MUNIYIELD
QUALITY
FUND II, INC.
FUND LOGO
Semi-Annual Report
April 30, 1996
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 purchase 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 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. Statements and other information
herein are as dated and are subject to change.
<PAGE>
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, 1996, the Common Stock of
MuniYield Quality Fund II, Inc. earned $0.459 per share income
dividends, which included earned and unpaid dividends of $0.075.
This represents a net annualized yield of 6.41%, based on a month-
end per share net asset value of $14.35. Over the same period, the
total investment return on the Fund's Common Stock was +1.44%, based
on a change in per share net asset value from $14.64 to $14.35, and
assuming reinvestment of $0.460 per share income dividends.
<PAGE>
The average yields of the Fund's Auction Market Preferred Stock for
the six months ended April 30, 1996 were as follows: Series A,
3.92%; Series B, 3.92%; and Series C, 3.64%.
The Environment
Investor perceptions regarding the US economy changed over the
course of the six-month period ended April 30, 1996. As 1995 drew to
a close and 1996 began, it appeared that the US economy was losing
momentum. Lackluster retail sales, increases in initial unemployment
claims (along with weak job and income growth), and evidence of
slowing in the manufacturing sector all suggested that the rate of
economic growth was decelerating, with some forecasters even
suggesting the possibility of an imminent recession.
However, the consensus outlook for the rate of future economic
growth changed dramatically with the report of stronger-than-
expected employment data for February and March. As a result,
investors began to anticipate renewed economic growth. Long-term
interest rates rose, and the Federal Reserve Board left monetary
policy on hold. Adding to investor concerns was the report that the
Knight Ridder-Commodity Research Bureau Index was near an eight-year
high, largely because of an increase in agricultural prices and an
upward spike in the price of crude oil.
Investors are likely to continue to focus on the probable direction
of economic activity and Federal Reserve Board monetary policy in
the weeks ahead. At this time, inflationary pressures do not seem to
be building and the capital spending, housing and consumption
sectors are still relatively weak, which suggest that the economy is
not on the verge of overheating. Nevertheless, it is unlikely that
further indications of stronger economic activity in the weeks ahead
may add to investor concerns that accelerating economic activity
could lead to higher inflation and interest rates.
The Municipal Market
During the six months ended April 30, 1996, tax-exempt bond yields
rose as investors became increasingly concerned that recent economic
growth would reignite inflationary pressures. Through early February
1996, municipal bond yields continued their earlier declines
supported by continued moderate economic growth and favorable
inflationary expectations. As measured by the Bond Buyer Revenue
Bond Index, yields on uninsured, A-rated municipal revenue bonds
declined an additional 30 basis points (0.30%) to 5.70% by early
February. As signs of emerging economic growth became more numerous,
particularly with the release of the strong March employment
figures, inflation fears increased and bond yields rose in response
for the remainder of the six-month period ended April 30, 1996. At
April 30, 1996, long-term municipal bond yields were approximately
6.30%, an increase of approximately 30 basis points over the last
six months. The rise in US Treasury bond yields was more
substantial. Over the last six months, yields on US Treasury
securities rose approximately 60 basis points to 6.90%. During the
April period, the municipal bond market reversed the trend seen
throughout much of 1995 and significantly outperformed the US
Treasury bond market.
<PAGE>
The municipal bond market's recent outperformance was largely the
result of two principal factors. First, and perhaps more important,
much of the earlier concern regarding proposed changes in Federal
income tax codes and their effect on the tax treatment of tax-exempt
bond income has dissipated. As the negative revenue impact of the
various proposals, such as the flat tax, became apparent, the
likelihood of immediate reform quickly diminished. When the Kemp
Commission dealing with Federal income tax reform released its
findings early in 1996, the obvious need for reform was highlighted.
However, no specific recommendations of a flat tax, value-added tax
or any other reform were made. Consequently, fears of losing the
favored tax treatment of municipal bond income declined even
further. As a percentage of Treasury bond yields, tax-exempt bond
yield ratios quickly declined from 95% to approximately 90%. This
allowed the municipal bond market to maintain much of the gains made
since early 1995.
