Putnam
Voyager
Fund II
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Putnam Voyager Fund II finished its 1998 fiscal year with
better-than-average results. For the 12 months ended December 31, 1998,
the fund's class A shares provided a 23.52% total return at net asset
value, compared with 22.86% on average for the 980 growth funds tracked by
Lipper Analytical Services.*
* "The favorable conditions that supported 1998's strong market returns
should continue to have a positive impact on the markets in 1999."
-- Charles H. Swanberg, manager
Putnam Voyager Fund II
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
20 Financial statements
* Past performance is not indicative of future results. For the 5-year
period ended 12/31/98, the fund's average annualized return of 19.86%
compares with 19.07% for the 362 growth funds tracked by Lipper. Since
inception (4/14/93), the fund's 21.51% average annualized return compares
with 19.79% for the 298 growth funds tracked by Lipper. For complete
performance information, please see pages 8 and 9. Performance of other
share classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
For all the worry the stock market caused investors during 1998, it did
well by Putnam Voyager Fund II. During the fiscal year ended December 31,
1998, the fund's class A shares turned in a total return at net asset
value of more than 20%. The fact that your fund outpaced the Russell
Midcap Growth Index by a hearty margin speaks highly of its management
team as well.
Such standout performance can never be taken for granted, of course, nor
should it be considered a guarantee of future results, for rare is the
fund that does not encounter turbulence at one time or another. But by
diversifying among a wide variety of rapidly growing companies of varying
sizes across many industries, your fund aims to achieve its goal of
above-average long-term capital appreciation while employing a well-tested
strategy for spreading investment risk.
In the following report, your fund's managers discuss in detail strategy
and performance during fiscal 1998 and offer some insights on prospects
for the year ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 17, 1999
Report from the Fund Managers
Charles H. Swanberg
Roland W. Gillis
Jeffrey R. Lindsey
A healthy domestic economy, effective stock selection, and a focus on
rapidly growing small and midsize companies contributed to impressive
results for Putnam Voyager Fund II in fiscal 1998. Your fund's class A
shares finished the year with a total return of 23.52% at net asset value
(16.40% at public offering price), outperforming the Russell Mid-Cap
Growth Index, the fund's benchmark, which returned 17.86%. For more
detailed performance information, including returns for other share
classes, please turn to page 8.
* THE MARKET THAT WOULDN'T QUIT
The U.S. stock market confounded skeptics in 1998 by overcoming a number
of potential setbacks. As predicted, the global economic slowdown that
began in Asia took its toll on U.S. manufacturers during the year. This
group suffered a marked decline in export activity, and earnings fell
across a number of industries. Companies reacted by cutting back on
capital spending and payrolls, prompting some forecasters to predict that
the current economic expansion -- the second longest in U.S. history --
was drawing to a close.
Meanwhile, international markets became increasingly volatile. Doubts
persisted about the pace of Asia's economic recovery, Japan was slow to
enact reforms in its banking industry, and fiscal and economic problems
grew to alarming proportions in Russia and Latin America.
The U.S. stock market barely noticed, suffering only a temporary setback
this fall in response to the financial crisis in Russia and evidence of
tighter credit at home. Recovering in a matter of weeks, the market soared
to new highs against a background of declining interest rates, near-zero
inflation, low unemployment, and a seemingly irrepressible consumer. The
Federal Reserve Board deserves at least some of the credit for the
market's good fortune. As the global flight to quality intensified over
the summer, investors and lenders grew wary of risk, and banks around the
country reported tighter lending practices. Anticipating a credit squeeze
that might hinder U.S. economic growth, the Fed cut interest rates on
three separate occasions in the fall, producing a total reduction of three
quarters of one percentage point. Record-low interest rates encouraged a
brisk market for home sales and new construction. Consumer spending, which
typically accounts for two thirds of all economic activity in the United
States, was buoyed by a robust job market in which huge job gains in the
construction and retailing sectors more than offset lost manufacturing
jobs.
* STOCK SELECTION MAKES THE DIFFERENCE
Your fund seeks to provide long-term capital appreciation by investing in
rapidly growing companies of all sizes across a wide range of industries.
Companies included in the portfolio typically have growth rates of 26% or
more projected for the next 3 to 5 years in addition to successful and
experienced management. Our focus on rapidly growing companies has
resulted in a portfolio of predominantly small and midsize corporations
(less than $3 billion in market capitalization), although some of the
fund's largest holdings are companies with market caps in excess of $20
billion.
