MUNIYIELD
QUALITY
FUND II, INC.
FUND LOGO
STRATEGIC
Performance
Annual Report
October 31, 1994
Officers and Directors
Arthur Zeikel, President and Director
Kenneth S. Axelson, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Donald C. Burke, Vice President
Vincent R. Giordano, Vice President
Kenneth A. Jacob, Vice President
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, New York 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
<PAGE>
NYSE Symbol
MQT
This report, including the financial information herein,
is transmitted to the shareholders of MuniYield Quality
Fund II, Inc. for their information. It is not a prospectus,
circular or representation intended for use in the pur-
chase of shares of the Fund or any securities mentioned
in the report. Past performance results shown in this
report should not be considered a representation of
future performance. The Fund has leveraged its
Common Stock by issuing Preferred Stock to provide the
Common Stock shareholders with a potentially higher
rate of return. Leverage creates risks for Common Stock
shareholders, including the likelihood of greater volatil-
ity of net asset value and market price of shares of the
Common Stock, and the risk that fluctuations in the
short-term dividend rates of the Preferred Stock may
affect the yield to Common Stock shareholders.
MuniYield
Quality Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Quality Fund II, Inc.
TO OUR SHAREHOLDERS
For the year ended October 31, 1994, the Common
Stock of MuniYield Quality Fund II, Inc. earned
$1.338 per share income dividends, which includes
earned and unpaid dividends of $0.082. This repre-
sents a net annualized yield of 10.14%, based on a
month-end net asset value of $13.20 per share. Over
the same period, the total investment return on the
Fund's Common Stock was -10.68%, based on a change
in per share net asset value from $16.27 to $13.20, and
assuming reinvestment of $1.340 per share income
dividends.
For the six-month period ended October 31, 1994, the
total investment return on the Fund's Common Stock
was -2.90%, based on a change in per share net asset
value from $14.13 to $13.20, and assuming reinvestment
of $0.480 per share income dividends.
<PAGE>
The average yields of the Fund's Auction Market
Preferred Stock for the six months ended October 31,
1994 were as follows: Series A, 3.19%; Series B, 3.06%;
and Series C, 3.05%.
The Environment
As discussed in our last report to shareholders, the
Federal Reserve Board moved to counteract inflation-
ary pressures by tightening monetary policy. This
trend continued during the May-October period.
Despite the series of preemptive strikes against
inflation by the central bank, concerns of increasing
inflationary pressures continued to prompt volatility
in the US capital markets during the period. In
addition, the weakness of the US dollar in foreign
exchange markets prolonged stock and bond market
declines.
Ongoing strength in the manufacturing sector and
better-than-expected economic results continue to
fuel speculation that the Federal Reserve Board will
continue to raise short-term interest rates in the
months ahead. However, although consumer spending
is increasing, it is doing so at a lower rate than has
been the case in recent economic recoveries. In the
weeks ahead, investors will continue to assess eco-
nomic data and inflationary trends in order to gauge
whether further increases in short-term interest rates
are imminent. Continued indications of moderate
and sustainable levels of economic growth would be
positive for the US capital markets. At the same
time, greater US dollar stability in foreign exchange
markets would help to dampen expectations of
significantly higher short-term interest rates.
The Municipal Market
The long-term tax-exempt market continued to erode
throughout the three months ended October 31, 1994.
As measured by the Bond Buyer Revenue Bond Index,
yields on A-rated municipal revenue bonds maturing
in 30 years rose by almost 50 basis points (0.50%) to
6.95% during the October 31, 1994 quarter. This
represents the highest level in tax-exempt bond yields
in over two years. US Treasury bonds suffered even
greater declines during the quarter as Treasury bond
yields rose approximately 60 basis points to end the
quarter at 8.00%.
<PAGE>
The tax-exempt bond market reacted negatively
throughout the October quarter to indications that,
despite a series of interest rate increases by the
Federal Reserve Board, the strength of the domestic
economy seen in recent quarters has not yet been
significantly reduced. While inflationary pressures
have remained well contained, additional Federal
Reserve Board actions have been expected both to
ensure that domestic economic growth is eventually
confined to current levels and to assure nervous
financial markets of its anti-inflationary intentions.
Fortunately, while the demand for tax-exempt bonds
has declined somewhat in recent months, new bond
issuance has remained greatly reduced. During the
quarter ended October 31, 1994, only $32 billion in
long-term tax-exempt securities were issued, a decline
of over 50% versus the October 31, 1993 quarter.
Similarly, for the six months ended October 31, 1994,
only $75 billion in municipal securities were under-
written, a decline of over 50% versus the comparable
period a year earlier. This reduction in issuance in
recent quarters has allowed the municipal bond
market to react to both the decline in investor
demand and the rise in fixed-income yields in a more
orderly fashion than in similar situations in the past,
particularly during 1987.
Long-term tax-exempt revenue bonds currently yield
approximately 7%, or almost 11.5% on an after-tax
equivalent basis, to an investor in the 39.6% Federal
income tax bracket. As inflation has only marginally
increased in the past year, real tax-exempt interest
rates have risen dramatically. The Federal Reserve
Board appears committed to maintaining inflation at
or below its current levels. Indeed, most forecasts ex-
pect inflation to remain in its present range of 3%-4%
throughout 1995 and, potentially, for the remainder
of the 1990s. Real after-tax equivalent interest rates
exceeding 7% represent historically attractive munici-
pal investments for long-term investors.
