[Pioneer Logo]
Pioneer II
ANNUAL REPORT 9/30/98
<PAGE>
Table of Contents
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<TABLE>
<S> <C>
Letter from the Chairman 1
Portfolio Summary 2
Performance Update 3
Portfolio Management Discussion 6
Schedule of Investments 10
Financial Statements 18
Notes to Financial Statements 25
Report of Independent Public Accountants 31
Trustees, Officers and Service Providers 32
The Pioneer Family of Mutual Funds 33
Programs and Services for Pioneer Shareowners 34
Retirement Plans from Pioneer 36
</TABLE>
<PAGE>
Pioneer II
LETTER FROM THE CHAIRMAN 9/30/98
Dear Shareowner,
- --------------------------------------------------------------------------------
The end of September marked the close of Pioneer II's 29th fiscal year, a period
that put seasoned value investors to the test. I appreciate this opportunity to
comment on the year's challenges and progress.
The past 12 months were volatile for financial markets in the U.S. and around
the globe. Volatility is, and always will be, part of investing. We think it is
important to point out that the current fluctuations in stock prices are
relatively normal, compared to historical market movements. Short-term memory to
the contrary, it is the steadily rising stock prices of recent years that are
aberrations, no matter how enjoyable. But patience and discipline can help
mitigate volatility. Pioneer II offers just one example. Since its inception in
1969, Pioneer II has offered investors solid performance by focusing on value.
The Fund has outperformed the Standard & Poor's 500 Index for its 29 years
through September 30, 1998. Even so, in some individual years, such as this one,
performance has been disappointing.
In September, Richard Dahlberg took on Pioneer II's day-to-day management,
succeeding Frank Boggan. Mr. Dahlberg brings to Pioneer over 30 years of
experience managing money and a steadfast dedication to effective value
investing. We are delighted to have him lead the Fund's investment team and
believe his efforts will reward shareowners. I encourage you to read the
Portfolio Management Discussion to share his insights and strategies as a
steward of Pioneer's 70-year tradition of value investing.
As we move ahead, the investment team will be working hard to bring you solid
performance, but you should be prepared for the inevitable ups and downs that
are part of stock investing. If you have any questions about the Fund, please
contact your investment professional, or Pioneer at 1-800-225-6292.
Respectfully,
/s/ John F. Cogan, Jr.
John F. Cogan, Jr.,
Chairman and President
1
<PAGE>
Pioneer II
PORTFOLIO SUMMARY 9/30/98
P o r t f o l i o D i v e r s i f i c a t i o n
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(As a percentage of total investment portfolio)
[Pie Chart]
U.S. Common Stocks 82.7%
Short-Term Cash Equivalents 8.6%
International Common Stocks 5.4%
Depositary Receipts for
International Stocks 3.2%
Convertible Securities 0.1%
S e c t o r D i s t r i b u t i o n
- --------------------------------------------------------------------------------
(As a percentage of equity holdings)
[Pie Chart]
Financial 23%
Capital Goods 13%
Technology 12%
Healthcare 12%
Consumer Cyclicals 11%
Utilities 9%
Basic Materials 5%
Energy 5%
Consumer Staples 5%
Other 5%
1 0 L a r g e s t H o l d i n g s
- --------------------------------------------------------------------------------
(As a percentage of equity holdings)
<TABLE>
<S> <C> <C> <C>
1. Ambac Financial Group, 5.24% 6. Charter One Financial, 2.75%
Inc. Inc.
2. Dominion Resources, Inc. 5.13 7. Trinity Industries, Inc. 2.51
3. Conseco, Inc. 4.28 8. IBP, Inc. 2.47
4. Merck & Co., Inc. 4.20 9. Hawaiian Electric 2.44
Industries, Inc.
5. Philips Electronics NV 4.17 10. Intel Corp. 2.27
(NY shares)
</TABLE>
Fund holdings will vary for other periods.
2
<PAGE>
Pioneer II
PERFORMANCE UPDATE 9/30/98 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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Net Asset Value
per Share 9/30/98 9/30/97
$18.32 $27.85
Distributions per Share Income Short-Term Long-Term
(9/30/97-9/30/98) Dividends Capital Gains Capital Gains
$0.155 $0.269 $3.074
</TABLE>
I n v e s t m e n t R e t u r n s
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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, 1998)
<TABLE>
<S> <C> <C>
Net Asset Public Offering
Period Value Price*
10 Years 10.52% 9.86%
5 Years 9.89 8.60
1 Year -23.97 -28.34
</TABLE>
* Reflects deduction of the maximum 5.75% sales charge at the beginning
of the period and assumes reinvestment of distributions at net asset
value.
[Class A Shares Mountain Chart]
Standard & Poor's
Pioneer II* 500 Index
9/88 9425 10000
11294 13290
9/90 9878 12062
12309 15808
9/92 13529 17547
15985 19817
9/94 17163 20554
20581 26646
9/96 23087 32045
33697 44991
9/98 25620 49049
[End Class A Shares Mountain Chart]
The Standard & Poor's 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
<PAGE>
Pioneer II
PERFORMANCE UPDATE 9/30/98 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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Net Asset Value
per Share 9/30/98 9/30/97
$17.98 $27.52
Distributions per Share Income Short-Term Long-Term
(9/30/97-9/30/98) Dividends Capital Gains Capital Gains
$0.024 $0.269 $3.074
</TABLE>
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, compared to the growth of the Standard & Poor's 500 Index.
Average Annual Total Returns
(As of September 30, 1998)
<TABLE>
<CAPTION>
If If
Period Held Redeemed*
<S> <C> <C>
Life-of-Fund 4.57% 3.46%
(7/1/96)
1 Year -24.76 -27.37
</TABLE>
* 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.
