MUNIYIELD
QUALITY
FUND II, INC.
FUND LOGO
Annual Report
October 31, 1996
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
<PAGE>
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agents
Common Stock:
The Bank of New York
101 Barclay Street
New York, NY 10286
Preferred Stock:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
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 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.
MuniYield Quality Fund II, Inc.
Box 9011
Princeton, NJ
08543-9011
MuniYield Quality Fund II, Inc.
TO OUR SHAREHOLDERS
<PAGE>
For the year ended October 31, 1996, the Common Stock of MuniYield
Quality Fund II, Inc. earned $0.916 per share income dividends,
which included earned and unpaid dividends of $0.077. This
represents a net annualized yield of 6.16% based on a month-end per
share net asset value of $14.86. Over the same period, the total
investment return on the Fund's Common Stock was +8.68%, based on a
change in per share net asset value from $14.64 to $14.86, and
assuming reinvestment of $0.915 per share income dividends.
For the six-month period ended October 31, 1996, the total
investment return on the Fund's Common Stock was +7.14%, based on a
change in per share net asset value from $14.35 to $14.86, and
assuming reinvestment of $0.455 per share income dividends.
For the six-month period ended October 31, 1996, the Fund's Auction
Market Preferred Stock had an average yield as follows: Series A,
3.24%; Series B, 3.26%; and Series C, 3.61%.
The Municipal Market Environment
Municipal bond yields generally moved lower during the six-month
period ended October 31, 1996. Long-term tax-exempt revenue bond
yields, as measured by the Bond Buyer Revenue Bond Index, declined
approximately 35 basis points (0.35%) to end the October period at
approximately 5.94%. The municipal bond market exhibited
considerable weekly yield volatility over the last six months with
bond yields vacillating as much as 20 basis points. This ongoing
volatility was in response to fluctuating evidence regarding the
degree to which recent economic growth will result in any
significant increase in inflationary pressures. Much of the evidence
supporting stronger growth centered around the strong employment
growth seen in April and June and bond yields rose in response.
Other, more recent, economic indicators suggested that economic
growth will not be excessive and inflationary pressures will remain
well-contained. This continued benign inflationary environment
supported lower tax-exempt bond yields in recent months. US Treasury
bond yields exhibited similar, albeit greater, volatility during the
period falling over 20 basis points to end the period at 6.64%. Over
the past six months, tax-exempt bond yields registered significantly
greater declines than shown by the US Treasury bond market. This
relative outperformance by the municipal bond market was largely the
result of the strong technical support the tax-exempt market enjoyed
throughout most of 1996. Perhaps most significantly, the pace of new
bond issuance recently slowed.
Over the last year, approximately $180 billion in long-term
municipal securities was issued, an increase of over 25% compared to
the same period a year ago. Much of this increase was the result of
issuers seeking to refinance their existing higher-couponed debt as
interest rates declined in 1995 and early 1996. As interest rates
rose, these financings became increasingly economically impractical,
and issuance declined. Over the last six months, approximately $90
billion in long-term, tax-exempt securities was underwritten, an
increase of 5% versus the comparable period a year earlier. Only $41
billion in tax-exempt securities was issued in the last three
months, a 3% decline in issuance versus the October 31, 1995
quarter.
<PAGE>
At the same time, investor demand remained consistently strong. With
nominal new-issue yields generally above 6%, retail investor
interest was steady. Additionally, investors received over $50
billion this June and July in assets derived from coupon income,
bond maturities, and proceeds from early redemptions. Annual new
bond issuance declined in recent years and is expected to remain
below levels seen in the early 1990s. Consequently, as the higher-
couponed bonds issued in the early-to-mid 1980s were redeemed at
their first optional call dates, the total number of outstanding tax-
exempt bonds has declined. This combination of a declining net
supply and significant amounts of assets available for investment
helped maintain investor demand in recent months.
It is unlikely that the municipal bond market will continue to
significantly outperform US Treasury securities in the near future.
The tax-exempt bond market's recent performance led to the yield
ratio between long-term taxable and tax-exempt securities falling
from in excess of 90% to approximately 85%. While historically still
very attractive, some institutional investors, particularly short-
term traders, began to view the tax-exempt bond market's recent
outperformance as an opportunity to sell a relatively expensive
asset. However, to the long-term investor such a sale would
represent the loss of an attractively priced asset which may not be
easily replaced given the relative scarcity of municipal bonds under
present supply conditions.