<PAGE>
Federal Reserve Board actions taken thus far have yet
to fully impact US domestic growth and expected
additional actions should promote only a modest
economic expansion within a benign inflationary con-
text beginning sometime early in 1995. Within such
an environment, it is unlikely that tax-exempt interest
rates will remain at their current attractive levels.
Tax-exempt bond issuance is unlikely to return to the
historic high levels seen in 1992 and 1993, while in-
vestor demand should return as markets stabilize. As
we have discussed in earlier reports, the total number
of tax-exempt bonds outstanding is scheduled to
decline dramatically in 1994 and 1995 as a result of
both regular bond maturities and early redemptions.
Investors seeking tax-advantaged issues are likely to
find it very difficult to obtain currently available tax-
exempt yields as the current supply/demand balance
is unlikely to be maintained in the coming quarters.
Portfolio Strategy
During the six months ended October 31, 1994, our
portfolio strategy evolved to reflect a somewhat more
constructive market outlook. While our efforts in that
direction have proven somewhat premature, we
remain convinced that long-term tax-exempt interest
rates represent extraordinary value in light of what
we perceive to be unwarranted inflationary fears
within the investor community. We have kept cash
reserves at low levels in recognition of the strong
technical foundation underlying the municipal mar-
ket. Indeed, long-term volume for the year ended
October 31, 1994 is down significantly from levels of
one year ago. At the same time, demand for municipals
has also declined sharply this year, muting the
favorable impact of diminished supply. Nevertheless,
we believe that when in fact the market does turn,
scarcity will be a serious obstacle for the under-
invested attempting to enhance total return.
Another phase of our investment strategy has been to
reduce the Fund's holdings of prerefunded bonds and
to reinvest the proceeds in long-term, high-quality
current coupon securities. The former have been
trading at historically overvalued levels, while the
latter are quite attractive when considered on a
taxable equivalent basis. These efforts will not only
maintain a competitive yield over time, but they will
also contribute to the Fund's ability to more fully
benefit from the anticipated rebound in the fixed-
income markets.
<PAGE>
While Preferred Stock interest rates have risen some-
what over the last six months, the rise has been
muted relative to other comparable measures in the
short-term taxable market. As a consequence, the
persistent steepness of the municipal yield curve
continues to benefit the leveraged Common Stock
shareholder. Nonetheless, a portion of the Fund's
Preferred Stock remains in an extended mode, and as
short-term interest rates continue to edge up, we
believe that the Fund's Common Stock is likely to
continue to be at least somewhat insulated from the
consequences of a flattening yield curve. (For a
complete explanation of the benefits and risks of
leveraging, see page 3 of this report to shareholders.)
We appreciate your ongoing interest in MuniYield
Quality Fund II, Inc., and we look forward to serving
your investment needs and objectives in the months
and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Vice President and Portfolio Manager
December 6, 1994
THE BENEFITS AND RISKS OF LEVERAGING
MuniYield Quality Fund II, Inc. utilizes leveraging to
seek to enhance the yield and net asset value of its
Common Stock. However, these objectives cannot be
achieved in all interest rate environments. To leverage,
the Fund issues Preferred Stock, which pays dividends
at prevailing short-term interest rates, and invests the
proceeds in long-term municipal bonds. The interest
earned on these investments is paid to Common Stock
shareholders in the form of dividends, and the value
of these portfolio holdings is reflected in the per share
net asset value of the Fund's Common Stock. However,
in order to benefit Common Stock shareholders, the
yield curve must be positively sloped; that is, short-
term interest rates must be lower than long-term
interest rates. At the same time, a period of generally
declining interest rates will benefit Common Stock
shareholders. If either of these conditions change,
then the risks of leveraging will begin to outweigh
the benefits.
<PAGE>
To illustrate these concepts, assume a fund's Common
Stock capitalization of $100 million and the issuance
of Preferred Stock for an additional $50 million,
creating a total value of $150 million available for
investment in long-term municipal bonds. If prevailing
short-term interest rates are approximately 3% and
long-term interest rates are approximately 6%, the
yield curve has a strongly positive slope. The fund
pays dividends on the $50 million of Preferred Stock
based on the lower short-term interest rates. At the
same time, the fund's total portfolio of $150 million
earns the income based on long-term interest rates.