The fund's performance during the year was primarily the result of our
successful stock selection in the technology, media, health care, and
retail sectors. Among technology companies, the biggest story in 1998 was
the Internet, whose electronic commerce has become a potent force for
conventional retail stores to reckon with. According to The Wall Street
Journal, the communications technology group advanced more than 102%
during the year. It is important to keep in mind, however, that much of
this progress is pure speculation, since some of the companies in this
group have no record of earnings growth.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Retail 12.0%
Computer software 10.7%
Broadcasting 6.2%
Pharmaceuticals
and biotechnology 6.2%
Business equipment
and services 5.4%
Footnote reads:
*Based on net assets as of 12/31/98. Holdings will vary over time.
The fund's technology holdings performed better than most. Microsoft
Corporation, the world's premier software provider, gained 111% during the
year. EMC Corporation, a designer of information storage and retrieval
systems, was up 210%. However, these returns pale in comparison with
Internet-related holdings America Online and CMG Information Services
Inc., whose stock prices soared 586% and 604%, respectively, during the
period. While these holdings, along with others discussed in this report,
were viewed favorably at the end of the period, all are subject to review
and adjustment in accordance with the fund's investment strategy and may
vary in the future.
Companies in the media/entertainment and broadcasting sectors continue to
benefit from industry-wide deregulation spawned by the Telecommunications
Act of 1996. In recent years, this deregulation has resulted in a wave of
merger and acquisition activity. As these industries consolidate,
successful companies are able to expand market share and spread fixed
costs across a wider base of customers. Among the biggest contributors to
the fund's performance during the year were Clear Channel Communications,
up 37%, and Time Warner, which gained a remarkable 100%.
In the health care and retail sectors, companies benefited from an aging
baby boomer population and 1998's boundless consumer confidence. Standout
performers include pharmaceutical company Pfizer, up 68% for the year, and
supermarket retailer Safeway, whose stock gained 93% over the 12-month
period.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Microsoft Corporation
Computer software
America Online, Inc.
Computer services
CBS Corp.
Broadcasting
The Home Depot, Inc.
Retail
Costco Companies, Inc.
Retail
Ascend Communications, Inc.
Networking equipment
Kohl's Corp.
Retail
EMC Corp.
Computer equipment
Tele-Communications TCI Ventures Group
Telephone services
Clear Channel Communications, Inc.
Broadcasting
Footnote reads:
These holdings represent 17.0% of the fund's net assets as of 12/31/98.
Portfolio holdings will vary over time.
* ECONOMIC BACKDROP REMAINS INTACT
After the dramatic gains of the past year, it is natural to expect some
retrenchment in stock prices. Perhaps investors will focus more on
earnings than interest rates in 1999 or be troubled by Brazil's recent
devaluation or by political instability here at home.
Of course, investor sentiment is impossible to predict. What we do know is
that the basic economic underpinnings of last year's phenomenal market
remain intact. Interest rates are low, inflation is not an issue, and
service-sector jobs are being created faster than manufacturing jobs are
being eliminated. Asia has even shown some nascent signs of recovery.
At 32 times 1999 projected earnings, on average, we believe that the
portfolio is reasonably valued and that the companies we have selected
have substantial earnings momentum. Your fund's ability to take advantage
of 1998's environment of low interest rates and moderate economic growth
should serve it well as we begin fiscal 1999.
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 12/31/98, 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 fluctuation.
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 12/31/98
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 23.52% 16.40% 22.66% 17.66% 22.92% 18.60%
- ------------------------------------------------------------------------------
5 years 147.38 133.11 138.23 136.23 141.50 132.97
Annual average 19.86 18.44 18.96 18.76 19.28 18.43
- ------------------------------------------------------------------------------
Life of fund 204.22 186.69 191.50 190.50 195.78 185.50
Annual average 21.51 20.26 20.61 20.53 20.92 20.17
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/98
Standard Russell Midcap
& Poor's Growth Consumer
500 Index Index Price Index
- ------------------------------------------------------------------------------
1 year 28.58% 17.86% 1.80%
- ------------------------------------------------------------------------------
5 years 193.91 122.41 12.62
Annual average 24.07 17.34 2.41
- ------------------------------------------------------------------------------
Life of fund 210.00 145.09 14.35
Annual average 21.74 16.86 2.36
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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. 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: worm chart 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 Russell Midcap Consumer Price S&P 500
Date shares at POP Growth Index Index Index
4/14/93 9,425 10,000 10,000 10,000
12/31/93 11,589 11,020 10,153 10,547
12/31/94 11,629 10,781 10,425 10,687
12/31/95 17,459 14,444 10,689 14,702
12/31/96 18,805 16,969 11,045 18,078
12/31/97 23,209 20,794 11,233 24,109
12/31/98 $28,669 $24,509 $11,435 $31,000
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 $29,150 ($29,050 with a redemption at the end of the
period); a $10,000 investment in the fund's class M shares would have been
valued at $29,578 ($28,550 at public offering price). See first page of
performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 12/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 1 1 1
- ------------------------------------------------------------------------------
Income -- -- --
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.832 0.832 0.832
- ------------------------------------------------------------------------------
Short-term -- -- --
- ------------------------------------------------------------------------------
Total $0.832 $0.832 $0.832
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
12/31/97 $19.11 $20.28 $18.78 $18.91 $19.60
- ------------------------------------------------------------------------------
12/31/98 22.70 24.08 22.13 22.34 23.15
- ------------------------------------------------------------------------------
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 5.75% maximum 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.