Looking ahead, no clear consensus for the direction of interest
rates currently exists. Perhaps, the primary focus going forward
will be the extent to which the increase in interest rates seen thus
far in 1996 will negatively impact future economic growth. Should
growth slow in the interest rate-sensitive sectors of the economy,
like housing, auto, and consumer spending, as many economists assert
is likely, then bond yields are likely to decline. Under such a
scenario, the municipal bond market's performance is likely to
closely mirror that of the US Treasury bond market.
Portfolio Strategy
Our investment strategy for MuniYield Quality Fund II, Inc. shifted
dramatically during the past 12 months. We began the year ended
October 31, 1996 optimistic about the interest rate outlook because
of slow economic growth and low inflation. This strategy proved
successful as the bond market rallied into January 1996.
Unfortunately, our portfolio strategy remained constructive during
February and early March while interest rates began to rise. We
reversed course and became extremely defensive, seeking to protect
the Fund from the significant backup in interest rates that brought
the 30-year Treasury bond to 6.90% by the end of March. Since that
time we successfully utilized the trading range that confined the
bond market, enabling the Fund to realize an attractive total
return.
<PAGE>
Currently, we are cautious on the interest rate outlook. There is a
considerable amount of good news priced into the market, and any
surprises, such as a stronger economy or larger employment
increases, could cause interest rates to increase substantially. We
will focus on purchasing higher-coupon bonds that are less sensitive
to interest rate volatility in an effort to enhance tax-exempt
income to the Fund's Common Stock shareholders while seeking to
protect its net asset value. The interest rate on the Fund's Auction
Market Preferred Stock, which averaged approximately 3.50% over the
past year, continued to benefit the Fund's Common Stock
shareholders. However, should the spread between short-term and long-
term interest rates narrow, the benefits of leverage will diminish
and the yield on the Fund's Common Stock will be reduced. (For a
complete explanation of the benefits and risks of leveraging, see
page 4 of this report to shareholders.)
In Conclusion
We appreciate your ongoing interest in MuniYield Quality Fund II,
Inc., and we look forward to serving your investment needs in the
months and years to come.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Vincent R. Giordano)
Vincent R. Giordano
Senior Vice President
<PAGE>
(Robert A. DiMella)
Robert A. DiMella
Vice President and Portfolio Manager
November 26, 1996
PROXY RESULTS
<TABLE>
During the six-month period ended October 31, 1996, MuniYield
Quality Fund II, Inc. Common Stock shareholders voted on the
following proposals. The proposals were approved at a special
shareholders' meeting on September 19, 1996. The description of each
proposal and number of shares voted are as follows:
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1.To elect the Fund's Board of Directors: Herbert I. London 21,059,780 695,278
Robert R. Martin 21,057,795 697,263
Andre F. Perold 21,052,441 702,617
Arthur Zeikel 21,046,013 709,045
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent auditors for the current fiscal year. 21,024,658 174,433 575,967
<CAPTION>
During the six-month period ended October 31, 1996, MuniYield
Quality Fund II, Inc. Preferred Stock shareholders (Series A, B and
C) voted on the following proposals. The proposals were approved at
a special shareholders' meeting on September 19, 1996. The
description of each proposal and number of shares voted are as
follows:
<PAGE>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1.To elect the Fund's Board of Directors:
James H. Bodurtha, Herbert I. London,
Robert R. Martin, Joseph L. May,
Andre F. Perold and Arthur Zeikel
as follows: Series A 1,103 17
Series B 780 113
Series C 1,404 140
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <S> <C> <C> <C>
2.To ratify the selection of Deloitte &
Touche LLP as the Fund's independent
auditors for the current fiscal year
as follows: Series A 1,112 8 0
Series B 799 0 94
Series C 1,330 74 140
</TABLE>
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.
<PAGE>
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 pickup 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.