In this case, the dividends paid to Preferred Stock
shareholders are significantly lower than the income
earned on the fund's long-term investments, and
therefore the Common Stock shareholders are the
beneficiaries of the incremental yield. However, if
short-term interest rates rise, narrowing the differen-
tial between short-term and long-term interest rates,
the incremental yield pick-up on the Common Stock
will be reduced. At the same time, the market value
on the fund's Common Stock (that is, its price as
listed on the New York Stock Exchange) may, as a
result, decline. Furthermore, if long-term interest rates
rise, the Common Stock's net asset value will reflect
the full decline in the price of the portfolio's invest-
ments, since the value of the fund's Preferred Stock
does not fluctuate. In addition to the decline in net
asset value, the market value of the fund's Common
Stock may also decline.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Alabama--1.6% NR* Aaa $ 7,625 Alabama, HFA, S/F, Revenue Bond (Collateral Home Mortgage
Program), Series B-1, 6.65% due 10/01/2025 $ 7,261
Alaska--1.3% A- A 2,580 Alaska Industrial Development and Export Authority Revolving
Fund, AMT, Series A, 6.375% due 4/01/2008 2,535
NR* NR* 3,500 Valdez, Alaska, Marine Term Revenue Refunding Bonds
(Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 3,013
Arizona--0.2% AA P1 700 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining
Corp.), VRDN, 3.70% due 12/01/2009 (a) 700
California--4.7% AAA Aaa 21,500 University of California Revenue Bonds (Multiple Purpose Projects),
Series D, 6.375% due 9/01/2019 (c) 20,607
Colorado--3.7% BBB+ Baa1 1,350 Colorado Health Facilities Authority Revenue Bonds
(P/SL Healthcare System), Series A, 6.875% due 2/15/2023 1,256
NR* VMIG1 500 Colorado State, Student Obligation Bond Authority, Student Loan
Revenue Bonds, VRDN, AMT, Series A, 3.40% due 9/01/2024 (a) 500
Denver, Colorado, City and County Airport Revenue Bonds:
BB Baa 3,000 Series A, 7.25% due 11/15/2025 2,782
BB Baa 4,020 Series B, AMT, 7.50% due 11/15/2025 3,743
BB Baa 9,500 Series C, AMT, 6.75% due 11/15/2022 8,151
Florida--2.8% BBB Baa1 2,500 Escambia County, Florida, PCR (Champion International
Corporation Project), AMT, 6.90% due 8/01/2022 2,381
A1 VMIG1 400 Martin County, Florida, PCR, Refunding (Florida Power and
Light Company Project), VRDN, 3.65% due 9/01/2024 (a) 400
A+ A1 12,000 Orange County, Florida, Sales Tax Revenue Bonds, Series B,
5.375% due 1/01/2024 9,713
Georgia--2.2% AAA Aaa 10,000 Georgia Municipal Electric Authority, Special Obligation Revenue
Bonds, Fifth Crossover Series, Project No. 1, 6.40%
due 1/01/2013 (b) 9,799
Idaho--1.3% Idaho Student Loan Revenue Bonds (Student Loan
Marketing Association, Inc.), AMT:
NR* Aaa 3,400 Series B, 6.60% due 10/01/2006 3,412
NR* Aa 2,105 Sub-Series 1, 6.80% due 10/01/2006 2,135
<PAGE>
Illinois--8.2% AA Aa 11,100 Chicago, Illinois, Metropolitan Water Reclamation Revenue Bonds
(Greater Chicago Capital Improvement District), 5.50% due 12/01/2012 9,652
BBB- Baa 2,760 Chicago, Illinois, Revenue Refunding Bonds (Skyway Toll Bridge),
6.75% due 1/01/2017 2,580
A+ A1 3,645 Illinois Educational Facilities Authority, Revenue
Refunding Bonds (Loyola University-Chicago), Series A, 7.125%
due 7/01/2021 3,709
NR* A 1,000 Illinois Health Facilities Authority Revenue Bonds
(Mercy Center for Health Care Services), 6.65% due 10/01/2022 943
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Quality Fund II,
Inc.'s portfolio holdings in the Schedule of Investments,
we have abbreviated the names of many of the securities
according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
CARS Complementary Auction Rate Securities
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Authority
IDA Industrial Development Authority
M/F Multi-Family
PCR Pollution Control Revenue Bonds
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Illinois A+ A1 $ 7,500 Illinois Housing Development Authority, M/F Program Bonds,
(concluded) Series 5, 6.75% due 9/01/2023 $ 7,286
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan
Revenue Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 5,947
A+ A1 6,685 Illinois Toll Highway Authority, Toll Highway Revenue
Bonds, Series A, 6.375% due 1/01/2015 6,236
Indiana--2.3% NR* A 3,200 Indiana Health Facility Finance Authority, Hospital Revenue
Refunding Bonds (Methodist Hospitals Incorporated),
6.75% due 9/15/2009 3,150
BBB Baa2 5,000 Indianapolis, Indiana, Airport Authority, Special Facilities Revenue
Bonds (Federal Express Corporation Project), AMT,
7.10% due 1/15/2017 4,875
NR* A1 2,200 Indianapolis, Indiana, Local Public Improvement Bond Bank,
Series C, 6.70% due 1/01/2017 2,102