Russell Midcap Growth Index* + is an unmanaged list of common stocks that
is frequently used as a general measure of stock market performance.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Performance results assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees and taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
+Putnam Management has recently undertaken a review of benchmarks for
various funds. This index will replace the S&P 500 Index as a benchmark
for this fund because Putnam Management has determined that the securities
tracked by this index more accurately reflect the types of securities
generally held by the fund.
Report of independent accountants
For the fiscal year ended December 31, 1998
To the Trustees and Shareholders of
Putnam Voyager Fund II
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Putnam
Voyager Fund II (the "fund") at December 31, 1998 and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at December 31, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 1999
<TABLE>
<CAPTION>
Portfolio of investments owned
December 31, 1998
COMMON STOCKS (98.3%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Advertising (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
122,244 Lamar Advertising Co. (NON) $ 4,553,589
115,100 Omnicom Group, Inc. 6,675,800
460,057 Outdoor Systems, Inc. (NON) 13,801,680
--------------
25,031,069
Airlines (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
341,197 Ryanair Holdings, PLC ADR (Ireland) (NON) 12,880,187
Apparel (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
51,900 The Gap, Inc. 2,919,375
77,100 Gucci Group N.V. (Italy) 3,748,988
73,650 Nike, Inc. 2,987,428
--------------
9,655,791
Banks (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
244,100 Fifth Third Bancorp 17,407,381
160,500 Firstar Corp. 14,966,625
79,600 Northern Trust Corp. 6,950,075
--------------
39,324,081
Basic Industrial Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Asyst Technologies, Inc. (NON) 2,648,750
Broadcasting (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
893,221 CBS Corp. 29,252,988
255,400 Chancellor Media Corp. (NON) 12,227,275
337,413 Citadel Communications Corp. (NON) 8,730,561
377,798 Clear Channel Communications, Inc. (NON) 20,589,991
74,670 Heftel Broadcasting Corp. Class A (NON) 3,677,498
508,500 Infinity Broadcasting Corp. Class A (NON) 13,920,188
200,000 Sinclair Broadcast Group, Inc. Class A (NON) 3,912,500
73,500 Univision Communications Inc. Class A (NON) 2,659,781
29,466 WestWood One, Inc. (NON) 898,713
--------------
95,869,495
Business Equipment and Services (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
87,200 Avery Dennison Corp. 3,929,450
281,930 Cintas Corp. 19,858,444
107,500 Interpublic Group Cos. Inc. 8,573,125
64,100 Lason Holdings, Inc. (NON) 3,729,819
56,868 Metamor Worldwide, Inc. (NON) 1,421,700
211,793 NOVA Corp./Georgia (NON) 7,346,570
50,501 Paychex, Inc. 2,597,645
66,700 Pitney Bowes, Inc. 4,406,369
2,547,690 Rentokil Group PLC (United Kingdom) 19,130,421
183,239 Serco Group PLC (United Kingdom) (NON) 3,500,569
268,400 Snyder Communications, Inc. (NON) 9,058,500
--------------
83,552,612
Cable Television (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
181,700 Tele-Comm Liberty Media Group, Inc. Class A (NON) 8,369,556
125,100 Tele-Communications, Inc. Class A (NON) 6,919,594
123,900 USA Networks, Inc. (NON) 4,104,188
--------------
19,393,338
Computer Equipment (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
169,984 Artesyn Technologies, Inc. (NON) 2,379,776
140,000 Compaq Computer Corp. 5,871,250
40,800 Computer Sciences Corp. (NON) 2,629,050
271,954 EMC Corp. (NON) 23,116,090
29,700 IBM Corp. 5,487,075
60,000 PMC -- Sierra, Inc. (NON) 3,787,500
81,400 Sun Microsystems, Inc. (NON) 6,969,875
--------------
50,240,616
Computer Services (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
185,300 America Online, Inc. (NON) 29,648,000
190,674 Capita Group PLC (United Kingdom) 1,750,979
27,000 CMG Information Services, Inc. (NON) 2,875,500
42,170 Complete Business Solutions, Inc. (NON) 1,428,509
82,200 Comverse Technology, Inc. (NON) 5,836,200
100,000 Keane, Inc. (NON) 3,993,750
100,000 Misys PLC (United Kingdom) (NON) 725,614
124,000 VeriSign, Inc. 7,331,500
--------------
53,590,052
Computer Software (10.7%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Aspect Development, Inc. (NON) 7,090,000
190,721 BMC Software, Inc. (NON) 8,499,005
328,500 Cadence Design Systems, Inc. (NON) 9,772,875
62,534 Cerner Corp. (NON) 1,672,785
44,500 Citrix Systems, Inc. (NON) 4,319,281
170,280 Compuware Corp. (NON) 13,303,125
213,336 Electronic Arts, Inc. (NON) 11,973,483
91,000 Gateway 2000, Inc. (NON) 4,658,063
204,476 GeoTel Communications Corp. (NON) 7,616,731
120,000 Intuit, Inc. (NON) 8,700,000
124,100 Legato Systems, Inc. (NON) 8,182,844
242,400 Microsoft Corp. (NON) 33,617,850
80,000 New Era of Networks, Inc. (NON) 3,520,000
745,650 Parametric Technology Corp. (NON) 12,116,813
41,000 Policy Management Systems Corp. (NON) 2,070,500
120,771 Synopsys, Inc. (NON) 6,551,827
288,400 The Learning Company, Inc. (NON) 7,480,375
165,100 TSI International Software, Ltd. (NON) 7,904,163
