MuniYield Quality Fund II, Inc.
Semi-Annual
Report
April 30, 1994
This report, including the financial informa-
tion 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 per-
formance. 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 volatility
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 six-month period ended April 30, 1994, the Common Stock
of MuniYield Quality Fund II, Inc. earned $0.851 per share income
dividends, which includes earned and unpaid dividends of $0.074.
This represents a net annualized yield of 12.14%, based on a
month-end per share net asset value of $14.13. Over the same per-
iod, the total investment return on the Fund's Common Stock was
- - - - - -8.02%, based on a change in per share net asset value from $16.27
to $14.13, and assuming reinvestment of $0.860 per share income
dividends.
For the six-month period ended April 30, 1994, the Fund's Auc-
tion Market Preferred Stock had an average yield as follows:
Series A, 3.19%; Series B, 2.68%; and Series C, 2.928%.
The Environment
Inflationary expectations and investor sentiment changed for
the worse during the three-month period ended April 30, 1994.
Following stronger-than-expected economic results through year-
end 1993, the Federal Reserve Board broke with tradition on
February 4, 1994 and publicly announced a modest 25 basis point
(0.25%) increase in short-term interest rates. At the March 22
meeting of the Federal Open Market Committee, the Federal Re-
serve Board again raised the Federal Funds rate by 25 basis
points, followed by another 25 basis point increase on April 18.
Rather than view the Federal Reserve Board's first tightening
move as a preemptive strike against inflation, fixed-income
investors focused on Chairman Greenspan's implicit promise
of further tightening should the rate of inflation accelerate,
and bond prices declined sharply. The setback in the bond mar-
ket was also reflected in greater stock market volatility.
While the second and third increases in the Federal Funds
rate were less of a surprise, investors remained concerned
that interest rates would trend upward sharply as the cen-
tral bank aggressively attempted to contain the inflationary
pressures of an improving economy. At the same time, highly
leveraged investors were forced to liquidate positions in
the face of declining stock and bond prices. Investor con-
fidence was not restored with the announcement of the sur-
prisingly slow 2.6% gross domestic product growth rate for
the first calendar quarter of 1994. Instead, investors foc-
used on the higher-than-expected (but still moderate) broad
inflation measures and became concerned that business ac-
tivity was beginning to stagnate as inflationary pressures
were increasing.
The volatility in the US capital markets was mirrored in
international markets during the period. Political and eco-
nomic developments, along with concerns of heightened global
inflationary pressures, led to a sell-off in most capital
markets, especially the emerging markets that had appre-
ciated strongly in 1993.
The Municipal Market
During the six months ended April 30, 1994, tax-exempt bond
yields exhibited considerable volatility as they rose to their
highest level in the past two years. As measured by the Bond
Buyer Revenue Bond Index, the yield on newly issued municipal
bonds maturing in 30 years rose over 90 basis points to 6.42%
by the end of April. Yields on seasoned municipal revenue bonds
rose by over 100 basis points in sympathy with the equally dram-
atic increase in long-term US Treasury bond yields. By the end
of April, yields on US Treasury securities rose by over 95 basis
points to approximately 7.30%.
Long-term tax-exempt bond yields were essentially unchanged
from the end of October 1993 to the end of January 1994. How-
ever, on a weekly basis, tax-exempt bond yields fluctuated by
as much as 15 basis points as investors were unable to recon-
cile the rapid economic growth seen late last year with con-
tinued low inflation. Following the intial interest rate in-
crease by the Federal Reserve Board in early February, muni-
cipal bond prices began to erode in concert with taxable bond
prices as investors began to sell securities in anticipation
of further interest rate increases. This fear led investors to
withdraw from the tax-exempt market. From early February to the
end of March, total assets of all tax-exempt bond funds de-
clined by $14 billion to $247 billion. This decline in invest-
or demand, coupled with fears that the robust economic recovery
seen during the fourth quarter of 1993 would continue well into
1994, helped push municipal bond yields higher in February and
March. Attracted by tax-exempt yields in excess of 6.25%, in-
vestor demand returned in April, allowing yields to decline
approximately 15 basis points to end the April period at approx-
imately 6.40%.
