[Pioneer Logo with Sailboat]
Pioneer II
SEMIANNUAL REPORT 3/31/98
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Letter from the Chairman 1
Portfolio Summary 2
Performance Update 3
Portfolio Management Discussion 6
Schedule of Investments 9
Financial Statements 17
Notes to Financial Statements 24
Report of Independent Public Accountants 30
Trustees, Officers and Service Providers 31
Programs and Services for Pioneer Shareowners 32
Retirement Plans from Pioneer 34
The Pioneer Family of Mutual Funds 36
</TABLE>
<PAGE>
Pioneer II
LETTER FROM THE CHAIRMAN 3/31/98
Dear Shareowner,
- --------------------------------------------------------------------------------
I am pleased to introduce this semiannual report for Pioneer II, covering the
six months ended March 31, 1998. On behalf of your investment team, I thank you
for your interest and this opportunity to comment on today's investing
environment.
The United States' economic news has continued to be positive, propelling the
domestic stock market to yet another series of record high levels.
Large-capitalization stocks were the big winners with the Dow Jones Industrial
Average returning nearly 12% as concerns about the Asian crisis drew investors
toward the safety of U.S. "blue chip" companies.
While the mid-sized stocks of the type found in your Fund have not kept up with
larger stocks, history tells us that markets are cyclical. While it is
impossible to predict the direction of the markets with any degree of certainty,
the fact remains that large company stocks' record-breaking pace has pushed that
group's average price-to-earnings ratio to an all time high. Smaller stocks, on
the other hand, are trading at lower ratios. It would not be surprising to see a
new trend emerge, with small- and mid-capitalization issues taking leadership
positions as investors search for more reasonable valuations.
We believe that by using a solid value approach to choosing stocks - purchasing
stocks for the right reasons at reasonable prices - we can provide the best
opportunity for positive long-term results. Investors who maintain a diversified
portfolio with a long-term perspective should be able to weather any short-term
risks the market may pose.
I encourage you to read on to learn more about Pioneer II. If you have
questions, please contact your investment professional, or Pioneer at
1-800-225-6292.
Respectfully,
[Signature; John F. Cogan, Jr.]
John F. Cogan, Jr.,
Chairman and President
1
<PAGE>
Pioneer II
PORTFOLIO SUMMARY 3/31/98
P o r t f o l i o D i v e r s i f i c a t i o n
- --------------------------------------------------------------------------------
(As a percentage of total investment portfolio)
[Tabular representation of pie chart]
<TABLE>
<S> <C>
U.S. Common Stock 89.9%
International Common Stocks 5.5%
Depository Receipts for International Stocks 4.2%
Short-Term Cash Equivalents 0.4%
</TABLE>
S e c t o r D i s t r i b u t i o n
- --------------------------------------------------------------------------------
(As a percentage of equity holdings)
[Tabular representation of pie chart]
<TABLE>
<S> <C>
Financial 24%
Capital Goods 17%
Consumer Cyclicals 14%
Technology 13%
Healthcare 7%
Basic Materials 6%
Utilities 6%
Consumer Staples 5%
Energy 5%
Communication Services 2%
Transportation 1%
</TABLE>
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, 4.82% 6. The Chase Manhattan 3.00%
Inc. Corp.
2. Philips Electronics NV 4.22 7. Merck & Co., Inc. 2.79
(NY Shares)
3. Brunswick Corp. 3.85 8. Trinity Industries, Inc. 2.75
4. Arrow Electronics, Inc. 3.26 9. Green Tree Financial Corp. 2.40
5. Dominion Resources, Inc. 3.14 10. Charter One Financial, Inc. 2.35
</TABLE>
Fund holdings will vary for other periods.
2
<PAGE>
Pioneer II
PERFORMANCE UPDATE 3/31/98 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 3/31/98 9/30/97
$25.44 $27.85
Distributions per Share Income Short-Term Long-Term
(9/30/97 -3/31/98) Dividends Capital Gains Capital Gains
$0.065 $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 at public offering price, compared to the growth of the Standard &
Poor's 500 Index.
[boxed text]
Average Annual Total Returns
(As of March 31, 1998)
<TABLE>
<CAPTION>
Net Asset Public Offering
Period Value Price*
<S> <C> <C>
10 Years 15.03% 14.35%
5 Years 18.50 17.10
1 Year 36.02 28.19
</TABLE>
[Start Description of Line/Mountain Chart]
Growth of $10,000
Pioneer II* Standard & Poor's 500 Index
3/88 9425 10000
11186 11802
3/90 12632 14066
12541 16086
3/92 14224 17855
16355 20567
3/94 17278 20871
19099 24115
3/96 23992 31832
28092 38132
3/98 38212 56391
[End Description of Line/Mountain Chart]
* Reflects deduction of the maximum 5.75% sales charge at the beginning of the
period and assumes reinvest-ment of distributions at net asset value.
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 3/31/98 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 3/31/98 9/30/97
$25.00 $27.52
Distributions per Share Income Short-Term Long-Term
(9/30/97 -3/31/98) 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.