[Class B Shares Mountain Chart]
Standard & Poor's
Pioneer II* 500 Index
7/1/96 10000 10000
9304 9468
9/96 10165 10227
11403 11078
3/97 11419 11377
13165 13359
9/97 14698 14358
13962 14769
3/98 15370 16825
14269 17378
9/98 10797 15653
[End Class B Shares Mountain Chart]
The Standard & Poor's 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
<PAGE>
Pioneer II
PERFORMANCE UPDATE 9/30/98 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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Net Asset Value
per Share 9/30/98 9/30/97
$18.02 $27.55
Distributions per Share Income Short-Term Long-Term
(9/30/97 -9/30/98) Dividends Capital Gains Capital Gains
$0.060 $0.269 $3.074
</TABLE>
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, compared to the growth of the Standard & Poor's 500 Index.
Average Annual Total Returns
(As of September 30, 1998)
<TABLE>
<S> <C> <C>
If If
Period Held Redeemed*
Life-of-Fund 4.65% 4.65%
(7/1/96)
1 Year -24.56 -24.56
</TABLE>
* Assumes reinvestment of distributions. The 1% contingent deferred sales
charge (CDSC) applies to redemptions made within one year of purchase.
[Class C Shares Mountain Chart]
Standard & Poor's
Pioneer II* 500 Index
7/1/96 10000 10000
9304 9468
9/96 10161 10227
11400 11078
3/97 11410 11377
13142 13359
9/97 14683 14358
13952 14769
3/98 15360 16825
14253 17378
9/98 11076 15653
[End Class C Shares Mountain Chart]
The Standard & Poor's 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
<PAGE>
Pioneer II
PORTFOLIO MANAGEMENT DISCUSSION 9/30/98
The following discussion with Richard Dahlberg, the new head of Pioneer II's
investment team, details the investment environment for the past year and the
strategies he and the Fund's investment team expect to employ going forward. An
investment professional for over 30 years, Mr. Dahlberg also oversees Pioneer's
core value investment team.
Q: How did the Fund perform for the fiscal year?
A: It was a difficult period. With global volatility increasing throughout the
year, investors generally preferred the safety and liquidity of a select
number of large blue chip stocks. These stocks accounted for most of the
stock market gains. The Standard & Poor's 500 Index, a benchmark of large
company performance, returned 9.02%. Small and mid-sized companies, as
represented by the Russell 2000 Index and the Standard & Poor's Midcap 400
Index, posted returns of -19.02% and -6.07%, respectively.
The Fund's emphasis on small and medium-sized companies and our value
orientation were the main contributors to the Fund's underperformance. For
the 12 months ended September 30, 1998, Class A Shares of your Fund
generated a total return of -23.97% based on net asset value. By comparison,
the average growth and income fund returned -1.08%, as tracked by Lipper
Analytical Services. (Lipper is an independent research firm that ranks the
performance of mutual funds based on total return, excluding sales charges.)
Q: What is your vision for this Fund?
A: First of all, Pioneer II has been, is, and always will be a conservative
value-oriented fund. Its objective is still to provide shareowners with
reasonable income and capital growth. And the Fund will continue to invest
in a mix of domestic and international stocks.
Overall, companies that make up the portfolio will be those we think have
the greatest potential to provide shareowners with a good total return. We
understand that investors in the Fund are conservative.
6
<PAGE>
Pioneer II
Therefore, our goal is to improve performance while limiting the risk of
losses in what is by historical standards a stock market selling at high
valuations.
Q: How do you explain your "value" approach to investing?
A: We seek value by looking at the "earnings power" of quality companies. We
use a conservative but opportunistic approach. For example, when a company
is fundamentally sound and its stock has fallen sharply, we become
interested. We want to find out why the company's strength is not reflected
in its stock price. The next step is to examine whether the company has
solutions to its problems. For example, management may have just resolved
structural difficulties. In other cases, the company's business cycle may be
at or past its bottom. We're looking for situations where the potential is
there, even though earnings increases may still be a quarter or two away.
Q: How do you measure Pioneer II's value?
A: There is no one universal gauge of value for all securities or industries.
Because it is critical to measure value as accurately as possible, we use
whatever method is best suited to the business at hand. For example, in the
oil business, cash flow and dividend yields are often better measures than
price-to-earnings ratios (P/E), which give only a rough idea of how
expensive a stock is. When examining technology companies, comparing the
stock price to sales is usually more useful than looking at book value,
because intangible assets can distort book value. When all is said and done,
however, we expect the portfolio will continue to represent a substantial
value, especially when compared to the Standard & Poor's 500 and some other
indexes. While these measures provide some indication of a stock's worth,
what really makes them valuable is the improving fundamental condition of a
company. This can only be ascertained through a detailed analysis.
7
<PAGE>
Pioneer II
PORTFOLIO MANAGEMENT DISCUSSION 9/30/98 (continued)
Q: You look at a company's liquidity when picking stocks. Why is that
important?
A: Liquidity is key in several ways. Companies that are building cash show
strength, while the opposite is true for companies with deteriorating cash
positions. It may sound like a simple concept, but it's amazing how often
liquidity is overlooked as a measure of value. In a similar vein, stocks
that pay dividends may be less volatile in adverse market conditions.
We also pay attention to liquidity on the Fund level. Maintaining a modest
cash position of about 4% to 5% of assets allows us to take advantage of
opportunities quickly, without the extra step of selling holdings first.
Q: Do you have any preferences for the size of stocks in the portfolio?
A: Pioneer II has the ability to invest in companies of all sizes. We currently
are finding attractive stocks with market capitalizations of up to $15
billion. As a result, the average size of the companies in the portfolio
will most likely increase, with fewer smaller holdings than the Fund has had
in recent years. That said, we will continue to maintain a highly
diversified portfolio.
