Putnam
Voyager
Fund II
ANNUAL REPORT
December 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The turmoil in Asian markets may continue to impact markets around
the world for some time, and this certainly will be considered as
we position the fund's portfolio. As always, regardless of economic
conditions, we will focus on attractive companies with the potential
for long-term growth. "
-- Charles H. Swanberg, manager
Putnam Voyager Fund II
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
25 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Considerable market turbulence notwithstanding, Putnam Voyager Fund II ended
fiscal 1997 solidly in the black on December 31, its net asset value more than
20% higher than year-earlier levels. These results were accomplished in spite
of uncharacteristic weakness in several industry sectors, most notably
technology, and the October currency crisis in Southeast Asia that sent stocks
around the globe tumbling and investors scrambling for shelter.
Thanks to actions taken by its management team in response to the weakness in
technology, your fund was already investing in more defensive stocks, which
are considered safer havens in turbulent markets. The rush of investors to
these types of stocks drove their prices higher, mitigating the negative
effects of the late-year market disruptions on fund results.
In the following report, your fund's managers review the year's progress and
discuss prospects for the year ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 18, 1998
Report from the Fund Managers
Charles H. Swanberg
Roland W. Gillis
Robert R. Beck
For investors in the U.S. financial markets, 1997 proved both satisfying and
nerve-racking as market indexes experienced a series of record-breaking highs
and sharp declines. Despite these ups and downs -- which prompted, at various
times, euphoria, anxiety, excitement, and uncertainty -- the year concluded
solidly. Most major indexes posted double-digit gains and the Dow Jones
Industrial Average returned more than 20% for the third straight year.
Putnam Voyager Fund II followed a similar pattern during its 1997 fiscal year.
In the first half, your fund was negatively affected by the battering of small
and midsize company stocks and was challenged by significant volatility in
many industries, most notably the technology sector. However, the fund
concluded the year with solid returns, due in large part to strategic
portfolio positioning that paid off in the second half. For the 12 months
ended December 31, 1997, the fund's class A shares provided a total return of
23.42% at net asset value and 16.30% at public offering price. For complete
performance information, please refer to the summary that begins on page 9.
* TECHNOLOGY SECTOR BRINGS VOLATILITY AND CHALLENGES
Throughout 1997, the market for small and midsize growth companies was a
volatile one, marked by dramatic price fluctuations and negative earnings
reports that were often difficult to anticipate. The market was particularly
unforgiving of the technology sector, as the stock prices of companies with
even the slightest shortfall in earnings were punished harshly. At the same
time, the sector had many dramatic upswings, and on October 9, the NASDAQ
Composite Index, a common measure of technology sector performance, reached
its 47th record high of 1997.
While your fund felt the impact of this volatility, its technology sector
included some stellar holdings, such as EMC Corp., the portfolio's
best-performing stock for fiscal 1997. EMC produces and supports systems for
storing data in computers and was recently named one of 1997's fastest-growing
U.S. technology companies by the major accounting firm Deloitte & Touche.
While this holding, along with others discussed in this report, was viewed
favorably at the end of the fiscal period, all are subject to review and
adjustment in accordance with the fund's investment strategy and may vary in
the future.
Other technology companies that delivered strong performance were Computer
Associates International and Compuware Corporation. Computer Associates, a
developer and marketer of computer software, has seen a skyrocketing demand
for its products as the popularity of the Internet grows. Despite recent
troubles in Asia, the company is taking a long-term view, targeting India and
China as key areas for the company's expansion. Compuware is a provider of
software products and professional services that help information technology
professionals efficiently develop, implement, and support the applications
that run their businesses. The company also provides comprehensive solutions
for the Year 2000 issue, which has companies around the world struggling to
prevent the loss of essential data within computer systems that are not
programmed to recognize 00 as the year 2000, instead mistaking it for the year
1900.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Computer software 10.9%
Retail 10.7%
Business services 6.6%
Financial services 6.0%
Pharmaceuticals 5.0%
Footnote reads:
*Based on net assets as of 12/31/97. Holdings will vary over time.
* PORTFOLIO SHIFTS PROVE TIMELY IN FACE OF ASIAN TURMOIL
While some technology stocks boosted performance, our decision to sell
holdings in this sector also proved profitable. Toward the end of the period,
companies in many industries suffered as volatility escalated in Asian stock
and currency markets. Many U.S. companies that provide products to Asian
markets saw their stock prices fall significantly as a result of the
turbulence. In September, before the Asian situation began to affect U.S.
markets significantly, we had reduced a number of the fund's technology
positions, taking on a more defensive stance and softening the blow dealt by
the sector's downturn. Our decision to sell semiconductor holdings such as
Applied Materials, for example, proved quite beneficial, as their prices
declined toward the close of the period.
In other sectors of the portfolio, our shift to more defensive stocks also
paid off in the last three months of the fiscal year. When U.S. economic
growth started to slow and the Asian turmoil began to impact markets around
the globe, investors sought defensive stocks -- those that have more stable
returns and tend to decline less during market turbulence. In the portfolio's
retail and financial sectors, we made timely shifts that allowed us to take
advantage of this turn of events.
* DEFENSIVE HOLDINGS DELIVER STRONG RETURNS
In the retail sector, stellar performers included Costco Companies, a chain of
wholesale membership warehouses; Kohl's Corporation, which operates specialty
department stores in the Midwest; and Starbucks Corp., the coffee roaster and
retailer that, in 10 years, has grown from 11 stores to more than 1,100. Fred
Meyer, Inc., a chain of retail stores with a wide range of products, was
another strong retail performer. The company recently signed agreements to
acquire Ralph's Grocery Co. and Quality Food Centers Inc., a move expected to
save more than $100 million in annual operating costs beginning three years
after the acquisitions are completed.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Cendant Corp.
Business services
Costco Companies, Inc.
Retail
CBS Corp.
Broadcasting
American Express Co.
Financial services
Computer Associates International, Inc.
Computer software
Clear Channel Communications, Inc.