Iowa--0.7% BBB+ NR* 3,675 Ottumwa, Iowa, Hospital Facilities Revenue Refunding and
Improvement Bonds (Ottumwa Regional Health),
6% due 10/01/2018 3,059
Kentucky--0.9% A1+ VMIG1 1,300 Daviess County, Kentucky, Solid Waste Disposal Facility Revenue
Bonds (Scott Paper Co. Project), VRDN, AMT, Series B,
3.65% due 12/01/2023 (a) 1,300
NR* NR* 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
(TJ International Project), AMT, 7% due 6/01/2024 2,806
Louisiana--1.2% NR* Baa3 5,000 Lake Charles, Louisiana, Harbor and Terminal District,
Port Facilities Revenue Refunding Bonds (Trunkline Long Company
Project), 7.75% due 8/15/2022 5,222
<PAGE>
Maine--1.0% BBB Baa1 5,000 Bucksport, Maine, Solid Waste Disposal Revenue Bonds
(Champion International Corporation Project), 6.25%
due 5/01/2010 4,539
Maryland--2.1% NR* A 10,000 Northeast, Maryland, Waste Disposal Authority, Solid
Waste Revenue Bonds (Montgomery County Resource Recreation
Project), AMT, Series A, 6.30% due 7/01/2016 9,090
Massachusetts--10.0% BBB+ A 2,000 Massachusetts Municipal Wholesale Electric Company,
Revenue Refunding Bonds (Power Supply System), Series A,
6.75% due 7/01/2011 1,980
Massachusetts State Health and Educational Facilities Authority
Revenue Bonds:
NR* Baa1 2,000 (Anna Jaques Hospital), Series B, 6.875% due 10/01/2012 1,918
AAA Aaa 5,150 (Central Massachusetts Medical Center), CARS, Series B, 9.42%
due 6/23/2022(b)(e) 4,893
NR* Aa 2,500 (Daughters of Charity), Series D, 6.10% due 7/01/2014 2,271
A- NR* 3,500 Refunding (Melrose-Wakefield Hospital), Series B,
6.375% due 7/01/2016 3,132
NR* Ba 2,640 Refunding (New England Memorial Hospital), Series B,
6% due 7/01/2008 2,137
NR* Ba 4,590 Refunding (New England Memorial Hospital), Series B,
6.125% due 7/01/2013 3,610
BBB Baa1 5,000 (Sisters of Providence Health System), Series A,
6.625% due 11/15/2022 4,401
AA- Aa 3,060 (Smith College), Series D, 5.75% due 7/01/2024 2,670
AAA Aaa 5,000 Massachusetts State, HFA (Residential Development), Series A,
6.875% due 11/15/2011 (d) 5,019
Massachusetts State Water Resources Authority:
AAA Aaa 4,000 Refunding, Series B, 5% due 3/01/2022 (c) 3,063
AAA Aaa 5,000 Refunding, Series C, 5.25% due 12/01/2020 (c) 3,997
AAA Aaa 5,000 Series A, 6.50% due 12/01/2001 (f) 5,315
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Michigan--2.3% A- A $ 3,250 Michigan State Hospital Finance Authority, Revenue Refunding
Bonds (Detroit Medical Center Obligation Group), Series A,
6.25% due 8/15/2013 $ 2,968
A A2 4,000 Michigan State Strategic Fund-Limited Obligation Revenue Bonds
(Ford Motor Company Project), AMT, Series A, 6.55% due 10/01/2022 3,776
A1 P1 3,300 Midland County, Michigan, Economic Development Corporation,
Limited Obligation Revenue Bonds (Dow Chemical Company
Project), VRDN, AMT, Series A, 3.80% due 12/01/2023 (a) 3,300
<PAGE>
Minnesota--0.1% A1+ NR* 600 Hubbard County, Minnesota, Solid Waste Disposal Revenue Bonds
(Potlatch Corporation Project), VRDN, 3.55% due 8/01/2014 (a) 600
Mississippi--1.7% A A2 6,000 Lowndes County, Mississippi, Solid Waste Disposal, PCR,
Refunding (Weyerhaeuser Company Project), Series A, 6.80%
due 4/01/2022 5,904
NR* Baa3 2,000 Warren County, Mississippi, PCR, Refunding (Mississippi Power and
Light Company Project), 7% due 4/01/2022 1,920
Missouri--0.5% NR* VMIG1 2,000 Missouri Higher Education Loan Authority, Student Loan Revenue
Bonds, VRDN, AMT, Series A, 3.45% due 6/01/2017 (a) 2,000
Montana--1.0% BBB+ Baa1 5,000 Forsyth, Montana, PCR, Refunding (Montana Power Company
Project), Series A, 6.125% due 5/01/2023 4,418
New Jersey--3.5% A+ Aa 7,500 New Jersey Sports and Exposition Authority Revenue Bonds
(State Contract), Series A, 6% due 3/01/2021 6,854
A A 5,000 New Jersey State Turnpike Authority, Turnpike Revenue Refunding
Bonds, Series C, 6.50% due 1/01/2016 4,938
AA A 4,250 University of Medicine and Dentistry, New Jersey, Series E,
5.75% due 12/01/2021 3,729
New Mexico--1.1% A A3 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
Corporation Project), 6.50% due 4/01/2013 4,849
New York--10.0% New York City, New York, GO, UT:
A- Baa1 5,000 Series B, 6.75% due 10/01/2006 4,979
A- Baa1 6,000 Series B, 7% due 2/01/2017 5,926
A- Baa1 5,150 Series H, 7% due 2/01/2021 5,094
New York City, New York, IDA, Civic Facilities Revenue Bonds
(New York Blood Center Incorporated Project):
BBB NR* 2,000 7.20% due 5/01/2012 2,019
BBB NR* 3,250 7.25% due 5/01/2022 3,281
BB+ Ba1 1,500 New York State Energy Research and Development Authority,
Electric Facilities Revenue Bonds (Long Island Lighting Co.), AMT,
Series A, 7.15% due 2/01/2022 1,408
A Aa 7,500 New York State Environmental Facilities Corporation, PCR
(State Water Revolving Fund), Series E, 6.50% due 6/15/2014 7,337
New York State Local Government Assistance Corporation