Q: What do you think Pioneer II's portfolio will look like in three to six
months?
A: A typical Fund holding will be less expensive than the average company in
the S&P 500. Comparing P/E ratios, a stock in the portfolio will be about
20% cheaper. It will likely have an average price-to-book value ratio that
is one-third lower than the Index.
When we look at the Fund's international stocks, we'll apply many of the
same disciplines. I'm pleased to say, though, that we'll be drawing even
more on Pioneer's international research equity group for additional
insights. We expect the result to be an increased variety, if not quantity,
of overseas investment opportunities.
8
<PAGE>
Pioneer II
Q: What are some of the changes you made in September?
A: First, we reduced the number of holdings in the portfolio. We completely
sold ContiFinancial and reduced the position in Aames Financial. We are
putting more emphasis on the larger companies in the financial sector such
as Allstate and Chase Manhattan. These companies are attractive to us
because they hold dominant positions in their industries but have recently
lost favor with investors.
One group where we increased the weighting was healthcare. In uncertain
times like these, healthcare is one area that usually continues to expand
and grow. Two companies we like are American Home Products and Wellpoint
Health Networks.
Q: Do you anticipate any tax consequences as a result of repositioning the
Fund?
A: We are very aware of the potential tax consequences portfolio transactions
may have on shareowners, especially in a year with negative returns. The
Fund distributes capital gains to shareowners in December, and we have
worked to keep the distribution for this year small, somewhere in the range
of $0.15 to $0.20 per share.
Q: What is your outlook for the next six months?
A: We're cautiously optimistic. While the U.S. economy is benefiting from
benign inflation and low interest rates, corporate earnings will be the key
to further market growth. The global financial situation seems to have held
interest rates down which, in turn, should help to sustain valuations. And,
while choppy markets can be hard on the nerves, they can provide
opportunities to invest in companies with the long-term potential we want
for the Fund. That's an exciting prospect. I'm also excited to be the new
steward of Pioneer's long tradition of value investing, and very much look
forward to taking Pioneer II into the next millennium.
9
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 9/30/98
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
INVESTMENT IN SECURITIES - 91.4%
CONVERTIBLE CORPORATE BOND - 0.1%
$4,000,000 Halter Marine Group, Inc., Exchangeable Note,
4.5%, 9/15/04(144A)+ $ 2,906,000
--------------
TOTAL CONVERTIBLE CORPORATE BOND
(Cost $4,000,000) $ 2,906,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
PREFERRED STOCK - 0.4%
355,000 Telecomunicacoes Brasileiras SA (A.D.R.) $ 24,495,000
--------------
TOTAL PREFERRED STOCK
(Cost $32,191,381) $ 24,495,000
--------------
COMMON STOCKS - 90.9%
Basic Materials - 4.3%
Chemicals (Diversified) - 1.7%
185,000 E.I. du Pont de Nemours and Co. $ 10,383,125
1,440,000 Lyondell Petrochemicals Co. 32,040,000
2,180,000 Mississippi Chemical Corp.+ 26,432,500
500,000 Monsanto Co. 28,187,500
--------------
$ 97,043,125
--------------
Chemicals (Specialty) - 1.0%
1,800,000 Cytec Industries Inc.* $ 32,175,000
4,105,800 Terra Industries Inc.+ 22,838,513
--------------
$ 55,013,513
--------------
Containers & Packaging (Paper) - 0.3%
4,300,000 Vitro SA (A.D.R.) $ 18,006,250
--------------
Gold & Precious Metals Mining - 0.2%
500,000 Newmont Mining Corp. $ 12,125,000
--------------
Iron & Steel - 0.7%
1,440,800 British Steel Plc (A.D.R.) $ 26,204,550
1,792,900 Rouge Industries, Inc.+ 13,446,750
--------------
$ 39,651,300
--------------
Paper & Forest Products - 0.4%
1,600,000 Longview Fibre Co. $ 21,500,000
--------------
Total Basic Materials $ 243,339,188
--------------
</TABLE>
10 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Capital Goods - 11.5%
Containers (Metals & Glass) - 0.3%
726,000 Owens-Illinois, Inc.* $ 18,150,000
--------------
Electrical Equipment - 3.8%
3,983,900 Philips Electronics NV (NY Shares) $ 212,640,663
--------------
Machinery (Diversified) - 0.0%
102,900 Global Industrial Technologies, Inc.* $ 720,300
--------------
Manufacturing (Diversified) - 2.8%
538,900 Amcast Industrial Corp.+ $ 7,915,094
673,000 Hanson Plc (A.D.R.) 20,905,062
3,947,600 Trinity Industries, Inc.+ 128,050,275
--------------
$ 156,870,431
--------------
Manufacturing (Specialized) - 4.1%
1,638,700 Briggs & Stratton Corp.+ $ 67,391,537
2,376,000 Dionex Corp.*+ 55,242,000