Broadcasting
Thermo Electron Corp.
Scientific and technical instruments
Tele-Communications, Inc., Class A
Cable television
Federal Home Loan Mortgage Corp.
Financial services
Federal National Mortgage Association
Financial services
Footnote reads:
These holdings represent 14.9% of the fund's net assets as of 12/31/97.
Portfolio holdings will vary over time.
In the financial services sector, which offers many defensive stocks, several
large-company holdings brought strength to the portfolio, especially toward
the close of the period. In the second half of the year, we increased the
fund's position in American Express, which already had been one of the fund's
largest holdings. In 1997, American Express dramatically increased its share
of the U.S. credit-card market, reversing a decade-long slide. In addition,
the company has been streamlined, getting out of several businesses in order
to focus on credit cards and travel and financial services. As a result,
American Express stock has soared, finishing up the year as the third
best-performing stock in the Dow Jones Industrial Average. Other financial
stocks worth noting are Washington Mutual, Inc., a company that serves
consumers and small to midsize businesses, and Fifth Third Bancorp, a bank
holding company operating offices in several states.
* BROADCASTING STOCKS REAP REWARDS OF NEW LEGISLATION
Although it was passed in 1996, legislation that loosened restrictions on
broadcasters continued to benefit stocks in this sector throughout 1997.
Passage of the Telecommunications Act of 1996 allowed for ownership of
multiple radio and television stations, which boosted the value of many
broadcasting companies poised for expansion.
One beneficiary in the fund's portfolio is Chancellor Media Corporation, which
was formed in September with the merger of Chancellor Broadcasting and
Evergreen Media Corporation, both of which were already in your fund's
portfolio. The new company owns and operates 99 radio stations in 21 of the
nation's largest markets.
Another outstanding performer was CBS Corporation, formerly Westinghouse
Electric. Now a pure broadcasting business, the company is better positioned
to benefit from this rapidly growing sector. CBS has already profited from
numerous radio acquisitions and continues to make improvements in other areas
such as television programming and the launching of new cable networks.
* DEFENSIVE POSTURE MAY CONTINUE INTO FISCAL '98
As we enter the new fiscal year, we remain cautious about the U.S. economy and
plan to position the portfolio accordingly in the coming months. We expect to
continue to take advantage of defensive growth stocks in industries such as
financial services, retail, and health care while carefully watching and
evaluating the still-volatile technology sector.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 12/31/97, there is no guarantee the fund will continue to hold
these securities in the future. This fund invests a portion of its assets in
small to midsize companies. Such investments increase the risk of greater
price fluctuations.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Voyager Fund II is designed for investors aggressively seeking capital
appreciation primarily through common stocks.
TOTAL RETURN FOR PERIODS ENDED 12/31/97
Class A Class B Class M
(inception date) (4/14/93) (10/2/95) (10/2/95)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
1 year 23.42% 16.30% 22.48% 17.48% 22.84% 18.54%
- -----------------------------------------------------------------------
Life of fund 146.29 132.09 137.65 135.65 140.62 132.26
Annual average 21.09 19.57 20.18 19.96 20.49 19.59
- -----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/97
Standard & Poor's Consumer
500 Index Price Index
- -----------------------------------------------------------------------
1 year 33.36% 1.70%
- -----------------------------------------------------------------------
Life of fund 141.09 12.33
Annual average 20.34 2.48
- -----------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines to 1% in the sixth year, and is eliminated
thereafter. Returns shown for class B and class M shares for periods prior
to their inception are derived from the historical performance of class A
shares, adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and, in the case of class B and class M
shares, the higher operating expenses applicable to such shares. All
returns assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
[GRAPHIC OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 4/14/93
Fund's class A S&P 500 Consumer Price
Date/year shares at POP Index Index
4/14/93 9425 10000 10000
12/31/93 11589 10546 10153
12/31/94 11629 10685 10425
12/31/95 17459 14696 10689
12/31/96 18805 18069 11045
12/31/97 23209 24109 11233
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $23,765 ($23,565 with a 2% contingent deferred sales charge); a
$10,000 investment in the fund's class M shares would have been valued at
$24,062 at net asset value ($23,226 at public offering price). See first page
of performance summary for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 12/31/97
Class A Class B Class M
- -----------------------------------------------------------------------
Distributions (number) 1 1 1
- -----------------------------------------------------------------------
Income -- -- --
- -----------------------------------------------------------------------
Capital gains
- -----------------------------------------------------------------------
Long term $0.031 $0.031 $0.031
- -----------------------------------------------------------------------
Short term -- -- --
- -----------------------------------------------------------------------
Total $0.031 $0.031 $0.031
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------
12/31/96 $15.51 $16.46 $15.36 $15.42 $15.98
- -----------------------------------------------------------------------
12/31/97 19.11 20.28 18.78 18.91 19.60
- -----------------------------------------------------------------------