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 BondsHDAHousing 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
UT Unlimited Tax
VRDN Variable Rate Demand Notes
<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--4.7% NR* Aaa $ 7,390 Alabama HFA, S/F Mortgage Revenue Bonds (Home Mortgage Bond
Program), Series B-1, 6.65% due 10/01/2025 $ 7,733
AA Aa 3,500 Birmingham, Alabama, Special Care Facilities Financing
Authority, Revenue Refunding Bonds (Daughters of Charity--
Saint Vincents), 5% due 11/01/2025 3,109
BBB Baa1 1,475 Courtland, Alabama, IDB, IDR, Refunding (Champion
International Corporation), Series A, 7.20% due 12/01/2013 1,592
BBB Baa1 10,000 Courtland, Alabama, IDB, Solid Waste Disposal Revenue Bonds
(Champion International Corporation Project), AMT, Series A,
6.50% due 9/01/2025 10,054
Alaska--0.6% A- A 2,580 Alaska Industrial Development and Export Authority, Revolving
Fund, AMT, Series A, 6.375% due 4/01/2008 2,753
California-- A A1 3,000 Los Angeles, California, Wastewater System Revenue Refunding
2.9% Bonds, Series C, 7.10% due 6/01/2018 3,223
AAA Aaa 10,000 University of California Revenue Bonds (Multiple Purpose
Projects), Series D, 6.375% due 9/01/2019 (c) 10,655
Colorado-- NR* Aaa 1,350 Colorado Health Facilities Authority, Hospital Revenue Bonds
5.1% (P/SL Healthcare System Project), Series A, 6.875% due
2/15/2003(e) 1,528
Denver, Colorado, City and County Airport Revenue Bonds:
BBB Baa 4,020 AMT, Series B, 7.50% due 11/15/2025 4,198
BBB Baa 9,500 AMT, Series C, 6.75% due 11/15/2022 9,845
AAA NR* 850 Series A, 7.25% due 11/15/2002 (e) 982
BBB Baa 2,150 Series A, 7.25% due 11/15/2002 (e) 2,479
AAA Aaa 5,000 El Paso County, Colorado, School District No. 49 (Falcon), UT,
6.50% due 12/01/2015 (c) 5,544
Connecticut-- Connecticut State Learning Regional Educational Service Center
0.7% Revenue Bonds (Office/Education Center Facilities):
NR* NR* 1,935 7.50% due 2/01/2005 2,070
NR* NR* 1,100 7.75% due 2/01/2015 1,211
District of A1+ VMIG1++ 500 District of Columbia, General Fund Recovery Bonds, VRDN, UT,
Columbia-- Series B-2, 3.65% due 6/01/2003 (a) 500
1.1% A+ A3 4,460 District of Columbia Revenue Bonds (Howard University),
Series A, 7.25% due 10/01/2020 4,813
</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>
Florida--5.1% AA Aa $ 8,750 Florida State Board of Education, Capital Outlay, Refunding
(Public Education), Series A, 6.40% due 6/01/2019 $ 9,301
A1+ Aa1 12,670 Jacksonville, Florida, Electrical Authority, Revenue Refunding
Bonds (Saint John's River Park System), Issue 2, Series 11,
5.375% due 10/01/2015 12,368
NR* Baa 2,500 Palm Bay, Florida, Lease Revenue Refunding Bonds (Florida
Education and Research Foundation Project), Series A, 7% due
9/01/2024 2,712
Georgia--0.6% AA+ Aa 3,000 Georgia State, Housing and Finance Authority, S/F Mortgage
Revenue Bonds, AMT, Sub-Series A-2, 6.55% due 12/01/2027 3,065
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 3,372
NR* Aa 2,005 Sub-Series 1, 6.80% due 10/01/2006 2,122
Illinois--2.1% A+ A1 3,645 Illinois Educational Facilities Authority, Revenue Refunding
Bonds (Loyola University--Chicago), Series A, 7.125%
due 7/01/2021 3,969
NR* Aaa 6,000 Illinois Student Assistance Commission, Student Loan Revenue
Bonds, AMT, Senior Series BB, 6.75% due 3/01/2015 6,274
Indiana--4.9% A NR* 2,675 Indiana Bond Bank Revenue Bonds (State Revolving Fund
Program), Series A, 6.75% due 2/01/2017 2,953
NR* A 2,200 Indiana Health Facility Financing Authority, Hospital Revenue
Refunding Bonds (Methodist Hospitals Inc.), 6.75% due 9/15/2009 2,361
Indianapolis, Indiana, Local Public Improvement Bond Bank:
AAA Aaa 8,000 Refunding, Series A, 5% due 1/01/2017 (h) 7,525
A+ NR* 4,800 Refunding, Series D, 6.75% due 2/01/2020 5,182
NR* Aaa 5,000 Series C, 6.70% due 1/01/2002 (e) 5,555
Kansas--0.4% A1 P1 2,000 Butler County, Kansas, Solid Waste Disposal and Cogeneration
Revenue Bonds (Texaco Refining and Marketing), VRDN,
AMT, Series B, 3.70% due 8/01/2024 (a) 2,000