A rise in tax-exempt bond yields the magnitude of that exper-
ienced over the past six months has not been seen since 1987
when municipal bond rates rose 250 basis points between March
and October of that year. It is very important to note that the
recent municipal bond price declines were largely the result
of consistent and insistent selling pressures over the last
two months. In 1987, the tax-exempt bond market was much more
volatile and, at times, chaotic as investors sought to liqui-
date positions without concern for fundamental value. For the
most part, the recent price deterioration has been orderly,
and the municipal bond market's liquidity and integrity have
not been challenged or jeopardized.
To a large extent, the municipal bond market has continued to
be supported by its strong technical position. New-issue volume
for the last six months has been less than $105 billion. This
represents a decline of approximately 20% versus the comparable
period a year ago. This decline was expected and has been dis-
cussed in previous shareholder reports. This reduced issuance
has minimized potential selling pressure in recent months since
institutional investors have been wary of selling appreciable
amounts of securities that they may be unable to replace later
this year at any price level. We expect this decline in issu-
ance to continue since we anticipate recent yield increases to
significantly impact future municipal bond issuance. Just as
higher mortgage rates slow home mortgage refinancings, the re-
cent rise in bond yields will prevent bond refinancings from
becoming the driving force in bond issuance in 1994 as they
were in 1993.
Despite recent price declines, tax-exempt securities remain
among the most attractive investment alternatives available.
After the recent yield increases, longer-term municipal secur-
ities yield approximately 90% of comparable US Treasury yields.
Purchasers of these municipal bonds also accrue substantial
after-tax yield advantages. To investors in the 39% marginal
Federal income tax bracket, the purchase of a municipal bond
yielding 6.50% represents an after-tax equivalent of 10.65%.
With prevailing estimates of 1994 inflation at no more than
3%--4%, real after-tax rates in excess of 6.50% easily compen-
sate longer-term investors for much of the price volatility
recently experienced.
Portfolio Strategy
During the six months ended April 30, 1994, our portfolio strat-
egy concentrated on modestly restructuring the Fund to adopt a
more defensive posture in the marketplace. We sold deeply dis-
counted securities that we had purchased during the prior year in
anticipation of lower interest rates, replacing them with invest-
ment-grade tax-exempt bonds priced over par. Such securities tend
to exhibit less volatility and can therefore be expected to per-
form relatively well in an uncertain interest rate environment.
Additionally, the higher coupons associated with these premium
bonds generate a significant amount of tax-exempt income for Com-
mon Stock shareholders. However, since long-term interest rates
have risen, the net asset value of the Common Stock has declined.
In spite of our more cautious market outlook, we have been re-
luctant to increase cash reserves substantially above 5% of net
assets. Any significant effort to raise the Fund's cash position
through the liquidation of the portfolio's long-term holdings
would have an adverse impact on the dividends to Common Stock
shareholders. In addition, the expectation of declining volume
in the tax-exempt marketplace may make it exceedingly difficult
to reinvest the proceeds in the months ahead. Volume for the
quarter ended April 30, 1994 totaled $42.2 billion, represent-
ing a 40% decrease from levels one year ago. Furthermore, while
cautious, our outlook is not overly negative and does in fact
leave open the possibility for interest rates to resume their
downward trend, perhaps as early as in the second half of 1994.
For now we consider it prudent to maintain a relatively unaggres-
sive profile, focusing our efforts on sustaining the current
level of tax-exempt income.
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
June 3, 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
110 Washington Street
New York, New York 10286
Transfer Agents
Common Stock:
The Bank of New York
110 Washington Street
New York, New York 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
NYSE Symbol
MQT
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.
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 there-
fore the Common Stock shareholders are the beneficiaries
of the incremental yield. However, if short-term interest
rates rise, narrowing the differential 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 of 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.
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 at right.