[boxed text]
Average Annual Total Returns
(As of March 31, 1998)
<TABLE>
<CAPTION>
If If
Period Held Redeemed*
<S> <C> <C>
Life-of-Fund 27.87% 25.96%
(7/1/96)
1 Year 34.65 30.65
</TABLE>
[Start Description of Line/Mountain Chart]
Growth of $10,000
Pioneer II* Standard & Poor's 500 Index
7/1/96 10000 10000
9304 9468
9/96 9815 9647
10165 10227
10433 10494
12/96 11392 11264
11403 11078
12081 11757
3/97 12033 11827
11419 11377
11740 12041
6/97 12775 12747
13165 13359
14297 11403
9/97 14132 13575
14698 14358
13993 13863
12/97 13929 14481
13962 14769
13790 14919
3/98 14952 15970
14977 16825
[End Description of Line/Mountain Chart]
* 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.
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 3/31/98 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 3/31/98 9/30/97
$24.99 $27.55
Distributions per Share Income Short-Term Long-Term
(9/30/97 -3/31/98) 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.
[boxed text]
Average Annual Total Returns
(As of March 31, 1998)
<TABLE>
<CAPTION>
If If
Period Held Redeemed*
<S> <C> <C>
Life-of-Fund 27.79% 27.79%
(7/1/96)
1 Year 34.61 34.61
</TABLE>
[Start Description of Line/Mountain Chart]
Growth of $10,000
Pioneer II* Standard & Poor's 500 Index
7/1/97 10000 10000
9304 9468
9/96 9815 9647
10161 10227
10433 10494
12/96 11397 11264
11400 11078
12077 11757
3/97 12023 11827
11410 11377
11720 12041
6/97 12753 12747
13142 13359
14278 14403
9/97 14118 13575
14683 14358
13979 13863
12/97 13915 14481
13952 14769
13780 14919
3/98 14942 15970
15360 16825
[End Description of Line/Mountain Chart]
* Assumes reinvestment of distributions. The 1% contingent deferred sales charge
(CDSC) applies to redemptions made within one year of purchase.
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 3/31/98
Dear Shareowner,
- --------------------------------------------------------------------------------
The past six months were challenging, and at times frustrating. Large
capitalization stocks - like those found in the record-setting Dow Jones
Industrial Average - continued to outperform all other groups of stocks over the
past six months.
The market has become reminiscent of the "nifty fifty" of the 1970s. Research
from Morgan Stanley Dean Witter shows that the 30 largest stocks in the Standard
& Poor's (S&P) 500 Index accounted for almost 50% of the Index's gain. When the
Asian economic crisis hit in October, investors rushed to the most familiar and
liquid securities they could find, paying record high prices. They showed
little, if any, interest in small- or mid-sized companies, and your Fund's
performance reflects this trend. When the majority of the gains in the market
are realized in such a narrow grouping of stocks, it is difficult to keep pace.
For the first half of its fiscal year, the six months ending March 31, Class A
Shares of your Fund generated a total return of 5.17% based on net asset value.
This figure compares with 17.18% for the S&P 500 and 11.71% for the Dow Jones
Industrial Average of 30 large-cap stocks.
Diverse, Strong Companies in Portfolio
The Fund's portfolio is designed to pursue long-term growth and income. We have
the ability to invest in companies of any size or industry, as well as
international companies. Many of your Fund's holdings are less known, mid-cap
companies, which is where we have found the most value. When selecting stocks
for the Fund, we look for value by examining a variety of fundamentals including
price-to-earnings, free cash flow and debt-to-capital ratios. We also look for
strong management teams that have a significant ownership interest in the
companies they are leading. Often we evaluate a company by assessing it as if we
were buying it whole. This technique helps us take a disciplined approach,
setting target buy and sell prices for every stock we purchase, looking to buy
when undervalued and sell when fully valued. We think of our process as
investing in businesses, not pieces of paper.
6
<PAGE>
Pioneer II
While we are frustrated with the Fund's performance versus the S&P, we are also
encouraged. All signs indicate that the companies in the portfolio are growing
much faster than the large-capitalization stocks that have led the market. Fund
holdings, as a group, have less debt and are underpriced, relative to the market
as a whole. When selecting stocks, we also look for companies with higher
profitability and higher inside ownership than average. Our approach may seem
dull at times, but we have confidence our patience will be rewarded.
In keeping with this long-term approach, we did not make any significant changes
to the portfolio over the period. If you look at the 10 largest holdings in this
report, you will find that seven of the companies appeared on same list as of
September 30, 1997. One company that performed particularly well was long-time
holding Ambac Financial Group (up 44.2% for the period).
One of our favorite sectors was the financial area, which performed well as a
group over the period. One financial company that was added was Green Tree
Financial. We began buying the stock in December when its stock price was cut
nearly in half after it took a one-time charge. We believe this is an accounting
aberration and remain impressed with the company's overall management. Another
new holding is Officemax, the office products retailer; it has recently traded
as high as $18 per share, well above the Fund's average cost.
Internationally, we continue to favor large multinational companies located in
established, rather than emerging, markets. As of March 31, approximately 10% of
the Fund's portfolio (including depositary receipts traded on U.S. exchanges)
was based overseas. One long-time holding we continued to accumulate is Philips
Electronics, the Netherlands-based consumer electronics manufacturer. On the
sell side, we reduced the position in Nokia, the telecommunications company,
after it met our price target.
7
<PAGE>
Pioneer II
PORTFOLIO MANAGEMENT DISCUSSION 3/31/98 (continued)
Moving Forward
As we move into the second half of the fiscal year, we are optimistic about the
companies in the portfolio. Investors need to remember that the U.S. market is
in the midst of an unusually long-running bull market. With many large-cap
stocks trading at valuation levels never seen before, you should expect periods
of volatility.