Kentucky-- NR* NR* 3,000 Perry County, Kentucky, Solid Waste Disposal Revenue Bonds
0.7% (TJ International Project), AMT, 7% due 6/01/2024 3,100
Louisiana-- NR* Baa2 5,000 Lake Charles, Louisiana, Harbor and Terminal District, Port
1.2% Facilities Revenue Refunding Bonds (Trunkline LNG Company
Project), 7.75% due 8/15/2022 5,640
Massachusetts AAA Aaa 5,000 Massachusetts State, HFA (Residential Development), Series A,
- --4.1% 6.875% due 11/15/2011 (d) 5,321
Massachusetts State Health and Educational Facilities
Authority Revenue Refunding Bonds:
AA Aa 2,500 (Daughters of Charity), Series D, 6.10% due 7/01/2014 2,549
A- NR* 3,500 (Melrose-Wakefield Hospital), Series B, 6.375% due 7/01/2016 3,584
NR* B 2,640 (New England Memorial Hospital), Series B, 6% due 7/01/2008 2,193
NR* B 4,590 (New England Memorial Hospital), Series B, 6.125% due
7/01/2013 3,700
BBB+ Baa 2,000 Massachusetts State Municipal Wholesale Electric Company,
Power Supply System Revenue Refunding Bonds, Series A,
6.75% due 7/01/2011 2,134
<PAGE>
Mississippi A A2 6,000 Lowndes County, Mississippi, Solid Waste Disposal, PCR,
- --1.4% Refunding (Weyerhaeuser Company Project), Series A 6.80%
due 4/01/2022 6,814
New Jersey-- AAA Aaa 5,000 Cape May County, New Jersey, Industrial Pollution Control
1.2% Financing Authority, Revenue Refunding Bonds (Atlantic City
Electric Company Project), Series B, 7% due 11/01/2029 (c) 5,738
</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 Mexico-- A A2 $ 5,000 Lordsburg, New Mexico, PCR, Refunding (Phelps Dodge
1.5% Corporation Project), 6.50% due 4/01/2013 $ 5,259
AAA Aaa 1,825 Los Alamos County, New Mexico, Utility System Revenue
Refunding Bonds, Series A, 6% due 7/01/2015 (h) 1,876
New York-- New York City, New York, GO, UT:
12.2% BBB+ Baa1 10,000 Series D, 6% due 2/15/2020 9,730
BBB+ Baa1 5,150 Series H, 7% due 2/01/2021 5,502
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 2,270
NR* NR* 3,250 7.25% due 5/01/2004 3,722
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 4,500 (City University), Series F, 5% due 7/01/2020 (g) 4,077
BBB+ Baa1 4,500 (Mental Health Services Facilities Improvement), Series B,
5.375% due 2/15/2026 4,102
BBB+ Baa1 10,200 (State University Educational Facilities), 5.50% due 5/15/2026 9,498
A Aa 7,500 New York State Environmental Facilities Corporation, PCR
(State Water Revolving Fund), Series E, 6.50% due 6/15/2014 8,043
A A 5,000 New York State Local Government Assistance Corporation,
Series A, 6.875% due 4/01/2019 5,531
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 5,588
North Carolina A A2 14,750 Martin County, North Carolina, Industrial Facilities and
- --3.3% Pollution Control Financing Authority, Solid Waste Disposal
Revenue Bonds (Weyerhaeuser Company), AMT, 6.80% due 5/01/2024 15,946
<PAGE>
Ohio--1.5% A1 NR* 400 Cincinnati and Hamilton County, Ohio, Port Authority, IDR
(Multi-Color Corporation Project), VRDN, 3.55% 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 6,801
Oklahoma-- AA- A1 5,000 Muskogee, Oklahoma, Industrial Trust, PCR (Oklahoma
1.1% Gas & Electric Company Project), Series A, 7% due 3/01/2017 5,133
Oregon--5.6% AAA Aaa 500 Chemeketa, Oregon, Community College District, UT, 5.95% due
6/01/2016 (g) 514
AAA Aaa 2,000 Eugene, Oregon, Public Safety Facilities, UT, 5.70% due
6/01/2016 (g) 2,009
AAA Aaa 2,000 Marion County, Oregon, School District No. 103C (Woodburn),
Series B, 5.35% due 11/01/2008 (g)** 1,075
Oregon Health Sciences, University Insured Revenue Bonds,
Series A (c):
AAA Aaa 30,000 5.75% due 7/01/2021** 7,410
AAA Aaa 7,000 5.25% due 7/01/2028 6,668
Oregon State Department of Administrative Services, COP (c):
AAA Aaa 2,500 Series A, 5.375% due 11/01/2016 2,453
AAA Aaa 1,635 Series B, 5.50% due 11/01/2011 1,639
A+ NR* 2,500 Oregon State Health, Housing, Educational and Cultural
Facilities Authority Refunding Bonds (Reed College Project),
Series A, 5.375% due 7/01/2025 2,379
AAA Aaa 3,880 Portland, Oregon, Arena Gas Tax Revenue Bonds, 6.25% due
6/01/2018 (h)** 1,063