AMT Alternative Minimum Tax (subject to)
CARS Complementary Auction Rate Securities
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Authority
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<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>
Alaska--6.0% A+ Aa $ 20,000 Alaska Housing Finance Corporation Revenue Bonds,
Series A, 6.60% due 12/01/2002 (f) $ 21,913
A- A 2,580 Alaska Industrial Development and Export Authority
Revolving Fund, Series A, AMT, 6.375% due 4/01/2008 2,596
NR NR 3,500 Valdez, Alaska, Marine Term Revenue Refunding Bonds
(Amerada Hess Pipeline Corporation), 6.10% due 2/01/2024 3,168
California--2.7% A+ Aa 10,445 California GO, 5% due 11/01/2022 8,504
AA Aa 5,000 Los Angeles, California, Department of Water and Power,
Crossover Revenue Refunding Bonds, Second Issue
(Electric Plant), 4.75% due 11/15/2019 4,006
Colorado--3.6% BBB+ Baa1 1,350 Colorado Health Facilities Authority Revenue Bonds
(P/SL Healthcare System), Series A, 6.875% due 2/15/2023 1,314
Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa1 3,000 Series A, 7.25% due 11/15/2025 2,960
BBB Baa1 4,020 Series B, AMT, 7.50% due 11/15/2025 3,967
BBB Baa1 9,500 Series C, AMT, 6.75% due 11/15/2022 8,553
Connecticut--0.2% A-1 VMIG1 1,000 Connecticut State, Economic Recreation Notes, VRDN, Series B,
3.35% due 6/01/1996(a) 1,000
Florida--1.7% A-1 VMIG1 5,000 Manatee County, Florida, PCR, Refunding (Florida Power and
Light Company Project), VRDN, 3.40% due 9/01/2024(a) 5,000
A-1 VMIG1 3,000 Putnam County, Florida, Development Authority, PCR, Refunding
(Florida Power and Light Company Project), VRDN, 3.40% due
9/01/2024(a) 3,000
Georgia--2.9% AA- A1 3,000 Georgia Municipal Electric Authority, Power Revenue
Refunding Bonds, Series BB, 5.70% due 1/01/2019 2,750
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) 10,433
Idaho--1.3% Idaho Student Loan Revenue Bonds (Student Loan Fund--
Marketing Association, Inc.), AMT:
NR Aaa 3,735 Series B, 6.60% due 10/01/2006 3,802
NR Aa 2,315 Sub-Series 1, 6.80% due 10/01/2006 2,381
Illinois--6.0% AA Aa 11,100 Chicago, Illinois, Metropolitan Water Reclamation Revenue Bonds
(Greater Chicago Capital Improvement District),
5.50% due 12/01/2012 10,180
A+ A1 3,645 Illinois Educational Facilities Authority, Revenue
Refunding Bonds (Loyola University--Chicago), Series A, 7.125%
due 7/01/2021 3,823
NR A 1,000 Illinois Health Facilities Authority Revenue Bonds
(Mercy Center for Health Care Services), 6.65% due 10/01/2022 1,001
NR Aaa 6,000 Illinois Student Assistance Commission, Student Loan
Revenue Bonds, Senior Series BB, AMT, 6.75% due 3/01/2015 6,094
A+ A1 6,685 Illinois Toll Highway Authority, Toll Highway Revenue
Bonds, Series A, 6.375% due 1/01/2015 6,568
Indiana--0.7% NR A 3,200 Indiana Health Facility Finance Authority, Hospital Revenue
Refunding Bonds (Methodist Hospitals Incorporated),
6.75% due 9/15/2009 3,257
Iowa--0.7% BBB+ NR 3,675 Ottumwa, Iowa, Hospital Facilities Revenue Refunding and
Improvement Bonds (Ottumwa Regional Health),
6% due 10/01/2018 3,232
Kentucky--1.1% NR Baa1 2,650 Ashland, Kentucky, PCR, Refunding (Ashland Oil
Incorporated Project), 6.65% due 8/01/2009 2,652
AA- Aa2 2,500 Carroll County, Kentucky, Solid Waste Disposal Facilities
