneer Micro-Cap Fund Invests for long-term capital appreciation from stocks
of companies with market capitalizations of $300 million or less at the time of
purchase.
Pioneer Mid-Cap Fund Invests for long-term capital growth primarily from stocks
of companies with market capitalizations between $100 million and $5 billion at
the time of purchase.
Pioneer Small Company Fund Invests for long-term capital appreciation primarily
from stocks of small companies capitalized at $1 billion or less at time of
purchase.
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Growth and Income Funds
Pioneer Balanced Fund Invests for a balance of capital growth and income;
growth from common stocks and securities with common stock characteristics;
income dividends primarily from dividend-paying bonds and stocks.
Pioneer Equity-Income Fund Invests for current income and long-term growth of
capital primarily from income-producing stocks and convertible securities of
U.S. corporations.
Pioneer Fund Invests for reasonable income and long-term growth of capital
primarily from common stocks, preferred stocks and securities convertible into
common stocks.
Pioneer Real Estate Shares Invests for long-term growth of capital primarily
from stocks of real estate investment trusts (REITs) and other real estate
industry companies. Income is a secondary objective.
Pioneer II Invests for reasonable income and growth of capital primarily from
stocks of U.S. companies; up to 25% of assets may be invested in equity
securities of companies based outside of the U.S.
Income Funds Taxable
Pioneer America Income Trust Invests for high current income, consistent with
preservation of capital, from securities issued by the U.S. government and its
agencies.
Pioneer Bond Fund Invests for current income, consistent with preservation of
capital, from a high-quality portfolio with at least 85% U.S. government
securities and corporate bonds rated "A" or higher.
Pioneer Short-Term Income Trust Invests for high current income, consistent
with relatively strong stability of principal, from high-quality, short-term
debt securities; portfolio has an average maturity of three years or less.
Income Funds Tax-Exempt
Pioneer Intermediate Tax-Free Fund Invests for high current income, exempt from
federal income taxes, from high-quality municipal bonds; portfolio has an
average maturity of 10 years or less.
Pioneer Tax-Free Income Fund Invests for high current income, exempt from
federal income taxes, consistent with preservation of capital, primarily from
high-quality municipal bonds.
Money Market Fund
Pioneer Cash Reserves Fund Invests for high current income and preservation of
capital from high-quality money market instruments issued by the U.S.
government, corporations and banks.
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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.
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
Write to us:
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)
Visit our website: www.pioneerfunds.com
This report must be preceded or accompanied by a current
Fund prospectus.
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Pioneer Funds Distributor, Inc.
60 State Street 1197 - 4588
Boston, Massachusetts 02109 (C) Pioneer Funds Distributor, Inc.
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