4,890,000 Donaldson Co., Inc.+ 78,240,000
2,518,400 Halter Marine Group, Inc.*+ 28,646,800
--------------
$ 229,520,337
--------------
Metal Fabricators - 0.3%
911,125 A.M. Castle & Co.+ $ 13,723,820
--------------
Waste Management - 0.2%
175,000 Waste Management Inc. $ 8,410,937
--------------
Total Capital Goods $ 640,036,488
--------------
Communication Services - 2.7%
Telephone - 2.7%
300,000 Ameritech Corp. $ 14,212,500
2,225,000 Bell Atlantic Corp. 107,773,437
600,000 SBC Communications Inc. 26,662,500
--------------
Total Communication Services $ 148,648,437
--------------
Consumer Cyclicals - 9.6%
Auto Parts & Equipment - 0.4%
1,839,400 Breed Technologies, Inc. $ 11,266,325
665,000 Simpson Industries, Inc. 6,691,562
127,000 Strattec Security Corp.* 3,365,500
--------------
$ 21,323,387
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 11
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 9/30/98 (continued)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Automobiles - 1.0%
1,010,000 General Motors Corp. $ 55,234,375
--------------
Consumer (Jewelry, Novelties, & Gifts) - 2.1%
3,747,450 Lancaster Colony Corp.+ $ 115,234,087
--------------
Homebuilding - 4.7%
4,145,000 Champion Enterprises, Inc.*+ $ 96,371,250
6,627,200 Clayton Homes, Inc.+ 112,251,514
3,966,200 Oakwood Homes Corp.+ 52,056,375
--------------
$ 260,679,139
--------------
Retail (Department Stores) - 0.8%
400,000 Federated Department Stores, Inc.* $ 14,550,000
700,000 J.C. Penney Co., Inc. 31,456,250
--------------
$ 46,006,250
--------------
Retail (Specialty) - 0.6%
500,000 Officemax Inc.* $ 4,906,250
1,900,000 Toys "R" Us, Inc.* 30,756,250
--------------
$ 35,662,500
--------------
Total Consumer Cyclicals $ 534,139,738
--------------
Consumer Staples - 4.9%
Foods - 3.0%
6,205,900 IBP, Inc.+ $ 125,669,475
20,000 Nestle SA (Registered Shares) 39,901,478
--------------
$ 165,570,953
--------------
Household Products (Non-Durables) - 0.2%
200,000 Procter & Gamble Co. $ 14,187,500
--------------
Services (Employment) - 1.7%
2,850,000 Kelly Services Inc. (non-voting) $ 89,418,750
215,000 Manpower, Inc. 4,394,063
--------------
$ 93,812,813
--------------
Total Consumer Staples $ 273,571,266
--------------
</TABLE>
12 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Energy - 4.7%
Oil & Gas (Drilling & Equipment) - 1.5%
1,858,100 BJ Services Co.* $ 30,194,125
315,600 ENSCO International, Inc. 3,412,425
1,400,000 R&B Falcon Corp.* 16,800,000
410,000 Smith International, Inc.* 11,249,375
836,800 Tidewater, Inc. 17,363,600
300,000 Weatherford International Inc.* 6,487,500
--------------
$ 85,507,025
--------------
Oil (Domestic Integrated) - 1.3%
1,040,000 Atlantic Richfield Co. $ 73,775,000
--------------
Oil (International Integrated) - 1.3%
550,000 Texaco, Inc. $ 34,478,125
1,411,000 YPF SA (Class D) (A.D.R.) 36,686,000
--------------
$ 71,164,125
--------------
Oil (International Integrated) - 0.6%
400,000 Anadarko Petroleum Corp. $ 15,725,000
400,000 Burlington Resources Inc. 14,950,000
--------------
$ 30,675,000
--------------
Total Energy $ 261,121,150
--------------
Financial - 20.6%
Banks (Major Regional) - 1.8%
1,225,000 Banc One Corp. $ 52,215,625
1,039,600 Banco Rio De La Plata SA (A.D.R.) 8,836,600
550,000 Fleet Financial Group, Inc. 40,390,625
--------------
$ 101,442,850
--------------
Banks (Money Center) - 1.8%
2,300,000 The Chase Manhattan Corp. $ 99,475,000
--------------
Banks (Regional) - 0.6%
1,242,100 North Fork Bancorp $ 24,842,000
615,000 Resource Bancshares Mortgage Group, Inc. 10,916,250
--------------
$ 35,758,250
--------------
Consumer Finance - 1.2%
539,100 Aames Financial Corp. $ 3,268,294
1,485,000 Countrywide Credit Industries, Inc. 61,813,125
--------------
$ 65,081,419
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 13
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 9/30/98 (continued)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Financial (Diversified) - 4.8%
5,560,300 Ambac Financial Group, Inc.+ $ 266,894,400
--------------
Insurance (Life/Health) - 3.9%
7,130,389 Conseco, Inc. $ 217,922,514
--------------
Insurance (Property/Casualty) - 1.2%
1,550,000 Allstate Corp. $ 64,615,625
--------------
Investment Management - 0.7%
1,201,900 Franklin Resources, Inc. $ 36,057,000
--------------
Savings & Loans Companies - 4.6%
5,638,500 Charter One Financial, Inc. $ 140,257,687
507,500 Washington Federal, Inc. 12,687,500
3,150,000 Washington Mutual, Inc. 106,312,500
--------------
$ 259,257,687
--------------
Total Financial $1,146,504,745
--------------
Healthcare - 11.4%
Biotechnology - 2.0%
1,475,000 Amgen, Inc.* $ 111,454,687
--------------
Healthcare (Diversified) - 2.0%
860,400 Abbott Laboratories $ 37,373,625