Revenue Bonds:
A A 6,250 Refunding, Series B, 5.50% due 4/01/2021 5,167
A A 5,000 Refunding, Series C, 5% due 4/01/2021 3,823
A A 5,000 Series A, 6.875% due 4/01/2019 5,000
North Carolina--2.8% A A2 13,000 Martin County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Solid Waste Disposal Revenue Bonds
(Weyerhaeuser Company), AMT, 6.80% due 5/01/2024 12,474
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Ohio--1.7% NR* VMIG1 $ 1,300 Cuyahoga County, Ohio, Hospital Revenue Improvement Bonds
(University Hospital of Cleveland), VRDN, 3.70% due 1/01/2016 (a) $ 1,300
AA- A1 6,500 Ohio Air Quality Development Authority, Revenue Refunding
Bonds (Dayton Power and Light Project), Series B,
6.40% due 8/15/2027 6,119
Pennsylvania--3.1% A1+ VMIG1 1,400 Allegheny County, Pennsylvania, Hospital Development Authority,
Revenue Bonds (Presbyterian Health Center), VRDN, Series C,
3.45% due 3/01/2020 (a) (c) 1,400
AAA Aaa 5,000 Pennsylvania HFA, Revenue Refunding Bonds (Rental Housing),
6.50% due 7/01/2023(d) 4,751
NR* P1 1,400 Pennsylvania State Higher Educational Facilities Authority,
College and University Revenue Bonds (Temple University),
VRDN, 3.40% due 10/01/2009 (a) 1,400
BBB Baa1 1,750 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Frankford
Hospital), Series A, 6% due 6/01/2014 1,487
Ridley Park, Pennsylvania, Hospital Authority, Revenue Refunding
Bonds (Taylor Hospital), Series A:
BBB Baa 1,750 6% due 12/01/2013 1,484
BBB Baa 1,950 6.125% due 12/01/2020 1,618
A1 NR* 1,400 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue
Bonds (Northeastern Power Company), VRDN, 3.60% due 12/01/2011 (a) 1,400
Rhode Island--2.0% Rhode Island Depositors Economic Protection Corporation,
Special Obligation Refunding Bonds, Series A:
A- Baa1 8,090 5.75% due 8/01/2021 6,680
A- Baa1 2,400 6.375% due 8/01/2022 2,183
South Carolina--5.8% A- A2 5,175 Berkeley County, South Carolina, PCR (South Carolina
Electric and Gas Company), 6.50% due 10/01/2014 4,947
A A1 9,500 Fairfield County, South Carolina, PCR (South Carolina
Electric and Gas Company), 6.50% due 9/01/2014 9,211
A- A1 7,000 Richland County, South Carolina, PCR, Refunding (Union
Camp Corporation Project), Series C, 6.55% due 11/01/2020 6,689
BBB- Baa 5,000 South Carolina Jobs, EDA, Economic Development Revenue
Bonds (Franciscan Sisters of the Poor), 7% due 7/01/2015 4,684
Tennessee--1.1% BBB- Baa1 5,000 McMinn County, Tennessee, Industrial Development Board,
Solid Waste Revenue Bonds (Recycling Facilities--Calhoun
Newsprint), AMT, 7.40% due 12/01/2022 4,941
<PAGE>
Texas--3.8% BBB Baa1 4,200 Gulf Coast, Texas, Waste Disposal Authority Revenue Bonds (Champion
International Corporation), AMT, 7.375%
due 10/01/2025 4,224
A- A 4,000 Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds (Memorial Hospital Systems), Series A,
6.625% due 6/01/2024 3,656
A- A3 4,000 Matagorda County, Texas, Navigation District No. 1, PCR,
Refunding (Central Power and Light Company Project),
6% due 7/01/2028 3,448
BBB NR* 1,600 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital), 7.50% due 6/01/2016 1,598
BBB Baa 4,000 Tarrant County, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding and Improvement Bonds
(Fort Worth Osteopathic), 7% due 5/15/2028 3,665
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
State Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
Utah--2.7% AA Aa $ 8,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospital Incorporated), 6.25% due 2/15/2023 $ 7,291
AAA Aaa 5,000 Utah State Board of Regents, Student Loan Revenue Bonds,
AMT, Series H, 6.70% due 11/01/2015(b) 4,836
Virginia--2.4% AA A1 6,000 Richmond, Virginia, Public Improvement Refunding Bonds, Series B,
UT, 6.25% due 1/15/2018 5,630
AA+ Aa 5,085 Virginia State, HDA, Commonwealth Mortgage, Series C,
Sub-Series C-9, 6.45% due 1/01/2015 4,864
Washington--6.4% AA Aaa 12,500 Lewis County, Washington, Public Utility District No. 1 Revenue
Bonds (Cowlitz Falls Hydroelectric Project), 7% due 10/01/2001(f) 13,654
AA Aa 15,250 Washington State Public Power Supply System, Revenue Refunding
Bonds (Nuclear Project No. 1), Series A, 6.50% due 7/01/2015 14,453
West Virginia--0.8% NR* A1 4,000 West Virginia Hospital Financing Authority, Hospital Revenue
Bonds (Charleston Medical Center Incorporated), Series A,
6.50% due 9/01/2023 3,679
Wisconsin--1.9% NR* A 6,300 Wisconsin Health and Educational Facilities Authority Revenue
Bonds (Mercy Hospital of Janesville Incorporated),
6.50% due 8/15/2011 6,039
SP-1+ MIG1++ 2,000 Wisconsin State, Operating Notes, 4.50% due 6/15/1995 2,004
Total Investments (Cost--$460,256)--98.9% 436,389
Other Assets Less Liabilities--1.1% 4,949
--------
Net Assets--100.0% $441,338
========
<PAGE>
<FN>
*Not Rated.