We believe we have put together a portfolio that is superior to the market in
almost every measure. The Fund's price-to-earnings ratio, earnings growth rate
and debt-to-capital ratio are all better than the S&P 500's comparative numbers.
Simply put, we are paying less to get more.
We remain confident that finding value is the best approach to long-term
investing. Eventually, the "goldilocks" economic scenario occurring today - with
seemingly everything "just right" - will change, the earnings growth of larger
companies will slow, and their stock prices will slip. We believe the value
stocks in your Fund should offer greater price stability and rewarding
performance over the long term.
Respectfully,
[Signature; Francis J. Boggan]
Francis J. Boggan,
Portfolio Manager
8
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 3/31/98
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
INVESTMENT IN SECURITIES - 99.6%
CONVERTIBLE CORPORATE BOND - 0.0%
$4,000,000 Halter Marine Group, Inc., Exchangeable Note,
4.5%, 9/15/04+ $ 3,410,000
--------------
TOTAL CONVERTIBLE CORPORATE BOND
(Cost $4,000,000) $ 3,410,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
PREFERRED STOCK - 1.4%
825,000 Telecomunicacoes Brasileiras SA (Sponsored
A.D.R.) $ 107,095,312
--------------
TOTAL PREFERRED STOCK
(Cost $82,428,663) $ 107,095,312
--------------
COMMON STOCKS - 98.2%
Basic Materials - 6.3%
Chemicals (Diversified) - 1.3%
1,578,700 Lyondell Petrochemicals Co. $ 53,774,468
2,428,200 Mississippi Chemical Corp.+ 48,715,763
--------------
$ 102,490,231
--------------
Chemicals (Specialty) - 1.3%
1,073,800 Cytec Industries Inc.* $ 59,126,112
4,105,800 Terra Industries Inc.+ 44,907,188
--------------
$ 104,033,300
--------------
Containers & Packaging (Paper) - 0.7%
4,300,000 Vitro SA (Sponsored A.D.R.) $ 51,600,000
--------------
Gold & Precious Metals Mining - 0.3%
800,000 Newmont Mining Corp. $ 24,450,000
--------------
Iron & Steel - 1.4%
1,868,900 British Steel Plc (Sponsored A.D.R.) $ 45,320,825
2,135,000 National Steel Corp. (Class B) 36,561,875
1,888,900 Rouge Industries, Inc.+ 29,396,006
--------------
$ 111,278,706
--------------
Metals & Mining - 0.7%
900,000 Phelps Dodge Corp. $ 58,106,250
--------------
Paper & Forest Products - 0.6%
3,046,300 Longview Fibre Co.+ $ 47,408,044
--------------
Total Basic Materials $ 499,366,531
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 9
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 3/31/98 (continued)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Capital Goods - 16.7%
Aerospace/Defense - 1.1%
400,000 Lockheed Martin Corp. $ 45,000,000
400,000 Northrop Grumman Corp. 42,975,000
--------------
$ 87,975,000
--------------
Containers (Metals & Glass) - 0.4%
650,000 Owens-Illinois, Inc.* $ 28,112,500
--------------
Electrical Equipment - 4.2%
4,500,000 Philips Electronics NV (NY Shares) $ 330,468,750
--------------
Machinery (Diversified) - 2.7%
5,149,000 AGCO Corp.+ $ 152,860,938
855,000 Caterpillar, Inc. 47,078,437
738,300 Global Industrial Technologies, Inc.* 12,181,950
--------------
$ 212,121,325
--------------
Manufacturing (Diversified) - 3.3%
676,200 Amcast Industrial Corp.+ $ 14,622,825
1,000,000 Hanson Plc (Sponsored A.D.R.) 30,500,000
3,930,000 Trinity Industries, Inc.+ 215,658,750
100,000 US Industries Inc. 3,006,250
--------------
$ 263,787,825
--------------
Manufacturing (Specialized) - 4.3%
1,932,400 Briggs & Stratton Corp.+ $ 88,528,075
203,200 Diebold Inc. 8,940,800
1,188,000 Dionex Corp.*+ 66,231,000
4,942,200 Donaldson Co., Inc.+ 127,261,650
2,618,400 Halter Marine Group, Inc.*+ 41,567,100
141,400 Millipore Corp. 4,913,650
--------------
$ 337,442,275
--------------
Metal Fabricators - 0.3%
931,325 A.M. Castle & Co.+ $ 21,536,891
--------------
Trucks & Parts - 0.4%
1,120,000 New Holland NV $ 30,520,000
--------------
Total Capital Goods $1,311,964,566
--------------
</TABLE>
10 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Communication Services - 0.4%
Telephone - 0.4%
300,000 Bell Atlantic Corp. $ 30,750,000
--------------
Total Communication Services $ 30,750,000
--------------
Consumer Cyclicals - 14.3%
Auto Parts & Equipment - 1.0%