The second major factor leading to the municipal bond market's
recent improvement was the return of a more favorable technical
environment. Over the past six months, approximately $90 billion in
municipal securities were underwritten, an increase of approximately
45% versus the comparable period a year earlier. However, much of
this increase was biased by recent underwritings dedicated toward
refinancing. Like individual homeowners, municipal issuers sought to
refinance their existing higher-couponed debt as tax-exempt bond
yields declined from their highs in 1995. In recent months such
refinancings were estimated to represent at least 50% of total
issuance. However, the recent rise in tax-exempt interest rates
slowed the pace of such refinancings. Over the last three months
approximately $40 billion in long-term tax-exempt securities were
underwritten, an increase of 35% compared to the same period a year
ago. At current interest rate levels large amounts of refundings are
unlikely and the rate of new bond issuance should continue to
decline.
Additionally, investors continue to receive significant amounts of
assets derived from coupon income, bond maturities, and proceeds
from early redemptions. In recent months investors received over $30
billion in such assets. These cash flows helped maintain individual
retail investor demand in recent months. Additionally, major
institutional investors, such as certain insurance companies whose
underwriting profits were cyclically high, demonstrated significant
ongoing interest in the tax-exempt bond market, particularly on
higher-quality securities. Individual and institutional investor
demand was strong enough during the six-month period ended April 30,
1996 to absorb the relative increase in bond issuance.
<PAGE>
Looking ahead, we believe the municipal bond market is likely to
continue to outperform the US Treasury market. Investor demand
should remain adequate to absorb new bond issuance. It is also
unlikely that the rapid pace of issuance seen thus far in 1996 will
be maintained. The recent rise in yields made further bond
refinancings economically unfeasible. Since these refinancings were
the driving force of recent bond issuance, as the amount of these
refundings decline, overall issuance should decline. This should
allow the current demand/supply balance to be easily maintained in
upcoming months.
Additionally, as a percentage of US Treasury bond yields, long-term
municipal bond yields remain historically attractive. It is likely
that recent interest rate increases will have a negative impact on
economic growth, perhaps as early as late summer 1996. With long-
term mortgage rates above 8%, the domestic housing sector has
already indicated signs of slower growth. If other interest rate
sectors of the economy, such as the automobile industry, begin to
show similar adverse effects, taxable interest rates would be poised
to resume their decline. With long-term tax-exempt revenue bonds
yielding approximately 90% of their taxable counterparts, municipal
bond yields are poised to decline further.
Portfolio Strategy
Our investment strategy shifted dramatically during the six months
ended April 30, 1996. We started the period optimistic on the
interest rate outlook based on slow economic growth and low
inflation. This strategy proved successful as the bond market
rallied into January 1996. Unfortunately, we remained constructive
during February and early March when interest rates began to rise.
We then reversed the Fund's course and became extremely defensive,
protecting the Fund from the significant back up in interest rates
that brought the 30-year US Treasury bond to 6.90% by the end of
March. At this time we began buying, believing that the market had
oversold, only to have the market continue its decline.
At this time, we are cautiously optimistic on the interest rate
outlook. There is a considerable amount of bad news priced into the
market, and any surprises, such as a slower economy or slower
employment increases, could rally the market substantially. We will
maintain our neutral investment strategy until such signs develop.
The interest rate on the Fund's Auction Market Preferred Stock
continued to benefit the Fund's Common Stock shareholders. While the
interest rate on the Preferred Stock increased in response to
calendar pressures, the Fund's Common Stock shareholders continued
to benefit from this positive yield spread. We anticipate that the
interest rate on Preferred Stock will come down to the 3.50% range
from its current 3.80%. However, should the spread between short-
term and long-term interest rates narrow, the benefits of the
leverage will diminish and, as a result, reduce the yield of the
Fund's Common Stock. (For a complete explanation of the benefits and
risks of leveraging, see page 4 of this report to shareholders.)
<PAGE>
In Conclusion
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
Senior Vice President
(Robert A. DiMella)
Robert A. DiMella
Vice President and Portfolio Manager
June 5, 1996
<PAGE>
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. Of course, increases in
short-term interest rates would reduce (and even eliminate) the
dividends on the Common Stock.