(a)The interest rate is subject to change periodically based
upon prevailing market rates. The interest rates shown
are the rates in effect at October 31, 1994.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FNMA Insured.
(e)The interest rate is subject to change periodically and inversely based upon
prevailing market rates. The interest rates shown are the rates in effect at
October 31, 1994.
(f)Prerefunded.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$460,255,616) (Note 1a) $436,388,785
Cash 93,869
Receivables:
Interest $ 8,380,331
Securities sold 484,037 8,864,368
------------
Deferred organization expenses (Note 1e) 16,017
Prepaid registration fees and other assets 57,699
------------
Total assets 445,420,738
------------
Liabilities: Payables:
Securities purchased 3,016,866
Dividends to shareholders (Note 1g) 726,139
Investment adviser (Note 2) 190,352 3,933,357
------------
Accrued expenses and other liabilities 149,455
------------
Total liabilities 4,082,812
------------
<PAGE>
Net Assets: Net assets $441,337,926
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (3,000 shares of AMPS* issued
and outstanding at $50,000 per liquidation preference) $150,000,000
Common Stock, par value $.10 per share (22,070,885 shares issued
and outstanding) $ 2,207,089
Paid-in capital in excess of par 307,417,515
Undistributed investment income--net 3,115,771
Undistributed realized capital gains on investments--net 2,464,382
Unrealized depreciation on investments--net (23,866,831)
------------
Total--Equivalent to $13.20 net asset value per share of Common Stock
(market price--$11.125) 291,337,926
------------
Total capital $441,337,926
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1994
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 29,462,185
(Note 1d):
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 2,387,784
Commission fees (Note 4) 461,251
Transfer agent fees 87,161
Professional fees 76,582
Accounting services (Note 2) 65,793
Printing and shareholder reports 58,494
Listing fees 35,100
Custodian fees 31,809
Directors' fees and expenses 22,986
Pricing fees 12,760
Amortization of organization expenses (Note 1e) 5,643
Other 42,618
------------
Total expenses 3,287,981
------------
Investment income--net 26,174,204
------------
Realized & Realized gain on investments--net 2,464,397
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net (61,640,797)
(Loss) on ------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $(33,002,196)
(Notes 1d & 3): ============
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income--net $ 26,174,204 $ 26,491,767
Realized gain on investments--net 2,464,397 10,352,173
Change in unrealized appreciation/depreciation on investments--net (61,640,797) 50,373,425
------------ ------------
Net increase (decrease) in net assets resulting from operations (33,002,196) 87,217,365
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (21,297,432) (23,521,590)
Shareholders Preferred Stock (3,453,990) (4,421,430)
(Note 1g): Realized gain on investments--net:
Common Stock (8,271,594) --
Preferred Stock (1,657,090) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (34,680,106) (27,943,020)
------------ ------------
<PAGE>
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment of
Transactions dividends and distributions -- 2,331,955
(Note 4): ------------ ------------
Net increase in net assets derived from capital stock transactions -- 2,331,955
------------ ------------
Net Assets: Total increase (decrease) in net assets (67,682,302) 61,606,300
Beginning of year 509,020,228 447,413,928
------------ ------------
End of year* $441,337,926 $509,020,228
============ ============
<FN>
*Undistributed investment income--net $ 3,115,771 $ 1,692,989
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
The following per share data and ratios have been derived Period
from information provided in the financial statements. For the Year Ended Aug. 28, 1992++
October 31, to Oct. 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 16.27 $ 13.58 $ 14.18
--------- --------- ---------
Operating Investment income--net 1.18 1.21 .15
Performance: Realized and unrealized gain (loss) on investments--net (2.68) 2.75 (.59)
--------- --------- ---------
Total from investment operations (1.50) 3.96 (.44)
--------- --------- ---------
Less dividends and distributions to Common Stock shareholders:
Investment income--net (.96) (1.07) --
Realized gain on investments--net (.37) -- --
--------- --------- ---------
Total dividends and distributions (1.33) (1.07) --
--------- --------- ---------
Capital charge resulting from issuance of Common Stock -- -- (.02)
--------- --------- ---------
<PAGE> Effect of Preferred Stock activity:
Dividends and distributions to Preferred Stock shareholders:
Investment income--net (.16) (.20) (.01)
Realized gain on investments--net (.08) -- --
Capital charge resulting from issuance of Preferred Stock -- -- (.13)
--------- --------- ---------
Total effect of Preferred Stock activity (.24) (.20) (.14)
--------- --------- ---------
Net asset value, end of period $ 13.20 $ 16.27 $ 13.58
========= ========= =========
Market price per share, end of period $ 11.125 $ 15.500 $ 14.250
========= ========= =========
Total Investment Based on market price per share (21.00%) 16.82% (5.00%)+++
Return:** ========= ========= =========
Based on net asset value per share (10.68%) 28.67% (4.23%)+++
========= ========= =========
Ratios to Average Expenses, net of reimbursement .69% .57% --%*
Net Assets:*** ========= ========= =========
Expenses .69% .61% .60%*
========= ========= =========
Investment income--net 5.46% 5.49% 6.18%*
========= ========= =========
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 291,338 $ 359,020 $ 297,414
Data: ========= ========= =========
Preferred Stock outstanding, at end of period (in thousands) $ 150,000 $ 150,000 $ 150,000
========= ========= =========
Portfolio turnover 47.42% 81.12% 5.07%
========= ========= =========
Dividends Per Series A--Investment income--net $ 1,127 $ 1,521 $ 58
Share On Series B--Investment income--net 1,127 1,621 59
Preferred Stock Series C--Investment income--net 1,200 1,279 47
Outstanding:
<FN>
*Annualized.