1,150,000 American Home Products Corp. 60,231,250
1,135,000 Dura Pharmaceuticals, Inc.* 12,414,062
--------------
$ 110,018,937
--------------
Healthcare (Drugs/Major Pharmaceuticals) - 5.8%
2,800,000 Astra AB (Series A Free) $ 47,872,408
500,000 Lilly, Eli & Co. 39,156,250
1,650,000 Merck & Co., Inc. 213,778,125
300,000 Novartis AG (A.D.R.) 24,107,337
--------------
$ 324,914,120
--------------
Healthcare (Hospital Management) - 0.4%
1,050,000 Columbia/HCA Healthcare Corp. $ 21,065,625
--------------
Healthcare (Long Term Care) - 0.6%
1,018,300 Integrated Health Services, Inc.* $ 17,120,169
1,000,000 USEC Inc. 15,437,500
--------------
$ 32,557,669
--------------
</TABLE>
14 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Healthcare (Managed Care) - 0.6%
604,900 Humana Inc.* $ 9,905,237
425,600 Wellpoint Health Networks Inc.* 23,860,200
--------------
$ 33,765,437
--------------
Total Healthcare $ 633,776,475
--------------
Technology - 10.8%
Computers (Hardware) - 3.4%
1,350,000 Dell Computer Corp.* $ 88,762,500
800,000 IBM Corp. 102,400,000
--------------
$ 191,162,500
--------------
Computers (Peripherals) - 0.8%
1,650,000 Storage Technology Corp.* $ 41,971,875
--------------
Computers (Software & Services) - 0.3%
512,500 Network Associates, Inc.* $ 18,193,750
--------------
Electronics (Component Distributors) - 1.2%
5,000,000 Arrow Electronics, Inc.*+ $ 65,625,000
--------------
Equipment (Communications) - 0.4%
1,240,000 Alcatel Alsthom Compagnie G-n-rale
d'Electricit- (A.D.R.) $ 21,080,000
--------------
Electronics (Instrumentation) - 0.2%
788,200 MTS Systems Corp. $ 11,625,950
--------------
Electronics (Semiconductors) - 3.1%
1,385,000 Etec Systems, Inc.*+ $ 36,096,562
1,350,000 Intel Corp. 115,762,500
400,000 Texas Instruments Inc. 21,100,000
--------------
$ 172,959,062
--------------
Equipment (Semiconductor) - 0.1%
525,000 Helix Technology Corp. $ 5,184,375
--------------
Photography/Imaging - 1.3%
950,000 Eastman Kodak Co. $ 73,446,875
--------------
Total Technology $ 601,249,387
--------------
Transportation - 2.0%
Airlines - 0.2%
200,000 AMR Corp.* $ 11,087,500
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 15
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 9/30/98 (continued)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Railroads - 1.8%
1,430,000 CSX Corp. $ 60,149,375
1,000,000 Union Pacific Corp. 42,625,000
--------------
$ 102,774,375
--------------
Total Transportation $ 113,861,875
--------------
Utilities - 8.4%
Electric Companies - 6.9%
5,862,000 Dominion Resources, Inc. $ 261,591,750
3,009,063 Hawaiian Electric Industries, Inc.+ 124,123,849
--------------
$ 385,715,599
--------------
Natural Gas - 1.5%
2,073,000 Kinder Morgan Energy Partners, L.P. $ 68,668,125
600,000 Williams Co., Inc. 17,250,000
--------------
$ 85,918,125
--------------
Total Utilities $ 471,633,724
--------------
TOTAL COMMON STOCKS
(Cost $4,557,332,131) $5,067,882,473
--------------
TOTAL INVESTMENT IN SECURITIES
(Cost $4,593,523,512) $5,095,283,473
--------------
</TABLE>
16 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
TEMPORARY CASH INVESTMENTS - 8.6%
Commercial Paper - 8.6%
$45,000,000 American Express Co., 5.57%, 10/1/98 $ 45,000,000
41,653,000 Commercial Credit Corp., 5.28%,10/9/98 41,653,000
12,132,000 Chevron Oil Finance, 5.70%, 10/1/98 12,132,000
30,366,000 Ford Motor Credit Co., 5.35%, 10/5/98 30,366,000
47,000,000 General Electric Credit Corp., 5.52%, 10/7/98 47,000,000
49,500,000 General Motors Acceptance Corp., 5.50%,
10/16/98 49,386,563
44,000,000 General Motors Acceptance Corp., 5.51%,
10/23/98 44,000,000
42,321,000 Household Financial Corp., 5.54%, 10/2/98 42,321,000
30,000,000 IBM Credit Corp., 5.25%, 10/6/98 30,000,000
40,000,000 John Deere Co., 5.24%, 10/13/98 40,000,000
50,000,000 Northwest Financial Corp., 5.55%, 10/8/98 50,000,000
50,000,000 Prudential Funding Corp., 5.54%, 10/2/98 50,000,000
--------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $481,858,563) $ 481,858,563
--------------
TOTAL INVESTMENT IN SECURITIES AND
TEMPORARY CASH INVESTMENTS - 100%
(Cost $5,075,382,075) (a) $5,577,142,036
===============
</TABLE>
* 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, 1998, the net unrealized gain on investments based on cost
for federal income tax purposes of $5,081,120,004 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $1,047,743,004
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (551,720,972)
--------------
Net unrealized gain $ 496,022,032
==============
</TABLE>
Purchases and sales of securities (excluding temporary cash investments) for the
year ended September 30, 1998 aggregated $3,513,226,365 and $4,130,200,333,
respectively.