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 differential between short-term
and long-term interest rates, the incremental yield pick-up on the
Common Stock will be reduced or eliminated completely. 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 investments, 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>
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)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
HDA Housing Development Authority
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
S/F Single-Family
UPDATES Unit Priced Demand Adjustable Tax-Exempt Securities
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>
Alabama--2.0% NR* Aaa $ 7,390 Alabama, HFA, S/F, Mortgage Revenue Bonds (Home
Mortgage Bond Program), Series B-1, 6.65% due 10/01/2025 $ 7,608
BBB Baa1 1,475 Courtland, Alabama, IDB, IDR, Refunding (Champion
International Corporation), Series A, 7.20% due 12/01/2013 1,603
Alaska--0.6% A- A 2,580 Alaska Industrial Development and Export Authority
Revolving Fund, AMT, Series A, 6.375% due 4/01/2008 2,690
Arkansas--1.0% BBB- Baa3 4,500 Pope County, Arkansas, PCR, Refunding (Arkansas Power
and Light Company Project), 6.30% due 11/01/2020 4,495
California A A1 3,000 Los Angeles, California, Wastewater System Revenue
- --2.9% Refunding Bonds, Series C, 7.10% due 6/01/2018 3,207
AAA Aaa 10,000 University of California Revenue Bonds (Multiple
Purpose Projects), Series D, 6.375% due 9/01/2019 (c) 10,342
Colorado--4.0% NR* Aaa 1,350 Colorado Health Facilities Authority, Hospital Revenue
Bonds (P/SL Healthcare System Project), Series A,
6.875% due 2/15/2003 (e) 1,525
Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa 4,020 AMT, Series B, 7.50% due 11/15/2025 4,247
BBB Baa 9,500 AMT, Series C, 6.75% due 11/15/2022 9,616
NR* NR* 850 Series A, 7.25% due 11/15/2002 (e) 970
BBB Baa 2,150 Series A, 7.25% due 11/15/2025 2,360
<PAGE>
Connecticut Connecticut State Learning Regional Educational Service
- --0.7% Center Revenue Bonds (Office/Education Center Facilities):
NR* NR* 1,935 7.50% due 2/01/2005 2,049
NR* NR* 1,100 7.75% due 2/01/2015 1,198
District of A+ A 4,460 District of Columbia Revenue Bonds (Howard University),
Columbia--1.0% Series A, 7.25% due 10/01/2020 4,760
Florida--1.2% AA Aa 3,000 Florida State Board of Education, Capital Outlay (Public
Education), Series B, 5.875% due 6/01/2024 2,961
NR* Baa 2,500 Palm Bay, Florida, Lease Revenue Refunding Bonds
(Florida Education & Research Foundation Project),
Series A, 7% due 9/01/2024 2,604
Georgia--3.0% 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)(f) 10,735
AA+ Aa 3,000 Georgia State Housing and Finance Authority Revenue Bonds,
S/F Mortgage, AMT, Sub-Series A-2, 6.55% due 12/01/2027 3,025
</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>
Idaho--1.1% Idaho Student Loan Fund, Student Loan Revenue Bonds
(Marketing Association, Inc.), AMT:
NR* NR* $ 3,245 Series B, 6.60% due 10/01/2006 $ 3,266
NR* Aa 2,005 Sub-Series 1, 6.80% due 10/01/2006 2,056
Illinois--3.0% AAA Aaa 3,630 Illinois Development Finance Authority, PCR, Refunding
(Commerce Edison Company Project), Series D, 6.75%
due 3/01/2015 (b) 3,925
A+ A1 3,645 Illinois Educational Facilities Authority, Revenue
Refunding Bonds (Loyola University--Chicago), Series A,
7.125% due 7/01/2021 3,895
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan
Revenue Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,164