2,155,100 Breed Technologies, Inc.+ $ 50,240,769
1,342,500 Simpson Industries, Inc.+ 18,795,000
289,300 Strattec Security Corp.*+ 7,906,026
--------------
$ 76,941,795
--------------
Automobiles - 0.9%
1,000,000 General Motors Corp. $ 67,437,500
--------------
Consumer (Jewelry, Novelties, & Gifts) - 2.0%
3,683,750 Lancaster Colony Corp.+ $ 156,329,141
--------------
Homebuilding - 4.4%
4,100,000 Champion Enterprises, Inc.*+ $ 109,418,750
5,756,000 Clayton Homes, Inc. 116,559,000
3,164,600 Oakwood Homes Corp.+ 115,903,475
--------------
$ 341,881,225
--------------
Leisure Time (Products) - 3.8%
8,645,800 Brunswick Corp.+ $ 301,522,275
--------------
Retail (Department Stores) - 0.9%
400,000 Federated Department Stores, Inc.* $ 20,725,000
700,000 J.C. Penney Co., Inc. 52,981,250
--------------
$ 73,706,250
--------------
Retail (Discounters) - 0.3%
565,000 Consolidated Stores Corp.* $ 24,259,688
--------------
Retail (Specialty) - 0.8%
292,000 Officemax Inc.* $ 5,219,500
1,900,000 Toys "R" Us, Inc.* 57,118,750
--------------
$ 62,338,250
--------------
Textiles (Apparel) - 0.2%
25,000 Nike, Inc. (Class B) $ 1,106,250
660,800 Nine West Group, Inc.* 16,272,200
--------------
$ 17,378,450
--------------
Total Consumer Cyclicals $1,121,794,574
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 11
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 3/31/98 (continued)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Consumer Staples - 4.9%
Foods - 2.4%
6,965,900 IBP, Inc.+ $ 156,297,381
20,000 Nestle SA (Registered Shares) 38,215,808
--------------
$ 194,513,189
--------------
Household Products (Non-Durables) - 0.3%
440,000 Kimberly Clark Corp. $ 22,055,000
--------------
Services (Employment) - 2.2%
2,810,000 Kelly Services Inc. (Non-voting) $ 105,375,000
1,641,500 Manpower, Inc. 66,275,562
--------------
$ 171,650,562
--------------
Total Consumer Staples $ 388,218,751
--------------
Energy - 4.9%
Oil & Gas (Drilling & Equipment) - 2.9%
2,700,000 ENSCO International, Inc. $ 74,925,000
1,200,000 Global Marine, Inc.* 29,700,000
1,400,000 R&B Falcon Corp.* 41,475,000
1,800,000 Tidewater, Inc. 78,862,500
--------------
$ 224,962,500
--------------
Oil (Domestic Integrated) - 1.0%
1,040,000 Atlantic Richfield Co. $ 81,770,000
--------------
Oil (International Integrated) - 1.0%
275,000 Amoco Corp. $ 23,753,125
250,000 Texaco, Inc. 15,062,500
1,230,000 YPF SA (Class D) (Sponsored A.D.R.) 41,820,000
--------------
$ 80,635,625
--------------
Total Energy $ 387,368,125
--------------
Financial - 23.7%
Banks (Major Regional) - 2.0%
1,225,000 Banc One Corp. $ 77,481,250
2,456,500 Banco Rio De La Plata SA (A.D.R.)* 30,706,250
550,000 Fleet Financial Group, Inc. 46,784,375
--------------
$ 154,971,875
--------------
Banks (Money Center) - 3.0%
1,740,000 The Chase Manhattan Corp. $ 234,682,500
--------------
</TABLE>
12 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Banks (Regional) - 0.4%
706,939 North Fork Bancorp $ 27,305,501
--------------
Consumer Finance - 5.2%
678,900 Aames Financial Corp. $ 9,419,737
728,100 ContiFinancial Corp.* 22,207,050
1,700,000 Countrywide Credit Industries, Inc. 90,418,750
6,612,600 Green Tree Financial Corp. 188,045,813
1,600,000 Resource Bancshares Mortgage Group, Inc.+ 25,400,000
1,650,000 SLM Holdings Corp. 71,981,250
--------------
$ 407,472,600
--------------
Financial (Diversified) - 4.8%
6,466,200 Ambac Financial Group, Inc.+ $ 377,868,563
--------------
Insurance (Life/Health) - 1.7%
2,300,000 Conseco, Inc. $ 130,237,500
--------------
Insurance (Property/Casualty) - 0.8%
725,000 Allstate Corp. $ 66,654,688
--------------
Investment Banking/Brokerage - 0.7%
700,000 Merrill Lynch & Co., Inc. $ 58,100,000
--------------
Investment Management - 0.9%
1,355,000 Franklin Resources, Inc. $ 71,815,000
--------------
Savings & Loans Companies - 4.2%
2,755,000 Charter One Financial, Inc. $ 184,412,813
371,791 Dime Bancorp, Inc. 11,176,967
687,500 Washington Federal, Inc. 19,078,125
1,650,000 Washington Mutual, Inc. 118,335,938
--------------
$ 333,003,843
--------------
Total Financial $1,862,112,070
--------------
Healthcare - 6.9%
Biotechnology - 1.3%
1,650,000 Amgen Inc.* $ 100,443,750
--------------