The accompanying notes are an integral part of these financial statements. 17
<PAGE>
Pioneer II
BALANCE SHEET 9/30/98
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (including temporary cash
investments of $481,858,563) (cost $5,075,382,075) $ 5,577,142,036
Cash 824
Receivables -
Investment securities sold 18,772,145
Fund shares sold 2,967,238
Dividends, interest and foreign taxes withheld 4,675,501
Other 70,421
---------------
Total assets $ 5,603,628,165
---------------
LIABILITIES:
Payables -
Investment securities purchased $ 75,030,339
Fund shares repurchased 3,197,619
Due to affiliates 4,239,113
Accrued expenses 220,641
---------------
Total liabilities $ 82,687,712
---------------
NET ASSETS:
Paid-in capital $ 4,954,690,571
Accumulated undistributed net investment income 27,149,585
Accumulated undistributed net realized gain on investments and
foreign currency transactions 37,333,691
Net unrealized gain on investments 501,759,961
Net unrealized gain on forward foreign currency contracts and
other assets and liabilities denominated in foreign currencies 6,645
---------------
Total net assets $ 5,520,940,453
===============
NET ASSET VALUE PER SHARE:
(Unlimited number of shares authorized)
Class A (based on $5,496,480,103/300,002,266 shares) $ 18.32
===============
Class B (based on $21,083,794/1,172,672 shares) $ 17.98
===============
Class C (based on $3,376,556/187,383 shares) $ 18.02
===============
MAXIMUM OFFERING PRICE:
Class A $ 19.44
===============
</TABLE>
18 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
STATEMENT OF OPERATIONS
For the Year Ended 9/30/98
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $2,028,181) $ 113,000,602
Interest (net of foreign taxes withheld of $382) 4,285,835
---------------
Total investment income $ 117,286,437
---------------
EXPENSES:
Management fees
Basic fee $ 43,107,770
Performance adjustment (4,971,157)
Transfer agent fees
Class A 9,989,051
Class B 92,396
Class C 13,807
Distribution fees
Class A 14,700,035
Class B 220,834
Class C 36,080
Accounting 365,190
Custodian fees 372,923
Registration fees 121,750
Professional fees 208,339
Printing 276,450
Fees and expenses of nonaffiliated trustees 85,816
Miscellaneous 144,737
---------------
Total expenses $ 64,764,021
Less fees paid indirectly (165,310)
---------------
Net expenses $ 64,598,711
---------------
Net investment income $ 52,687,726
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments (including $14,943,012 from affiliated
companies) $ 178,448,384
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies (71,634) $ 178,376,750
--------------- ---------------
Change in net unrealized gain or loss from:
Investments $(1,990,811,943)
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 16,570 $(1,990,795,373)
--------------- ---------------
Net loss on investments and foreign currency
transactions $(1,812,418,623)
---------------
Net decrease in net assets resulting from operations $(1,759,730,897)
===============
</TABLE>
The accompanying notes are an integral part of these financial statements. 19
<PAGE>
Pioneer II
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended 9/30/98 and 9/30/97
<TABLE>
<CAPTION>
Year Ended Year Ended
FROM OPERATIONS: 9/30/98 9/30/97
<S> <C> <C>
Net investment income $ 52,687,726 $ 44,394,895
Net realized gain on investments and foreign currency
transactions 178,376,750 775,991,676
Change in net unrealized gain or loss on investments
and foreign currency transactions (1,990,795,373) 1,610,436,038
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations $(1,759,730,897) $2,430,822,609
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A ($0.16 and $0.15 per share, respectively) $ (45,296,909) $ (40,341,924)
Class B ($0.02 and $0.13 per share, respectively) (16,699) (26,735)
Class C ($0.06 and $0.09 per share, respectively) (7,254) (1,701)
Net realized gain:
Class A ($3.34 and $1.93 per share, respectively) (904,693,302) (495,328,383)
Class B ($3.34 and $1.93 per share, respectively) (2,365,132) (350,316)
Class C ($3.34 and $1.93 per share, respectively) (403,479) (38,258)
--------------- ---------------
Total distributions to shareholders $ (952,782,775) $ (536,087,317)
--------------- ---------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 751,999,994 $ 489,131,319
Reinvestment of distributions 899,054,779 507,765,764
Cost of shares repurchased (969,188,428) (772,919,656)
--------------- ---------------
Net increase in net assets resulting from
fund share transactions $ 681,866,345 $ 223,977,427
--------------- ---------------
Net increase (decrease) in net assets $(2,030,647,327) $2,118,712,719
NET ASSETS:
Beginning of year 7,551,587,780 5,432,875,061
--------------- ---------------
End of year (including accumulated undistributed net
investment income of $27,149,585 and $18,804,274,
respectively) $ 5,520,940,453 $7,551,587,780
=============== ==============
</TABLE>
20 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
<TABLE>
<CAPTION>
CLASS A '98 Shares '98 Amount '97 Shares '97 Amount
<S> <C> <C> <C> <C>
Shares sold 30,569,567 $ 729,551,456 19,868,390 $471,321,511
Reinvestment of distributions 39,778,758 896,463,906 23,606,020 507,363,015
Less shares repurchased (40,837,229) (961,622,337) (32,424,860) (768,413,897)
----------- -------------- ----------- -------------
Net increase 29,511,096 $ 664,393,025 11,049,550 $210,270,629
=========== ============== =========== ============
CLASS B
Shares sold 768,581 $ 18,334,775 664,822 $ 15,936,776
Reinvestment of distributions 103,776 2,303,825 17,328 367,649
Less shares repurchased (256,120) (5,827,965) (167,062) (4,296,107)
----------- -------------- ----------- -------------
Net increase 616,237 $ 14,810,635 515,088 $ 12,008,318
=========== ============== =========== ============
CLASS C
Shares sold 171,838 $ 4,113,763 78,505 $ 1,873,032
Reinvestment of distributions 12,930 287,048 1,653 35,100
Less shares repurchased (79,658) (1,738,126) (8,135) (209,652)
----------- -------------- ----------- -------------
Net increase 105,110 $ 2,662,685 72,023 $ 1,698,480
=========== ============== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements. 21
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 9/30/98
<TABLE>
<CAPTION>
Year Ended Year Ended
9/30/98 9/30/97
<S> <C> <C>
CLASS A
Net asset value, beginning of year $ 27.85 $ 20.94
--------- ---------
Increase from investment operations:
Net investment income $ 0.17 $ 0.16