<PAGE>
Indiana--4.3% A NR* 2,675 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 2,878
NR* A 2,200 Indiana Health Facilities Financing Authority, Hospital
Revenue Refunding Bonds (Methodist Hospitals Inc.),
6.75% due 9/15/2009 2,295
AAA Aaa 4,000 Indiana State Toll Finance Authority, Toll Road Revenue
Refunding Bonds, 6.875% due 7/01/2012 (g) 4,135
Indianapolis, Indiana, Local Public Improvement Bond Bank:
A+ NR* 4,800 Refunding, Series D, 6.75% due 2/01/2020 5,089
NR* Aaa 5,000 Series C, 6.70% due 1/01/2002 (e) 5,547
Kansas--1.1% A+ A1 5,000 Butler County, Kansas, Solid Waste Disposal Facilities
Revenue Bonds (Texaco Refining and Marketing Project),
VRDN, AMT, Series A, 4.30% due 8/01/2024 (a) 5,000
Kentucky--0.6% NR* NR* 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue
Bonds (TJ International Project), AMT, 7% due 6/01/2024 3,032
Louisiana NR* Baa2 5,000 Lake Charles, Louisiana, Harbor and Terminal District,
- --1.2% Port Facilities Revenue Refunding Bonds (Trunkline
Long Company Project), 7.75% due 8/15/2022 5,559
Massachusetts Massachusetts State Health and Educational Facilities
- --6.1% Authority Revenue Bonds:
SP1+ VMIG1++ 5,000 (Capital Assets Program), VRDN, Series D, 4% due
1/01/2035 (a)(c) 5,000
AA Aa 2,500 Refunding (Daughters of Charity), Series D, 6.10% due
7/01/2014 2,504
A- NR* 3,500 Refunding (Melrose--Wakefield Hospital), Series B,
6.375% due 7/01/2016 3,447
NR* B 2,640 Refunding (New England Memorial Hospital), Series B,
6% due 7/01/2008 2,156
NR* B 4,590 Refunding (New England Memorial Hospital), Series B,
6.125% due 7/01/2013 3,635
AAA Aaa 5,000 Massachusetts State, HFA (Residential Development),
Series A, 6.875% due 11/15/2011 (d) 5,256
BBB+ A 2,000 Massachusetts State Municipal Wholesale Electric Company,
Revenue Refunding Bonds (Power Supply System), Series A,
6.75% due 7/01/2011 2,133
A1+ P1 2,500 Massachusetts State Port Authority, Revenue Refunding
Bonds, VRDN, AMT, Series B, 4.30% due 7/01/2018 (a) 2,500
AAA Aaa 2,000 Massachusetts State Water Resource Authority, General
Revenue Bonds, Series A, 6% due 8/01/2024 (c) 2,000
</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>
Mississippi NR* P1 $ 200 Jackson County, Mississippi, Port Facility Revenue
- --1.4% Refunding Bonds (Chevron USA, Inc. Project), VRDN,
4% due 6/01/2023 (a) $ 200
A A2 6,000 Lowndes County, Mississippi, Solid Waste Disposal, PCR,
Refunding (Weyerhaeuser Company Project), Series A,
6.80% due 4/01/2022 6,546
Nevada--0.4% AAA Aaa 2,000 Reno, Nevada, Hospital Revenue Refunding Bonds (Saint Mary's
Regional Medical Center), Series A, 5.625% due 5/15/2023 (c) 1,860
New Jersey AAA Aaa 5,000 Cape May County, New Jersey, Industrial Pollution Control
- --1.2% Finance Authority, Revenue Refunding Bonds (Atlantic City
Electric Company Project), Series B, 7% due 11/01/2029 (c) 5,527
New Mexico A A2 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
- --1.5% Corporation Project), 6.50% due 4/01/2013 5,142
AAA Aaa 1,825 Los Alamos County, New Mexico, Utility System Revenue
Refunding Bonds, Series A, 6% due 7/01/2015 (h) 1,832
New York--17.1% New York City, New York, GO, UT:
BBB+ Baa1 5,000 Series D, 6% due 2/15/2012 4,802
BBB+ Baa1 5,500 Series D, 6% due 2/15/2014 5,206
BBB+ Baa1 21,000 Series D, 6% due 2/15/2020 19,687
BBB+ Baa1 5,150 Series H, 7% due 2/01/2021 5,345
New York City, New York, IDA, Civic Facilities Revenue
Bonds (New York Blood Center Inc. Project) (e):