AAA Aaa 1,740 Washington County, Oregon, School District No. 48J (Beaverton),
UT, Series A, 5.20% due 12/01/2009 (c) 1,727
</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>
Pennsylvania-- AAA Aaa $ 5,000 Pennsylvania HFA, Refunding (Rental Housing), 6.50% due
2.2% 7/01/2023 (d) $ 5,164
AA+ Aa 5,000 Pennsylvania HFA, S/F Mortgage Revenue Bonds, Series 34A,
6.85% due 4/01/2016 5,291
Rhode Island-- Rhode Island Depositors Economic Protection Corporation,
0.6% Special Obligation Revenue Refunding Bonds, Series A:
A- Baa1 1,120 5.75% due 8/01/2021 1,087
A- Baa1 1,880 5.75% due 8/01/2021 (f) 1,910
<PAGE>
South Carolina A+ A1 5,765 Berkeley County, South Carolina, Pollution Control Facilities
- --5.7% Revenue Bonds (South Carolina Electric and Gas Company),
6.50% due 10/01/2014 6,196
A A1 4,150 Fairfield County, South Carolina, PCR (South Carolina Electric
and Gas Company), 6.50% due 9/01/2014 4,458
AA- Aa3 1,000 Florence County, South Carolina, Pollution Control Facilities
Revenue Bonds (E. I. du Pont de Nemours & Co.), Series A, 6.35%
due 7/01/2022 1,054
A- A1 7,000 Richland County, South Carolina, PCR, Refunding (Union Camp
Corporation Project), Series C, 6.55% due 11/01/2020 7,433
BBB Baa1 5,000 South Carolina Jobs, EDA, Economic Development Revenue
Bonds (Saint Francis Hospital--Franciscan Sisters), 7% due
7/01/2015 5,260
NR* NR* 2,500 Spartanburg County, South Carolina, Solid Waste Disposal
Facilities Revenue Bonds (BMW Project), AMT, 7.55% due
11/01/2024 2,720
South Dakota-- AAA Aa1 9,975 South Dakota HDA, Homeownership Mortgage, Series B,
2.2% 7.10% due 5/01/2017 10,520
Tennessee-- AA- Aa3 15,000 Humphreys County, Tennessee, IDB, Solid Waste Disposal
4.5% Revenue Bonds (E. I. du Pont de Nemours & Co. Project),
AMT, 6.70% due 5/01/2024 16,074
BBB Baa1 5,000 McMinn County, Tennessee, IDB, Solid Waste Recycling Facilities
Revenue Bonds (Calhoun Newsprint--Bowater), AMT, 7.40% due
12/01/2022 5,389
Texas--9.7% BBB Baa2 10,750 Alliance Airport Authority, Incorporated, Texas, Special
Facilities Revenue Bonds (Federal Express Corporation Project),
AMT, 6.375% due 4/01/2021 10,767
NR* Aaa 1,705 Galena Park, Texas, Independent School District, Refunding
(School Building), UT, 6.09% due 8/15/2021** 404
Gulf Coast Waste Disposal Authority, Texas, Revenue Bonds:
BBB Baa1 4,200 (Champion International Corporation), AMT, 7.375% due
10/01/2025 4,508
AAA Aaa 1,600 Refunding (Houston Light and Power Company), Series A,
6.375% due 4/01/2012 (c) 1,705
Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds:
AAA Aaa 8,300 (Hermann Hospital Project), 6.375% due 10/01/2024 (c) 8,765
A- A 5,100 (Memorial Hospital Systems Project), Series A, 6.625% due
6/01/2024 5,345
BBB NR* 1,600 Midland County, Texas, Hospital District Revenue Bonds
(Midland Memorial Hospital), 7.50% due 6/01/2016 1,706
BBB Baa 3,885 Tarrant County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding and Improvement
Bonds (Fort Worth Osteopahtic), 7% due 5/15/2028 4,021
AA Aa 8,200 Texas State, Refunding (Veterans Land), UT, 7.40% due 12/01/2020 8,979
</TABLE>
<PAGE>
<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--3.2% AA Aa $ 7,700 Salt Lake City, Utah, Hospital Revenue Refunding Bonds (IHC
Hospitals Incorporated), 6.25% due 2/15/2023 $ 7,799
NR* P1 2,000 Salt Lake County, Utah, PCR, Refunding (Service Station
Holdings Project), VRDN, 3.60% due 2/01/2008 (a) 2,000
AAA Aaa 5,000 Utah State Board of Regents, Student Loan Revenue Bonds, AMT,
Series H, 6.70% due 11/01/2015 (b) 5,252
Virginia-- AA+ Aa1 5,025 Virginia State HDA, Commonwealth Mortgage, Series J, Sub-Series
1.1% J-2, 6.65% due 7/01/2014 5,263
Washington-- AA- Aaa 6,250 Lewis County, Washington, Public Utility District No. 1 Revenue
3.7% Bonds (Cowlitz Falls Hydroelectric Project), 7% due
10/01/2001 (e) 7,041
AA- Aa1 10,000 Washington State Public Power Supply System, Revenue
Refunding Bonds (Nuclear Project No. 1), Series A, 6.50% due
7/01/2015 10,371
Wisconsin--1.1% NR* A 5,300 Wisconsin State Health and Educational Facilities Authority