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Index is an index of common stocks frequently used
as a general measure of stock market performance. Performance results
assume reinvestment of all distributions and interest payments and do not
take in account brokerage fees or taxes. Securities in the fund do not
match those in the index and performance of the fund will differ. It is
not possible to invest directly in an index.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund +
High Yield Total Return Fund
High Yield Trust +
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
Report of independent accountants
For the fiscal year ended December 31, 1997
To the Trustees and Shareholders of
Putnam Voyager Fund II
We have audited the accompanying statement of assets and liabilities of Putnam
Voyager Fund II, including the portfolio of investments owned, as of December
31, 1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and 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 December 31, 1997, by correspondence with the custodian and
brokers. 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
Putnam Voyager Fund II as of December 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 11, 1998
Portfolio of investments owned
December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (97.2%) *
NUMBER OF SHARES VALUE
Advertising (1.9%)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
68,096 Lamar Advertising Co. + $ 2,706,816
143,366 Omnicom Group, Inc. 6,075,134
190,575 Outdoor Systems, Inc. + 7,313,316
51,104 TMP Worldwide Inc. + 1,175,392
57,000 Universal Outdoor Holdings, Inc. + 2,964,000
--------------
20,234,658
Aerospace and Defense (0.2%)
- ------------------------------------------------------------------------------------------------------------
7,700 Lockheed Martin Corp. 758,450
15,000 Northrop Grumman Corp. 1,725,000
--------------
2,483,450
Apparel (0.4%)
- ------------------------------------------------------------------------------------------------------------
27,157 Gucci Group N.V. (Italy) 1,137,199
81,866 Stage Stores, Inc. + 3,059,742
--------------
4,196,941
Automotive (0.7%)
- ------------------------------------------------------------------------------------------------------------
26,697 Avis Rent A Car, Inc. + 852,635
122,680 Budget Group, Inc. + 4,240,128
55,600 Snap-On, Inc. 2,425,550
--------------
7,518,313
Banks (3.2%)
- ------------------------------------------------------------------------------------------------------------
96,800 Banc One Corp. 5,257,450
74,200 BankAmerica Corp. 5,416,600
86,600 Fifth Third Bancorp 7,079,550
31,900 First Chicago NBD Corp. 2,663,650
14,200 Firstar Corp. 602,613
15,500 Mercantile Bancorpation, Inc. 953,250
34,300 NationsBank Corp. 2,085,869
19,800 PNC Bank Corp. 1,129,838
3,600 Star Banc Corp. 206,550
152,600 Washington Mutual, Inc. 9,737,788
--------------
35,133,158
Basic Industrial Products (0.6%)
- ------------------------------------------------------------------------------------------------------------
82,760 Asyst Technologies, Inc. + 1,800,030
9,100 Cooper Industries, Inc. 445,900
41,000 General Signal Corp. 1,729,688
121,870 White Cap Industries, Inc. + 2,269,829
--------------
6,245,447
Broadcasting (4.6%)
- ------------------------------------------------------------------------------------------------------------
591,589 CBS Corp. 17,414,901
152,992 Chancellor Media Corp. + 11,417,028
174,909 Clear Channel Communications, Inc. + 13,894,334
17,900 ProSieben Media AG (Germany) + 836,263
2,000 ProSieben Media AG 144A (Germany) + 93,437
69,082 Sinclair Broadcast Group, Inc. Class A 3,220,948
28,000 Univision Communications Inc. Class A + 1,954,750
29,466 Westwood One, Inc. + 1,093,925
--------------
49,925,586
Building Products (0.4%)
- ------------------------------------------------------------------------------------------------------------
44,800 Lowe's Cos., Inc. 2,136,400
44,800 Masco Corp. 2,279,200
--------------
4,415,600
Business Equipment and Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
101,600 Cintas Corp. 3,962,400
33,200 Staff Leasing, Inc. + 626,650
--------------
4,589,050
Business Services (6.6%)
- ------------------------------------------------------------------------------------------------------------
35,000 Abacus Direct Corp. + 1,435,000
52,917 Accustaff, Inc. + 1,217,091
32,698 Caribiner Intl., Inc. + 1,455,061
676,347 Cendant Corp. + 23,249,439
56,868 Corestaff, Inc. + 1,507,002
333,546 Corporate Express, Inc. + 4,294,405
92,000 Interim Services, Inc. + 2,380,500
140,475 Interpublic Group Cos. Inc. 6,997,411
235,333 Officemax, Inc. + 3,353,495
1,999,940 Rentokil Group PLC (United Kingdom) 8,739,489
79,350 Robert Half International, Inc. + 3,174,000
8,400 Select Appointments Holdings PLC ADR
(United Kingdom) 153,300
158,839 Serco Group PLC (United Kingdom) 2,278,752
49,300 Snyder Communications, Inc. + 1,799,450
90,000 Renaissance Worldwide, Inc. + 4,128,750
264,770 Viking Office Products, Inc. + 5,775,296
--------------
71,938,441
Cable Television (1.8%)
- ------------------------------------------------------------------------------------------------------------
79,980 HSN, Inc. + 4,118,970
40,200 Tele-Comm Liberty Media Group, Inc. Class A + 1,457,250
487,756 Tele-Communications, Inc. Class A + 13,626,683
--------------
19,202,903
Chemicals (0.5%)
- ------------------------------------------------------------------------------------------------------------
23,200 Air Products & Chemicals, Inc. 1,908,200
71,000 Raychem Corp. 3,057,438
21,400 Witco Chemical Corp. 873,388
--------------
5,839,026
Computer Equipment (0.9%)
- ------------------------------------------------------------------------------------------------------------
217,971 EMC Corp. + 5,980,579
69,200 Hewlett-Packard Co. 4,325,000
--------------
10,305,579
Computer Services (3.9%)
- ------------------------------------------------------------------------------------------------------------
70,927 America Online, Inc. + 6,325,802
133,106 Capita Group PLC (United Kingdom) 814,315
18,532 CBT Group PLC ADR (Ireland) + 1,521,941