**Total investment returns based on market value,
which can be significantly greater or lesser than
the net asset value, may result in substantially
different returns. Total investment returns exclude
the effects of sales loads.
***Do not reflect the effect of dividends to Preferred Stock
shareholders.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Quality Fund II, Inc. (the "Fund") is regis-
tered under the Investment Company Act of 1940 as a
non-diversified, closed-end management investment
company. The Fund determines and makes available
for publication the net asset value of its Common Stock
on a weekly basis. The Fund's Common Stock is listed
on the New York Stock Exchange under the symbol
MQT. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are
traded primarily in the over-the-counter markets
and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service
from dealers that make markets in such securities.
Financial futures contracts, which are traded on
exchanges, are valued at their closing prices as of the
close of such exchanges. Options, which are traded
on exchanges, are valued at their last sale price as
of the close of such exchanges or, lacking any sales,
at the last available bid price. Securities with remain-
ing maturities of sixty days or less are valued at
amortized cost, which approximates market value.
Securities for which market quotations are not readily
available are valued at their fair value as determined
in good faith by or under the direction of the Board of
Directors of the Fund.
<PAGE>
(b) Financial futures contracts--The Fund may
purchase or sell interest rate futures contracts and
options on such futures contracts for the purpose of
hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are
contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon
entering into a contract, the Fund deposits and
maintains as collateral such initial margin as required
by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to
the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records
a realized gain or loss equal to the difference between
the value of the contract at the time it was opened
and the value at the time it was closed.
(c) Income taxes--It is the Fund's policy to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and
to distribute substantially all of its taxable income to
its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--
Security transactions are recorded on the dates the
transactions are entered into (the trade dates). Interest
income is recognized on the accrual basis. Discounts
and market premiums are amortized into interest
income. Realized gains and losses on security trans-
actions are determined on the identified cost basis.
(e) Deferred organization expenses and offering
expenses--Deferred organization expenses are
amortized on a straight-line basis over a five-year
period.
(f) Non-income producing investments--Written
and purchased options are non-income producing
investments.
(g) Dividends and distributions--Dividends from net
investment income are declared and paid monthly.
Distributions of capital gains are recorded on the
ex-dividend dates.
<PAGE>
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Fund Asset Management, L.P. ("FAM").
Effective January 1, 1994, the investment advisory
business of FAM was reorganized from a corporation
to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested
with Merrill Lynch & Co., Inc. ("ML & Co."). The
general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Fund
Asset Management, Inc. ("FAMI"), which is also an
indirect wholly-owned subsidiary of ML & Co.
FAM is responsible for the management of the Fund's
portfolio and provides the necessary personnel, facil-
ities, equipment and certain other services necessary
to the operations of the Fund. For such services, the
Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets.
Accounting services are provided to the Fund by FAM
at cost.
Certain officers and/or directors of the Fund are offi-
cers and/or directors of FAM, FAMI, PSI, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), and/or
ML & Co.
3. Investments:
Purchases and sales of investments, excluding
short-term securities, for the year ended October 31,
1994 were $217,380,608 and $215,032,429, respectively.
Net realized and unrealized gains (losses) as of
October 31, 1994 were as follows:
Realized
Gains Unrealized
(Losses) Losses
Long-term investments $(1,004,159) $(23,865,198)
Short-term investments 120,569 (1,633)
Financial futures contracts 3,347,987 --
----------- ------------
Total $ 2,464,397 $(23,866,831)
=========== ============
<PAGE>
As of October 31, 1994, net unrealized depreciation
for Federal income tax purposes aggregated $23,866,831,
of which $1,258,851 related to appreciated securities
and $25,125,682 related to depreciated securities. The
aggregate cost of investments at October 31, 1994 for
Federal income tax purposes was $460,255,616.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares
of capital stock, including Preferred Stock, par value
$.10 per share, all of which were initially classified
as Common Stock. The Board of Directors is author-
ized, however, to reclassify any unissued shares of
capital stock without approval of the holders of
Common Stock.