NR* NR* 2,000 7.20% due 5/01/2004 2,249
NR* NR* 3,250 7.25% due 5/01/2004 3,718
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds:
AAA Aaa 2,500 Series B, 5.375% due 6/15/2019 (b) 2,309
AAA Aaa 14,000 Series F, 5.50% due 6/15/2023 (c) 13,120
BBB+ Baa1 5,000 New York State Dormitory Authority Revenue Bonds
(Mental Health Services Facilities Improvement),
Series B, 5.375% due 2/15/2026 4,363
A Aa 7,500 New York State Environmental Facilities Corporation, PCR
(State Water Revolving Fund), Series E, 6.50% due 6/15/2014 7,899
A A 5,000 New York State Local Government Assistance Corporation,
Series A, 6.875% due 4/01/2019 5,458
BBB+ Baa1 5,000 New York State Medical Care Facilities Finance Agency
Revenue Bonds (Mental Health Services Facilities
Improvement), Series B, 7.875% due 8/15/2020 5,547
North A A2 11,000 Martin County, North Carolina, Industrial Facilities
Carolina--2.5% and Pollution Control Financing Authority, Solid Waste
Disposal Revenue Bonds (Weyerhaeuser Company), AMT,
6.80% due 5/01/2024 11,619
Ohio--1.5% A1 NR* 400 Cincinnati and Hamilton County, Ohio, Port Authority,
IDR (Multi-Color Corporation Project), VRDN, 4% due 11/01/2000 (a) 400
AA- Aa3 6,500 Ohio State Air Quality Development Authority, Revenue
Refunding Bonds (Dayton Power & Light Project),
Series B, 6.40% due 8/15/2027 6,646
<PAGE>
Oklahoma--1.1% AA- A1 5,000 Muskogee, Oklahoma, Industrial Collateralized Trust, PCR
(Oklahoma Gas & Electric Company Project), Series A,
7% due 3/01/2017 5,162
</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>
Oregon--4.2% AAA Aaa $ 500 Chemeketa, Oregon, Community College District, UT, 5.95%
due 6/01/2016 (g) $ 501
Marion County, Oregon, School District No. 103C
(Woodburn), Series B (g)**:
AAA Aaa 2,000 5.15% due 11/01/2006 1,135
AAA Aaa 2,000 5.25% due 11/01/2007 1,057
AAA Aaa 2,000 5.35% due 11/01/2008 988
AAA Aaa 2,500 5.45% due 11/01/2009 1,174
AAA Aaa 30,000 Oregon Health Sciences University Revenue Bonds, Series A,
5.75% due 7/01/2021 (c)** 6,704
Oregon State Department of Administrative Services,
COP, Series A (c):
AAA Aaa 2,350 5.375% due 11/01/2012 2,270
AAA Aaa 1,500 5.70% due 5/01/2017 1,455
A+ NR* 4,740 Oregon State Health, Housing, Educational and
Cultural Facilities Authority, Revenue Refunding Bonds
(Reed College Project), Series A, 5.375% due 7/01/2025 4,274
Pennsylvania AAA Aaa 5,000 Pennsylvania HFA, Refunding (Rental Housing),
- --2.2% 6.50% due 7/01/2023 (d) 5,117
AA+ Aa 5,000 Pennsylvania HFA, S/F Mortgage, Series 34A,
6.85% due 4/01/2016 5,213
Rhode A- Baa1 3,000 Rhode Island Depositors Economic Protection
Island--0.6% Corporation, Special Obligation Refunding Bonds,
Series A, 5.75% due 8/01/2021 2,800
South A1+ A2 5,765 Berkeley County, South Carolina, Pollution Control Facilities
Carolina--5.7% Revenue Bonds (South Carolina Electric and Gas Company),
6.50% due 10/01/2014 6,091
A A1 4,150 Fairfield County, South Carolina, PCR (South Carolina
Electric and Gas Company), 6.50% due 9/01/2014 4,393
AA- Aa3 1,000 Florence County, South Carolina, Pollution Control Facilities
Revenue Bonds (E.I. du Pont), Series A, 6.35% due 7/01/2022 1,020
A- A1 7,000 Richland County, South Carolina, PCR, Refunding (Union
Camp Corporation Project), Series C, 6.55% due 11/01/2020 7,253
BBB Baa1 5,000 South Carolina Jobs, EDA, Economic Development Revenue
Bonds (Saint Francis Hospital--Franciscan Sisters),
7% due 7/01/2015 5,206