80,215 Checkfree Corp. + 2,165,805
54,346 CMG Information Services, Inc. + 1,643,967
84,262 DST Systems, Inc. + 3,596,934
90,200 ECsoft Group PLC ADR (United Kingdom) + 1,623,600
90,800 Getronics Electric N.V. (Netherlands) 2,895,202
124,838 IDT Corp. + 2,527,970
263,048 Keane, Inc. + 10,686,325
2,800 Metromail Corp. + 50,050
28,300 Misys PLC (United Kingdom) 858,667
214,240 Sterling Commerce, Inc. + 8,234,850
--------------
42,945,428
Computer Software (10.9%)
- ------------------------------------------------------------------------------------------------------------
80,000 Aspect Development, Inc. + 4,160,000
160,966 BMC Software, Inc. + 10,563,394
220,618 Cadence Design Systems, Inc. + 5,405,141
41,100 Citrix Systems, Inc. + 3,123,600
316,773 Computer Associates International, Inc. 16,749,346
281,000 Compuware Corp. + 8,992,000
89,877 Discreet Logic, Inc. + 1,971,677
5,600 Documentum, Inc. + 235,900
146,882 Electronic Arts, Inc. + 5,553,976
190,483 Geoworks + 1,833,399
60,000 I2 Technologies, Inc. + 3,165,000
194,565 Industri-Matematik International Corp. (Sweden) + 5,739,668
91,500 Intuit, Inc. + 3,774,375
75,643 Lycos, Inc. + 3,129,729
25,923 Microsoft Corp. + 3,350,548
243,145 Parametric Technology Corp. + 11,518,994
34,100 PeopleSoft, Inc. + 1,329,900
36,000 Remedy Corp. + 756,000
6,700 SAP AG (Germany) 2,036,457
61,100 Saville Systems Ireland PLC ADR (Ireland) + 2,535,650
73,510 Security Dynamics Technologies, Inc. + 2,627,983
154,700 SEMA Group PLC (United Kingdom) + 3,775,484
70,000 Siebel Systems, Inc. + 2,926,875
138,308 Simulation Sciences, Inc. + 2,212,928
189,200 Smallworldwide PLC ADR (United Kingdom) + 4,138,750
97,451 Synopsys, Inc. + 3,483,873
80,000 Vantive Corp. + 2,020,000
40,000 Viasoft, Inc. + 1,690,000
--------------
118,800,647
Consumer Non Durables (0.3%)
- ------------------------------------------------------------------------------------------------------------
58,754 Luxottica Group SPA ADS (Italy) 3,672,125
Consumer Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
28,300 Applied Graphics Technologies, Inc. + 1,506,975
62,100 Dollar Thrify Automotive Group, Inc. + 1,273,050
36,102 Fine Host Corp. + 180,510
61,200 Hillenbrand Industries, Inc. 3,132,675
--------------
6,093,210
Correctional Facilities (0.2%)
- ------------------------------------------------------------------------------------------------------------
54,501 Corrections Corp. + 2,019,943
Cosmetics (0.2%)
- ------------------------------------------------------------------------------------------------------------
115,114 ThermoLase Corp. + 1,208,697
28,927 ThermoLase Corp., units + 497,183
--------------
1,705,880
Education Services (1.0%)
- ------------------------------------------------------------------------------------------------------------
203,418 Apollo Group, Inc. Class A + 9,611,501
37,501 Sylvan Learning Systems, Inc. + 1,462,539
--------------
11,074,040
Electric Utilities (0.3%)
- ------------------------------------------------------------------------------------------------------------
132,927 CalEnergy, Inc. + 3,821,651
Electronic Components (0.6%)
- ------------------------------------------------------------------------------------------------------------
28,100 Applied Micro Circuits Corp. + 347,738
31,400 Metromedia Fiber Network, Inc. Class A + 522,025
37,061 Sanmina Corp. + 2,510,883
100,200 Sipex Corp. + 3,031,050
--------------
6,411,696
Electronics and Electrical Equipment (3.0%)
- ------------------------------------------------------------------------------------------------------------
94,000 Advanced Lighting Technologies, Inc. + 1,786,000
89,800 General Electric Co. 6,589,075
140,000 Genrad, Inc . + 4,226,250
47,677 Lernout & Hauspie Speech Products N.V. (Belgium) + 2,216,981
24,600 Micron Technology, Inc. + 639,600
8,600 Motorola, Inc. 490,738
80,000 Solectron Corp. + 3,325,000
210,270 Thermo Instrument Systems, Inc. + 7,241,173
228,700 ThermoQuest Corp. + 4,145,188
57,000 Uniphase Corp. + 2,358,375
--------------
33,018,380
Energy-Related (1.5%)
- ------------------------------------------------------------------------------------------------------------
50,308 AES Corp. + 2,345,611
311,213 Thermo Electron Corp. + 13,848,979
--------------
16,194,590
Environmental Control (1.4%)
- ------------------------------------------------------------------------------------------------------------
18,100 Allied Waste Industries, Inc. + 421,956
45,800 Browning-Ferris Industries, Inc. 1,694,600
257,296 Philip Services Corp. (Canada) + 3,698,630
250,458 Republic Industries, Inc. + 5,838,802
80,000 USA Waste Services, Inc. + 3,140,000
--------------
14,793,988
Financial Services (6.0%)
- ------------------------------------------------------------------------------------------------------------
189,982 American Express Co. 16,955,894
66,500 Associates First Capital Corp. 4,729,813
324,640 Federal Home Loan Mortgage Corp. 13,614,590
229,450 Federal National Mortgage Association 13,092,991
48,500 FIRSTPLUS Financial Group, Inc. + 1,861,188
5,250 Marschollek, Lautenschlaeger und Partner AG
(Germany) 1,372,358
106,650 MBNA Corp. 2,912,878
44,000 Morgan Stanley, Dean Witter, Discover and Co. 2,601,500
26,700 Providian Financial Corp. 1,206,506
214,029 TCF Financial Corp. 7,263,609
--------------
65,611,327
Food and Beverages (1.2%)
- ------------------------------------------------------------------------------------------------------------
84,000 Coca-Cola Enterprises, Inc. 2,987,250
24,000 General Mills, Inc. 1,719,000
101,400 PepsiCo, Inc. 3,694,763
52,500 Sara Lee Corp. 2,956,406
82,500 Whitman Corp. 2,150,156
--------------
13,507,575
Gas Pipelines (0.1%)
- ------------------------------------------------------------------------------------------------------------
12,600 El Paso Natural Gas Co. 837,900
Gas Utilities (0.2%)
- ------------------------------------------------------------------------------------------------------------
33,600 Columbia Energy Group 2,639,700
Health Care Services (3.1%)