36,000 VERITAS Software Corp. (NON) 2,157,750
94,390 Visual Networks, Inc. (NON) 3,539,625
--------------
164,747,095
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
97,900 Taylor Nelson Sofres PLC (United Kingdom) 124,143
879,100 Taylor Nelson Sofres PLC 144A (United Kingdom) 1,114,755
--------------
1,238,898
Consumer Non Durables (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
66,400 Colgate-Palmolive Co. 6,166,900
326,500 Luxottica Group S.P.A. ADR (Italy) 3,918,000
--------------
10,084,900
Consumer Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
262,800 The ServiceMaster Co. 5,798,025
92,100 Travel Services International, Inc. (NON) 2,809,050
--------------
8,607,075
Cosmetics (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
68,500 Estee Lauder Cos. Class A 5,856,750
121,513 ThermoLase Corp. (NON) 554,403
22,232 ThermoLase Corp., units (NON) 358,491
--------------
6,769,644
Education Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
256,325 Apollo Group, Inc. Class A (NON) 8,683,009
Electric Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
76,100 CalEnergy, Inc. (NON) 2,639,719
Electronic Components (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
159,000 Applied Micro Circuits Corp. (NON) 5,401,031
55,800 ASM Lithography Holding N.V. (Netherlands) (NON) 1,701,900
297,600 Metromedia Fiber Network, Inc. Class A (NON) 9,969,600
89,122 Sanmina Corp. (NON) 5,570,125
91,200 Sipex Corp. (NON) 3,203,400
--------------
25,846,056
Electronics and Electrical Equipment (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
274,500 American Power Conversion Corp. (NON) 13,296,094
99,800 Applied Materials, Inc. (NON) 4,260,213
109,800 General Electric Co. 11,206,463
61,000 Jabil Circuit, Inc. (NON) 4,552,125
200,200 KCI Konecranes International PLC (Finland) 9,034,828
158,862 Lernout & Hauspie Speech Products N.V. (Belgium) (NON) 5,182,873
64,900 Solectron Corp. (NON) 6,031,644
20,660 Teradyne, Inc. (NON) 875,468
173,970 Thermo Instrument Systems, Inc. (NON) 2,620,423
23,994 Uniphase Corp. (NON) 1,664,584
--------------
58,724,715
Energy-related (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
255,713 Thermo Electron Corp. (NON) 4,331,139
Entertainment (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
35,900 Coach USA, Inc. (NON) 1,245,281
60,000 SFX Entertainment, Inc. Class A (NON) 3,292,500
178,200 Time Warner, Inc. 11,059,538
92,300 Viacom, Inc. Class B (NON) 6,830,200
--------------
22,427,519
Environmental Control (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
191,650 Allied Waste Industries, Inc. (NON) 4,527,731
140,700 Casella Waste Systems, Inc. (NON) 5,223,488
147,641 Republic Services, Inc. (NON) 2,722,131
320,878 Waste Management, Inc. (NON) 14,930,906
--------------
27,404,256
Financial Services (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
45,300 American Express Co. 4,631,925
84,800 Associates First Capital Corp. 3,593,400
204,500 Concord EFS, Inc. (NON) 8,665,688
5,900 Marschollek, Lautenschlaeger und Partner AG (Germany) 3,387,017
56,400 Merrill Lynch & Co., Inc. 3,764,700
36,300 Morgan Stanley, Dean Witter, Discover and Co. 2,577,300
179,429 TCF Financial Corp. 4,339,939
--------------
30,959,969
Food and Beverages (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
41,000 Itoen, Ltd. (Japan) 2,111,946
104,900 Tootsie Roll Industries, Inc. 4,104,213
--------------
6,216,159
Health Care Information Systems (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
21,300 Eclipsys Corp. (NON) 617,700
149,589 IMS Health Inc. 11,284,620
160,162 Medquist, Inc. (NON) 6,326,399
--------------
18,228,719
Health Care Services (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
107,550 Cardinal Health, Inc. 8,160,356
68,200 CareMatrix Corp. (NON) 2,088,625
182,700 HBO & Co. 5,241,206
98,800 Lincare Holdings, Inc. (NON) 4,007,575
92,506 Total Renal Care Holdings, Inc. (NON) 2,734,709
--------------
22,232,471
Home Furnishings (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
77,100 Select Comfort Corp. (NON) 2,038,331
Hospital Management (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
44,000 Advance Paradigm, Inc. (NON) 1,540,000
400,000 Health Management Assoc., Inc. (NON) 8,650,000
--------------
10,190,000
Insurance (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
161,300 AFLAC Inc. 7,097,200
63,050 American International Group, Inc. 6,092,206
54,800 Century Business Services, Inc. (NON) 787,750
82,350 Inspire Insurance Solutions, Inc. (NON) 1,513,181
--------------
15,490,337
Lodging (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
237,657 Extended Stay America, Inc. (NON) 2,495,399
254,600 Prime Hospitality Corp. (NON) 2,689,213
135,881 Promus Hotel Corp. (NON) 4,399,147
--------------
9,583,759
Machinery (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
12,237 Sidel S.A. (France) 1,037,869
Manufacturing (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
467,100 American Bank Note Holographics, Inc. (NON) 8,174,250
Medical Management Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
77,200 American Oncology Resources, Inc. (NON) 1,124,225
158,390 Pediatrix Medical Group, Inc. (NON) 9,493,501