NR* NR* 2,500 Spartanburg County, South Carolina, Solid Waste
Disposal Facilities Revenue Bonds (BMW Project), AMT,
7.55% due 11/01/2024 2,692
<PAGE>
South AAA Aa1 10,320 South Dakota, HDA, Homeownership Mortgage, Series B,
Dakota--2.3% 7.10% due 5/01/2017 10,764
Tennessee BBB Baa1 5,000 McMinn County, Tennessee, IDB, Solid Waste Recycling Facilities
- --1.1% Revenue Bonds (Calhoun Newsprint, Bowater), AMT, 7.40%
due 12/01/2022 5,349
Texas--9.5% AAA Aaa 7,900 Austin, Texas Utility Systems, Revenue Refunding Bonds,
5.70% due 5/15/2017 (g)** 2,199
Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds:
BBB Baa1 4,200 (Champion International Corporation), AMT, 7.375% due
10/01/2025 4,478
AAA Aaa 1,600 Refunding (Houston Light and Power Company),
Series A, 6.375% due 4/01/2012 (c) 1,680
A- A 4,000 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Memorial Hospital
Systems Project), Series A, 6.625% due 6/01/2024 4,072
BBB NR* 1,600 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital), 7.50% due 6/01/2016 1,687
</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 BBB Baa $ 3,885 Tarrant County, Texas, Health Facilities Development
(concluded) Corporation, Hospital Revenue Refunding and Improvement
Bonds (Fort Worth Osteopathic), 7% due 5/15/2028 $ 3,913
AAA Aaa 20,000 Texas Municipal Power Agency, Revenue Refunding Bonds, 5.81%
due 9/01/2017 (c)** 5,470
AA Aa 8,200 Texas State Refunding (Veterans Land), UT, 7.40% due 12/01/2020 8,944
AAA Aaa 7,500 Texas State Turnpike Authority, Dallas North Thruway
Revenue Bonds (President George Bush Turnpike),
5.25% due 1/01/2023 (g) 6,811
A1+ P1 4,000 West Side Calhoun County, Texas, Development Corporation,
PCR (Sohio Chemical Company Project), UPDATES,
4.20% due 12/01/2015 (a) 4,000
BBB Baa2 1,000 West Side Calhoun County, Texas, Navigation District,
Solid Waste Disposal Revenue Bonds (Union Carbide
Chemicals Project), AMT, 6.40% due 5/01/2023 980
<PAGE>
Utah--3.4% AA Aa 10,000 Salt Lake City, Utah, Hospital Revenue Refunding Bonds
(IHC Hospitals Incorporated), 6.25% due 2/15/2023 10,031
NR* P1 1,000 Salt Lake County, Utah, PCR, Refunding (Service Station
Holdings Project), VRDN, 4.10% due 2/01/2008 (a) 1,000
AAA Aaa 5,000 Utah State Board of Regents, Student Loan Revenue
Bonds, AMT, Series H, 6.70% due 11/01/2015 (b) 4,995
Virginia--5.7% AA Aa 10,000 Chesapeake, Virginia, Water and Sewer, Series A, UT,
5% due 12/01/2025 8,760
Virginia State HDA, Commonwealth Mortgage:
AA+ Aa1 7,640 Series B, Sub-Series B-3, 6.35% due 1/01/2017 7,752
AA+ Aa1 5,085 Series C, Sub-Series C-9, 6.45% due 1/01/2015 5,161
AA+ Aa1 5,025 Series J, Sub-Series J-2, 6.65% due 7/01/2014 5,160
Washington AA Aaa 6,250 Lewis County, Washington, Public Utility District No. 1
- --3.7% Revenue Bonds (Cowlitz Falls Hydroelectric Project),
7% due 10/01/2001 (e) 7,028
AA Aa 10,000 Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project No. 1), Series A,
6.50% due 7/01/2015 10,240
Wisconsin NR* A 5,300 Wisconsin State Health and Educational Facilities Authority
- --1.2% Revenue Bonds (Mercy Hospital of Janesville Inc.),
6.50% due 8/15/2011 5,374
Puerto AAA Aaa 5,250 Puerto Rico Commonwealth, UT, 7% due 7/01/2010 (b) 6,071
Rico--1.3%
Total Investments (Cost--$463,871)--101.4% 473,366
Liabilities in Excess of Other Assets--(1.4%) (6,547)
--------
Net Assets--100.0% $466,819
========
<FN>
(a)The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at April 30, 1996.