Revenue Bonds (Mercy Hospital of Janesville Inc.), 6.50% due
8/15/2011 5,452
Puerto Rico-- AAA Aaa 5,250 Puerto Rico Commonwealth, UT, GO, 7% due 7/01/2010 (b) 6,154
1.3%
Total Investments (Cost--$450,304)--98.4% 470,324
Other Assets Less Liabilities--1.6% 7,557
--------
Net Assets--100.0% $477,881
========
<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 October 31, 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.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$450,304,426) (Note 1a) $470,323,632
Cash 87,112
Interest receivable 8,314,972
Deferred organization expenses (Note 1e) 4,716
Prepaid expenses and other assets 56,737
------------
Total assets 478,787,169
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) $ 555,466
Investment adviser (Note 2) 201,804 757,270
------------
Accrued expenses and other liabilities 148,608
------------
Total liabilities 905,878
------------
Net Assets: Net assets $477,881,291
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 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 3,399,921
Accumulated realized capital losses on investments--net (5,157,561)
Unrealized appreciation on investments--net 20,019,206
------------
Total--Equivalent to $14.86 net asset value per share of
Common Stock (market price--$13.50) 327,881,291
------------
Total capital $477,881,291
============
<PAGE>
<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, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 28,636,728
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 2,368,438
Commission fees (Note 4) 372,442
Transfer agent fees 85,881
Professional fees 80,911
Accounting services (Note 2) 76,769
Printing and shareholder reports 57,451
Custodian fees 28,934
Listing fees 26,660
Directors' fees and expenses 23,220
Pricing fees 16,105
Amortization of organization expenses (Note 1e) 5,658
Other 28,544
------------
Total expenses 3,171,013
------------
Investment income--net 25,465,715
------------
Realized & Realized gain on investments--net 2,563,664
Unrealized Gain on Change in unrealized appreciation on investments--net 2,424,096
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 30,453,475
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year
Ended October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 25,465,715 $ 25,652,718
Realized gain (loss) on investments--net 2,563,664 (7,685,092)
Change in unrealized appreciation on investments--net 2,424,096 41,461,941
------------ ------------
Net increase in net assets resulting from operations 30,453,475 59,429,567
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (20,195,323) (19,712,391)
Shareholders Preferred Stock (5,409,880) (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 (25,605,203) (27,734,474)
------------ ------------
Net Assets: Total increase in net assets 4,848,272 31,695,093
Beginning of year 473,033,019 441,337,926
------------ ------------
End of year* $477,881,291 $473,033,019
============ ============
<FN>
*Undistributed investment income--net $ 3,399,921 $ 3,539,409
============ ============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
For the Period
The following per share data and ratios have been derived Aug. 28,
from information provided in the financial statements. 1992++ to
For the 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 1.16 1.16 1.18 1.21 .15
Realized and unrealized gain (loss) on
investments--net .23 1.53 (2.68) 2.75 (.59)
-------- -------- -------- -------- --------
Total from investment operations 1.39 2.69 (1.50) 3.96 (.44)
-------- -------- -------- -------- --------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.92) (.89) (.96) (1.07) --
Realized gain on investments--net -- (.10) (.37) -- --
In excess of realized gain on investments
--net -- --+++++ -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders (.92) (.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 (.25) (.25) (.16) (.20) (.01)
Realized gain on investments--net -- (.01) (.08) -- --