Healthcare (Diversified) - 0.4%
100,000 Abbott Laboratories $ 7,531,250
1,100,000 Dura Pharmaceuticals, Inc.* 27,087,500
--------------
$ 34,618,750
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 13
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 3/31/98 (continued)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Healthcare (Drugs/Major Pharmaceuticals) - 3.7%
3,000,000 Astra AB (Series A Free) $ 61,909,824
1,700,000 Merck & Co., Inc. 218,237,500
125,000 Novartis AG (Sponsored A.D.R.) 11,105,469
--------------
$ 291,252,793
--------------
Healthcare (Hospital Management) - 0.5%
1,200,000 Columbia/HCA Healthcare Corp. $ 38,700,000
--------------
Healthcare (Long Term Case) - 1.0%
2,000,000 Integrated Health Services, Inc. $ 78,625,000
--------------
Total Healthcare $ 543,640,293
--------------
Technology - 12.7%
Communications Equipment - 0.1%
80,000 Nokia Corp. (Sponsored A.D.R.) $ 8,635,000
--------------
Computers (Hardware) - 1.2%
900,000 International Business Machines Corp. $ 93,487,500
--------------
Computers (Peripherals) - 1.7%
500,000 Quantum Corp. $ 10,656,250
3,850,000 Read-Rite Corp.*+ 53,178,125
875,000 Storage Technology Corp.* 66,554,688
--------------
$ 130,389,063
--------------
Computers (Software & Services) - 0.2%
180,000 Network Associates, Inc.* $ 11,925,000
--------------
Electronics (Component Distributors) - 3.6%
1,500,000 Adaptec, Inc.* $ 29,437,500
9,435,300 Arrow Electronics, Inc.*+ 255,342,806
--------------
$ 284,780,306
--------------
Electronics (Defense) - 0.1 %
113,770 Raytheon Co. $ 6,470,669
--------------
Electronics (Instrumentation) - 0.2%
838,200 MTS Systems Corp. $ 13,411,200
--------------
Electronics (Semiconductors) - 2.1%
1,175,000 Etec Systems, Inc.*+ $ 69,325,000
1,250,000 Intel Corp. 97,578,125
--------------
$ 166,903,125
--------------
</TABLE>
14 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Equipment (Semiconductor) - 3.5%
2,475,000 Applied Materials, Inc.* $ 87,398,438
710,000 Helix Technology Corp. 14,200,000
900,000 KLA-Tencor Corp.* 34,425,000
3,555,000 Teradyne, Inc.* 142,422,187
--------------
$ 278,445,625
--------------
Photography/Imaging - 0.0%
50,000 Eastman Kodak Co. $ 3,243,750
--------------
Total Technology $ 997,691,238
--------------
Transportation - 1.1%
Railroads - 1.1%
1,520,000 CSX Corp. $ 90,440,000
--------------
Total Transportation $ 90,440,000
--------------
Utilities - 6.3%
Electric Companies - 5.5%
5,862,000 Dominion Resources, Inc. $ 246,204,000
1,562,500 DTE Energy Co. 61,425,781
3,009,063 Hawaiian Electric Industries, Inc.+ 124,876,114
--------------
$ 432,505,895
--------------
Natural Gas - 0.8%
1,701,448 Kinder Morgan Energy Partners, L.P. $ 59,018,977
--------------
Total Utilities $ 491,524,872
--------------
TOTAL COMMON STOCKS
(Cost $5,501,979,086) $7,724,871,020
--------------
TOTAL INVESTMENT IN SECURITIES
(Cost $5,588,407,749) $7,835,376,332
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 15
<PAGE>
Pioneer II
SCHEDULE OF INVESTMENTS 3/31/98 (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
TEMPORARY CASH INVESTMENT - 0.4%
Commercial Paper - 0.4%
$32,356,000 Prudential Funding Corp., 5.9%, 4/1/98 $ 32,356,000
--------------
TOTAL TEMPORARY CASH INVESTMENT
(Cost $32,356,000) $ 32,356,000
--------------
TOTAL INVESTMENT IN SECURITIES AND
TEMPORARY CASH INVESTMENT - 100%
(Cost $5,620,763,749) (a) $7,867,732,332
--------------
</TABLE>
* Non-income producing security.
+ Investment held by the Fund representing 5% or more of the outstanding
voting stock of such company.
(a) At March 31, 1998, the net unrealized gain on investments based on cost for
federal income tax purposes of $5,622,012,114 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized gain for all investments in which
there is an excess of value over tax cost $2,396,807,136
Aggregate gross unrealized loss for all investments in which
there is an excess of tax cost over value (151,086,918)
--------------
Net unrealized gain $2,245,720,218
--------------
</TABLE>
Purchases and sales of securities (excluding temporary cash investments) for the
six months ended March 31, 1998 aggregated $2,207,163,064 and $2,254,597,161,
respectively.