(b)AMBAC Insured.
(c)MBIA Insured.
(d)FNMA Collateralized.
(e)Prerefunded.
(f)Escrowed to Maturity.
(g)FGIC Insured.
(h)FSA Insured.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
++Highest short-term ratings by Moody's Investors Service, Inc.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost-- $463,870,549) (Note 1a) $473,366,140
Cash 20,188
Receivables:
Interest $ 9,024,517
Securities sold 600,000 9,624,517
------------
Deferred organization expenses (Note 1e) 10,374
Prepaid expenses and other assets 8,636
------------
Total assets 483,029,855
------------
Liabilities: Payables:
Securities purchased 15,463,444
Dividends to shareholders (Note 1f) 461,632
Investment adviser (Note 2) 204,929 16,130,005
------------
Accrued expenses and other liabilities 80,695
------------
Total liabilities 16,210,700
------------
Net Assets: Net assets $466,819,155
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (6,000 shares
of AMPS* issued and outstanding at $25,000 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 307,412,636
Undistributed investment income--net 3,254,336
Accumulated realized capital losses on investments--net (Note 5) (5,515,936)
Accumulated distributions in excess of realized capital
gains--net (34,561)
Unrealized appreciation on investments--net 9,495,591
------------
Total--Equivalent to $14.35 net asset value per share of
Common Stock (market price--$13.50) 316,819,155
------------
Total capital $466,819,155
============
<FN>
*Auction Market Preferred Stock.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months
Ended April 30, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 14,316,229
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,186,014
Commission fees (Note 4) 189,141
Transfer agent fees 42,509
Professional fees 40,152
Accounting services (Note 2) 35,504
Printing and shareholder reports 28,128
Listing fees 13,429
Custodian fees 14,495
Directors' fees and expenses 11,571
Pricing fees 7,758
Amortization of organization expenses (Note 1e) 2,820
Other 13,262
------------
Total expenses 1,584,783
------------
Investment income--net 12,731,446
------------
Realized & Realized gain on investments--net 2,170,728
Unrealized Gain Change in unrealized appreciation on investments--net (8,099,519)
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 6,802,655
- --Net (Notes 1b, ============
1d & 3):
</TABLE>
<PAGE>
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 12,731,446 $ 25,652,718
Realized gain (loss) on investments--net 2,170,728 (7,685,092)
Change in unrealized appreciation/depreciation on
investments--net (8,099,519) 41,461,941
------------ ------------
Net increase in net assets resulting from operations 6,802,655 59,429,567
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (10,155,939) (19,712,391)
Shareholders Preferred Stock (2,860,580) (5,523,140)
(Note 1f): Realized gain on investments--net:
Common Stock -- (2,139,194)
Preferred Stock -- (325,188)
In excess of realized gain on investments--net:
Common Stock -- (29,999)
Preferred Stock -- (4,562)
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (13,016,519) (27,734,474)
------------ ------------
Net Assets: Total increase (decrease) in net assets (6,213,864) 31,695,093
Beginning of period 473,033,019 441,337,926
------------ ------------
End of period* $466,819,155 $473,033,019
============ ============
<FN>
*Undistributed investment income--net $ 3,254,336 $ 3,539,409
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
For the For the Period
The following per share data and ratios have been derived Six Months Aug. 28,
from information provided in the financial statements. Ended For the 1992++ to
April 30, Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.64 $ 13.20 $ 16.27 $ 13.58 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .58 1.16 1.18 1.21 .15
Realized and unrealized gain (loss) on
investments--net (.28) 1.53 (2.68) 2.75 (.59)
-------- -------- -------- -------- --------
Total from investment operations .30 2.69 (1.50) 3.96 (.44)
-------- -------- -------- -------- --------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.46) (.89) (.96) (1.07) --
Realized gain on investments--net -- (.10) (.37) -- --
In excess of realized gain on
investments--net -- .00+++++ -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders (.46) (.99) (1.33) (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 (.13) (.25) (.16) (.20) (.01)
Realized gain on investments--net -- (.01) (.08) -- --
In excess of realized gain on
investments--net -- .00+++++ -- -- --