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (6.20) 8.83
--------- ---------
Net increase (decrease) from investment operations $ (6.03) $ 8.99
Distributions to shareholders:
Net investment income (0.16) (0.15)
Net realized gain (3.34) (1.93)
--------- ---------
Net increase (decrease) in net asset value $ (9.53) $ 6.91
--------- ---------
Net asset value, end of year $ 18.32 $ 27.85
========= =========
Total return* (23.97)% 45.95%
Ratio of net expenses to average net assets 0.90%+ 0.96%+
Ratio of net investment income to average net assets 0.74%+ 0.68%+
Portfolio turnover rate 50% 47%
Net assets, end of year (in thousands) $5,496,480 $7,534,010
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.90% 0.95%
Net investment income 0.74% 0.69%
FINANCIAL HIGHLIGHTS 9/30/98
Pioneer II
<CAPTION>
Year Ended Year Ended Year Ended
9/30/96 9/30/95 9/30/94
<S> <C> <C> <C>
CLASS A
Net asset value, beginning of year $ 20.66 $ 19.38 $ 20.55
--------- --------- ---------
Increase from investment operations:
Net investment income $ 0.23 $ 0.35 $ 0.36
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 2.10 3.04 1.05
--------- --------- ---------
Net increase (decrease) from investment operations $ 2.33 $ 3.39 $ 1.41
Distributions to shareholders:
Net investment income (0.32) (0.30) (0.33)
Net realized gain (1.73) (1.81) (2.25)
--------- --------- ---------
Net increase (decrease) in net asset value $ 0.28 $ 1.28 $ (1.17)
--------- --------- ---------
Net asset value, end of year $ 20.94 $ 20.66 $ 19.38
========= ========= ==========
Total return* 12.18% 19.92% 7.37%
Ratio of net expenses to average net assets 0.92%+ 0.93%+ 0.90%++
Ratio of net investment income to average net assets 1.13%+ 1.85%+ 1.59%++
Portfolio turnover rate 66% 63% 68%
Net assets, end of year (in thousands) $5,431,797 $5,114,963 $4,509,225
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.90% 0.91% 0.90%
Net investment income 1.15% 1.87% 1.59%
</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 assuming no reduction for fees paid indirectly.
++ Ratios for 1994 have been restated to confirm with certain provisions of SEC
Release No. 33-7197: Payment for Investment Company Services with Brokerage
Commissions.
22 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 9/30/98
<TABLE>
<CAPTION>
Year Ended Year Ended 7/1/96 to
9/30/98(a) 9/30/97(a) 9/30/96
<S> <C> <C> <C>
CLASS B
Net asset value, beginning of period $ 27.52 $ 20.89 $ 20.55
--------- -------- -------
Increase (decrease) from investment operations:
Net investment loss $ (0.07) $ (0.07) $ (0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (6.11) 8.76 0.35
--------- -------- -------
Net increase (decrease) from investment
operations $ (6.18) $ 8.69 $ 0.34
Distributions to shareholders:
Net investment income (0.02) (0.13) -
Net realized gain (3.34) (1.93) -
--------- -------- -------
Net increase (decrease) in net asset value $ (9.54) $ 6.63 $ 0.34
--------- -------- -------
Net asset value, end of period $ 17.98 $ 27.52 $ 20.89
========= ======== =======
Total return* (24.76)% 44.58% 1.65%
Ratio of net expenses to average net assets 1.96%+ 1.94%+ 2.03%**+
Ratio of net investment loss to average net assets (0.31)%+ (0.32)%+ (0.25)%**+
Portfolio turnover rate 50% 47% 66%
Net assets, end of period (in thousands) $ 21,084 $ 15,311 $ 864
Ratios assuming reduction for fees paid indirectly:
Net expenses 1.96% 1.90% 2.02%**
Net investment loss (0.31)% (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 assuming no reduction for fees paid indirectly.
The accompanying notes are an integral part of these financial statements. 23
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 9/30/98
<TABLE>
<CAPTION>
Year Ended Year Ended 7/1/96 to
9/30/98(a) 9/30/97(a) 9/30/96
<S> <C> <C> <C>
CLASS C
Net asset value, beginning of period $ 27.55 $ 20.88 $ 20.55
--------- -------- -------
Increase (decrease) from investment operations:
Net investment loss $ (0.06) $ (0.08) $ (0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (6.07) 8.77 0.34
--------- -------- -------
Net increase (decrease) from investment
operations $ (6.13) $ 8.69 $ 0.33
Distributions to shareholders:
Net investment income (0.06) (0.09) --
Net realized gain (3.34) (1.93) --
--------- -------- -------
Net increase (decrease) in net asset value $ (9.53) $ 6.67 $ 0.33
--------- -------- -------
Net asset value, end of period $ 18.02 $ 27.55 $ 20.88
========= ======== =======
Total return* (24.56)% 44.51% 1.61%
Ratio of net expenses to average net assets 1.93%+ 1.99%+ 2.02%**+
Ratio of net investment loss to average net assets (0.28)%+ (0.39)%+ (0.15)%**+
Portfolio turnover rate 50% 47% 66%
Net assets, end of period (in thousands) $ 3,377 $ 2,267 $ 214
Ratios assuming reduction for fees paid indirectly:
Net expenses 1.93% 1.95% 2.01%**
Net investment loss (0.28)% (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 assuming no reduction for fees paid indirectly.
24 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/98
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. The
net asset value is computed once daily, on each day the New York Stock
Exchange is open, as of the close of regular trading on the exchange. In
computing the net asset value, 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
25
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/98 (continued)
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.
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. Federal Income 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.
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, 1998 the Fund has reclassified from accumulated
undistributed net realized gain on investments and foreign currency
transactions $978,447 and $287 to accumulated undistributed net investment
income and paid-in capital, respectively. The reclassification
26
<PAGE>
Pioneer II
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.
The Fund has designated $181,321,206 as a capital gain dividend for purposes
of the dividend paid deduction.
D. 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 $2,998,421
in underwriting commissions on the sale of fund shares during the year ended
September 30, 1998.
E. 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, 1998,
the aggregate performance adjustment resulted in a reduction to the basic fee of
$4,971,157. The management fee was equivalent to 0.53% of average daily net
assets for the year.