Revenue Bonds (Kentucky Utility Company Project), Collateralized,
Series A, AMT, 5.75% due 12/01/2023 2,267
</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>
Maine--1.0% BBB Baa1 $ 5,000 Bucksport, Maine, Solid Waste Disposal Revenue Bonds
(Champion International Corporation Project), 6.25%
due 5/01/2010 $ 4,795
Maryland--2.1% NR A 10,000 Northeast, Maryland, Waste Disposal Authority, Solid
Waste Revenue Bonds (Montgomery County Resource Recreation
Project), Series A, AMT, 6.30% due 7/01/2016 9,652
Massachusetts--9.9% Massachusetts Health and Educational Facilities Authority
Revenue Bonds:
NR Baa 2,000 (Anna Jaques Hospital), Series B, 6.875% due 10/01/2012 1,984
AAA Aaa 5,150 CARS (Central Massachusetts Medical Center), Series B, 9.77%
due 6/23/2022(b)(e) 5,446
A- NR 3,500 Refunding (Melrose-Wakefield Hospital), Series B, 6.375% due
7/01/2016 3,350
NR Baa 2,640 Refunding (New England Memorial Hospital), Series B,
6% due 7/01/2008 2,468
NR Baa 4,590 Refunding (New England Memorial Hospital), Series B, 6.125%
due 7/01/2013 4,201
BBB Baa1 5,000 (Sisters of Providence Health System), Series A, 6.625%
due 11/15/2022 4,722
AA- Aa 3,060 (Smith College), Series D, 5.75% due 7/01/2024 2,826
BBB+ A 2,000 Massachusetts Municipal Wholesale Electric Company, Revenue
Refunding Bonds (Power Supply System), Series A, 6.75%
due 7/01/2011 2,071
AAA Aaa 5,000 Massachusetts State, HFA, Revenue Bonds (Residential
Development), Series E, 6.25% due 11/15/2012(d) 4,924
Massachusetts Water Resource Authority Revenue Bonds:
A A 4,000 Refunding, Series B, 5% due 3/01/2022 3,241
A NR 9,600 Series A, 6.50% due 12/01/2019 10,428
Michigan--1.5% A- A 3,250 Michigan Hospital Finance Authority, Revenue Refunding
Bonds (Detroit Medical Center Obligation Group), Series A,
6.25% due 8/15/2013 3,116
A A2 4,000 Michigan Strategic Fund--Limited Obligation Revenue Bonds
(Ford Motor Company Project), Series A, AMT, 6.55%
due 10/01/2022 4,015
Mississippi--1.1% A A2 5,000 Lowndes County, Mississippi, Solid Waste Disposal and PCR,
Refunding (Weyerhaeuser Company Project), Series A, 6.80%
due 4/01/2022 5,238
Montana--1.0% BBB+ Baa1 5,000 Forsyth, Montana, PCR, Refunding (Montana Power Company
Project), Series A, 6.125% due 5/01/2023 4,634
Nebraska--1.7% NR A 8,000 Nebraska Higher Educational Loan Program, Subordinated
Revenue Bonds (Nebraska Higher Educational Loan Program
Inc.), AMT, Sub-Series A-6, 6.45% due 6/01/2018 7,913
New Jersey--1.6% A+ Aa 7,500 New Jersey Sports and Exposition Authority Revenue Bonds
(State Contract), Series A, 6% due 3/01/2021 7,247
New Mexico--1.1% A A3 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge Corporation
Project), 6.50% due 4/01/2013 4,989
New York--14.2% New York City, New York, GO:
A- Baa1 10,800 Refunding, Series C, UT, 6.50% due 8/01/2005 11,025
A- Baa1 5,000 Series B, 6.75% due 10/01/2006 5,181
A- Baa1 6,000 Series B, UT, 7% due 2/01/2017 6,268
A- Baa1 5,150 Series H, UT, 7% due 2/01/2021 5,363
New York City, New York, IDA, Civil Facilities Revenue Bonds
(New York Blood Center Incorporated Project):
BBB NR 2,000 7.20% due 5/01/2012 2,078
BBB NR 3,250 7.25% due 5/01/2022 3,388
</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>
New York NR NR $ 1,300 New York City, New York, IDR (Japan Airlines Co. Ltd.