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.13)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.13) (.26) (.24) (.20) (.14)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.35 $ 14.64 $ 13.20 $ 16.27 $ 13.58
======== ======== ======== ======== ========
Market price per share, end of period $ 13.50 $ 12.625 $ 11.125 $ 15.50 $ 14.25
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on market price per share 10.66%+++ 23.09% (20.98%) 16.82% (5.00%)+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 1.44%+++ 20.30% (10.68%) 28.67% (4.23%)+++
======== ======== ======== ======== ========
Ratios Expenses, net of reimbursement .67%* .68% .69% .57% --
to Average ======== ======== ======== ======== ========
Net Assets:*** Expenses .67%* .68% .69% .61% .60%*
======== ======== ======== ======== ========
Investment income--net 5.35%* 5.63% 5.46% 5.49% 6.18%*
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) $316,819 $323,033 $291,338 $359,020 $297,414
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $150,000 $150,000 $150,000 $150,000 $150,000
======== ======== ======== ======== ========
Portfolio turnover 49.55% 79.27% 47.42% 81.12% 5.07%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,112 $ 3,154 $ 2,942 $ 3,393 $ 2,983
======== ======== ======== ======== ========
Dividends Series A--Investment income--net $ 488 $ 885 $ 564 $ 760 $ 29
Per Share ======== ======== ======== ======== ========
On Preferred Series B--Investment income--net $ 488 $ 942 $ 564 $ 811 $ 30
Stock ======== ======== ======== ======== ========
Outstanding:++++++ Series C--Investment income--net $ 454 $ 934 $ 600 $ 640 $ 24
======== ======== ======== ======== ========
<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.
++++The Fund's Preferred Stock was issued on October 19, 1992.
++++++Dividends per share have been adjusted to reflect a two-for-
one stock split that occurred on December 1, 1994.
+++Aggregate total investment return.
+++++Amount is less than $0.01 per share.
<PAGE>
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. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
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 and options thereon, 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 and assets 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, including
valuations fur-nished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* 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.
<PAGE>
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(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 transactions are
determined on the identified cost basis.
NOTES TO FINANCIAL STATEMENTS (concluded)
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
<PAGE>
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for futures transactions and post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
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, 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 six months ended April 30, 1996 were $230,384,588 and
$234,776,475, respectively.
Net realized and unrealized gains (losses) as of April 30, 1996 were
as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $(1,827,759) $ 9,495,591
Financial futures contracts 3,998,487 --
----------- -----------
Total $ 2,170,728 $ 9,495,591
=========== ===========
As of April 30, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $9,495,591, of which $14,304,151 related to
appreciated securities and $4,808,560 related to depreciated
securities. The aggregate cost of investments at April 30, 1996 for
Federal income tax purposes was $463,870,549.
<PAGE>
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, 1996, shares issued and
outstanding remained constant at 22,070,885. At April 30, 1996,
total paid-in capital amounted to $309,619,725.
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 April 30, 1996 were as
follows: Series A, 3.724%; Series B, 3.72%; and Series C, 3.748%.
As of April 30, 1996, there were 6,000 AMPS shares authorized,
issued and outstanding 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 six months ended
April 30, 1996, MLPF&S, an affiliate of FAM, earned $118,091 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a net capital loss carryforward of
approximately $2,439,000, all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains.
6. Subsequent Event:
On May 10, 1996, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.075211 per share, payable on May 30, 1996 to shareholders of
record as of May 21, 1996.
<PAGE>
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent R. Giordano, Senior Vice President
Donald C. Burke, Vice President
Robert A. DiMella, 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
NYSE Symbol
MQT