- ------------------------------------------------------------------------------------------------------------
30,000 ABR Information Services, Inc. + 716,250
80,200 Carematrix Corp. + 2,305,750
75,000 Concentra Managed Care, Inc. + 2,531,250
150,000 HBO & Co. 7,200,000
207,744 HEALTHSOUTH Corp. + 5,764,896
242,160 MedPartners, Inc. + 5,418,330
32,333 Total Renal Care Holdings, Inc. + 889,158
172,026 United Healthcare Corp. 8,547,542
--------------
33,373,176
Hospital Management (0.4%)
- ------------------------------------------------------------------------------------------------------------
176,541 Health Management Assoc., Inc. + 4,457,660
Information Systems (0.1%)
- ------------------------------------------------------------------------------------------------------------
37,700 Galileo International, Inc. 1,041,463
Insurance (0.7%)
- ------------------------------------------------------------------------------------------------------------
21,700 AFLAC Inc. 1,109,413
54,800 American General Corp. 2,962,625
17,400 American International Group, Inc. 1,892,250
27,500 AON Corp. 1,612,188
--------------
7,576,476
Leisure (0.8%)
- ------------------------------------------------------------------------------------------------------------
57,767 Adidas AG 144A ADS (Germany) 3,725,972
28,600 MGM Grand, Inc. + 1,031,388
186,174 Signature Resorts, Inc. + 4,072,556
--------------
8,829,916
Lodging (0.7%)
- ------------------------------------------------------------------------------------------------------------
201,657 Extended Stay America, Inc. + 2,508,109
15,000 Hilton Hotels Corp. 446,250
66,300 Prime Hospitality Corp. + 1,350,863
80,882 Promus Hotel Corp. + 3,397,023
--------------
7,702,245
Machinery (0.1%)
- ------------------------------------------------------------------------------------------------------------
18,017 Sidel S.A. (France) 1,193,555
Medical Management Services (0.7%)
- ------------------------------------------------------------------------------------------------------------
75,147 Pediatrix Medical Group, Inc. + 3,212,534
152,358 Phycor, Inc. + 4,113,666
--------------
7,326,200
Medical Supplies and Devices (3.6%)
- ------------------------------------------------------------------------------------------------------------
25,400 Bergen Brunswig Corp. Class A 1,069,975
118,663 Cytyc Corp. + 2,951,742
33,000 Henry Schein, Inc. + 1,155,000
62,062 Johnson & Johnson 4,088,334
70,000 Lifecore Biomedical, Inc. + 1,531,250
86,878 Medtronic, Inc. 4,544,805
50,000 Minimed, Inc. + 1,943,750
103,099 Physician Sales & Service, Inc. + 2,216,629
200,940 Stryker Corp. 7,485,015
53,900 Sybron International Corp. + 2,529,931
193,799 Thermo Cardiosystems, Inc. + 5,184,123
26,900 Thermotrex Corp. + 595,163
5,100 Trex Medical Corp. + 71,081
83,400 Tyco International Ltd. 3,758,213
--------------
39,125,011
Metals and Mining (0.2%)
- ------------------------------------------------------------------------------------------------------------
16,000 SGL Carbon AG (Germany) 2,064,516
Networking Equipment (0.3%)
- ------------------------------------------------------------------------------------------------------------
64,800 3Com Corp. + 2,263,950
15,273 Cisco Systems, Inc. + 851,470
--------------
3,115,420
Nursing Homes (0.3%)
- ------------------------------------------------------------------------------------------------------------
100,000 Assisted Living Concepts, Inc. + 1,975,000
42,096 Health Care & Retirement Corp. + 1,694,364
--------------
3,669,364
Oil and Gas (2.8%)
- ------------------------------------------------------------------------------------------------------------
31,718 British Petroleum PLC ADR (United Kingdom) 2,527,528
83,600 Camco International, Inc. 5,324,275
27,600 Elf Aquitane ADR (France) 1,618,050
69,800 Halliburton Co. 3,625,238
23,400 Mobil Corp. 1,689,188
106,800 Nabors Industries, Inc. + 3,357,525
111,700 National-Oilwell, Inc. + 3,818,744
35,500 Schlumberger Ltd. 2,857,750
78,700 Total Corp. ADR (France) 4,367,850
77,100 Varco International, Inc. + 1,652,831
--------------
30,838,979
Paper and Forest Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
54,100 Fort James Corp. 2,069,325
10,800 Temple Inland, Inc. 564,975
55,400 Unisource Worldwide, Inc. 789,450
30,900 Weyerhaeuser Co. 1,516,031
--------------
4,939,781
Pharmaceuticals and Biotechnology (5.0%)
- ------------------------------------------------------------------------------------------------------------
18,500 American Home Products Corp. 1,415,250
60,100 Bristol-Myers Squibb Co. 5,686,963
250,000 Digene Corp. + 2,156,250
69,867 Dura Pharmaceuticals, Inc. + 3,205,149
50,000 Gilead Sciences, Inc. + 1,912,500
19,000 Lilly (Eli) & Co. 1,322,875
43,918 Medicis Pharmaceutical Corp. Class A + 2,245,308
6,475 Novartis AG ADR (Switzerland) 10,500,000
57,372 Parexel International Corp. + 2,122,764
46,100 Pfizer, Inc. 3,437,331
80,242 Pharmacia & Upjohn, Inc. 2,938,863
55,600 Quintiles Transnational Corp. + 2,126,700
34,000 Schering-Plough Corp. 2,112,250
5,300 Schwarz Pharamaceutical AG ADR (Germany) + 356,674
60,149 Sepracor, Inc. + 2,409,719
52,600 Smithkline Beecham PLC ADR (United Kingdom) 2,705,613
49,674 Sonus Pharmaceuticals, Inc. + 1,645,451
71,672 Transkaryotic Therapies, Inc. (Malaysia) + 2,517,479
46,473 Vertex Pharmaceuticals, Inc. + 1,533,609
12,700 Warner-Lambert Co. 1,574,800
--------------
53,925,548
Publishing (1.8%)
- ------------------------------------------------------------------------------------------------------------
80,600 Deluxe Corp. 2,780,700
15,400 Gannett Co., Inc. 951,913
33,900 Harcourt General, Inc. 1,856,025
120,931 Peterson Companies, Inc. Class A + 2,781,413
38,600 Tribune Co. 2,402,850
64,192 Wolters Kluwer N.V. (Netherlands) + 8,298,068
--------------
19,070,969
Railroads (0.2%)
- ------------------------------------------------------------------------------------------------------------
9,300 Burlington Northern Santa Fe Corp. 864,319
14,400 GATX Corp. 1,044,900
--------------
1,909,219
Recreation (0.4%)
- ------------------------------------------------------------------------------------------------------------