35,000 Sunrise Assisted Living, Inc. (NON) 1,815,625
--------------
12,433,351
Medical Supplies and Devices (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
71,000 Centocor, Inc. (NON) 3,203,875
68,000 Henry Schein, Inc. (NON) 3,043,000
263,900 Medtronic, Inc. 19,594,575
22,000 Minimed, Inc. (NON) 2,304,500
137,360 Omnicare, Inc. 4,773,260
207,374 Stryker Corp. 11,418,531
388,804 Sybron International Corp. (NON) 10,570,609
145,199 Thermo Cardiosystems, Inc. (NON) 1,515,515
28,400 Thermotrex Corp. (NON) 243,175
156,700 Tyco International Ltd. 11,821,056
--------------
68,488,096
Networking Equipment (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
184,000 3Com Corp. (NON) 8,245,500
364,150 Ascend Communications, Inc. (NON) 23,942,863
84,850 Cisco Systems, Inc. (NON) 7,875,141
45,700 Concur Technologies, Inc. (NON) 1,393,850
50,000 Digital River, Inc. (NON) 1,775,000
189,400 Entrust Technologies Inc. (NON) 4,521,925
64,972 Exodus Communications, Inc. (NON) 4,174,451
110,000 Network Appliance, Inc. (NON) 4,950,000
--------------
56,878,730
Oil and Gas (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
801,600 Input/output, Inc. (NON) 5,861,700
95,600 Nabors Industries, Inc. (NON) 1,296,575
152,800 National-Oilwell, Inc. (NON) 1,709,450
108,541 Schlumberger Ltd. 5,006,454
118,800 Varco International, Inc. (NON) 920,700
--------------
14,794,879
Packaging and Containers (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
123,700 Sealed Air Corp. (NON) 6,316,431
Pharmaceuticals and Biotechnology (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
80,600 Bristol-Myers Squibb Co. 10,785,288
86,000 Coulter Pharmaceutical, Inc. (NON) 2,580,000
61,000 Elan Corp. PLC ADR (Ireland) (NON) 4,243,313
79,900 Genentech, Inc. (NON) 6,367,031
115,000 Inhale Therapeutic Systems (NON) 3,795,000
74,600 Lilly Eli & Co. 6,630,075
127,907 Medicis Pharmaceutical Corp. Class A (NON) 7,626,455
93,500 Pfizer, Inc. 11,728,406
256,200 Schering-Plough Corp. 14,155,050
92,449 Sepracor, Inc. (NON) 8,147,068
71,672 Transkaryotic Therapies, Inc. (Malaysia) (NON) 1,818,677
146,829 Vertex Pharmaceuticals, Inc. (NON) 4,368,163
163,300 Warner-Lambert Co. 12,278,119
--------------
94,522,645
Publishing (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
58,647 Wolters Kluwer N.V. (Netherlands) 12,537,571
Recreation (--%)
- --------------------------------------------------------------------------------------------------------------------------
18,400 International Speedway Corp. Class A (NON) 745,200
Restaurants (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
249,773 J.D. Wetherspoon PLC (United Kingdom) (NON) 741,102
30,400 McDonald's Corp. 2,329,400
606,620 PizzaExpress PLC (United Kingdom) 8,064,377
137,548 Starbucks Corp. (NON) 7,719,882
--------------
18,854,761
Retail (12.0%)
- --------------------------------------------------------------------------------------------------------------------------
123,588 Bed Bath & Beyond, Inc. (NON) 4,217,441
164,400 Borders Group, Inc. (NON) 4,099,725
2,850 CompUSA, Inc. (NON) 37,228
312,079 Consolidated Stores Corp. (NON) 6,300,095
372,600 Costco Companies, Inc. (NON) 26,897,063
180,700 CVS Corp. 9,938,500
398,739 Dollar Tree Stores, Inc. (NON) 17,419,866
460,800 The Home Depot, Inc. 28,195,200
378,600 Kohls Corp. (NON) 23,260,238
64,500 Kroger Co. (NON) 3,902,250
100,790 Michaels Stores, Inc. (NON) 1,823,669
464,750 Office Depot, Inc. (NON) 17,166,703
86,300 Rite Aid Corp. 4,277,244
184,900 Safeway, Inc. (NON) 11,267,344
313,300 TJX Cos., Inc. (The) 9,085,700
144,300 Wal-Mart Stores, Inc. 11,751,431
111,356 Williams-Sonoma, Inc. (NON) 4,489,039
--------------
184,128,736
Semiconductors (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
118,800 Altera Corp.(NON) 7,231,950
43,000 DuPont Photomasks, Inc. (NON) 1,824,813
53,600 Intel Corp. 6,354,950
81,310 KLA Tencor Corp. (NON) 3,526,821
186,900 Linear Technology Corp. 16,739,231
403,716 Maxim Integrated Products Inc. (NON) 17,637,343
87,150 Novellus Systems, Inc. (NON) 4,313,925
47,000 Xilinx, Inc. (NON) 3,060,875
--------------
60,689,908
Specialty Consumer Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
104,211 Guitar Center, Inc. (NON) 2,566,196
Steel (--%)
- --------------------------------------------------------------------------------------------------------------------------
31,000 Lone Star Technologies, Inc. (NON) 313,875
Telecommunications (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
67,623 E. Spire Communications, Inc. (NON) 431,097
52,700 Global Crossing Ltd. (NON) 2,378,088
195,100 Global TeleSystems Group, Inc. (NON) 10,876,825
285,219 Qwest Communications International, Inc. (NON) 14,260,950
157,800 MCI WorldCom, Inc. (NON) 11,322,150
33,400 NTL Inc. (NON) 1,885,013
73,100 Oy Nokia AB Class A, (Finland) 8,892,770
106,510 PanAmSat Corp. (NON) 4,147,233
164,700 Tekelec (NON) 2,727,844
--------------
56,921,970
Telephone Services (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
90,274 Intermedia Communications, Inc. (NON) 1,557,227
86,100 Lucent Technologies, Inc. 9,471,000
130,000 McLeod, Inc. Class A (NON) 4,062,500
91,006 NEXTLINK Communications, Inc. Class A (NON) 2,582,295