(concluded) Project), AMT, VRDN, 3.15% due 11/01/2015(a) $ 1,300
AAA Aaa 3,625 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Series B, 5.375%
due 6/15/2019(b) 3,213
New York State Energy Research and Development Authority, Electric
Facilities Revenue Bonds (Long Island Lighting), AMT:
BB+ Baa3 2,500 Series A, 7.15% due 2/01/2022 2,519
BB+ Baa3 5,000 Series B, 7.15% due 9/01/2019 5,039
BB+ Baa3 5,000 Series B, 7.15% due 6/01/2020 5,075
A1+ NR 3,100 New York State Energy Research and Development Authority,
PCR (Niagara Power Corporation Project), Series B, VRDN, AMT,
3.15% due 7/01/2027(a) 3,100
New York State Local Government Assistance Corporation
Revenue Bonds:
A A 6,250 Refunding, Series B, 5.50% due 4/01/2021 5,532
A A 5,000 Refunding, Series C, 5% due 4/01/2021 4,107
A A 2,000 Series A, 6.875% due 4/01/2019 2,073
North Carolina--0.6% NR Aa1 1,100 Craven County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Resource Revenue Bonds
(Craven Wood Energy), AMT, VRDN, Series B, 3.30% due 5/01/2011(a) 1,100
NR Aa2 1,800 Halifax County, North Carolina, Industrial Facilities and Pollution
Control Financing Authority, Exempt Facilities Revenue Bonds
(Westmoreland), VRDN, AMT, 3.30% due 12/01/2019(a) 1,800
Ohio--1.4% 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 6,420
Pennsylvania--3.0% AAA Aaa 5,000 Pennsylvania HFA, Revenue Refunding Bonds (Rental Housing),
6.50% due 7/01/2023(d) 4,986
AAA Aa 4,465 Pennsylvania State Higher Educational Facilities Authority
Revenue Bonds, Series J, 5.625% due 6/15/2019(b) 4,087
BBB Baa1 1,750 Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Frankford
Hospital), Series A, 6% due 6/01/2014 1,551
Ridley Park, Pennsylvania, Hospital Authority, Revenue Refunding
Bonds (Taylor Hospital), Series A:
BBB Baa 1,750 6% due 12/01/2013 1,525
BBB Baa 1,950 6.125% due 12/01/2020 1,673
Rhode Island--1.6% A- Baa1 8,090 Rhode Island Depositors Economic Protection Corporation, Special
Obligation Refunding Bonds, Series A, 5.75% due 8/01/2021 7,281
South Carolina--6.8% A- A2 5,175 Berkeley County, South Carolina, PCR (South Carolina
Electric and Gas Company), 6.50% due 10/01/2014 5,184
A A1 14,000 Fairfield County, South Carolina, PCR (South Carolina
Electric and Gas Company), 6.50% due 9/01/2014 14,273
A- A1 7,000 Richland County, South Carolina, PCR, Refunding (Union
Camp Corporation Project), Series C, 6.55% due 11/01/2020 7,047
BBB- Baa 5,000 South Carolina Jobs, EDA, Economic Development Revenue
Bonds (Franciscan Sisters of the Poor), 7% due 7/01/2015 4,918
Tennessee--2.4% 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 5,162
AA Aa 6,400 Nashville and Davidson Counties, Tennessee, Electric Revenue
Refunding Bonds (Metropolitan Government), Series A,
6% due 5/15/2017 6,145
</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>
Texas--7.4% BBB Baa1 $ 4,200 Gulf Coast, Texas, Waste Disposal Authority Revenue Bonds
(Champion International Corporation), AMT, 7.375%
due 10/01/2025 $ 4,403
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 3,961
A A 10,500 Houston, Texas, Water and Sewer System Revenue Refunding
Bonds (Senior Lien), Series B, 6.375% due 12/01/2014 10,469
A- A3 10,240 Matagorda County, Texas, Navigation District No. 1, PCR,
Refunding (Central Power and Light Company Project),
6% due 7/01/2028 9,500
BBB NR 1,600 Midland County, Texas, Hospital District Revenue Bonds (Midland
Memorial Hospital), 7.50% due 6/01/2016 1,665
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 3,894
Utah--3.2% AA Aa 8,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospital Incorporated), 6.25% due 2/15/2023 7,821
AAA Aaa 5,000 Utah State Board of Regents, Student Loan Revenue Bonds,
Series H, AMT, 6.70% due 11/01/2015(b) 5,000
AA- A1 2,000 West Jordan, Utah, Hospital Revenue Refunding Bonds
(Holy Cross Health System), 6.25% due 12/01/2012 1,963
Washington--7.4% AA Aaa 12,500 Lewis County, Washington, Public Utility District No. 1 Revenue
Bonds (Cowlitz Falls Hydroelectric Project), 7% due 10/01/2001(f) 13,975
Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project No. 1), Series A:
AA Aa 15,250 6.50% due 7/01/2015 15,231
AAA Aaa 5,000 6.25% due 7/01/2017(c) 4,933
West Virginia--0.9% NR A1 4,000 West Virginia Hospital Financing Authority, Hospital Revenue
Bonds (Charleston Medical Center Incorporated), Series A,
6.50% due 9/01/2023 3,907
Wisconsin--1.3% NR A 6,300 Wisconsin Health and Educational Facilities Authority Revenue
Bonds (Mercy Hospital of Janesville Incorporated),
6.50% due 8/15/2011 6,203
Total Investments (Cost--$456,521)--98.1% 453,019
Other Assets Less Liabilities--1.9% 8,939
--------
Net Assets--100.0% $461,958
========
<FN>
(a) The interest rate is subject to change periodically based
upon prevailing market rates. The interest rates shown
are the rates in effect at April 30, 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 April 30, 1994.