210,800 Ticketmaster Group, Inc. + 4,848,400
Restaurants (1.4%)
- ------------------------------------------------------------------------------------------------------------
65,450 Cracker Barrel Old Country Store, Inc. 2,184,394
249,220 J.D. Wetherspoon PLC (United Kingdom) 1,368,509
174,420 Landry's Seafood Restaurants, Inc. + 4,186,080
50,000 Papa Johns International, Inc. + 1,743,750
475,720 PizzaExpress PLC (United Kingdom) 5,852,089
--------------
15,334,822
Retail (10.7%)
- ------------------------------------------------------------------------------------------------------------
47,600 Albertsons, Inc. 2,255,050
116,900 AutoZone, Inc. + 3,390,100
74,694 Bed Bath & Beyond, Inc. + 2,875,700
65,300 Borders Group, Inc. + 2,044,706
145,700 Circuit City Stores, Inc. + 1,311,300
128,575 CompUSA, Inc. + 3,985,825
453,072 Costco Companies, Inc. + 20,218,338
45,400 CVS Corp. 2,908,438
55,600 Dayton Hudson Corp. 3,753,000
516,788 Dixons Group PLC (United Kingdom) 5,206,841
48,250 Dollar General Corp. 1,749,063
107,337 Dollar Tree Stores, Inc. + 4,441,068
61,400 Federated Department Stores, Inc. + 2,644,038
101,900 Fred Meyer, Inc. + 3,706,613
135,550 General Nutrition Companies, Inc. + 4,608,700
100,900 Home Depot, Inc. (The) 5,940,488
167,562 Kohl's Corp. + 11,415,161
46,800 MSC Industrial Direct Co., Inc. Class A + 1,965,600
201,950 Office Depot, Inc. + 4,834,178
34,000 Payless Shoesource, Inc. + 2,282,250
55,694 PMT Services, Inc. + 772,754
67,413 Petco Animal Supplies, Inc. + 1,617,912
29,000 Rexall Sundown, Inc. + 875,438
71,100 Rite Aid Corp. 4,172,681
325,301 Starbucks Corp. + 12,483,426
56,000 TJX Cos., Inc. (The) 1,925,000
55,678 Williams-Sonoma, Inc. + 2,331,516
40,000 Wolverine World Wide, Inc. 905,000
--------------
116,620,184
Semiconductors (2.6%)
- ------------------------------------------------------------------------------------------------------------
36,800 Altera Corp. + 1,219,000
40,000 Applied Materials, Inc. + 1,205,000
80,000 Galileo Technology Ltd. (Israel) + 2,310,000
40,000 Integrated Process Equipment Corp. + 630,000
26,298 Lattice Semiconductor Corp. + 1,245,868
90,546 Linear Technology Corp. 5,217,713
317,776 Maxim Integrated Products, Inc. + 10,963,272
59,300 National Semiconductor Corp. + 1,538,094
67,052 Photronics, Inc. + 1,626,011
43,200 Texas Instruments, Inc. 1,944,000
--------------
27,898,958
Shipping (0.3%)
- ------------------------------------------------------------------------------------------------------------
215,864 Jevic Transportation, Inc. + 3,480,807
Specialty Consumer Products (1.3%)
- ------------------------------------------------------------------------------------------------------------
665,729 Bulgari S.P.A. (Italy) 3,387,808
79,152 Central Garden and Pet Co. + 2,077,740
109,243 Fastenal Co. 4,178,545
125,000 Mattel, Inc. 4,656,250
--------------
14,300,343
Steel (0.2%)
- ------------------------------------------------------------------------------------------------------------
65,800 Lone Star Technologies, Inc. + 1,867,075
Supermarkets (0.2%)
- ------------------------------------------------------------------------------------------------------------
3,350 Carrefour Supermarche SA (France) 1,746,472
Telecommunication (0.5%)
- ------------------------------------------------------------------------------------------------------------
77,300 Panamsat Corp. + 3,333,563
32,000 SBC Communications, Inc. 2,344,000
--------------
5,677,563
Telecommunication Equipment (1.5%)
- ------------------------------------------------------------------------------------------------------------
129,276 Advanced Fibre Communications + 3,765,164
66,707 Excel Switching Corp. + 1,192,388
85,373 P-Com, Inc. + 1,472,684
52,667 Premisys Communications, Inc. + 1,375,925
44,600 Qwest Communications International, Inc. + 2,653,700
23,500 Tekelec + 716,750
88,094 Tellabs, Inc. + 4,657,970
--------------
15,834,581
Telephone Services (1.9%)
- ------------------------------------------------------------------------------------------------------------
50,487 Intermedia Communications, Inc. + 3,067,085
6,000 NEXTLINK Communications, Inc. Class A + 127,875
34,600 RSL Communications, Ltd. Class A + 761,200
73,900 Sprint Corp. 4,332,388
349,428 Tele-Communications TCI ventures Group Class A + 9,893,180
37,337 Teleport Communications Group Inc. Class A + 2,048,868
--------------
20,230,596
Textiles (0.1%)
- ------------------------------------------------------------------------------------------------------------
72,650 Wolford AG ADR (Austria) 878,629
Transportation (--%)
- ------------------------------------------------------------------------------------------------------------
1,700 C.H. Robinson Worldwide, Inc. 38,039
Trucking (--%)
- ------------------------------------------------------------------------------------------------------------
17,150 Ryder System, Inc. 561,663
Wireless Communications (1.2%)
- ------------------------------------------------------------------------------------------------------------
78,634 International Telecommunication Data Systems, Inc. + 2,516,288
89,123 Lightbridge, Inc. + 1,704,477
347,921 NEXTEL Communications, Inc. Class A + 9,045,946
--------------
13,266,711
--------------
Total Common Stocks (cost $841,224,570) $1,057,920,573
PREFERRED STOCKS (0.3%) * (cost $1,589,264)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
13,689 Marschollek, Lautenschlaeger und Partner AG, DEM 3.05
preferred (Germany) $ 3,464,124
SHORT-TERM INVESTMENTS (3.2%) * (cost $35,229,360)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$35,223,000 Interest in $369,996,000 joint repurchase agreement
dated December 31, 1997 with Merrill Lynch, Pierce,
Fenner, & Smith, Inc. due January 2, 1998 with respect
to various U.S. Treasury obligations -- maturity value
of $35,235,719 for an effective yield of 6.50% $ 35,229,360
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $878,043,194) *** 1,096,614,057
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,088,430,933.