93,700 RSL Communications, Ltd. Class A (NON) 2,764,150
81,500 Sprint Corp. 6,856,188
932,825 Tele-Communications TCI Ventures Group Class A (NON) 21,979,689
--------------
49,273,049
Tobacco (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
91,600 Philip Morris Cos., Inc. 4,900,600
Wireless Communications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
68,200 AirTouch Communications, Inc. (NON) 4,918,925
109,000 American Tower Corp. Class A 3,222,313
--------------
8,141,238
--------------
Total Common Stocks (cost $1,071,115,042) $1,510,349,116
PREFERRED STOCKS (0.9%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
23,800 Fresenius Medical Care AG 9.00% preferred (Germany) $ 5,016,393
15,200 Marschollek, Lautenschlaeger und Partner AG
DEM 3.05 pfd. (Germany) 8,671,110
--------------
Total Preferred Stocks (cost $6,722,545) $ 13,687,503
SHORT-TERM INVESTMENTS (1.1%) (a)(cost $16,616,215)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 16,614,000 Interest in $16,614,000 joint repurchase agreement dated
December 31, 1998 with Merrill Lynch, New York due
January 4, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $16,622,861 for an
effective yield of 4.80% $ 16,616,215
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,094,453,802) (b) $1,540,652,834
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,536,866,572.
(b) The aggregate identified cost on a tax basis is $1,097,789,410, resulting in gross unrealized appreciation and
depreciation of $494,557,197 and $51,693,773, respectively, or net unrealized appreciation of $442,863,424.
(NON) Non-income-producing security.
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, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,094,453,802) (Note 1) $1,540,652,834
- -----------------------------------------------------------------------------------------------
Cash 104,080
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $492,912) 494,718
- -----------------------------------------------------------------------------------------------
Dividends and other receivables 344,907
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,138,605
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 2,160,102
- -----------------------------------------------------------------------------------------------
Total assets 1,547,895,246
Liabilities
- -----------------------------------------------------------------------------------------------
Dividends payable 14,411
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 5,012,153
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,464,265
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,038,639
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 146,513
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 30,773
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,893
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,074,716
- -----------------------------------------------------------------------------------------------
Other accrued expenses 242,311
- -----------------------------------------------------------------------------------------------
Total liabilities 11,028,674
- -----------------------------------------------------------------------------------------------
Net assets $1,536,866,572
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,080,719,428
- -----------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (2,529)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 9,948,835
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 446,200,838
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,536,866,572
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($753,318,794 divided by 33,189,700 shares) $22.70
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $22.70)* $24.08
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($699,040,345 divided by 31,593,404 shares)** $22.13
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($84,507,433 divided by 3,783,182 shares) $22.34
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $22.34)* $23.15
- -----------------------------------------------------------------------------------------------
* 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, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax $15,459) $ 4,058,748
- -----------------------------------------------------------------------------------------------
Interest 2,104,314
- -----------------------------------------------------------------------------------------------
Total investment income 6,163,062
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,946,333
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,143,797
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 36,681
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 19,409
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,544,635
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,757,397
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 516,491
- -----------------------------------------------------------------------------------------------
Amortization of organization expense (Note 1) 945
- -----------------------------------------------------------------------------------------------