16 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
BALANCE SHEET 3/31/98
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (including temporary cash
investment of $32,356,000) (cost $5,620,763,749) $ 7,867,732,332
Cash 2,743,705
Receivables -
Investment securities sold 31,830,102
Fund shares sold 10,385,140
Dividends, interest and foreign taxes withheld 7,681,406
Other 112,344
---------------
Total assets $ 7,920,485,029
---------------
LIABILITIES:
Payables -
Investment securities purchased $ 25,115,448
Fund shares repurchased 5,602,100
Due to affiliates 8,401,779
Accrued expenses 343,989
---------------
Total liabilities $ 39,463,316
---------------
NET ASSETS:
Paid-in capital $ 5,144,201,080
Accumulated undistributed net investment income 24,432,189
Accumulated undistributed net realized gain on investments and
foreign currency transactions 465,419,890
Net unrealized gain on investments and assets and
liabilities in foreign currencies 2,246,968,554
---------------
Total net assets $ 7,881,021,713
---------------
NET ASSET VALUE PER SHARE:
(Unlimited number of shares authorized)
Class A (based on $7,851,907,947/308,702,547 shares) $ 25.44
---------------
Class B (based on $25,101,562/1,004,229 shares) $ 25.00
---------------
Class C (based on $4,012,204/160,532 shares) $ 24.99
---------------
MAXIMUM OFFERING PRICE:
Class A $ 26.99
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 17
<PAGE>
Pioneer II
STATEMENT OF OPERATIONS
For the Six Months Ended 3/31/98
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividends (net of foreign taxes withheld of $945,786) $ 54,341,318
Interest (net of foreign taxes withheld of $382) 2,178,511
-------------
Total investment income $ 56,519,829
-------------
EXPENSES:
Management fees
Basic fee $ 21,971,526
Performance adjustment (1,982,438)
Transfer agent fees
Class A 5,172,265
Class B 35,087
Class C 5,431
Distribution fees
Class A 7,313,212
Class B 96,071
Class C 15,461
Accounting 172,354
Custodian fees 200,238
Registration fees 55,510
Professional fees 121,319
Printing 135,954
Fees and expenses of nonaffiliated trustees 41,813
Miscellaneous 82,084
-------------
Total expenses $ 33,435,887
Less fees paid indirectly (274,515)
-------------
Net expenses $ 33,161,372
-------------
Net investment income $ 23,358,457
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments $ 605,568,309
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies (74,714) $ 605,493,595
------------- -------------
Change in net unrealized gain or loss from:
Investments $(245,603,321)
Forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies 9,896 $(245,593,425)
------------- -------------
Net gain on investments and foreign currency transactions $ 359,900,170
-------------
Net increase in net assets resulting from operations $ 383,258,627
-------------
</TABLE>
18 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended 3/31/98 and the Year Ended 9/30/97
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
<S> <C> <C>
FROM OPERATIONS: 3/31/98 9/30/97
Net investment income $ 23,358,457 $ 44,394,895
Net realized gain on investments and foreign currency
transactions 605,493,595 775,991,676
Change in net unrealized gain or loss on investments
and foreign currency transactions (245,593,425) 1,610,436,038
-------------- --------------
Net increase in net assets resulting from operations $ 383,258,627 $2,430,822,609
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Class A ($0.07 and $0.15 per share, respectively) $ (17,706,603) $ (40,341,924)
Class B ($0.02 and $0.13 per share, respectively) (16,685) (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) (904,704,570) (495,328,383)
Class B ($3.34 and $1.93 per share, respectively) (2,363,244) (350,316)
Class C ($3.34 and $1.93 per share, respectively) (403,479) (38,258)
-------------- --------------
Total distributions to shareholders $ (925,201,835) $ (536,087,317)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Net proceeds from sale of shares $ 382,376,375 $ 489,131,319
Reinvestment of distributions 873,760,479 507,765,764
Cost of shares repurchased (384,759,713) (772,919,656)
-------------- --------------
Net increase in net assets resulting from fund
share transactions $ 871,377,141 $ 223,977,427
-------------- --------------
Net increase in net assets $ 329,433,933 $2,118,712,719
NET ASSETS:
Beginning of period 7,551,587,780 5,432,875,061
-------------- --------------
End of period (including accumulated undistributed net
investment income of $24,432,189 and $18,804,274,
respectively) $7,881,021,713 $7,551,587,780
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 19
<PAGE>
Pioneer II
STATEMENTS OF CHANGES IN NET ASSETS (continued)
<TABLE>
<S> <C> <C> <C> <C>
CLASS A '98 Shares '98 Amount '97 Shares '97 Amount
Shares sold 14,842,911 $ 369,779,691 19,868,390 $471,321,511
Reinvestment of distributions 38,684,335 871,171,508 23,606,020 507,363,015
Less shares repurchased (15,315,869) (382,440,249) (32,424,860) (768,413,897)
----------- ------------- ----------- -------------
Net increase 38,211,377 $ 858,510,950 11,049,550 $210,270,629
----------- ------------- ----------- -------------
CLASS B
Shares sold 412,520 $ 10,244,076 664,822 $ 15,936,776
Reinvestment of distributions 103,690 2,301,923 17,328 367,649
Less shares repurchased (68,416) (1,682,000) (167,062) (4,296,107)
----------- ------------- ----------- -------------
Net increase 447,794 $ 10,863,999 515,088 $ 12,008,318
----------- ------------- ----------- -------------
CLASS C
Shares sold 93,623 $ 2,352,608 78,505 1,873,032
Reinvestment of distributions 12,930 287,048 1,653 35,100
Less shares repurchased (28,294) (637,464) (8,135) (209,652)
----------- ------------- ----------- -------------
Net increase 78,259 $ 2,002,192 72,023 $ 1,698,480