Common Stock
For the year ended October 31, 1994, shares issued
and outstanding remained constant at 22,070,885. At
October 31, 1994, total paid-in capital amounted to
$309,624,604.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares
of Preferred Stock of the Fund that entitle their
holders to receive cash dividends at an annual rate
that may vary for the successive dividend periods.
The yields in effect at October 31, 1994 were as
follows: Series A, 3.19%; Series B, 3.27%; and Series C,
3.24%.
In connection with the offering of AMPS, the Board of
Directors reclassified 3,000 shares of unissued capital
stock as AMPS. For the year ended October 31, 1994,
there were 3,000 AMPS shares authorized, issued and
outstanding with a liquidation preference of $50,000
per share, plus accumulated and unpaid dividends of
$1,072,682. Effective December 1, 1994, as a result of
a two-for-one stock split, there will be 6,000 AMPS
shares with a liquidation preference of $25,000
per share.
The Fund pays commissions to certain broker-dealers
at the end of each auction at an annual rate ranging
from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the year ended October 31, 1994,
MLPF&S, an affiliate of FAMI, earned $115,025 as
commissions.
<PAGE>
5. Subsequent Event:
On November 8, 1994, the Fund's Board of Directors
declared an ordinary income dividend to Common
Stock shareholders in the amount of $0.081534 per
share, payable on November 29, 1994 to shareholders
of record as of November 18, 1994.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield Quality Fund II, Inc.:
We have audited the accompanying statement of
assets, liabilities and capital, including the schedule
of investments, of MuniYield Quality Fund II, Inc. as
of October 31, 1994, the related statements of opera-
tions for the year then ended and changes in net
assets for each of the years in the two-year period
then ended, and the financial highlights for the two-
year period then ended and the period August 28,
1992 (commencement of operations) to October 31,
1992. These financial statements and the financial
highlights are the responsibility of the Fund's manage-
ment. Our responsibility is to express an opinion
on these financial statements and the 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 the 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
at October 31, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing
the accounting principles used and significant esti-
mates made by management, as well as evaluating
the overall financial statement presentation. We
believe that our audits provide a reasonable basis for
our opinion.
<PAGE>
In our opinion, such financial statements and
financial highlights present fairly, in all material
respects, the financial position of MuniYield Quality
Fund II, Inc. as of October 31, 1994, the results of its
operations, the changes in its net assets, and the
financial highlights for the respective stated periods
in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 6, 1994
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
All of the net investment income distributions paid monthly by
MuniYield Quality Fund II, Inc. during its taxable year ended
October 31, 1994 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, the following table summarizes the per share
capital gains distributions paid by the Fund during the year:
<TABLE>
<CAPTION>
Payable Short-Term Long-Term
Date Capital Gains Capital Gains
<S> <S> <C> <C> <C>
Common Stock Shareholders 12/30/93 $ 0.374774 --
Preferred Stock Shareholders: Series A 12/01/93 $220.07 --
1/03/94 $234.74 --
2/01/94 $115.40 --
Series B 12/01/93 $224.21 --
1/03/94 $239.14 --
1/10/94 $ 52.32 --
2/07/94 $ 91.67 --
Series C 12/01/93 $199.22 --
1/03/94 $219.14 --
2/01/94 $ 61.18 --
Please retain this information for your records.
</TABLE>
<PAGE>
PER SHARE INFORMATION (unaudited)
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Net Realized Unrealized Dividends/Distributions
Investment Gains Gains Net Investment Income Capital Gains
For the Quarter Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
November 1, 1992 to January 31, 1993 $.31 $.04 $ .95 $.32 $.05 -- --
February 1, 1993 to April 30, 1993 .30 .24 .47 .25 .05 -- --
May 1, 1993 to July 31, 1993 .30 .07 .20 .25 .05 -- --
August 1, 1993 to October 31, 1993 .30 .12 .66 .25 .05 -- --
November 1, 1993 to January 31, 1994 .30 .49 .19 .24 .01 $.37 $.07
February 1, 1994 to April 30, 1994 .28 (.35) (2.06) .24 .05 -- --
May 1, 1994 to July 31, 1994 .29 .01 .25 .24 .05 -- .01
August 1, 1994 to October 31, 1994 .31 (.04) (1.17) .24 .05 -- --
<CAPTION>
Net Asset Value Market Price**
For the Quarter High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
November 1, 1992 to January 31, 1993 $14.51 $13.57 $15.00 $13.50 1,360
February 1, 1993 to April 30, 1993 15.55 14.51 15.50 14.50 1,853
May 1, 1993 to July 31, 1993 15.68 15.07 15.375 14.50 1,722
August 1, 1993 to October 31, 1993 16.51 15.49 15.75 15.00 2,734
November 1, 1993 to January 31, 1994 16.29 15.70 15.75 14.375 2,309
February 1, 1994 to April 30, 1994 16.05 13.58 15.625 12.375 2,063
May 1, 1994 to July 31, 1994 14.75 13.78 13.25 12.50 2,172
August 1, 1994 to October 31, 1994 14.42 13.20 13.25 11.125 4,298
<FN>
*Calculations are based upon shares of Common Stock outstanding at the end of each quarter.
**As reported in the consolidated transaction reporting system.
***In thousands.
</TABLE>