Reports to shareholders 141,816
- -----------------------------------------------------------------------------------------------
Registration fees 69,436
- -----------------------------------------------------------------------------------------------
Auditing 46,994
- -----------------------------------------------------------------------------------------------
Legal 10,826
- -----------------------------------------------------------------------------------------------
Postage 295,891
- -----------------------------------------------------------------------------------------------
Other 227,626
- -----------------------------------------------------------------------------------------------
Total expenses 18,758,277
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (452,743)
- -----------------------------------------------------------------------------------------------
Net expenses 18,305,534
- -----------------------------------------------------------------------------------------------
Net investment loss (12,142,472)
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 58,091,972
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Notes 1 and 3) (2,447)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in foreign
currencies during the year 2,333
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 227,628,169
- -----------------------------------------------------------------------------------------------
Net gain on investments 285,720,027
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $273,577,555
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended December 31
-------------------------------
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (12,142,472) $ (8,430,566)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 58,089,525 34,805,611
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 227,630,502 162,017,217
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 273,577,555 188,392,262
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (26,466,797) (853,197)
- ---------------------------------------------------------------------------------------------------------------
Class B (25,149,952) (814,402)
- ---------------------------------------------------------------------------------------------------------------
Class M (3,023,078) (97,128)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 229,497,911 187,948,510
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 448,435,639 374,576,045
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 1,088,430,933 713,854,888
- ---------------------------------------------------------------------------------------------------------------
End of year (including accumulated net investment
loss of $2,529 and $-, respectively) $1,536,866,572 $1,088,430,933
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $19.11 $15.51 $14.40 $9.75 $10.29
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(c) (.12) (.10) (.11) (.01)(b) (.02)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 4.54 3.73 1.22 4.88 .05
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 4.42 3.63 1.11 4.87 .03
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- (.10) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.83) (.03) -- (.12) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.83) (.03) -- (.22) (.57)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $22.70 $19.11 $15.51 $14.40 $9.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 23.52 23.42 7.71 50.14 0.34
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $753,319 $532,287 $348,261 $83,526 $3,190
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.12 1.22 1.44 1.31 (b) .92(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (.59) (.58) (.69) (.28)(b) (.18)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 91.61 73.73 68.95 49.81 101.94
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) The ratio of expenses to average net assets for the period ended December 31, 1995 and for the years
ended 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $18.78 $15.36 $14.37 $13.08
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(c) (.27) (.22) (.22) (.04)(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 4.45 3.67 1.21 1.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 4.18 3.45 .99 1.36
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.83) (.03) -- (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.83) (.03) -- (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $22.13 $18.78 $15.36 $14.37
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.66 22.48 6.89 10.41 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $699,040 $496,501 $328,268 $66,978
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.87 1.97 2.19 .54(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.34) (1.33) (1.45) (.29)(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 91.61 73.73 68.95 49.81
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) The ratio of expenses to average net assets for the period ended December 31, 1995 and for the years
ended 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $18.91 $15.42 $14.39 $13.08