*** The aggregate identified cost on a tax basis is $881,457,392, resulting in gross
unrealized appreciation and depreciation of $250,920,409 and $35,763,744, respectively,
or net unrealized appreciation of $215,156,665
+ Non-income-producing security.
144A after the name of a security represents those exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
ADR or ADS after the name of a foreign holding stands for American Depository Receipts
or American Depository Shares, respectively, representing ownership of foreign securities
on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $878,043,194) (Note 1) $1,096,614,057
- ---------------------------------------------------------------------------------------------------
Dividends and other receivables 407,548
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,710,670
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 5,869,702
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 945
- ---------------------------------------------------------------------------------------------------
Total assets 1,105,602,922
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustiodian (Note 2) 75,081
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 11,990,492
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,066,266
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,708,282
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 323,380
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,604
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,091
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 838,309
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 17,221
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 134,263
- ---------------------------------------------------------------------------------------------------
Total liabilities 17,171,989
- ---------------------------------------------------------------------------------------------------
Net assets $1,088,430,933
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 863,363,905
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 6,496,692
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 218,570,336
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,088,430,933
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($532,287,191 divided by 27,860,616 shares) $19.11
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $19.11)* $20.28
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($496,500,624 divided by 26,435,169 shares)** $18.78
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($59,643,118 divided by 3,153,910 shares) $18.91
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $18.91)* $19.60
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended December 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $53,748) $ 4,137,210
- --------------------------------------------------------------------------------------------------
Interest 1,139,478
- --------------------------------------------------------------------------------------------------
Total investment income 5,276,688
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 5,848,204
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,300,554
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 36,379
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 16,541
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,098,381
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,056,676
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 352,384
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,489
- --------------------------------------------------------------------------------------------------
Reports to shareholders 80,487
- --------------------------------------------------------------------------------------------------
Registration fees 60,046
- --------------------------------------------------------------------------------------------------
Auditing 35,588
- --------------------------------------------------------------------------------------------------
Legal 12,312
- --------------------------------------------------------------------------------------------------
Other 246,675
- --------------------------------------------------------------------------------------------------
Total expenses 14,147,716
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (440,462)
- --------------------------------------------------------------------------------------------------
Net expenses 13,707,254
- --------------------------------------------------------------------------------------------------
Net investment loss (8,430,566)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 34,804,160
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Notes 1 and 3) 1,451
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and
liabilities in foreign currencies during the year (1,902)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 162,019,119
- --------------------------------------------------------------------------------------------------
Net gain on investments 196,822,828
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $188,392,262
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended December 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss $ (8,430,566) $ (4,885,333)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments
and foreign currency transactions 34,805,611 (26,250,110)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 162,017,217 45,938,456
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 188,392,262 14,803,013
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (853,197) --
- ----------------------------------------------------------------------------------------------------------------------
Class B (814,402) --
- ----------------------------------------------------------------------------------------------------------------------
Class M (97,128) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 187,948,510 542,433,413
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 374,576,045 557,236,426
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 713,854,888 156,618,462
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $-- and $--, respectively) $1,088,430,933 $713,854,888
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share April 14, 1993+
operating performance Year ended December 31 to Dec. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.51 $14.40 $9.75 $10.29 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) (.10) (.11) (.01)(b) (.02)(b) --(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.73 1.22 4.88 .05 1.95
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 3.63 1.11 4.87 .03 1.95
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- -- (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.10) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.03) -- (.12) (.56) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) -- (.22) (.57) (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.11 $15.51 $14.40 $9.75 $10.29
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 23.42 7.71 50.14 0.34 22.98 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $532,287 $348,261 $83,526 $3,190 $2,895
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(e) 1.22 1.44 1.31 (b) .92 (b) .72(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.58) (.69) (.28)(b) (.18)(b) (.04)(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.73 68.95 49.81 101.94 76.02*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0489 $.0487
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Reflects an expense limitation which expired on December 31, 1995. As a result of such limitation,
expenses of the fund for the period ended December 31, 1993 and the year ended December 31,
1994, reflect a per share reduction of approximately $0.11 and $0.16, respectively. Expenses for the
period ended December 31, 1995 for class A, B and M shares reflect a per share reduction of
$0.04, $0.04 and $0.03, respectively.
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(e) The ratio of expenses to average net assets for the year ended December 31, 1995 and thereafter,
include amounts paid through brokerage service and expense offset arrangements. Prior period
ratios exclude these amounts. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share October 2, 1995+
operating performance Year ended December 31 to Dec. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $15.36 $14.37 $13.08
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) (.22) (.22) (.04)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.67 1.21 1.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 3.45 .99 1.36
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.03) -- (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) -- (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.78 $15.36 $14.37
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.48 6.89 10.41 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $496,501 $328,268 $66,978
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(e) 1.97 2.19 .54(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.33) (1.45) (.29)(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.73 68.95 49.81
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0489 $.0487
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Reflects an expense limitation which expired on December 31, 1995. As a result of such limitation,
expenses of the fund for the period ended December 31, 1993 and the year ended December 31,
1994, reflect a per share reduction of approximately $0.11 and $0.16, respectively. Expenses for the
period ended December 31, 1995 for class A, B and M shares reflect a per share reduction of
$0.04, $0.04 and $0.03, respectively.