----------- ------------- ----------- -------------
</TABLE>
20 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 3/31/98
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
3/31/98 9/30/97
<S> <C> <C>
CLASS A
Net asset value, beginning of period $ 27.85 $ 20.94
---------- ----------
Increase from investment operations:
Net investment income $ 0.08 $ 0.16
Net realized and unrealized gain on investments and foreign
currency transactions 0.92 8.83
---------- ----------
Net increase from investment operations $ 1.00 $ 8.99
Distributions to shareholders:
Net investment income (0.07) (0.15)
Net realized gain (3.34) (1.93)
---------- ----------
Net increase (decrease) in net asset value $ (2.41) $ 6.91
---------- ----------
Net asset value, end of period $ 25.44 $ 27.85
---------- ----------
Total return* 5.17% 45.95%
Ratio of net expenses to average net assets 0.91%**+ 0.96%+
Ratio of net investment income to average net assets 0.63%**+ 0.68%+
Portfolio turnover rate 61%** 47%
Average brokerage commission per share $ 0.0591 $ 0.0585
Net assets, end of period (in thousands) $7,851,908 $7,534,010
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.90%** 0.95%
Net investment income 0.64%** 0.69%
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
9/30/96 9/30/95 9/30/94 9/30/93
<S> <C> <C> <C> <C>
CLASS A
Net asset value, beginning of period $ 20.66 $ 19.38 $ 20.55 $ 18.86
---------- ---------- ---------- ----------
Increase from investment operations:
Net investment income $ 0.23 $ 0.35 $ 0.36 $ 0.38
Net realized and unrealized gain on investments and foreign
currency transactions 2.10 3.04 1.05 2.85
---------- ---------- ---------- ----------
Net increase from investment operations $ 2.33 $ 3.39 $ 1.41 $ 3.23
Distributions to shareholders:
Net investment income (0.32) (0.30) (0.33) (0.39)
Net realized gain (1.73) (1.81) (2.25) (1.15)
---------- ---------- ---------- ----------
Net increase (decrease) in net asset value $ 0.28 $ 1.28 $ (1.17) $ 1.69
---------- ---------- ---------- ----------
Net asset value, end of period $ 20.94 $ 20.66 $ 19.38 $ 20.55
---------- ---------- ---------- ----------
Total return* 12.18% 19.92% 7.37% 18.15%
Ratio of net expenses to average net assets 0.92%+ 0.93%+ 0.90%++ 0.96%++
Ratio of net investment income to average net assets 1.13%+ 1.85%+ 1.59%++ 1.89%++
Portfolio turnover rate 66% 63% 68% 66%
Average brokerage commission per share $ 0.0424 - - -
Net assets, end of period (in thousands) $5,431,797 $5,114,963 $4,509,225 $4,347,672
Ratios assuming reduction for fees paid indirectly:
Net expenses 0.90% 0.91% 0.90% 0.95%
Net investment income 1.15% 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.
** Annualized
+ Ratio assuming no reduction for fees paid indirectly.
++ 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.
The accompanying notes are an integral part of these financial statements. 21
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 3/31/98
<TABLE>
<CAPTION>
Six Months Year Ended 7/1/96 to
Ended 3/31/98(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 $ (0.04) $ (0.07) $ (0.01)
Net realized and unrealized gain on investments
and foreign currency transactions 0.88 8.76 0.35
------- ------- -------
Net increase from investment operations $ 0.84 $ 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 $ (2.52) $ 6.63 $ 0.34
------- ------- -------
Net asset value, end of period $ 25.00 $ 27.52 $ 20.89
------- ------- -------
Total return* 4.62% 44.58% 1.65%
Ratio of net expenses to average net assets 1.93%**+ 1.94%+ 2.03%**+
Ratio of net investment loss to average net assets (0.37)%**+ (0.32)%+ (0.25)%**+
Portfolio turnover rate 61%** 47% 66%
Average brokerage commission per share $0.0591 $0.0585 $0.0424
Net assets, end of period (in thousands) $25,102 $15,311 $ 864
Ratios assuming reduction for fees paid indirectly:
Net expenses 1.90%** 1.90% 2.02%**
Net investment loss (0.34)%** (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.
22 The accompanying notes are an integral part of these financial statements.
<PAGE>
Pioneer II
FINANCIAL HIGHLIGHTS 3/31/98
<TABLE>
<CAPTION>
Six Months Year Ended 7/1/96 to
Ended 3/31/98(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 $ (0.04) $ (0.08) $ (0.01)
Net realized and unrealized gain on investments
and foreign currency transactions 0.88 8.77 0.34
------- ------- -------
Net increase from investment operations $ 0.84 $ 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 $ (2.56) $ 6.67 $ 0.33
------- ------- -------
Net asset value, end of period $ 24.99 $ 27.55 $ 20.88
-------- ------- -------
Total return* 4.61% 44.51% 1.61%
Ratio of net expenses to average net assets 1.91%**+ 1.99%+ 2.02%**+
Ratio of net investment loss to average net assets (0.35)%**+ (0.39)%+ (0.15)%**+
Portfolio turnover rate 61%** 47% 66%
Average brokerage commission per share $0.0591 $0.0585 $0.0424
Net assets, end of period (in thousands) $ 4,012 $ 2,267 $ 214
Ratios assuming reduction for fees paid indirectly:
Net expenses 1.89%** 1.95% 2.01%**
Net investment loss (0.33)%** (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.
The accompanying notes are an integral part of these financial statements. 23
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 3/31/98
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. 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
24
<PAGE>
Pioneer II
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.
Settlements from litigation and class action suits are recognized when the
Fund acquires an enforceable right to such awards. Included in net realized
gain from investments is $623,188 of class action settlements received by the
Fund during the six months ended March 31, 1998.
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 March 31, 1998, the
Fund had no outstanding settlement or portfolio hedges.