27
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/98 (continued)
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, 1998, $2,296,060 was payable to PMC related to
management fees and certain other services.
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 $922,599 in transfer agent fees payable to PSC at September 30,
1998.
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 the 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 $1,020,454 in distribution fees payable
to PFD at September 30, 1998.
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 CDSCs are paid to
PFD. For the year ended September 30, 1998, CDSCs in the amount of $68,408 were
paid to PFD.
28
<PAGE>
Pioneer II
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, 1998, the Fund's expenses were reduced by $165,310 under
such arrangements.
6. Line of Credit Facility
Effective April 14, 1998, the Fund, along with certain other funds in the
Pioneer Family of Funds (the Funds), collectively participate in a $50 million
committed, unsecured revolving line of credit facility. Borrowings are used
solely for temporary or emergency purposes. The Fund may borrow up to the lesser
of $50 million or the limits set by its prospectus for borrowings. Interest on
collective borrowings of up to $25 million is payable at the Federal Funds Rate
plus 3/8% on an annualized basis, or at the Federal Funds Rate plus 1/2% if the
borrowing exceeds $25 million at any one time. The Funds pay an annual
commitment fee for this facility. The commitment fee is allocated among such
Funds based on their respective borrowing limits. For the period ended September
30, 1998, the Fund had no borrowings under this agreement.
29
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 9/30/98 (continued)
7. 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, 1998:
<TABLE>
<CAPTION>
Affiliates Purchases Sales Income Value
- -------------------------- --------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
A.M. Castle & Co. $ - $ 4,729,721 $ 707,033 $ 13,723,820
Ambac Financial Group,
Inc. 18,260,417 69,456,556 2,374,896 266,894,400
Amcast Industrial Corp. - 7,074,986 359,730 7,915,094
Arrow Electronics, Inc. 19,633,219 63,751,937 - 65,625,000
Briggs & Stratton Corp. 2,590,004 15,206,995 2,078,363 67,391,537
Champion Enterprises,
Inc. 3,632,915 563,781 - 96,371,250
Clayton Homes, Inc. 46,064,519 - 450,592 112,251,514
Dionex Corp. - - - 55,242,000
Donaldson Co., Inc. 1,238,113 1,070,533 987,080 78,240,000
Etec Systems, Inc. 13,614,377 32,258,373 - 36,096,562
Halter Marine Group,
Inc. 4,409,027 4,921,524 180,000 31,552,800
Hawaiian Electric
Industries, Inc. 575,754 - 7,422,748 124,123,849
IBP, Inc. 3,531,958 53,891,165 695,373 125,669,475
Lancaster Colony Corp. 33,938,720 7,719,112 1,983,613 115,234,087
Mississippi Chemical
Corp. - 4,156,526 938,300 26,432,500
Oakwood Homes Corp. 32,723,507 2,404,800 138,634 52,056,375
Rouge Industries, Inc. - 2,519,611 230,610 13,446,750
Terra Industries Inc. 5,982,495 - 800,645 22,838,513
Trinity Industries, Inc. 26,493,679 26,026,605 2,642,888 128,050,275
------------ ------------ ----------- --------------
$212,688,704 $295,752,225 $21,990,505 $1,439,155,801
============ ============ =========== ==============
</TABLE>
30
<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, 1998, 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, 1998 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, 1998, 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
November 6, 1998
31
<PAGE>
Pioneer II
TRUSTEES, OFFICERS AND SERVICE PROVIDERS
Trustees Officers
John F. Cogan, Jr. John F. Cogan, Jr., Chairman and
Mary K. Bush President
Richard H. Egdahl, M.D. David D. Tripple, Executive Vice
Margaret B.W. Graham 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 LLP
Shareowner Services and Transfer Agent
Pioneering Services Corporation
32
<PAGE>
THE PIONEER FAMILY OF MUTUAL FUNDS
For information about any Pioneer mutual fund, please contact your investment
representative, 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
Pioneer Europe Fund
Pioneer Gold Shares
Pioneer Indo-Asia Fund
Pioneer International Growth Fund
Pioneer World Equity Fund
United States
Pioneer Capital Growth Fund
Pioneer Growth Shares
Pioneer Micro-Cap Fund
Pioneer Mid-Cap Fund
Pioneer Small Company Fund
Growth and Income Funds
Pioneer Balanced Fund
Pioneer Equity-Income Fund
Pioneer Fund
Pioneer Real Estate Shares
Pioneer II
Income Funds
Taxable
Pioneer America Income Trust
Pioneer Bond Fund
Pioneer Short-Term Income Trust
Tax-Exempt
Pioneer Intermediate Tax-Free Fund
Pioneer Tax-Free Income Fund
Money Market Fund
Pioneer Cash Reserves Fund
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
<PAGE>
Automatic Exchange Program
A simple way to move money from one Pioneer fund to another over a period of
time. Just invest a lump sum in one fund, and select the other Pioneer funds you
wish to invest in. You choose the amounts and dates for Pioneer to sell shares
of your original fund and use the proceeds to buy shares of the other funds you
have chosen. Over time, your investment will be shifted out of the original
fund. (Automatic Exchange is available for originating accounts with a balance
of $5,000 or more.)
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
<PAGE>
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 701/2 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 lets investors contribute up to $2,000 a year. Contributions 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 specific conditions
to avoid penalties.
36
<PAGE>
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. Generally, 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.
Most retirement plan withdrawals must meet specific conditions
to avoid penalties.
37
<PAGE>
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.
[Pioneer Logo]
Pioneer Funds Distributor, Inc.
60 State Street
Boston, Massachusetts 02109
www.pioneerfunds.com
1198-5693
(Copyright) Pioneer Funds Distributor, Inc.
(Recycle Symbol) Printed on Recycled Paper