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(e) The ratio of expenses to average net assets for the year ended December 31, 1995 and thereafter,
include amounts paid through brokerage service and expense offset arrangements. Prior period
ratios exclude these amounts. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share October 2, 1995+
operating performance Year ended December 31 to Dec. 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $15.42 $14.39 $13.08
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) (.18) (.19) --(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 3.70 1.22 1.38
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 3.52 1.03 1.38
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.03) -- (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) -- (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.91 $15.42 $14.39
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.84 7.16 10.57*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $59,643 $37,325 $6,115
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(e) 1.72 1.94 .47(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.08) (1.20) (.21)(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.73 68.95 49.81
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0489 $.0487
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Reflects an expense limitation which expired on December 31, 1995. As a result of such limitation,
expenses of the fund for the period ended December 31, 1993 and the year ended December 31,
1994, reflect a per share reduction of approximately $0.11 and $0.16, respectively. Expenses for the
period ended December 31, 1995 for class A, B and M shares reflect a per share reduction of
$0.04, $0.04 and $0.03, respectively.
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
(d) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(e) The ratio of expenses to average net assets for the year ended December 31, 1995 and thereafter,
include amounts paid through brokerage service and expense offset arrangements. Prior period
ratios exclude these amounts. (Note 2)
</TABLE>
Notes to financial statements
December 31, 1997
Note 1
Significant accounting policies
The Putnam Voyager Fund II ("the fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management
investment company. The fund seeks long-term growth of capital by investing in
primarily a portfolio of common stocks.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.50% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter--the last reported bid price. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost which approximates market, and other investments are stated at
fair value following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed).
Interest income is recorded on the accrual basis. Dividend income is recorded
on the ex-dividend date except that certain dividends from foreign securities
are recorded as soon as the fund is informed of the ex-dividend date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such gains and losses are included with the
net realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign currencies
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended December 31, 1997, the fund
had no borrowings against the line of credit.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include temporary
and permanent differences of losses on wash sales transactions, organization
expenses and a net operating loss. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the year
ended December 31, 1997, the fund reclassified $8,430,566 to decrease
accumulated net investment loss and $8,429,120 to decrease paid-in-capital,
with a decrease to accumulated net realized gain on investments and foreign
currency transactions of $1,446. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
I) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $17,221. These expenses are being amortized on projected net
asset levels over a five-year period. The fund will reimburse Putnam
Management for the payment of these expenses.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million of
average net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455%
of the next $5 billion, 0.44 % of the next $5 billion and 0.43% thereafter.
As part of the subcustodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc., the subcustodian bank has a lien on the securities of the
fund to the extent permitted by the fund's investment restrictions to cover
any advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At December 31, 1997, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended December 31, 1997, fund expenses were reduced by $440,462
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,400 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees currently limit payment by the fund to an annual rate of 0.25%, 1.00%
and 0.75% of the average net assets attributable to class A, class B and class
M shares respectively.
For the year ended December 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $648,178 and $44,259 from the sale of
class A and class M shares, respectively and $751,977 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the year
ended December 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $19,017 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended December 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $798,420,040 and
$640,009,281, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At December 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
December 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 24,925,536 $422,035,179
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 45,311 827,369
- ------------------------------------------------------------
24,970,847 422,862,548
Shares
repurchased (19,565,421) (333,283,469)
- ------------------------------------------------------------
Net increase 5,405,426 $89,579,079
- ------------------------------------------------------------
Year ended
December 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 27,332,602 $421,525,389
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
27,332,602 421,525,389
Shares
repurchased (10,677,327) (165,799,580)
- ------------------------------------------------------------
Net increase 16,655,275 $255,725,809
- ------------------------------------------------------------
Year ended
December 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 9,403,980 $157,063,061
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 42,522 763,271
- ------------------------------------------------------------
9,446,502 157,826,332
Shares
repurchased (4,384,774) (72,186,037)
- ------------------------------------------------------------
Net increase 5,061,728 $85,640,295
- ------------------------------------------------------------
Year ended
December 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 18,258,918 $279,772,492
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
18,258,918 279,772,492
Shares
repurchased (1,545,949) (23,794,078)
- ------------------------------------------------------------
Net increase 16,712,969 $255,978,414
- ------------------------------------------------------------
Year ended
December 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,955,241 $33,450,592
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,218 94,283
- ------------------------------------------------------------
1,960,459 33,544,875
Shares
repurchased (1,226,918) (20,815,739)
- ------------------------------------------------------------
Net increase 733,541 $12,729,136
- ------------------------------------------------------------
Year ended
December 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,357,042 $36,329,365
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ------------------------------------------------------------
2,357,042 36,329,365
Shares
repurchased (361,673) (5,600,175)
- ------------------------------------------------------------
Net increase 1,995,369 $30,729,190
- ------------------------------------------------------------
Note 5
Transactions with Affiliated Issuer
Transactions during the year with a company in which the fund owned at least
5% of the voting securities were as follows:
<TABLE>
<CAPTION>
Affiliate Purchase cost Sales cost Dividend Income Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name of Affiliate
Jevic Transportation, Inc. $3,856,834 $-- $-- $3,480,807
- -------------------------------------------------------------------------------------------
</TABLE>
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended,
the Fund hereby designates $11,675,616 as 20% rate capital gain for
its taxable year ended December 31, 1997.
The Form 1099 you receive in January 1998 will show the tax status
of all distributions paid to your account in calendar 1997.
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Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Daniel L. Miller
Vice President
Roland W. Gillis
Vice President and Fund Manager
Charles H. Swanberg
Vice President and Fund Manager
Robert R. Beck
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Voyager Fund II.
It may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution; are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency;
and involve risk, including the possible loss of the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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AN017-36889-377/2AR/2AO 2/98