(f) Prerefunded.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1994
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$456,520,770) (Note 1a) $453,019,343
Receivables:
Interest $ 8,425,866
Securities sold 7,107,442 15,533,308
------------
Deferred organization expenses (Note 1e) 21,660
Prepaid expenses and other assets 395,365
------------
Total assets 468,969,676
------------
Liabilities: Payables:
Securities purchased 4,001,806
Dividends to shareholders (Note 1g) 1,003,761
Investment adviser (Note 2) 182,648 5,188,215
------------
Accrued expenses and other liabilities 1,823,323
------------
Total liabilities 7,011,538
------------
Net Assets: Net assets $461,958,138
============
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 share 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 2,778,630
Undistributed realized capital gains--net 3,056,331
Unrealized depreciation on investments--net (3,501,427)
------------
Total--Equivalent to $14.13 net asset value per share of Common Stock
(market price--$13.00) 311,958,138
------------
Total capital $461,958,138
============
<FN>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
April 30, 1994
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 14,641,321
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,220,953
Commission fees (Note 4) 225,478
Transfer agent fees 41,832
Professional fees 40,011
Accounting services (Note 2) 27,932
Printing and shareholder reports 23,438
Listing fees 17,068
Custodian fees 17,016
Directors' fees and expenses 11,201
Pricing fees 5,814
Amortization of organization expenses (Note 1e) 2,744
Other 21,595
------------
Total expenses 1,655,082
------------
Investment income--net 12,986,239
------------
Realized & Realized gain on investments--net 3,056,346
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net (41,275,393)
(Loss) on ------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $(25,232,808)
(Notes 1d & 3): ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
April 30, 1994 Oct. 31, 1993
Increase (Decrease) in Net Assets:
<S> <S> <C> <C>
Operations: Investment income--net $ 12,986,239 $ 26,491,767
Realized gain on investments--net 3,056,346 10,352,173
Change in unrealized appreciation/depreciation on investments--net (41,275,393) 50,373,425
------------ ------------
Net increase (decrease) in net assets resulting from operations (25,232,808) 87,217,365
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (10,701,378) (23,521,590)
Shareholders Preferred Stock (1,199,220) (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 (21,829,282) (27,943,020)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment of
Transactions dividends -- 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 (47,062,090) 61,606,300
Beginning of period 509,020,228 447,413,928
------------ ------------
End of period* $461,958,138 $509,020,228
============ ============
<FN>
* Undistributed investment income--net $ 2,778,630 $ 1,692,989
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the For the
The following per share data and ratios have been derived Six Months For the Period
from information provided in the financial statements. Ended Year Ended Aug.28,1992++
April 30, Oct. 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 ----------- ---------- ---------
Performance: Investment income--net .58 1.21 .15
Realized and unrealized gain (loss) on investments--net (1.75) 2.75 (.59)
----------- ---------- ---------
Total from investment operations (1.17) 3.96 (.44)
----------- ---------- ---------
Less dividends and distributions to Common Stock shareholders:
Investment income--net (.48) (1.07) --
Realized gain on investments--net (.37) -- --
----------- ---------- ---------
Total dividends and distributions to Common Stock shareholders (.85) (1.07) --
----------- ---------- ---------
Capital charge resulting from issuance of Common Stock -- -- (.02)
----------- ---------- ---------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred Stock shareholders:
Investment income--net (.05) (.20) (.01)
Realized gain on investments--net (.07) -- --
Capital charge resulting from issuance of Preferred Stock -- -- (.13)
----------- ---------- ---------
Total effect of Preferred Stock activity (.12) (.20) (.14)
----------- ---------- ---------
Net asset value, end of period $ 14.13 $ 16.27 $ 13.58
=========== ========== =========
Market price per share, end of period $ 13.00 $ 15.50 $ 14.25
=========== ========== =========
Total Investment Based on market price per share (11.19%)++++ 16.82% (5.00%)++++
Return:** =========== ========== =========
Based on net asset value per share (8.02%)++++ 28.67% (4.23%)++++
========== ========= =========
Ratios to Average Expenses, net of reimbursement .68%* .57% --%*
Net Assets:*** ========== ========= =========
Expenses .68%* .61% .60%*
========== ========= =========
Investment income--net 5.30%* 5.49% 6.18%*
========== ========= =========
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 311,958 $ 359,020 $ 297,414
Data: ========== ========= =========
Preferred Stock outstanding, end of period (in thousands) $ 150,000 $ 150,000 $ 150,000
========== ========= =========
Portfolio turnover 11.59% 81.12% 5.07%
========== ========= =========
Dividends Per Series A--Investment income--net $ 457 $ 1,521 $ 58
Share On Series B--Investment income--net 301 1,621 59
Preferred Stock Series C--Investment income--net 440 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, re-
sult in substantially different returns. Total investment re-
turns exclude the effects of sales loads.