In excess of realized gain on
investments--net -- --+++++ -- -- --
Capital charge resulting from issuance
of Preferred Stock -- -- -- -- (.13)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.25) (.26) (.24) (.20) (.14)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.86 $ 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 14.50% 23.09% (20.99%) 16.82% (5.00%)+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 8.68% 20.30% (10.68%) 28.67% (4.23%)+++
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .67% .68% .69% .57% --
Net Assets:*** ======== ======== ======== ======== ========
Expenses .67% .68% .69% .61% .60%*
======== ======== ======== ======== ========
Investment income--net 5.36% 5.63% 5.46% 5.49% 6.18%*
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) $327,881 $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 95.49% 79.27% 47.42% 81.12% 5.07%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,186 $ 3,154 $ 2,942 $ 3,393 $ 2,983
======== ======== ======== ======== ========
Dividends Per Share Series A--Investment income--net $ 897 $ 885 $ 564 $ 760 $ 29
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:++++++ Series B--Investment income--net $ 899 $ 942 $ 564 $ 811 $ 30
======== ======== ======== ======== ========
Series C--Investment income--net $ 910 $ 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.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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 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 furnished 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.
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 primarily due to differing tax treatments
for futures transactions.
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.
<PAGE>
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 year ended October 31, 1996 were $433,645,649 and
$438,776,823, respectively.
Net realized and unrealized gains (losses) as of October 31, 1996
were as follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $(1,602,367) $20,019,206
Financial futures contracts 4,166,031 --
----------- -----------
Total $ 2,563,664 $20,019,206
=========== ===========
As of October 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $20,019,206, of which $21,305,283
related to appreciated securities and $1,286,077 related to
depreciated securities. The aggregate cost of investments at October
31, 1996 for Federal income tax purposes was $450,304,426.
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 year ended October 31, 1996, shares issued and outstanding
remained constant at 22,070,885. At October 31, 1996, total paid-in
capital amounted to $309,619,725.
<PAGE>
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, 1996 were as
follows: Series A, 3.45%; Series B, 3.38%; and Series C, 3.65%.
As of October 31, 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 year ended October
31, 1996, MLPF&S, an affiliate of FAM, earned $254,206 as
commissions.
5. Subsequent Event:
On November 8, 1996, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.077454 per share, payable on November 27, 1996 to shareholders
of record as of November 18, 1996.
<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, 1996, the related statements
of operations 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 each of the years in the four-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
management. 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, 1996 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
<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, 1996, 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.
<PAGE>
Deloitte & Touche LLP
Princeton, New Jersey
December 3, 1996
</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, 1996 qualify as tax-exempt interest dividends for
Federal income tax purposes.
Additionally, there were no capital gains distributed by the Fund
during the year.
Please retain this information for your records.