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(c) (.22) (.18) (.19) --(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 4.48 3.70 1.22 1.38
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 4.26 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 (.83) (.03) -- (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.83) (.03) -- (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $22.34 $18.91 $15.42 $14.39
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 22.92 22.84 7.16 10.57*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $84,507 $59,643 $37,325 $6,115
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.62 1.72 1.94 .47(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%) (1.09) (1.08) (1.20) (.21)(b)*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 91.61 73.73 68.95 49.81
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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) Per share net investment income (loss) has been determined on the basis of the weighted average
number of shares outstanding during the period.
(d) The ratio of expenses to average net assets for the period ended December 31, 1995 and for the years
ended 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, 1998
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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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, and 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 realized 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, 1998, 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
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
sale transactions, dividends payable and 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,
1998, the fund reclassified $12,139,943 to increase undistributed net
investment income and $12,142,388 to decrease paid-in-capital, with an
increase to accumulated net realized gains and losses of $2,445. 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 have been fully
amortized on projected net assets over a five-year period.
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.
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 Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended December 31, 1998, fund expenses were reduced by
$452,743 under expense offset arrangements with PFTC. 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 $1,620
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 have approved 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, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $716,488 and $42,111 from the sale
of class A and class M shares, respectively and $906,735 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, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received $27,459 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended December 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $1,304,586,030 and
$1,127,685,833, 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, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
December 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 11,250,184 $229,784,065
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,231,846 25,696,173
- -----------------------------------------------------------------------------
12,482,030 255,480,238
Shares
repurchased (7,152,946) (144,393,448)
- -----------------------------------------------------------------------------
Net increase 5,329,084 $111,086,790
- -----------------------------------------------------------------------------
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, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,104,215 $183,140,840
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,150,403 23,410,690
- -----------------------------------------------------------------------------
10,254,618 206,551,530
Shares
repurchased (5,096,384) (100,793,004)
- -----------------------------------------------------------------------------
Net increase 5,158,234 $105,758,526
- -----------------------------------------------------------------------------
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, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,642,303 $32,976,095
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 142,779 2,932,667
- -----------------------------------------------------------------------------
1,785,082 35,908,762
Shares
repurchased (1,155,810) (23,256,167)
- -----------------------------------------------------------------------------
Net increase 629,272 $12,652,595
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Federal Tax Information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $58,013,381 as capital gain, for its taxable year ended
December 31, 1998.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Daniel L. Miller
Vice President
Carol C. McMullen
Vice President
Charles H. Swanberg
Vice President and Fund Manager
Roland W. Gillis
Vice President and Fund Manager
Jeffrey R. Lindsey
Vice President and Fund Manager
Richard A. Monaghan
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
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
AN017-49324-377/2AR/2AO 2/99