25
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 3/31/98 (continued)
D. 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.
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 $1,554,133
in underwriting commissions on the sale of fund shares during the six months
ended March 31, 1998.
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.
26
<PAGE>
Pioneer II
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 six months ended March 31, 1998,
the aggregate performance adjustment resulted in a reduction to the basic fee of
$1,982,438. For the six months ended March 31, 1998, the net management fee was
equivalent to 0.55% of average daily net assets.
In addition, under the management agreement, certain other services and costs,
including accounting, regulatory reporting and insurance premiums, are paid by
the Fund. At March 31, 1998, $3,739,276 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 $981,227 in transfer agent fees payable to PSC at March 31, 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 $3,681,276 in distribution fees payable
to PFD at March 31, 1998.
27
<PAGE>
Pioneer II
NOTES TO FINANCIAL STATEMENTS 3/31/98 (continued)
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 six months ended March 31, 1998, CDSCs in the amount of $16,293
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 six
months ended March 31, 1998, the Fund's expenses were reduced by $274,515 under
such arrangements.
28
<PAGE>
Pioneer II
6. Affiliated Companies
The Fund's investments in certain companies exceed 5% of the outstanding voting
stock. Such companies are deemed affiliates of the Fund for financial reporting
purposes. The following summarizes transactions with affiliates of the Fund as
of March 31, 1998:
<TABLE>
<CAPTION>
Affiliates Purchases Sales Income Value
- --------------------------- --------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
A.M. Castle & Co. $ - $ 4,273,011 $ 350,447 $ 21,536,891
AGCO Corp. - -- 102,980 152,860,938
Ambac Financial Group,
Inc. 12,074,215 13,962,534 1,182,816 377,868,563
Amcast Industrial Corp. - 4,139,946 207,438 14,622,825
Arrow Electronics, Inc. 18,264,676 - - 255,342,806
Breed Technologies, Inc. 1,396,688 12,676,377 183,750 50,240,769
Briggs & Stratton Corp. 2,590,004 2,728,618 1,099,392 88,528,075
Brunswick Corp. 93,012,195 - 1,760,925 301,522,275
Champion Enterprises,
Inc. 1,834,953 - - 109,418,750
Dionex Corp. - - - 66,231,000
Donaldson Co., Inc. 1,238,113 - 494,220 127,261,650
Etec Systems, Inc. 3,982,500 30,454,683 - 69,325,000
Halter Marine Group, Inc. 4,409,027 3,108,082 90,000 44,977,100
Hawaiian Electric
Industries, Inc. 575,754 - 3,691,509 124,876,114
IBP, Inc. 1,719,738 34,982,667 387,578 156,297,381
Lancaster Colony Corp. 29,449,371 5,244,194 944,225 156,329,141
Longview Fibre Co. 6,540,327 8,069,448 - 47,408,044
Mississippi Chemical
Corp. - - - 48,715,763
Oakwood Homes Corp. 7,966,111 2,404,800 61,844 115,903,475
Read-Rite Corp. 14,006,183 2,152,428 - 53,178,125
Resource Bancshares
Mortgage Group, Inc. - 1,374,954 144,000 25,400,000
Rouge Industries, Inc. - 1,415,013 118,143 29,396,006
Simpson Industries, Inc. - 882,783 279,500 18,795,000
Strattec Security Corp. - 1,092,095 - 7,906,026
Terra Industries Inc. 5,982,495 - 390,065 44,907,188
Trinity Industries, Inc. 18,761,749 19,407,631 1,312,196 215,658,750
------------ ------------ ----------- --------------
$223,804,099 $148,369,264 $12,801,028 $2,724,507,655
------------ ------------ ----------- --------------
</TABLE>
29
<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 March 31, 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 March
31, 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 March 31, 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
May 1, 1998
30
<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
President
Margaret B.W. Graham Francis J. Boggan, Vice President
John W. Kendrick William H. Keough, Treasurer
Marguerite A. Piret Joseph P. Barri, Secretary
David D. Tripple
Stephen K. West
John Winthrop
Investment Adviser
Pioneering Management Corporation
Custodian
Brown Brothers Harriman & Co.
Independent Public Accountants
Arthur Andersen LLP
Principal Underwriter
Pioneer Funds Distributor, Inc.
Legal Counsel
Hale and Dorr LLP
Shareowner Services and Transfer Agent
Pioneering Services Corporation
31
<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.
32
<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.)
33
<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 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 specific conditions to avoid penalties.
34
<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.
35
<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 Income Funds
Global/International Taxable
Pioneer Emerging Markets Fund Pioneer America Income Trust
Pioneer Europe Fund Pioneer Bond Fund
Pioneer Gold Shares Pioneer Short-Term Income Trust*
Pioneer International Growth Fund
Pioneer World Equity Fund Tax-Exempt
Pioneer Intermediate Tax-Free Fund
United States Pioneer Tax-Free Income Fund
Pioneer Capital Growth Fund
Pioneer Growth Shares Money Market Fund
Pioneer Micro-Cap Fund* Pioneer Cash Reserves 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
*Offers Class A and B Shares only
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<PAGE>
This page for your notes.
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 with Sailboat]
Pioneer Funds Distributor, Inc.
60 State Street
Boston, Massachusetts 02109
0598-5110
(C) Pioneer Funds Distributor, Inc.
www.pioneerfunds.com
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