*** Do not reflect the effect of dividends to Preferred Stock
shareholders.
++ Commencement of Operations.
++++ The Fund's Preferred Stock was issued on October 19, 1992.
+++ Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Quality Fund II, Inc. (the "Fund") is registered 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 sum-
mary 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. Finan-
cial 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 remaining 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.
(b) Financial futures contracts--The Fund may purchase or sell in-
terest 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 con-
tracts 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. Pur-
suant 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 require-
ments 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 re-
quired.
(d) Security transactions and investment income--Security trans-
actions 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 transactions are determined
on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expen-
ses 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 in-
come are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
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., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch In-
vestment Management, Inc. ("MLIM"), 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, facilities, 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 officers and/or
directors of FAM, MLIM, Merrill Lynch, Pierce, Fenner & Smith In-
corporated ("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term secur-
ities, for the six months ended April 30, 1994 were $54,443,738
and $57,863,790, respectively.
Net realized and unrealized gains (losses) as of April 30, 1994
were as follows:
Unrealized
Realized Gains
Gains (Losses)
Long-term investments $1,011,530 $(3,810,427)
Short-term investments 120,960 309,000
Financial futures contracts 1,923,856 --
---------- -----------
Total $3,056,346 $(3,501,427)
========== ===========
As of April 30, 1994, net unrealized depreciation for Federal in-
come tax purposes aggregated $3,501,427, of which $7,124,091 re-
lated to appreciated securities and $10,625,518 related to depre-
ciated securities. The aggregate cost of investments at April 30,
1994 for Federal income tax purposes was $456,520,770.
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
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the six months ended April 30, 1994, shares issued and out-
standing remained constant at 22,070,885. At April 30, 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 di-
vidends at an annual rate that may vary for the successive divi-
dend periods. The yields in effect at April 30, 1994 were as follows:
Series A, 3.19%; Series B, 2.41%; and Series C, 2.928%.
In connection with the offering of AMPS, the Board of Directors
reclassified 3,000 shares of unissued capital stock as AMPS. For
the six months ended April 30, 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 $977,661.
The Fund pays commissions to certain broker-dealers at the end of
each auction at the annual rate of one-quarter of 1% calculated on
the proceeds of each auction. For the six months ended April 30,
1994, MLPF&S, an affiliate of MLIM, earned $33,145 as commissions.
5. Subsequent Event:
On May 6, 1994, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.074435 per share, payable on May 27, 1994 to shareholders of re-
cord as of May 17, 1994.
PER SHARE INFORMATION
<TABLE>
Per Share Selected Quarterly Financial Data*
<CAPTION>
Net Realized Unrealized Dividends/Distributions
Investment Gains Gains Net Investment Income Capital Gains
For the Period Income (Losses) (Losses) Common Preferred Common Preferred
<S> <C> <C> <C> <C> <C> <C> <C>
August 28, 1992++ to October 31, 1992 $.15 $(.02) $ (.57) -- $.01 -- --
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 .96 .18 .24 .01 $.37 $.07
February 1, 1994 to April 30, 1994 .28 (.82) (2.07) .24 .04 -- --
<CAPTION>
Net Asset Value Market Price**
For the Period High Low High Low Volume***
<S> <C> <C> <C> <C> <C>
August 28, 1992++ to October 31, 1992 $14.40 $13.41 $15.00 $14.25 746
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
<FN>
++ Commencement of Operations.
* Calculations are based upon shares of Common Stock outstanding at the end of each
period.
** As reported in the consolidated transaction reporting system.
*** In thousands.
</TABLE>
